Oracle Financial Services Software

Published: Nov 10, 2020
Price: ₹ 3050
52-week range: ₹ 2932 – ₹ 4932

Current Price: ₹ 5100 (Oct 19, 2021)

Oracle Corporation acquired 75% of i-flex from Citigroup in 2005, and renamed it to Oracle Financial Services Software (OFSS). The company’s main Core Banking System (CBS) product is Oracle FLEXCUBE, which over the last two decades, has evolved to become one of the most-adopted COTS* CBS products in the world.

*COTS – Commercial Of The Self

CBS is a back-end system that processes daily banking transactions and posts updates to accounts and other financial records. CBSs typically include deposit, loan and credit processing capabilities, with interfaces to general ledger systems and reporting tools.

OFSS is a leader in the Gartner Magic Quadrant for Global Core Retail Banking. Gartner estimates that FLEXCUBE has more than 800 installations worldwide. FLEXCUBE’s customer base is mainly banks in the midsize segment, including a few global banks. The majority of FLEXCUBE installations are in the Asia/Pacific and Africa regions.

Strengths:
– FLEXCUBE had more than a hundred new installations from 2018 through 2019.
– FLEXCUBE has the highest number of business services (2000) among vendors, which provides great flexibility to meet local requirements.
– FLEXCUBE has exposed the highest number of microservices (128).

Cautions:
– FLEXCUBE has the lowest score among vendors for overall customer experience.
– FLEXCUBE runs solely on the Oracle database.
– FLEXCUBE’s maintenance fees are among the most expensive, compared to other vendors.

Competitors:
– Finacle (Infosys/EdgeVerve)
– BaNCS (TCS)
– Temenos Transact (Temenos)

Gartner Magic Quadrant – Jul 2020:

Investors:
– Oracle (promoter) holds 73% of the company
– MFs hold 4.3% of the company
– FPIs hold 12.4% of the company

*Super investor Vijay Kedia added OFSS to his portfolio

10-Year Data:
The cash flow and return on capital employed (ROCE) have consistently increased in the last 10 years.

Free Cash Flow:

Valuation:
At the current price of ₹3050 , the earnings yield is 8.9% based on pre-tax earnings to market cap, and the dividend yield is 5.8%. Historically, OFSS traded above P/E of 20x, and the current P/E is 16x.

Source: Gartner/Oracle

References:
Oracle FLEXCUBE Core Banking

Gartner Magic Quadrant for Global Retail Core Banking

Disclaimer:
For educational purposes only.