take solutions ltd _ greshma

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Wednesday, January 19, 2011

Greshma Shares and Stocks Limited, 124, Viraj 41/42, 4 th Floor, S.V Road, Khar (W), Mumbai - 400052. 1

Initiating CoverageSector: IT-Software

TAKE Solutions Ltd BUY

Horizon 12months

Target Price (Rs.) 52

Upside 73%

Period Cash

Short Term Buy

Mid Term Buy

Long Term Strong Buy

Key Investment considerations

Robust Order Book

Domain Expertise

Impressive Client Base

Niche Player

Strong revenue visibility

Investment Strate

Please read our detailed report below for further information, analysis and details of the Greshma CSI Rankingmodel and the Greshma Risk Return Matrix

Company Profile

TAKE Solutions is a leading international businesstechnology company with products backed by thestrong domain expertise in Life sciences and Supplychain management to provide cost-effectivecomprehensive solutions for businesses. TAKESolutions represented by over 900+ employees servingto more than 400 marquee clients globally.

ConcernsToo much dependency on US

Regulatory Issue

Risk of Attrition among Domain Expertise



January 19, 2011


RESEARCHTAKE Solutions Ltd

Index

1. Investment Rationale 3

2. Valuation 4

3. Company Overview 4

4. SWOT Analysis 6

5. Investment Thesis 8

6. Industry Overview 11

7. Peer Comparison 13

8. Financial Summary 14

9. Strategic Alliances 17

10. Technical View 19

11. Disclaimer 20



January 19, 2011



Investment Rationale:

Steady growth and improvement in productivity by FY12 are likelyto reduce the gap in valuations

Margins of TAKE Solutions have witnessed traction over the past 6quarters; top-line of the company has grown by 13% CQGR over thepast 6 quarters whereas EBITDA margin has increased by 20% CQGRand PAT by 35% CQGR over the past 6 quarters. We expect thecompany to grow by 35% CAGR for the next three years consideringrevenues from WCI acquisition and traction seen in both Life Sciencesand SCM vertical.

Well placed in Supply Chain Management and Life Sciences

About 25% of the employee base are domain expertise in life sciencesand Supply chain management with established relationship andproven record of managing large accounts. This will help thecompany to initiate multiple pilot projects and also their provenexpertise in developing, growing and managing large accounts willhelp in expanding the company’s current clientele base

Strong Revenue Visibility

Order book of the company has been increased by 26% Y-o-Y basis,the order book has increased to $57.2 mn in Q2 FY11 from $45.3 mnin Q2 FY10. Recent deals from global giants both in LS and SCM arecurrently driving the order book. The order book of the company hasgrown by 6% CQGR for the last 6 quarters. This gives the strongrevenue visibility going ahead.


TAKE serves to 8 out of top 10 global pharmaceutical companies. Ithas an impressive client base like Novartis, Pfizer, Johnson & Johnson,

Transocean, Canon, Kodak, ITC, Pepsi and many more. Currentlycompany has approximately 416 clients of which 137 clients are inLife Sciences segment and 279 clients from Supply chainmanagement.

BUY

CMP (Rs.) 29.7Target price (Rs.) 52.0

Potential upside 73%

Holding Period 12 Months

Stock Matrix

No. of shares(mn) 122.4FV(Rs.) 1.0BV 21.1Market Cap(Rs. Mn) 3,59252 week high / low(Rs.) 43.7/22.5

Beta 0.7Avg. daily vol.(in lacs)

1.2

BSE Code 532890NSE Code TAKE

Shareholding Pattern (%)

Dec – 10 Sep – 10 QCh

Promoters 58.3 58.3 0Institutions 7.5 8.4 -10.7Corporate 15.5 15.1 2.7

Public &Others 18.7 18.2 2.7

Price performance

Contact:[email protected]

: 91-22- 3005 6400

mailto:[email protected]





January 19, 2011



Valuation

Considering robust order book, niche player operating in niche segment and domain expertise, we adviseinvestors to buy the stock at CMP of Rs. 29.7 for the target price of Rs.52. At CMP the stock is trading atprice to earning ratio of 3.4x at its FY 12E EPS of Rs.8.6. Price to earning ratio of other product focused ITcompanies is quoting around 8-12x. However, TAKE Solutions is quoting at a steep discount of 30-40percent to its peers, in spite of growth in Net Profit. Recently TAKE has acquired UK headquartered WCIconsultancy group through its subsidiary which will help the company to do the cross selling of theirclinical data management product as most of the clients of WCI is in Life Sciences segment. We haveconsidered WCI revenue in our FY 12E revenue. We expect company to grow at a CAGR of 35% for thenext three years on the back of revival of US economy and customers shift from technology basedapplication to technology enabled solutions. The investors intending for long term would definitely yield

handsome return.

Company Overview

TAKE Solutions is a leading international business technology company with products backed by thestrong domain expertise in Life sciences and Supply chain management to provide cost-effectivecomprehensive solutions for businesses. Since its inception in 2000, TAKE has been serving marqueeclients in the Life Sciences and SCM with its global headquarters in located Chennai, India and US. Thereare 14 companies in the world with the approval of CDISC (Clinical data interchange standards consortium)and TAKE is the only Indian company registered as a CDISC solution provider. The CDISC mission is todevelop and support global, platform-independent data standards that enable information systeminteroperability to improve medical research and related areas of healthcare. Today TAKE Solutionsrepresented by over 900+ employees serving to more than 400 marquee clients globally.



January 19, 2011



Business Model

RevenueModel

Transactions/Subscriptions √ Maintenance √ Services √ √ √

Licenses √

Delivery Model On Premise SaaS Business Services

Technology

VirtulizationCloud Computing

Embedded/Mobile

Service Oriented Architechture

Domain

Supply Chain Management & Life

SciencesSource: Company, Greshma Research

Strong Presence in US and Middle East Asia



January 19, 2011



SWOT Analysis

Weakness Higher dependency on US

Regulatory Issue

Rising wage bill

Strengths

Niche Player Operating in NicheSegment

Domain Expertise Impressive Client Base Robust Order Book Only Indian company registered as a

CDISC solution providers

Opportunities

Global Expansion

Leadership position in US willhelp to gain momentum inproductivity

Leveraging of partnerships andalliances

Steady growth in LS & SCMverticals

Threats

Risk of Attrition amongdomain expertise

Increasing Technologyautomation



January 19, 2011



Revenue Split

Revenue by Vertical

Revenue by Geography

48% 53% 52% 51%

46% 41% 43% 45%

6% 6% 5% 4%

0%10%20%30%40%50%60%70%80%90%

100%

FY09 FY10 Q1 FY11 Q2 FY11

SCM LS Others

74%63% 62% 68%

26%37% 38% 32%

0%10%20%30%40%50%60%70%80%

90%100%

FY09 FY10 Q1 FY11 Q2 FY11

US Asia Pacific



January 19, 2011



Investment Thesis

Strong Revenue Visibility

Order book of the company has been increased by 26% Y-o-Y basis, the order book has increased to$57.2 mn in Q2 FY11 from $45.3 mn in Q2 FY10. Recent deals from global giants both in LS and SCMare currently driving the order book. The order book of the company has grown by 6% CQGR for thelast 6 quarters. This gives the strong revenue visibility going ahead. We expect this growth momentumto continue on the back of recent acquisition of WCI and revival in US economy.

Segment-Wise Order Book (USD in mn)

Source: Company, Greshma Research

Order book of SCM has increased by 28% in last 6 quarters while the order book of Life Sciences hasincreased by 53.5%. This increased in Life Sciences order book is primarily due to win deals fromglobal giants and we expect this growth momentum to continue going ahead.

18.5 21.5 22.1 23 26.6 28.4

22.523.8 25.2 26

25.228.8

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

10

20

30

40

50

60

70

Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11

SCM LS SCM Q-o-Q growth LS Q-o-Q growth



January 19, 2011



Total Order Book (USD in mn)


Steady growth and improvement in productivity by FY12 are likely to reduce the gap in valuations

Margins of TAKE Solutions have witnessed traction over the past 6 quarters; top-line of the companyhas grown by 13% CQGR over the past 6 quarters whereas EBITDA margin has increased by 20% CQGR

and PAT by 35% CQGR over the past 6 quarters. We expect the company to grow by 35% CAGR for thenext three years considering revenues from WCI acquisition and traction seen in both Life Sciences andSCM vertical. Steady growth and improvement in productivity by FY12 will led to EPS of Rs. 8.6 in FY12E

Strategic Acquisition of WCI

Recently TAKE has acquired UK headquartered WCI consultancy group through its subsidiary. WCI hasthe robust professional relationships across Europe and US. This will help the company to enter intoEuropean market. WCI founded pvnet and pvconnect , which is the industry’s primary forum for patientsafety. WCI work with a wide range of pharmaceutical, biotechnology, consumer health, medicaldevice, and dietary supplement organizations, this clientele base of WCI and strong portfolio of TAKE

solutions will help to gain traction with global pharmaceutical companies for improving productivity.This acquisition will also help the company to do the cross selling of their clinical data managementproduct as most of the clients of WCI is in Life Sciences segment.

4145.3 47.3 49 51.8

57.2

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

10

20

30

40

50

60

70

Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11

Total Order Book Q-o-Q growth



January 19, 2011




TAKE serves to 8 out of top 10 global pharmaceutical companies. It has an impressive client base like

Novartis, Pfizer, Johnson & Johnson, Transocean, Canon, Kodak, ITC, Pepsi and many more. Currentlycompany has approximately 416 clients of which 137 clients are in Life Sciences segment and 279clients from Supply chain management. Over the last two years, the company has added more than 110new clients. TAKE’s focus is not only increase the number of clients but also increasing the businessfrom existing clients.

No. Of Clients added


Well placed in Supply Chain Management and Life Sciences

About 25% of the employee base are domain expertise in life sciences and Supply chain managementwith established relationship and proven record of managing large accounts. This will help the companyto initiate multiple pilot projects and also their proven expertise in developing, growing and managinglarge accounts will help in expanding the company’s current clientele base

6

87

6

8

344

10

0

2

0

3

5

0

2

4

6

8

10

12

Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11

SCM LS



January 19, 2011



Q2 FY11 Highlights

TAKE Solutions reported consolidated operating income of Rs. 1,186 mn for the quarter ended.September 30, 2010, which is up by 36% as compared to Q2 in FY09 and up by 8% Q-o-Q basis.

EBITDA for the quarter was Rs. 261 mn up 53% Y-o-Y basis and 7% Q-o-Q basis.

Net Profit for the quarter ended was Rs. 163 mn , which is an increase of 115% Y-o-Y basis and 14% Q-o-Q basis.

The EPS for the period was Rs. 1.36 and for the half- year ended September 30, 2010 was Rs. 2.55.

TAKE Solutions Ltd ended Q2 FY11 with Rs. 788 mn of cash and cash equivalent.

Particulars (Rs inmn)

Q2FY11

Q1FY11

Q-o-Q Change

Q2FY10

Y-o-YChange

Total Revenue 1,186 1,097 8.1% 902 31.5%TotalExpenditure 925 853 8.4% 731 26.5%EBITDA 261 244 7.0% 171 52.6%EBITDA Margin 22.0% 22.2% -1.1% 19.0% 16.1%Depreciation 11 9 22.2% 10 10.0%Interest 11 9 22.2% 10 10.0%Net Profit 163 143 14.0% 76 114.5%

EPS 1.36 1.19 14.3% 0.63 115.9%Source: Company, Greshma Research

Industry Overview

The Indian IT industry has witnessed a strong recovery over the last few quarters after facing a bleakoutlook following the onset of global economic slowdown in the last quarter of 2008. The recoverywhich started with pent up demand and cost cutting initiatives by large MNCs is now progressing asmajor companies across the world start hiking IT budgets gradually. According to the estimates

prepared by the industry body Nasscom, the sector has grown by around 6% in FY10. However, eventhough the growth was much slower compared with historical performance, the industry has certainlyput the worst behind it.



January 19, 2011



Life Sciences

During 2009-10, the healthcare vertical constituted about 5 per cent of the total Indian IT services

exports of $27 billion and over the last 5 years, it has grown at a CAGR of 24 per cent to $1.3 billion. TheIndian healthcare sector is expected to become a US$ 280 billion industry by 2020 with spending onhealth estimated to grow 14 per cent annually, according to a report by an industry body. At presentthe sector is estimated to be around US$ 40 billion and will grow to US$ 78.6 billion by 2012. Accordingto Union Budget 2010-11, the Finance Minister, Mr Pranab Mukherjee increased the plan allocation forMinistry of Health and Family Welfare from US$ 4.2 billion in 2009-10 to US$ 4.8 billion in 2010-11.

Spending on hospital services, doctor visits, medicines and other health needs rose 4 percent to $2.5trillion in 2009 compared with 4.7 percent in 2008. The growth in spending on hospital services in USover the coming decade is expected to be the slightly higher. The health expenditure is expected to

grow at a CAGR of 6.3 percent for the next 10 years. This growth in spending on hospital services bringsthe opportunity in Life Sciences segment. The global biopharmaceutical R&D spending is estimated tobe $172 billion with an 18% CAGR for the next three years. Of the total global bio-pharmaceutical R&Dspend, outsourced work amounts to $30 billion/year, while the clinical and regulatory spends could wellcross $7 billion/year.

Supply Chain Management

To date, globalization has resulted in higher profits mainly because of rapid revenue growth. But assupply chains get smarter, companies will be able to address efficiency issues as well. For example,increased visibility from highly instrumented and interconnected supply chains will help companiesidentify and eradicate global delivery bottlenecks and quality problems. In addition, decisions aboutmanufacturing locations and suppliers will no longer be dominated by a single cost element like labour.

Since 2005, SCM market has grown at a CAGR of 7%, the growth rate would have been much higher butdue to global economic downturn the growth in SCM was slow down. However, during the globaldownturn in 2008-2009 SaaS based SCM solutions grew by a CAGR in excess of 20 percent. Historically,SaaS has enjoyed significant market presence only in transportation segment but now going ahead SaaSsolutions will grow faster than traditional software and services, this growth in SaaS is primarily due tocustomers shift from technology based application to technology enabled solutions. ARC AdvisoryGroup has forecasted the worldwide market for Supply Chain execution to be over $ 7.4 billion in 2011.



January 19, 2011



Financial Summary

Consolidated P&L (Rs in Mn)

Particulars 2009A Q1FY10 Q2FY10 Q3FY10 Q4FY10 2010A Q1FY11 Q2FY11 2011E 2012EOperatingIncome 3,354 783.5 864.9 915.5 953.9 3,518 1,084 1,173 4,800 7,800TotalExpenditure 2,621 677 721 760 839 2,997 853 990 3,754 6,162EBITDA 733 107 144 155 115 521 231 184 1,046 1,638EBITDA Margin 21.9% 13.7% 16.7% 16.9% 12.0% 14.8% 21.3% 15.7% 21.8% 21.0%Depreciation 34 57 58 64 44 43 64 11 208 259EBIT 699 50 87 91 71 478 167 173 839 1,379Interest 18 9 10 15 8 39 9 11 86 74

Other Income 49 13 37 33 47 146 13 13 56 92ExceptionalItems -135 -12 -10 -12 34 -180 - - -10 -19PBT 595 42 103 97 144 405 171 175 798 1,378Tax 55 1 7 32 3 42 20 8 144 276PAT 540 41 97 64 141 363 151 168 655 1,102PAT Margin 16.1% 5.2% 11.2% 7.0% 14.8% 10.3% 13.9% 14.3% 13.6% 14.1%


Valuation Summary

Particulars 2009A 2010A 2011E 2012ERevenues (INR mn) 3,354 3,518 4,800 7,800EBITDA (INR mn) 733 521 1,046 1,638Net profit (INR mn) 529 324 655 1,102Capital Employed (INR mn) 3,971 4,001 5,004 6,008Market Cap(INR mn) 3,592 3,592 3,592 3,592Market Cap/Sales, x 1.1 1.0 0.7 0.5Gross Block (INR mn) 387 458 1,034 1,229EPS, Rs 4.3 2.6 5.1 8.6CEPS, Rs 4.6 3.0 6.8 10.7BVPS, Rs 30.5 29.9 35.2 44.2P/E, x 6.79 11.08 5.78 3.43P/BV, x 0.96 0.98 0.83 0.66EV/EBITDA, x 4.7 6.6 3.3 2.1EV/Sales, x 1.0 1.0 0.7 0.4



January 19, 2011



Consolidated Balance Sheet (Rs in Mn)Particulars 2009A 2010A 2011E 2012E

Sources of FundsShareholders FundsShare Capital 169 120 120 120Reserves and Surplus 3,564 3,538 4,192 5,295Minority Interest 126 198 198 198LoansSecured Loans 151 289 624 546Unsecured Loans 87 55 67 47Deferred Tax Liability 39 35 35 35Total Liabilities 4,135 4,235 5,237 6,241

Application of FundsFixed AssetsGross Block 387 458 1,034 1,229Less: Depreciation 257 297 505 764Net Block 130 161 529 465Goodwill 1,867 1,735 1,735 1,735Investments 565 502 502 502Capitalised Software Product 679 713 713 713Deferred Tax Asset 1 - - -Current Assets

Inventories 24 81 110 179Sundry Debtors 608 648 884 1,436Cash Balance 537 476 801 1,145Loans & Advances 741 819 1,117 1,816Total Current Assets 1,909 2,023 2,912 4,576Current Liabilites 789 699 954 1,550Provisions 226 200 200 200Total Current Liabilities 1,015 899 1,154 1,750Net Current Assets 894 1,124 1,758 2,826Total Assets 4,135 4,235 5,237 6,241Source: Company, Greshma Research



January 19, 2011



Cash Flow Statement (INR in mn)Particulars 2009A 2010A 2011E 2012EPAT 540 363 655 1,102Depreciation 43 34 208 259Non-Cash Adjustments 532 -238 - -Change in working capital -448 24 -309 -723Cash Flow from operation 667 183 553 638Capital Expenditure -75 -88 -576 -195Change in Investment (Dec)/inc -494 -214 - -Other investing cash flows -533 45 - -Cash Flow used in investing -1,103 -257 -576 -195Issue of equity' - -49 - -Issue/Repay Debt -61 105 348 -98Dividend paid -26 -24 - -Other financing cash flows - -18 - -Cash Flow from Financing -88 14 348 -98Net Cash -523 -60 325 345Opening Balance 1,061 538 476 801Closing Balance 538 476 801 1,145


Key RatiosParticulars 2009A 2010A 2011E 2012E

EBIDTA % 21.9% 14.8% 21.8% 21.0%PAT % 15.8% 10.3% 13.6% 14.1%ROE % 14.2% 8.9% 15.2% 20.4%ROCE % 13.3% 8.1% 13.1% 18.4%ROA % 12.8% 7.7% 12.5% 17.7%Growth Ratios (%)Income growth 14.1% 4.9% 36.5% 62.5%EBITDA growth 5.6% -28.9% 100.8% 56.5%PAT growth -2.0% -38.7% 101.9% 68.4%Turnover Ratios

Asset Turnover x 0.8 0.8 0.9 1.2Creditors Days 109.9 85.1 92.8 91.8Debtors Days 66.2 67.2 67.2 67.2




January 19, 2011



Strategic Alliances

Recently Disclosed Strategic AlliancesStrategic Alliance Name Company Name Primary Industry Source

Cadila Pharmaceuticals, Ltd. Take Solutions Ltd.(BSE:532890)

Pharmaceuticals Key DevelopmentClientAnnouncements Apr-29-2009

Cegedim RelationshipManagement

Take Solutions Ltd.(BSE:532890)

Health Care Technology Key DevelopmentStrategicAlliances Aug-10-2010

Hewlett-Packard Company(NYSE:HPQ)


Computer Hardware Take Solutions Ltd.(BSE:532890) - Form Doc

International BusinessMachines Corp. (NYSE:IBM)


IT Consulting and OtherServices

Take Solutions Ltd.(BSE:532890) - Form Doc

Liquent, Inc. Take Solutions Ltd.(BSE:532890)

Health Care Technology Take Solutions Ltd.(BSE:532890) - Form Doc

Microsoft Corporation(NasdaqGS:MSFT)


Systems Software Take Solutions Ltd.(BSE:532890) - Form Doc

Oracle Corp. (NasdaqGS:ORCL) Take Solutions Ltd.(BSE:532890)

Systems Software Take Solutions Ltd.(BSE:532890) - Form Doc

Qlik Technologies, Inc.(NasdaqGS:QLIK)


Application Software Take Solutions Ltd.(BSE:532890) - Form Doc

The DataMAX Software Group,Inc.

TAKE Supply Chain Systems Software Key DevelopmentClientAnnouncements Apr-20-2010

University of California Take Solutions Ltd.(BSE:532890)

Education Services Take Solutions Ltd.(BSE:532890) - Form Doc

W. J. Towell & Co. LLC Take Solutions Ltd.(BSE:532890)

Real Estate OperatingCompanies

Take Solutions Ltd.(BSE:532890) - Form Doc

Source: Capital IQ



January 19, 2011



Greshma`s CSI Ranking Model:Valuations: ACSI: 4/5

(CSI is arrived on the basis of the underlying strength of the company on the basis of fundamentals andgrowth prospects)

V a l u a t i o n

> 20% A

HOLD BUY

STRONG BUY:Take Solutions Ltd

+5% TO+20%

B

-5% TO+5%

C REDUCEHOLD

-5% TO-20%

DSELL

< -25% E SELL

1 2 3 4 5

VERYPOOR

POOR MODERATE GOOD VERYGOOD

Core Strength Index

Greshma`s Risk Return Matrix:The company is currently positioned as 2/5 on the risk return model which indicates that there is a highpossibility of return with risk being limited.

5

4

3

2

1 1 2 3 4 5

Ret

urn

Risk

1 -Low Risk Low Return

5- High Risk High Return



January 19, 2011



Technical View

The stock has corrected after making the high of 40 in Aug 2010 and currently trading belowits 200 and 50 DMA. We may see resistance in stock between 33-35 levels, while 23 is likely toact as a strong support.

The technical indicator stochastic is currently in over-sold territory and likely to remain inover-sold zone for some time. RSI is also indicating declining trend and we may see stockunder pressure in near term.

We advise investors to buy the stock on dips at close to support levels. Aggressive positionscan be made once it closed above 34 levels.

Supports Resistance

1 27.5 35.0

2 23.0 42.0



January 19, 2011



Expected Stock Performance:

Period Performance

Short Term (1-3 months) Market Performer

Mid Term (6-12 months) Outperformer

Long Term (more than 12 months) Outperformer

Derative Strategy:

Period Cash Short Term NA

Mid Term NA

Long Term NA

take solutions ltd _ greshma

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