Dolat Capital's research report on OFSS
OFSS reported inline operating results for Q4FY20 with a 4% YoY revenue growth at Rs12.6bn against our estimate of Rs12.4bn. EBIT stood at Rs5bn as against our estimate of Rs5.1bn - OPM at 39% It signed new licence worth USD23mn for the quarter; full year wins at US$76mn down 7% on YoY basis. It signed 12 new deals in the quarter (including an OBP deal) and witnessed 13 sites going-live. OPM for Q4 stood at 42.6% down 50bps QoQ higher against our estimate of 41.3%. Product margins improved further to 50.5% (up 250bps QoQ) for the quarter that covered up for lower profitability in Services. Reported PAT was down 17% YoY due to multiple tax related charges/reversals. Adjusted PAT was inline at Rs3.9bn (Exhibit: 12). Generous dividend (implies 7% yield), improving profitability (up 150bps in FY20), potential acceleration in digital transformation and compelling valuations at 14x on trailing earnings makes a strong case for re-rating of the stock.
Outlook
Encouraged by the large prospects of Core modernization theme, relative stability in BFS spends and its high FCF yields of 6%, we continue to maintain our Buy rating on the stock with a DCF based TP of Rs 3,100 per share (implies 16x on FY22E PER basis).
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