SBICAP Securities Views on Smallcap IT Stocks - TAKE Solutions, Megasoft

TAKE Solutions

TAKE leverages management bandwidth and domain expertise to deliver products for niche supply chain management and life sciences. Supply chain management and life sciences are less impacted by US meltdown (compared to banking, financial services and insurance). The company conducts business in 12 countries with more than 300 customers. TAKE has high exposure (64 %) to North America and has to withstand competition from international players. TAKE’s management is optimistic on its growth prospects for the coming years and also looking at inorganic growth initiatives to strengthen its growth prospects. Its non linear model will help deliver 35% revenue compounded annual growth rate for three years. It looks attractive at FY09 P/E of 6x, FY10 P/E of 4x for a company with return on capital employed and return on equity of over 25%.

Megasoft

Megasoft is a domain centric, intellectual property driven, technology solutions company in the telecom and IT sector. The company’s telecom product focus and geographic profile (USA 50%, Europe 25%) reduces the impact of US meltdown and banking, financial services and insurance (BFSI) turmoil. The company has reported revenues of Rs 850 mn and PAT of Rs 121 mn for the quarter ended June 30, 2008 as compared to revenues of Rs 601 mn and PAT of Rs 94 mn in the corresponding quarter last year. The company has high revenue visibility with an order book — 65% CY10 revenues. Trigger comes from value unlocking of its Rs 3 billion real estate (greater than market capitalisation of Rs 2 billion). It has a non-linear model with high offshore revenues (80%). The stock is extremely attractive at CY10 P/E of 2x with good dividend yield.