Oracle Financial Services Software’s (Oracle) revenues rose by 12 per cent q-o-q to Rs 707.4 crore while its earnings grew by 32.5 per cent q-o-q to Rs 140.7 crore in Q2FY09. Oracle, formerly known as i-flex solutions, continued to win large accounts during the quarter and added 16 new customers during the quarter. The company’s product revenue grew by 22 per cent q-o-q on the back of milestones being reached during the quarter. The services business on the other hand, de-grew by 2 per cent sequentially despite the sharp depreciation of rupee during the quarter. The company reported a significantly higher other income component on account of forex gains. However, this was more than set off by a provision of Rs 46.9 crore towards one-time settlement of a dispute with a client.

The management has indicated cautiousness as far as US markets are concerned and the medium term may reflect a tepid growth in services business. The product business could also face headwinds due to the turmoil being witnessed in the global banking industry. The company is expected to report earnings of Rs 505 crore over revenues of Rs 2,840 crore in FY09, with EBIDTA margins at 16 per cent. At Rs 600, the stock trades at 9.9x FY09E earnings. Maintain accumulate.

Sun Pharmaceutical Industries
Current market price: Rs 1,181.20
Target Price: Rs 1,640
Upside: 38.8%
Brokerage: Sharekhan

The USFDA has issued a warning letter to Sun Pharmaceutical’s (Sun) US-based subsidiary Caraco Pharmaceutical Laboratories (Caraco), citing lack of adequate quality control procedures at Caraco’s Detroit-based manufacturing facility. The USFDA may withhold approval of the pending new drug applications from the facility until the company’s responses to the observations have been clarified and explanations provided to the satisfaction of the USFDA. However, Caraco would continue to sell its entire existing product portfolio in the US market. Caraco intends to respond promptly to the USFDA within fifteen business days.

The US is Sun’s largest market outside of India. Caraco contributes about 40 per cent to Sun’s total revenues and serves as a front-end for distributing products manufactured at the Indian company’s other plants in the US market. Sun has a track record of delivering consistent and robust growth while maintaining strong profitability and return ratios. This makes it the best Indian player in the generic space. While the brokerage maintains its positive outlook on the company, it feels that the stock would remain under pressure until the company obtains a clean chit from the USFDA. At Rs 1,054, Sun is attractively valued at 11.6x FY09E and 11.5x FY10E estimates.