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Take Solutions (TAKE IN) Summary

Core Content and Overview

Take Solutions is a global technology solutions and services provider focused on life sciences and supply chain management. The report highlights its financial performance, strategic initiatives, and market positioning. In 1Q19, the company reported earnings per share (EPS) in line with expectations, with a revenue decline of 0.9% quarter-over-quarter (QoQ) due to the base effect from the previous quarter's strong performance. However, new orders increased by 50% year-over-year (YoY), indicating strong revenue visibility. The company is also in active discussions with at least four potential acquisition targets, which could boost its life sciences revenue closer to the FY21 target of USD500m.

Main Points and Key Information

Financial Performance

• 1Q19 Revenue: USD69.7m, down 0.9% QoQ but up 27% YoY.
• Life Sciences Revenue: USD190.2m, representing 91% of total revenue.
• Order Book: Increased to USD199.7m, up 37% YoY and 6% QoQ.
• Book-to-Bill Ratio: 1.17x, up from 1.05x in 1Q18.
• Clinical Revenue Share: Increased to 30.3% from 29.2% in FY18.
• EPS Growth: Forecasted at 31% CAGR for FY19-21E, with core EPS reaching INR22 in FY20E.
• P/E Ratio: Traded at 12.3x FY19E and 9.4x FY20E, which is a premium to its 5-year average.

Strategic Initiatives

• M&A Activities: The company is in discussions with potential acquisition targets in the range of USD20-35m, with the aim of enhancing capabilities, expanding market reach, and gaining technology platforms.
• Acquisition of Ecron Acunova: In Dec 2015, this acquisition marked TAKE's entry into clinical research and transformed it into a full-service provider.
• Geographical Expansion: Facilities in Bangalore and Princeton have been expanded, and the Chennai facility became operational in Apr 2018.
• FDA Inspections: Facilities in Bangalore and Manipal were successfully inspected by the US FDA with no observations, enhancing credibility and market penetration.

Market Position and Competitive Landscape

• Navitas Life Sciences: Ranked in the leadership quadrant by IDC in 2018, ahead of competitors like Accenture, TCS, and Cognizant.
• CRO Competition: Despite competition from clinical research organizations (CROs), TAKE's strategic focus on clinical research and M&A is expected to strengthen its market position.
• Industry Consolidation: Mergers and acquisitions in the CRO space, such as IQVIA's merger of Quintiles and IMS Health, are seen as opportunities for TAKE to enhance its offerings.

Financial Forecast and Valuation

• Revenue CAGR: Forecasted at 23% for FY19-21E, driven by a strong order book.
• EBITDA CAGR: Expected to improve to 25.4% in FY21E from 12.7% in FY18.
• Core Net Profit: Forecasted to grow at 25.4% CAGR, reaching INR4,005m in FY21E.
• Valuation: The company is valued at 12x FY20E EPS, which is a 20% premium to its 5-year average P/E.
• Price Target: Maintained at INR270, with a 12-month target of INR270 (+32% from current price of INR205).

Financial Metrics and Ratios

Price Drivers and Investment Outlook

• Price Performance: The stock has shown a 48% increase over the past 12 months.
• Catalysts: Expected from acquisitions and increasing contract sizes.
• Investment Rating: Maintained at BUY, with a 12-month price target of INR270.
• Key Risks: Weak revenue growth, loss of key clients, and acquisitions not delivering expected results.

Conclusion

Take Solutions is positioned for growth in the life sciences sector, with a strong order book and strategic M&A activities. The company is focusing on expanding its clinical research capabilities and improving profitability through operational efficiencies. Its valuation is based on a premium to historical averages, reflecting its strong earnings growth potential. The stock is recommended as a BUY, with a price target that reflects the expected upside from strategic moves and market expansion.