Disclaimer: This report is based solely on the provided documents and is for educational and informational purposes only. It does not constitute investment advice or a recommendation to buy, sell, or hold securities. Consult SEBI-registered advisors for investment decisions.
Red Flag Quick Reckoner Checklist for Oracle Financial Services Software Limited
Latest Financial Year Analysed: FY2024 (ended March 31, 2024) 3-Year Trend Period: FY2022, FY2023, FY2024
| Red Flag | Current Risk (FY2024) | 3-Year Trend | Notes | Citation |
|---|---|---|---|---|
| 1. Financial | ||||
| 1.1 Declining Gross Margins | 🟡 | ↔ | Operating margin (Income from Ops / Revenue) was 42.05% in FY24, up from 41.73% in FY23, but below 45.85% in FY22. Shows some volatility. | [Annual Report 2024, pg. 38], [Annual Report 2023, pg. 36], [Annual Report 2022, pg. 39] |
| 1.2 EBITDA Margin Compression | 🟡 | ↔ | EBITDA margin (EBITDA proxy / Revenue) was 43.22% in FY24, slightly up from 43.15% in FY23, but below 47.62% in FY22. Similar to operating margin. | [Annual Report 2024, pg. 38], [Annual Report 2023, pg. 36], [Annual Report 2022, pg. 39] |
| 1.3 Inventory Build-up Faster Than Sales | 🟢 | N/A | Not applicable for a software products and IT services company. No significant physical inventory. | General understanding of software business model |
| 1.4 Receivables Days Increasing | 🔴 | ↑ | Consolidated Receivables Days: 60.4 (FY22) → 64.4 (FY23) → 68.8 (FY24). Consistent increase indicates slower collections. | [Annual Report 2024, pg. 41, 55], [Annual Report 2023, pg. 39, 51], [Annual Report 2022, pg. 42, 53] |
| 1.5 Changes in Accounting Policies | 🟢 | ↔ | FY24: Amendments to Ind AS 1, 7, 12. Impact stated as insignificant. FY23: Amendments to Ind AS 1, 8, 12. Impact stated as insignificant. FY22: Amendments to Ind AS 16, 37. Impact stated as insignificant. No material changes impacting core financials noted. | [Annual Report 2024, pg. 61], [Annual Report 2023, pg. 57], [Annual Report 2022, pg. 59] |
| 1.6 Goodwill Impairment Increasing | 🟢 | ↔ | Goodwill at ₹6,086.63 Mn consistently for FY22, FY23, FY24. Tested annually, no impairment recognized in these years. | [Annual Report 2024, pg. 75], [Annual Report 2023, pg. 71], [Annual Report 2022, pg. 72] |
| 2. Cash Flow | ||||
| 2.1 Negative Operating Cash Flow (OCF) | 🟢 | ↔ | OCF consistently positive: FY24: ₹17.9 Bn; FY23: ₹17.6 Bn; FY22: ₹18.6 Bn. Some fluctuation but strong generation. | [Annual Report 2024, pg. 58], [Annual Report 2023, pg. 55], [Annual Report 2022, pg. 57] |
| 2.2 Free Cash Flow (FCF) Margins Negative | 🟢 | ↔ | FCF (OCF - Capex) consistently positive. FCF Margins (FCF/Rev): FY24: ~27.6%; FY23: ~30.2%; FY22: ~34.8%. Healthy, though slightly declining margin trend. | [Annual Report 2024, pg. 58], [Annual Report 2023, pg. 55], [Annual Report 2022, pg. 57] |
| 2.3 Increasing Short-Term Debt | 🟢 | ↓ | Company is "zero-debt". Current lease liabilities (proxy for ST debt): FY24: ₹244.75 Mn; FY23: ₹307.40 Mn; FY22: ₹286.42 Mn. Trend is ↓ from FY23. | [Annual Report 2024, pg. 41, 55], [Annual Report 2023, pg. 39, 51], [Annual Report 2022, pg. 42, 53] |
| 2.4 Debt-to-Equity Ratio Increase | 🟢 | ↓ | Using total lease liabilities as debt. FY24: 0.005; FY23: 0.009; FY22: 0.012. Ratio is very low and decreasing. | [Annual Report 2024, pg. 41, 55], [Annual Report 2023, pg. 39, 51], [Annual Report 2022, pg. 42, 53] |
| 2.5 Low Interest Coverage Ratio | 🟢 | ↔ | EBIT (Income from Ops) / Total Finance Cost. FY24: 26801/281 = 95x; FY23: 23781/127 = 187x; FY22: 23939/122 = 196x. Ratios are extremely high. FY24 lower due to higher interest on income tax. Interest on lease liability is very small. | [Annual Report 2024, pg. 38, 71], [Annual Report 2023, pg. 36, 67], [Annual Report 2022, pg. 39, 68] |
| 2.6 Dividend Payout Unsustainable | 🔴 | ↑ | Payout Ratio (Total Dividend/Net Profit): FY24: 93.8%; FY23: 107.7% (unsustainable); FY22: 86.9%. Consistently very high, exceeded 100% in FY23. | [Annual Report 2024, pg. 7, 60], [Annual Report 2023, pg. 6, 60], [Annual Report 2022, pg. 7, 61] |
| 3. Operational | ||||
| 3.1 Revenue Growth Below Industry | 🟢 | ↑ | Consolidated Revenue Growth: FY24: 11.8%; FY23: 9.2%. Accelerating growth. Industry comparison not available in docs but double-digit growth is strong. | [Annual Report 2024, pg. 38], [Annual Report 2023, pg. 36] |
| 3.2 Customer Concentration Risk | 🟡 | ↔ | Largest customer group: FY24: 49%; FY23: 48%; FY22: 51%. Consistently high concentration with parent ecosystem, an inherent risk but also a strength. | [Annual Report 2024, pg. 42], [Annual Report 2023, pg. 40], [Annual Report 2022, pg. 43] |
| 3.3 Inventory Write-offs Increasing | 🟢 | N/A | Not applicable for a software products and IT services company. | General understanding |
| 3.4 Complaints/Returns Increase | 🟡 | ↑ | Shareholder complaints: FY24: 75; FY23: 98; FY22: 15. Spiked in FY23, reduced in FY24 but still significantly higher than FY22. All resolved. | [Annual Report 2024, pg. 28], [Annual Report 2023, pg. 27], [Annual Report 2022, pg. 27] |
| 3.5 Capacity Utilization Declining | N/A | N/A | Not disclosed in provided documents for a software/services company. | |
| 3.6 Aggressive M&A Activity | 🟢 | ↔ | No major M&A in FY24, FY23. FY22 saw internal restructuring of a step-down subsidiary. Not aggressive. | [Annual Report 2022, pg. 9] |
| 4. Governance | ||||
| 4.1 Promoter Pledging Increasing | 🟢 | ↔ | Promoter is Oracle Global (Mauritius) Ltd. No mention of promoter share pledging found in annual reports; typical for MNC subsidiaries. | [Annual Report 2024, Shareholding Info] |
| 4.2 High Related-Party Transactions (RPTs) | 🟡 | ↓ | Revenue from fellow Oracle subsidiaries: FY24: ~38%; FY23: ~43%; FY22: ~45%. High, but expected due to group structure. Trend shows slight decrease. Claimed at arm's length. | [Annual Report 2024, pg. 8, 87], [Annual Report 2023, pg. 8, 81], [Annual Report 2022, pg. 8, 80] |
| 4.3 Board Independence Below SEBI Norms | 🟢 | ↔ | As of Mar 31, 2024: Chairperson (S Venkatachalam) was Independent. 5 out of 11 Directors (45.5%) were Independent. Met >1/3rd SEBI norm. Post Mar 31, 2024, Chair (S Sridhar) is Indep, 3/9 Indep (33.3%). Still compliant. Stable compliance. | [Annual Report 2024, pg. 21] |
| 4.4 Regulatory Scrutiny or Penalties | 🟡 | ↑ | FY24 Secretarial Audit: "affirmation in the corporate announcement... was submitted beyond prescribed time." No penalties by SEBI/Exchanges in last 3 years. Minor compliance lapse. | [Annual Report 2024, pg. 14, 29] |
| 4.5 Auditor Resignation or Qualification | 🟢 | ↔ | M/s. S R Batliboi & Associates LLP appointed from FY23 for 5 years, succeeding M/s. Mukund M. Chitale & Co. whose term ended. This was a planned change. No qualifications in statutory audit reports for FY22, FY23, FY24. | [Annual Report 2024, pg. 9, 53], [Annual Report 2023, pg. 9, 50] |
| 4.6 Promoter Salary/Perks Excessive | 🟢 | ↔ | Promoter is Oracle Corp. Executive Directors' (MD & CEO) remuneration: FY24: M Padalkar (part year MD) ₹1.55 Cr, C Kamat (part year MD) ₹3.38 Cr. FY23: C Kamat ₹5.19 Cr. FY22: C Kamat ₹4.76 Cr. Appears reasonable for company size and performance. | [Annual Report 2024, pg. 26], [Annual Report 2023, pg. 25], [Annual Report 2022, pg. 25] |
| 5. Black Box | ||||
| 5.1 Aggressive Revenue Recognition | 🟡 | ↔ | Revenue recognition policies (license, maintenance, consulting) appear standard for software. Key Audit Matter for auditors but no adverse findings. Consistent policy application. Large multi-element contracts can be complex. | [Annual Report 2024, pg. 53, 60] |
| 5.2 Other Income Spike | 🟢 | ↓ | Consolidated Other Income (net): FY24: ₹105.21 Mn; FY23: ₹245.59 Mn; FY22: ₹441.57 Mn. Declining trend, no unexplained spike. Primarily FX gains/losses & misc income. | [Annual Report 2024, pg. 71], [Annual Report 2023, pg. 67], [Annual Report 2022, pg. 68] |
| 5.3 Capex vs. Depreciation Misalignment | 🟡 | ↔ | D&A consistently higher than Capex. FY24: Capex ₹301 Mn, D&A ₹743 Mn. FY23: Capex ₹381 Mn, D&A ₹807 Mn. FY22: Capex ₹376 Mn, D&A ₹928 Mn. May indicate underinvestment in fixed assets or mature asset base; common for tech/service firms. | [Annual Report 2024, pg. 58, 6], [Annual Report 2023, pg. 55, 6], [Annual Report 2022, pg. 57, 6] |
| 5.4 RPTs with Unclear Rationale | 🟡 | ↔ | Rationale for extensive RPTs with Oracle group entities is operational integration and go-to-market strategy. Stated as arm's length. Transparency of pricing for specific services/licenses within group could be complex. | [Annual Report 2024, pg. 8, 87-91] |
| 5.5 Employee Headcount vs. Costs Misaligned | 🟢 | ↔ | FY24: Emp. cost up 8%, headcount up 1.9%. Avg cost/emp up ~6%. FY23: Emp. cost up 15%, headcount up 9%. Avg cost/emp up ~5.5%. Increases seem aligned with inflation/increments/mix. | [Annual Report 2024, pg. 10, 39], [Annual Report 2023, pg. 9, 37] |
| 5.6 Unexplained Balance Sheet Growth | 🟢 | ↔ | Total Assets growth FY24: 7.1%. Total Equity growth FY24: 5.3%. Primarily driven by retained earnings, increased cash, and receivables linked to revenue growth. Appears explained. | [Annual Report 2024, pg. 55] |
| 6. Industry | ||||
| 6.1 Industry Downturn | 🟡 | ↔ | MD&A FY24 mentions economic slowdowns and geopolitical conflicts creating uncertainties. However, company reports strong performance & outlook for digital transformation in BFSI. | [Annual Report 2024, Chairperson's Letter, pg. 37] |
| 6.2 Competitive Pressure Increasing | 🟡 | ↔ | MD&A acknowledges ongoing competition from established players and new fintechs. Company relies on product excellence, R&D, and Oracle ecosystem. | [Annual Report 2024, pg. 42] |
| 6.3 ESG Controversies | 🟢 | ↔ | No major ESG controversies noted in provided documents. CSR activities and BRSR reporting are in place. | [Annual Report 2024, pg. 15, 10] |
| 6.4 Litigation Trend Increasing | 🔴 | ↑ | Tax litigations (Gross Disputed Amount): FY24: ₹28.5 Bn; FY23: ₹24.4 Bn; FY22: ₹21.1 Bn. Net demand also increasing. Provisions made are decreasing. This is a significant and growing contingent liability. | [Annual Report 2024, pg. 83], [Annual Report 2023, pg. 79], [Annual Report 2022, pg. 79] |
| 6.5 Regulatory Changes Impacting Industry | 🟡 | ↔ | Financial services industry is heavily regulated; ongoing changes (e.g., data privacy, open banking, AI governance) are a constant factor. Company addresses this via product updates. | [Annual Report 2024, pg. 37] |
| 6.6 Market Share Erosion | 🟢 | ↓ | Company reports highest-ever license wins in FY24 ($137M, up 44%) and landmark deals, suggesting strengthening market position in its chosen segments. | [Annual Report 2024, Chairperson's Letter] |
Red Flag Section Scores
- Financial: 4/10 (Margins under pressure vs FY22, increasing receivables days are concerns)
- Cash Flow: 3/10 (Very high dividend payout is the main concern, otherwise strong CF metrics)
- Operational: 3/10 (Customer concentration and recent spike in shareholder complaints are minor flags)
- Governance: 3/10 (Minor compliance lapse, RPTs are structurally high but monitored)
- Black Box: 2/10 (Capex vs D&A needs watching, RPT rationale standard for MNC subsidiary)
- Industry: 4/10 (Increasing litigation amount is a key concern, general industry uncertainties)
Total Red Flag Score
19/60 (Unweighted Sum of Section Scores). Adjusted to a scale of 100: (19/60) * 100 = 31.67 ≈ 32/100
Key Red Flags Commentary
Oracle Financial Services Software Limited (OFSS) presents a mixed risk profile. Key concerns include:
- Increasing Receivables Days (🔴↑), rising from 60.4 in FY22 to 68.8 in FY24, indicating slower cash conversion ([Annual Report 2024, pg. 41]).
- The Dividend Payout Ratio is notably high and was unsustainable in FY23 (107.7%), standing at 93.8% in FY24 (🔴↑), raising questions about long-term capital retention versus shareholder returns ([Annual Report 2024, pg. 7]).
- Tax Litigations (🔴↑) show a concerning trend, with the gross disputed amount increasing to ₹28.5 Bn in FY24 from ₹21.1 Bn in FY22, while provisions have decreased ([Annual Report 2024, pg. 83]).
- Operating and EBITDA margins (🟡↔), though healthy, are yet to consistently recover to FY22 levels ([Annual Report 2024, pg. 38]). While structurally inherent, the high
- Customer Concentration (49% from largest group) (🟡↔) and
- Related-Party Transactions (38% of revenue from fellow subsidiaries) (🟡↓) warrant ongoing scrutiny for arm's-length dealings ([Annual Report 2024, pg. 42, 87]). A minor compliance lapse in regulatory filing was also noted (🟡↑) ([Annual Report 2024, pg. 14]). These factors contribute to a Total Red Flag Score of 32/100, suggesting moderate overall risk with specific areas needing attention.
Summary
OFSS exhibits moderate overall risk with a Total Red Flag Score of 32/100. While the company demonstrates strong revenue growth and profitability, key concerns requiring attention include a consistently high dividend payout ratio (93.8% in FY24, 107.7% in FY23) ([Annual Report 2024, pg. 7]), increasing receivables days (68.8 in FY24) ([Annual Report 2024, pg. 41]), and a significant, rising trend in tax litigations (gross disputed ₹28.5 Bn) ([Annual Report 2024, pg. 83]). Margins have shown some pressure compared to FY22 levels. Governance appears broadly compliant, though high RPTs, inherent to its Oracle group structure, require continuous monitoring.
Disclaimer
This report is based solely on provided documents and is for educational use only. It does not constitute investment advice or a recommendation to buy, sell, or hold securities. Consult SEBI-registered advisors for investment decisions.