a. Points raised - Cash generation (854 crores) is much lower than utilisation (1200 crores) over the last 10 years. Past history of other companies shows that this strategy usually ends in disappointment.
b. Poor institutional interest.
c. Inconsistency in what APA (a subsidiary does) - auto parts manufacturer or Global sourcing? No synergy between auto-parts manufacturing and software company.
d. Inconsistency on when Navitas started operations in Columbia (2015 or 2017?)
e. No bio-profile of senior executives in the website.
f. No names of clients on website and no client testimonials
I guess whether this is considered material or not most likely depends on whether you hold stocks of this company or avoided it Only time can give an answer to that question.
Driving requires looking forward in the windscreen and taking driving decisions based on emerging road conditions. Driving decisions are not taken by looking in the rear view mirror.
Similarly investing requires looking at the future evolution of the business environment and taking decisions to create value based on the same. This is where capital allocation skills of the management makes a difference. Moving away from traditional supply chain IT business to niche life sciences business was a bold decision in the journey of the company and I think they even hired a global consulting firm to advise on the strategy.
Is the strategy paying off? From the growth number it looks like.
Are the issues raised by Moneylife so damning that the integrity of Management and competencies of Management is a question mark? not so sure (Although i have not read the report. It is based on the information posted on this thread)
My only expectation from TAKE would be to see far greater amount of free cash flow being generated. Investing in projects that enhances the cashflow generating ability of the business is acceptable. However cashflows being used to finance disproportionate increase in Working Capital reflects a commoditised nature of business, with growth being driven by financing the business of customers through increased DSO.
This is in disconnect with comments from the management citing that this is a niche business, with high entry barriers.
Clinical Research, Product Registrations, Pharmacovigilance, Serilisation projects in Europe, BA / BE are niche with high entry barriers. Every country in the world has these requirements before pharma products can be sold in that country. One can imagine the potential that this creates. Combined with technological platform, this can result in highly sticky customer base.
One could give the benefit of doubt for sometime. Lets see how the numbers evolve.
I am waiting to read the transcript of the investor call. This has not been posted yet.
@shreyas1705 It is surprising that you talk about corporate governance issues. The company has received excellence in Corporate governance for 2 years in succession.
There is a difference between Corporate governance and transparency. There is absolutely nothing even after the Moneylife articles (where Debashish Basu who is being roundly discredited in the comments to Part 2 is himself saying we are not saying there is any fraud) which proves fraud or routing of money or any kind of silver plating. So there is no reason for them not to win this award.
What needs to improve is investor communication, the first signs of which are emerging after the response to Part 1 of the Moneylife article
As an aside, you have to wonder about Basu and Moneylife & Co.'s motives for writing this series when there are 1001 operator run, cooked up nos companies on the bourses. Are they being compensated to do this by someone who wants to stock beaten down, who knows?
One other reason Takeās balance sheet numbers look bloated is the large swing in INRUSD. Let me explain
If Take did $100m in revenues in 1HFY19, it probably expects to get paid to do the work sometime in 4QFY19. So that is 640cr of revs booked at the earlier spot rate. Now that INR is at 74, the earlier $100m receivable is booked as 740cr on the balance sheet while the revenues booked in 1QFY19 and 2QFY19 are translated at daily average FX rates of 64,65,66 etc. So while Take will make a large translation gain when it collects the money, the optical balance sheet working capital looks bloated relative to revenues booked. The right way to analyse this company is to probably look at all billing, P&L, BS in USD terms
The US subsidiary is audited by a CPA as per rules governing audit of companies in US.Therefore to say US auditors are afraid of going to jail compared to Indian auditors is not relevant.The subsidiary books are consolidated by the Indian auditor.I am sure the company will respond as to who the US auditor is.
By the way since you mentioned Enron see the top 5 who audited companies like Lehman, Wachovia,Merrill Lynch,Bear Sterns, Washington Mutual, Freddie Mac,Fannie Mae ā¦None could foresee how fragile the finances were.
Just they have completed selling off their logistics business which was a drag and instead concentrate on Life sciences.Pursuant to that they have decided to focus on Europe and make more acquisitions in US.
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:
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.
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. Couldnāt find anything substantial for or against the company.
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.
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 donāt 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
Promoters of TAKE have continuously reiterated their confidence and commitment including the latest investments, without having ever sold or encashed their investments
On the contrary, I am not able to turn-down a few observations made by Moneylife.
No marquee institutional investors even at the current valuations.
A couple of reputed investors exiting their positions completely.
While the second criticism could be for numerous reasons, I canāt 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.
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 wonāt 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.
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
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.
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.
Like I had mentioned earlier, the rationale continues to be ānarrativeā 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 ātoo-hardā 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.
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 heās waiting with Cash for a transaction which is EPS accretive. I donāt 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 heās 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
Only time can give an answer to that question.