TAKE SOLUTIONS LTD- will you take it?


(alterego) #312

TAKE has issued a comprehensive note to their shareholders which details their complete journey since inception and addresses all queries. This is a welcome move by the organisation. I see the communication live on the exchanges, please check out the link below:


(Shivram) #313

Looks like Moneylife has kept its best for the last. Nice analysis. Highly unlikely these evidences can be explained away. Looks like pre and post ipo significant shares were bought and sold by parties with a history of price manipulation.

The most telling conclusion of all…


(esoteric) #314

Read the Final instalment.The report is more about Atlanta than Take.Also there was no reply to the release that the company made after the second part.
The first part spoke about earnings and lack of disclosures,comparison with international companies which made sense.

The second and third part have only speculated about some investor trading or having invested and insinuating that he might have manipulated the price.
My inference is that Debasish feels there is no comparable company and hence valuation is difficult, has no large institutional investors and hence may not be a good company to invest in. Couldn’t find anything substantial for or against the company.


(sachit) #315

Is it just me or is this latest installment of Moneylife article quite weak in its merits?

Disc: No investments in Take, considering a small investment


(alterego) #316

Should this title be curious case of Debashis Basu targeting TAKE Solutions?
Still trying to figure out what the article has been about and its objective. While it definitely has helped the organisation explain its business and now all uncertainties have been resolved.


(deepmindnc) #317

In a way, this half baked series of articles could lead to a greater good, if it means the hitherto not very transparent management team gets its act together and puts out more operating information about their company, the working capital and other asset growth going forward required to grow revs. The two disclosures are a good idea. What would help further would be a conference call with Q&A and a commitment from them to either get Apte to consolidate the audit of subs or get a Big-3 auditor in by FY20 (this can only be done at their next AGM). They could do a concurrent audit in the meantime but I don’t see what this accomplishes except the fact that a lot of FIIs who understand this business well probably want the comfort of a Big-3 before they enter


(alterego) #318

Promoters of TAKE have continuously reiterated their confidence and commitment including the latest investments, without having ever sold or encashed their investments


(shreyas1705) #319

On the contrary, I am not able to turn-down a few observations made by Moneylife.

  1. No marquee institutional investors even at the current valuations.
  2. A couple of reputed investors exiting their positions completely.

While the second criticism could be for numerous reasons, I can’t turn a blind eye towards the first especially when the Market Cap. is at c.2,000Cr. This is on top of the fact that the management has been doing presentations, concalls, appearances on business shows, etc.


(deepmindnc) #320
  1. Kindly take a look at shareholding before making uninformed comments. Schroder, First State and Taiyo are marquee funds which any Indian mutual fund analyst would die to move to. The sad fact is that this whole hungama could scare their ICs into exiting the company given the overall perceived risks with governance at Indian midcap companies. Analysts abroad understand this business and the business model, given the large number of comparable players in the industry, unlike analysts in mutual funds in India who generally won’t buy names, especially complicated names without sell side coverage. This company has no listed peer and no IT sell side analyst is going to understand it or bother covering a company with 2-3cr daily liquidity. It should actually be covered by a pharma analyst but the same catch-22 applies to pharma analysts as well.

  2. Why the Dhawans and Kacholia moved in or out is their decision. The stock moved up from the 30s levels to 120-130 levels in the Modi rally after which it became quite expensive purely on multiples. So a decent reason to move out


(esoteric) #321

I remember Dhawan made more than 3x but Ashish entered around Rs24-26 and exited around ,Rs40.He had a better opportunity at that point of time and exited this.


(deepmindnc) #322

Mr Kacholia is an outstanding trader


(ASPN) #323

Two fresh acquisitions for which TAKE will shell out USD 72 Million.

(1) KAI Research (USD 27 MN) is a Clinical Research Organization (CRO) based in the US. With this acquisition, TAKE acquires Phase II and Ill capabilities in North America.
(2) DataCeutics (USD 45 MN) is a Clinical data management company which provides services to pharma companies in the US.

@crazymama, are you still tracking this company?


(Vishnu Ch) #324

Have not been tracking the company for more than a year now.

My basic observations are the following:

  1. As it is a cash transaction, it should be considered as a positive.
  2. Both companies are being acquired at EV/Sales multiple of 2.5 which seems to be around the median for CRO’s globally.

Reference:
http://www.brocair.com/pdfs/CRO_Market_Analysis_September_2016.pdf
http://www.brocair.com/pdfs/CRO_Market_Analysis_June_2017.pdf

Like I had mentioned earlier, the rationale continues to be “narrative” driven (with large reliance on mgmt commentary) rather than numbers.

Being the only listed pure-play Pharma/IT company it becomes a double edged sword. While it may have a premium it will also be shunned for being too esoteric (b/s and multiple subsidiaries) and being in the “too-hard” pile.

As long as one does not have more granular numbers to probe and compare with global peers or at least some sort of unit economics variance YoY, it will continue to be narrative driven.


(shreyas1705) #325

The two acquisitions amount to USD 72m (INR c.500 Cr). However, the Cash and Cash Equivalents on the BS as on Q2 2019 is roughly USD 47m (INR c.330 Cr). With the assumption that the company will resort to debt funding for the balance USD 25m (INR c.175 Cr), one can assume an additional annual interest expense of INR c.10 Cr.

Now, both the targets together are generating USD 30m (INR c.210 Cr) of revenues. Assuming a PAT margin of 6% (as they are small players), the sum total of PATs from both come out to be USD c.2.4m (INR c.17 Cr). While the total interest expense is USD 4.2m (INR c.30 Cr) i.e., a net-net deduction of USD 1.8m (INR c.13 Cr) from the P&L.

Srinivasan has maintained that he’s waiting with Cash for a transaction which is EPS accretive. I don’t think that has happened with KAI and Dataceutics. The situation is going to worsen a little more with the impending rate hikes in 2019 by the Fed. I feel he’s trying to arrive at his target of reaching half-a-billion revenue for 2020 through inorganic route. Another 2-3 years of muted PAT growth due to higher interest expenses?

The saving grace is that the company is growing at c.25% organically. This should compensate for the softening EPS.

Could someone who has more understanding of Life Science and Clinical Trial business please clarify whether the acquisitions are going to bring in any synergies or it was solely done with the intention of having bigger pie in the industry?

Note: Excuse any mistakes, all the calculations are back-of-the-envelope


(esoteric) #326

I haven’t seen the finer details of acquisition made.But two of your assumptions are based on wrong premise.
The borrowings will be in US $ as the major revenue and profits of the co.is from it’s US subsidiary and the rate of interest will be 3-4 %.

Secondly the parent was looking at about 5 cos.for acquisition.They have announced two.Most likely there will be one or two more over the next 8- 16 months.
The acquisitions are being done to strategically fill the gaps in the life sciences business.These are being done to enhance net profit margin and hence to assume that NP margin of the acquiree cos. will be 6% is incorrect.
The NP Of the acquiree cos will be greater than the present NP margin of the parent as the purpose of acquisition is to increase margins.
They have a 100 odd bed facility hospital in various locations for clinical trials.This gives them flexibility to conduct trials in their own hospitals and very often speed up the clinical trials.So if they made x amount as fees for a clinical trial to be done over 12 months in outside hospitals, by carrying out trials in their hospitals they complete it in 9 months and get 1.2x ( these are examples and not exact figs)as fees as the client gets a chance for early launch and higher profits which he is willing to share.
The new acquisitions are being made to fill strategic gaps in trials and enhancing margins.
Subject to write off of legal/ travel/ consultant fees for acquisitions in the first year the margins will definitely be higher than what it is at present.


(alterego) #327

@Shreyas1705: TAKE has advised earlier in their Earnings Release about the intent of US acquisitions to address strategic gaps in their offerings. The latest announcement also mentions expanding CRO offerings to US, and something about DataSciences. As synergies, the company mentions strengthening of customer relationships and team strength. I believe we can expect to hear more details as the deals get closed.


(shreyas1705) #328

The stock price has fallen c.35% since the announcement of the acquisitions was made reflecting that the news hasn’t gone down well with the investors. The management did indicate in the concall that the targets are operating at lower margins than Navitas and a lot of work needs to be done there to improve the margins.

This was further aggravated by the Q3 results which was mediocre in my view. The one-time exceptional costs pertaining to the transaction coupled with slower revenue growth (c.17% y-o-y dollar term in Life Science business) has made a dent. Also, Mr.Srinivasan hinted towards another exceptional cost of moving a part of the clinical trial value chain process in Europe to India in the next quarter.

So, a short term pain could be expected in the coming quarters. It’s only fair that the share price is trending downwards.

Well, the way I see the acquisition story unfolding is that it opens up their entry into the lucrative clinical trial vertical in the US, where the majority of their presence was in the regulatory business. If they succeed in cross selling their clinical trial business to their marquee clients from the regulatory, there will be a significant value addition. The company is rightly making investments towards bringing the best talent on board.

And, regarding the organic growth, I was personally disappointed with the Q3 performance. Although I can understand the one-time exceptional losses incurred towards the acquisitions (working for an investment bank I know how expensive these advisory services are), the missing of project deadlines which affected the Q3 business is a major concern.

But, I feel the story is intact and in fact, has become more exciting with the acquisitions. Let’s wait and see how the story pans out. The positive is that the MD and CFO have bought shares in November from the open market. After all, no one understands the business better than the management.


(Whipsaw) #329

One of the comments in Moneylife article

Adam Goldstein

3 months ago

I was connected with the CFO Subhasri Sriram and sent her the following email with what I believe were very legitimate questions. I received no response whatsoever, which I consider a very bad sign. Indicates to me that my questions made her uncomfortable. Here is my complete email, so anybody interested can decide for themselves if my questions deserved absolutely no reply whatsoever.


Subhasri,

Thanks for your reply.

I manage my own and some family/friends money in the USA. I’m a long-term value-oriented investor, and I’ve come across TAKE solutions in my search for undervalued stocks. I should also mention that I’m a member of an exclusive online investment website called “Value Investors Club” (https://www.valueinvestorsclub.com) which is populated by around 500 value-oriented hedge fund managers. So, if I end up investing in TAKE I’ll probably write up an investment pitch on the site which may lead to further institutional interest.

I’ve been doing this for quite a while, so I can tell you that it’s highly unusual to come across a stock trading at such a low P/E ratio when the company is growing so fast, has good EBIT margins and reasonable ROE, low financial leverage, and is in a specialized and fast growing field like life science services and software.

The main question marks in my mind are (1) disparity between earnings and cash flow, (2) corporate structure and low tax rate, and (3) auditors.

(1a) I can understand that a fast growing company with high DSO needs to invest EBITDA in working capital as the revenue grows. That results in a consistent cash drain due to increases in working capital. What concerns me, however, is that even in fiscal years FY2014 and FY2015, when revenue was declining, there was still cash drain due to increases in working capital. Can you help me understand why TAKE has consistently had a cash drain due to WC increase, even in years when revenue was declining?

(1b) On Page 8 of the H1 FY2019 MD&A titled “Fund Flow”: can you help me understand the line “Increase in other assets”? This is a large amount: 1,503M INR. What types of assets are these? Is it mainly “unbilled revenue” and other operating capital, or is it mainly mutual fund investments and other non-cash securities? Also, does “Capex” of 149M INR include both “Purchase of Fixed Assets” and “Product Development Expenses” line items in the Consolidated Statement of Cash Flows?

(2) TAKE’s corporate structure is quite complex, and the role of the private Singapore entity is a bit unclear to me. This complexity may be related to the company’s surprisingly low tax rate.

(2a) Does the public company have any operations and employees in Singapore, and does that contribute to the low consolidated tax rate? Is there any disclosure on percentage of revenue from each tax jurisdiction so investors can understand the low tax rate?

(2b) VC/MD HR Srinivasan and CEO Ram Yeleswarapu receive no cash salary from the public company, yet they provide key management services to the public company. This arrangement seems quite unusual, could you help me understand this? Do they receive a cash salary from the private Singapore entity?

(2c) In the IPO prospectus the indirect ownership stakes of Mr. Srinivasan and Mr. Yeleswarapu were disclosed, but I wasn’t able to find any updated disclosures on indirect ownership of key insiders after the IPO. Perhaps this is a significant difference between Indian and US securities laws; in the US, indirect ownership stakes must be publicly disclosed when there’s a change. Can you provide updates to indirect ownership stakes of key insiders? I’m also interested in the indirect ownership stake of the Shriram Group, can you provide this?

(3a) Given the corporate structure complexities and cash flow issues described above, it would probably give institutional investors more comfort if a major international accounting firm audited the company’s books. Has this been considered? This would probably improve the company’s stock market valuation considerably.

(3b) In the 2017-2018 Annual Report on Page 56 the auditor states the following:

“We did not audit the financial statements of subsidiaries as at and for the year ended March 31, 2018, whose financial statements reflect groups share in total assets of 1,24,143.15 lakhs as at March 31, 2018, total revenue of 1,32,558.65 lakhs and net cash outflow amounting to` 10,960.17 lakhs for the year ended on that date as considered in the consolidated financial statements. The financial statements of these subsidiaries have been audited by the other auditors whose reports have been furnished to us by the management, and our opinion in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and our report in terms of sub section (3) of section 143 of the Act insofar as it relates to the aforesaid subsidiaries is based solely on the report of such other auditors.”

So, it sounds like GD Apte did not audit 132558.65/158724.3 = 84% of consolidated revenue. I tried looking through the subsidiary financials on the website, but even for subsidiaries GD Apte did audit it’s unclear whether they also audited the step-down subsidiaries. Basically, I’m having trouble reconciling this 84% number and understanding who audited all the revenue. Can you help me with this? Who audited the 84% of consolidated revenue not audited by GD Apte?

Thanks for your help,
Adam Goldstein


(shreyas1705) #330

I am trying to answer the first part of questions.

1a) The total revenues cannot be read in isolation. The company was transforming its business from SCM to Lifescience during the quoted years. Accordingly you will see a fall in revenues from SCM to the tune of 10% in 2014 and 30% in 2015 while the Lifescience business grew at c.4% and c.11%. We saw receivables increasing at a similar rate.

1b) Well, the management didn’t conduct conference call for 2019 q2 to clarify this. But, looking at the historical reports it can be reasonably assumed the “other assets” are mostly “Unbilled revenues”.

I am not trying to defend the management for its unresponsiveness. But, again an investor shouldn’t expect to be spoon fed too when you have data at your disposal.


(vaibhav choudhary) #331

Hello,
i mailed some of my queries to IR at the company, but did not get any response after multiple followups.
Here are my queries.

  1. If we look at our subsidiary, TAKE GLOBAL PTE LTD. from which we derive major portion of our revenues, the reported growth rate of Software, Consultancy and Services Cost is very high as compared to growth rate of revenues. I wanted to know what kinds of services or software the company pay for. Do we have to use IPs of other companies to provide our services? Are these costs sticky or can we substitute these costs with our own developed IPs?
    Does our company subscribe for any other IPs of our competitors to become end-to-end integrated services provider?
    image

  2. Do we have SAP, OPENTEXT as our partner in developing any software? I could not find Navitas in their partners list. If yes, then by what co. Name are we registered as their partners?