Oracle Financial Services

Stock Opportunities Special Situations
1

This seems to be an interesting special situation…

On 12 Sep 14, OFSS has declared an interim dividend of Rs. 485 which at today’s closing price of Rs. 4004 works out to be 12.11% yield.

Material turn on of events are as follows…

08 Sep 2014

Oracle Financial Services Software Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on September 12, 2014, inter alia, to consider declaration of Interim Dividend to the equity shareholders of the Company.

The previous day closing price is 3588.The closing price is 3617.

12 Sep 2014

Oracle Financial Services Software Ltd has informed BSE that the Board of Directors of the Company at its meeting held on September 12, 2014, inter alia, have declared an interim dividend of Rs. 485/- per equity share of Rs. 5/- each of the Company.

The previous day closing price is 3693.The closing price is 3935.

15 Sep 2014

Manmath Kulkarni has submitted the disclosures under Reg.13(4), 13(4A) of SEBI (Prohibition of Insider Trading) Regulations, 1992

Sells part of his holdings

16 Sep 2014

Kishore Kapoor has submitted the disclosures under Reg.13(4), 13(4A) of SEBI (Prohibition of Insider Trading) Regulations, 1992

Sells part of his holdings

18 Sep 2014

Oracle Financial Services Software Ltd has informed BSE that the ESOP Allotment Committee at its meeting held on September 18, 2014 has allotted 88,000 equity shares of face value of Rs. 5/- of the Company to Mr. Chaitanya Kamat, Managing Director & CEO of the Company, upon exercise of stock options under prevailing ESOP Schemes of the Company.

Oracle Financial Services Software Ltd has informed BSE that The ESOP Allotment Committee at its meeting held on September 18, 2014, allotted 207,916 equity shares of face value of Rs. 5/- each to the eligible employees of the Company who have exercised their stock options under the Employee Stock Option Scheme 2002, Employee Stock Option Scheme 2010 and Employee Stock Option Scheme 2011. These shares are pari passu with the existing equity shares …

From 1 Sep 14 to 11 Sep 14 the price has been range bound between 3560 to 3605. so if you consider the lowest price of 3560, at today’s closing price of 4004 the price differential is 444. The one time dividend yield at current price is 12.11%. Looking at the way market has reacted positively to heavy dividend pay out in case of MPS and Accelya Kale, It seems Market has not reacted favourably to OFSS to so far…

There could be several reasons…

  1. The fact that after 2006, this is the first time OFSS has paid any dividend and it may be one time event.
  2. The ex date and record date is still not announced. There is a CA on NSE site that the dividend will be paid on or before 29 Sep 14
  3. There is a speculation that this is the precursor to the impending delisting

What do you make out of this situation? can/shall we take advantage of this special dividend at the current price?

Views invited

Aksh

2

what if the share price falls 10 % after issue of dividend.

3

That’s not observed in case of MPS and Accelya Kale. In case of MPS, after good Q1 show on 11 Aug , stock moved from 360-370 to 410. Once market got to new of good numbers and announcement of dividend, It moved to 470-480 in between 11 Aug and 19 Aug and When on 20 Aug dividend of only Rs. 12 was declared market moved to 520-530 and last closing price is 564. This is not to say that it was only on back of dividend.

For last 3 quarters, OFSS is growing at a very healthy rate. It’s a rare software product company from India with global footprint, available at 26.6x PE TTM. Will it fall by 10% in this bull market? I don’t seem to think so. And even if it falls by 10%, at current price it’s 400, you still make 85 tax free per share, that’s 2% yield in less than 10 days.

Having said that, I’m not considering this for long term but just as a special situation for dividend.

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4

The dividend yield at this price is definitely very good.

Ignoring the dividend payout for a moment, if you think that the stock is a good investment and is reasonably priced then you can invest.

Because if the stock price falls after dividend then you should be willing to hold on to it and it should be able to deliver good returns going forward.

5

These are my thoughts:

2 people in the company sold their stock after the dividend was declared. Thus they prefer to pay capital gains tax on the dividend part of the price increase, rather than pocketing the tax free dividend and then selling their shares after they become ex-dividend. Therefore, they are probably expecting a significant correction in the price after the share becomes ex-dividend.

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6

That’s the catch Manish. I’m looking at this only as a special situation and want to evaluate as such as I’ve better options for long term. Apart from this, one doesn’t really need to wait for actual dividend payout as one can exit before ex date taking advantage of the hype over huge one time dividend. As nobody was expecting this, there is an element of positive surprise as well. Once ex date and record date is announced it will likely attract short term traders. Meanwhile, today it touched high of 4179 with bullish signs only to retreat with overall weak broader market.

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7

The total no. of shares sold by these two people is negligible compared to ESOPs exercised. Apart from this, They didn’t sell their entire holdings, which they could/should have if they are expecting significant correction post ex div date.

Mr. Kishore Kapoor has also sold some qty on 23 Aug 14 when interim div was not on the cards.

after

8

And the bigger question to ponder over is when the price has not appreciated by more than 485, the dividend amount, post or around dividend declaration date, why would it correct more than 485 + taxes, in the middle of bullish sentiments, unless there is some big negative news.

9

What is the record date?

10

@Kalyan,

Record date is not announced as yet. Kindly go thru the thread to understand the situation better and share your comments.

11

@aksh

Sorry about that terse ask on the dividend date. I was posting from my ipad and this site is as usual superslow and it was driving me nuts to crawl to the last section to read the latest.

I took a quick look. There has been no dividend history for Oracle and hence it is hard to comment on why the sudden love to the shareholder. That said, there is huge cash sitting on the books. With hardly 25% public holding, this will swing wildly based on what the biggies do. If the dividend is to be paid before 29th Sept, this has potential to run up another 500 Rs, thereby making the ex-dividend fall look attractive enough, to stay invested. That said, Larry Elison is stepping down and I am not sure it is the reason for the fall yday in US. Stock tanked, nearly 4.2%. There are reports of some bad results etc…

All said and done, it is an interesting situation and I am almost keen to gamble on this, if there is a bit of a fall and it goes back to 3700-3800 territory.

12

I think this is potentially one of the reason why the stock has not exploded post huge dividend apart from some uncertainty over ex and record date. IMO, ex date and record date can’t be back dated with respect to dividend declaration date but not sure if ex date and record date itself can be back dated with respect to their announcement? Is it a possibility that those buying shares before announcement of ex date and record date are not eligible for dividends?

Also don’t forget that dividend in our hand is tax free and possible losses on the OFSS sale can be offset against gains in other stock sale resulting in tax gain.

@aksh

13

I talked to IR of the company and they are claiming that they have communicated regarding ex and record date to the exchanges on 12 Sep itself and it is responsibility of the exchanges to announce the same.I’ve also asked for email confirmation on this from IR but haven’t received any reply as of now.

Now, I find it difficult to digest that exchanges will withhold such an important piece of info. from public. can somebody please throw some light on this? Is there anyway to reach out to the exchanges (NSE,BSE) directly over phone or email?

The stock closed on 3977 today

Meanwhile, there are more disclosure and CA…

22 Sep 2014

ESOP Allotment Committee Meeting on Sept 23, 2014

Oracle Financial Services Software Ltd has informed BSE that a meeting of ESOP Allotment Committee will be held on September 23, 2014, to consider allotment of shares to the eligible employees who have chosen to exercise their options under prevailing Employees Stock Option Schemes of the Company.

Makarand S Padalkar has submitted the disclosures under Reg.13(4), 13(4A) of SEBI (Prohibition of Insider Trading) Regulations, 1992(AllotmentExercised, Buy Quantity = 29640)

Chaitanya Kamat has submitted the disclosures under Reg.13(4), 13(4A) of SEBI (Prohibition of Insider Trading) Regulations, 1992(AllotmentExercised: Buy Quantity = 88000)

Arvind Gulhati has submitted the disclosures under Reg.13(4), 13(4A) of SEBI (Prohibition of Insider Trading) Regulations, 1992(AllotmentExercised: Buy Quantity = not clear)

Edwin N Moses has submitted the disclosures under Reg.13(4), 13(4A) of SEBI (Prohibition of Insider Trading) Regulations, 1992(AllotmentExercised: Buy Quantity = 5500)

14

Thanks for your great work Aksh. BTW did they share the ex date and record date?

"22 Sep 2014

ESOP Allotment Committee Meeting on Sept 23, 2014"

Did they share the details too earlier on 22nd Sep itself (today)? I remember seeing this in bse site today afternoon, but seems to be missing now.

May be the exchange too published a day before the committee meeting?

Given the hurry with which ESOP allotments are being made and also the number of times the ESOP committee is meeting, lead us to believe rewarding certain employees.

And since allotments are being made now, record date may be announced after that to ensure inclusiveness for the ESOP beneficiaries.

15

No. IR didn’t share the ex and record date and it’s understandable. They told me over the phone that they have communicated about the same to the exchanges. I really doubt this as I don’t really think exchanges will withhold such an imp. piece of info. from public. That’s why I asked for an email confirmation for which I’ve not received any reply even though I was assured of reply before EOD today.

I think this is a blatant misuse of ESOPs. I tried to reach over to SEBI but has not been able to do so, so far.

16

Record date is on 25th Sep (Thu). Stock should go ex dividend tomo (Wed)

Apparently OFSS has communicated to BSE and NSE on the record date (Aksh’s earlier info from OFSS is correct) and the Exchanges were bickering on some legalese. Case went to Securities Appellate Tribunal which ordered the record date to be on 25th Sep

http://sat.gov.in/scripts/detailsat.asp?releaseid=E2014JO2014295

News came late today (around 1:45 pm) and seems Mr. Market did not take it well (amidst the free fall). In effect the price fell prior to ex date.

Meanwhile there was ESOPs allotment party to coincide prior to record date. Legally this may be right (not sure) but morally this does not augur well for the investor. And the exchanges and SEBI are fighting over semantics of bookclosures and record dates, overlooking ESOP party.

17

Record date is on 25th Sep (Thu). Stock should go ex dividend tomo (Wed)

Apparently OFSS has communicated to BSE and NSE on the record date (Aksh’s earlier info from OFSS is correct) and the Exchanges were bickering on some legalese. Case went to Securities Appellate Tribunal which ordered the record date to be on 25th Sep

http://sat.gov.in/scripts/detailsat.asp?releaseid=E2014JO2014295

News came late today (around 1:45 pm) and seems Mr. Market did not take it well (amidst the free fall). In effect the price fell prior to ex date.

Meanwhile there was ESOPs allotment party to coincide prior to record date. Legally this may be right (not sure) but morally this does not augur well for the investor. And the exchanges and SEBI are fighting over semantics of bookclosures and record dates, overlooking ESOP party.

18

2013-14 other income was 621 Crores out of the PBT of 173.1 crores. With 8.43 crores shares, dividend translates to 4092 crores and with Dividend Distribution Tax will work out to 4814.4 crores to the company.

Assuming 12% realization from investments that contributed to 621 crores other income (haven’t crosschecked … may be AR has details), dividends outflow will reduce other income by around 92%. Assuming 10% growth in EPS (2014 EPS growth was primarily due to increase in Other Income) FY2016 EPS will be around 110 (deliberately overlooking 2015, since it will have 2 quarters of good other income).

If stock falls to 3500 levels ex-dividend tomo, it may be at around 32 times 2016 earnings. Not sure if it’s worth given the other opportunities. If it’s a precursor to delisting, it’s a completely different story then.

With such outflow, if we assume that other income will be close to zero, then

19

Thanks Bramha for the breaking news! I think exchanges are to be blamed here for such a confusion over a seemingly non issue. If there is any dispute over a record date, they should have at least published it as such to keep the investors informed but here it’s the other way around.

20

Thanks Aksh

Per ET, Chitra Ramakrishna of NSE bats for equal access to information for all !!

"Regarding SEBI proposal that listed companies should inform exchanges about board’s decision within 15 minutes of the meeting, she said such a step would help in ensuring equal access to information for all stakeholders.

Noting that the proposal is aimed at building equal access, she said, “it is not that difficult”.

http://economictimes.indiatimes.com/articleshow/43244573.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

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