Thanks Donald for taking the time and giving a concise review.
Agree with ur assessment on most of the points.
On the other hand i also agree with Rohan with regards to the Opto Comparison.
I have taken the liberty to use the excellent thesis u had done on Opto way back in 2009, to clarify my point of view.
Unlike Opto, which had made acquisitions at far more higher valuations (in terms of EV/Sales), Take haven't paid too high a price. Below is a snapshot from Ambit report.
While the big acquisitions made by Opto were higher-ticket sizes and some of them at higher valuations.
EuroCor: €11 mn against expected revenue of €4 million
Opto has recently completed (April 2008) the $70 million acquisition of Criticre... reported revenues of $19.4 million in H1FY2008 with an OPM of around 10%.
But, the larger point of a poor record with the acquisitions is again debatable as one could argue that the lack of better numbers from the inorganic pathway is due to the low margin SCM segment which has far more subsidiaries than the life sciences, as well as the higher share of acquisitions.
PharmaReady was acquired through OnSphere (which I initially thought was homegrown). WCI has been mixed, while Applied Clinical was divested this year due to differences in opinion on future strategy.
It was only last year that all the subsidiary results were disclosed separately.
Applied Clinical had actually tripled their Net Profit.
Again, given the complicated capital structure and above average number of subsidiaries, it is difficult to say where the working capital is tied up/dragging on the OCF. Is it with the SCM or LS?
Having said all of the above, i had begun my investment 70:30 in favor of the mgmt (given the Shriram group pedigree). Now, i am pretty much neutral. While i don't expect the business to go kaput in the next 6 months due to cash crunch/fraud (this is where i feel Shriram group acts as a natural check, as it impinges on their integrity as well), there is a good chance that the momentum in earnings from the last 3 quarters can continue.
I feel the divestment of the SCM will be a very good trigger as lot of the subsidiaries would be done away with and we could have a much cleaner balance sheet which is the biggest hurdle right now for anybody to do a full-fledged analysis, esp. a non-financial guy like me (Frankly, i get a headache every time i have made an attempt to read the 212 page subsidiary report)
To summarize, there are 2 tangible things which we can track in the next 2 quarters:
- Improvement in margins from EA as promised by HR Srinivasan (btw i feel one should give more importance to what Ram Yeleswarapu says given the fact that he was the one who started the LS practice) in next 2-3 quarters.
- Increased traction in PharmaReady customer-base given the US FDA May 2017 deadline for eCTD submissions(Not expecting it to double, but they should be adding/converting existing clients - say around 20 to 25). I think it is reasonable given the pace at which Veeva is growing.