Stock Review: Take Solutions

 

Take Solutions is witnessing a turnaround in operations on buoyancy in its major business segments. The stock looks attractive at the current levels

 

CHENNAI-BASED 352-crore IT company, Take Solutions, operate in the niche areas of supply-chain management and life sciences. The company had reported a sharp fall in net profit in FY10 following a slump in demand for its solutions due to the economic turmoil in the US and Europe. But since the March quarter, the company has been witnessing a gradual recovery in demand and is expected to post growth in FY11.

BUSINESS:

Incorporated in 2000, Take Solutions is a global technology solutions and services provider. The company is serving a wide and diverse customer base of 400 marquee clients across 16 countries with a diverse set of products and services across the industry value chain. It has nearly 20% domain experts in its total employee base of 750. The supply chain management (SCM) division contributes 52% to revenue and another 43% comes from the life sciences solutions. It earns nearly two-third of the revenue from the US, while the remaining is from the Asia Pacific region. In the life sciences vertical, the addressable space is worth $16 billion. The market potential for SCM solutions is worth $54 billion. Given the current business size of the company, it still has a wide scope of growth in these segments.

GROWTH:

The company has focused on organic growth as well as strategic acquisitions, which have helped in increasing its product portfolio and market reach. The company is well equipped to expand in the new regions across global markets such as Europe wherein it is likely to increase its realised revenue to 20% over the next three years. The company has recently launched a suite of applications in the SCM vertical to tap the increasing opportunities in the cloud computing space. During the next two years, Take Solutions plans to launch six products in SCM and LS domains together.

FINANCIALS:

Sales and net profit of the company grew at a compounded growth rate of 73% and 112%, respectively over the past six years. After a sluggish performance in FY10, it resumed growth in the June 2010 quarter. During the quarter, the company's net revenue grew nearly 35% to 109 from the year ago. The growth was coupled with improved operating efficiency. It's operating margin improved by 770 basis points to 21.5% during the quarter. Net profit more than doubled to 15 crore. Its order book size has swollen from $43 million in the March 2010 quarter to $52 million currently.

VALUATION:

At the current market price of 36.2, the scrip is trading at just over 10 times its trailing twelve-month earnings. Take does not have a peer in a stricter sense. The small and medium IT companies are currently trading at a P/E between 8 and 12. Given the presence in the high growth industry verticals across global markets, Take Solutions is well positioned to fare well in the coming quarters.