What about customer concentration
Top customer accounts for 48% of revenue … Who is that ??
any insights on the same
That is incorrect. Can you please quote where it is mentioned?
Please read it in this context
“The Company contracts end customers in several countries through the local subsidiary of Oracle Corporation. Entities under common control are considered as a single customer for the purpose of reporting customer concentration.”
That means they would have won say 20 deals for Citibank in 20 countries. But they report it as single customer for customer concentration purpose. But each country has its own central bank, regulations and management. Also banking systems across counties can not be centralized. So for all practical purposes they are different entity.
It is likely Citibank. As iFlex was spun-off from Citibank.
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If Citibank accounts for 50% of revenue . That is a big concern …
If you check AR of 2015 it was < 15% …
Initially I thought 49% - is from Parent Oracle …
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I may be completely wrong and it may be Oracle. Citibank is just my guess.
As, I explained these revenues are coming from different countries’ banks which has same parent.
Now we can interpret customer concentration in different way.
- Risk
- Their capability to scale with same group based on strong offering,
but to each his own
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it seems fairly priced, problem is it does not seem to have a lot of clients or has not shown client growth. Citigroup is not going to give 2x money for same work. So growth needs to come from new clients. It used to be a 30 pe stock back in the days 2017ish, but has disappointed on growth. I am sure there are so many banks would want to hire them. Have they just been lazy in selling ? and relied on internal Oracle Americas channels ? anyone attended the conf call ?
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Question is WHY they skipped ?.. If there is a reason one should know else it can happen again too …
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A feedback that I got from Arun Jain of Intellect Design is that Larry Ellison has treated OFSS as a cash cow and in the Parent’s grand scheme of things, it is less important. Leadership hunger plays an important role. Oracle and OFSS have been comfortable in just milking the AMC part of the business and have not been aggressive.
Infact for a company like Intellect, it mentioned that OFSS is not their main competitor when it comes to GTB (transaction banking) business for Intellect.
The industry is seeing good momentum but in this kind of business, leadership plays an important role in attracting higher license revenues. Hunger to grow seems to be missing in OFSS.
Disc: Invested in Intellect Design
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Mate, intellect design roe has almost never been positive, usually these software companies have positive roe. Sales growth has not been any great as well. Not sure if they have cracked the product market fit and customers dying for that service. OFSS is atleast a cash cow that won’t go under ! So don’t understand the risk reward in your trade here
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Would suggest you go through Q4FY20-Q2FY21 concalls and results. Watch out for Q3 results and see the trajectory. Product companies go through stages. Key is to see when a company enters monetization stage and how many products are in monetization stage. It takes time to get business from advanced markets but that is happening now in Intellect.
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Thank you sir. Any excerpts you want to highlight.
Just aiming for a healthy discussion here
I don’t buy this argument “OFSS as a cash cow and in the Parent’s grand scheme of things, it is less important”
Parent Oracle’s yearly free cash flow is about 1 lakh crores. Will a dividend of 1000 crore from OFSS make any difference. That is minuscule 1%.
Also, OFSS continues to be only banking product suite under Oracle umbrella. They continue to roll-out new modules and upgrade products relevant to industry needs. So I don’t see Oracle is in anyways undermining OFSS.
It is known fact that large multi-billion corporates run by professional management are likely to be less agile compared to a first gen promoter. But we also know advantages of such companies. e.g. Glassdoor employee satisfaction rate of Oracle India is 3.8 vs 3.2 for Intellect Design.
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Please note the feedback that I shared was something that was shared by Mr. Arun Jain. So it may not be a fully encompassing explanation. Infact, when I invested in Intellect, I was keen to explore possible investment in OFSS also if I could find some visibility in growth acceleration. A point that was shared by Mr. Arun was that many of the large players like Temenos (if you exclude acquisitions) and OFSS have shown muted growth over last few years but there are enough opportunities out there for more agile teams with hungry leadership to grow top line at double digit. This is the point that you have shared.
He did mention that in the space of transaction banking, Intellect faces it’s toughest competition from Finastra and OFSS is not a competition at all. So even bigger players don’t have complete coverage of products across all the large service segments within financial services.
I took note of the point that you mentioned on roll-out of new products by OFSS. I am not sure at this point if it is big enough to drive growth in its base. Any insights on this would be helpful. Thanks!
Unfortunately I haven’t done that level of micro analysis. I looked at high level picture and they have done a good job. Without any acquisition, they have hold on to number 2 position that means they have broadly not lost major market share.
Smaller guys will grow fast to a certain level. But I like moderate growth and high ROCE and FCF businesses compared to high growth and low RoE businesses.
Not that Intellect is poor investment, I prefer sticking to market leaders. Not to forget this company was part of Polaris software and almost as old as OFSS. So over a long term OFSS has grown at much faster rate.
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It is indeed very difficult to research on this company with information in public domain and specially its website embedded in Oracle’s it’s hard to fathom the expertise areas of this company with new offerings also. For example, in Oracle’s financial services website, the pdf on their digital banking expertise has no where mention of Oracle india or OFSS…so no clue if that critical aspect - (it is a core banking software independent offering from Oracle)…is part of OFSS or not.
Guess unless you know someone working in OFSS, it’s impossible to know it’s true capabilities and future growth possibilities.
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Check the annual report. All products are clearly mentioned.
What I meant was that I don’t do micro level analysis for investing.
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Decent results
Things like this will force banks to invest in technology
And this is global trend due to explosion in digital banking due to COVID
Story with this sector seems to be pretty good for next 5 years.
Recently Temenos announced 10-15% growth projections at analyst meet.
If OFSS manages even 8% growth, it seems to be undervalued. Infact valuation of 15 PE for year, it is valued like a bond for zero growth.
One of roadblock for cloud implementation was that OFSS offered its services only on Oracle cloud and Oracle cloud data centers were not available across all geographies. Oracle has done agressive roll out of local cloud data centers across globe so OFSS will not have constraint of lack of local Oracle cloud data centers.
Growth is getting better than most IT services for the first time.
This Q growth was 7% YoY for OFSS compared to 5.4% for TCS, 6.5% for HCL, 1.5% for Wipro.
It is trading at much lower valuation compared to all of the above.
Disclosure: Double my position in today’s correction