Investors with a high risk appetite can subscribe to the Initial Public Offer from Take Solutions, a business solutions provider. At a price band of Rs 675-730 per share, the price-earnings multiple works out to 25.5-27.5 times trailing 12-month earnings, based on fully diluted equity. At this valuation, given the company’s relatively small size, the asking price is stiff. However, Take Solutions’ products business in the supply-chain management and life sciences segments faces few direct competitors. The company’s focus on niche sectors and good management strengthen the case for investment.
Business
Take Solutions is a business technology company with products focussed on the Supply Chain Management (SCM) and Life Sciences verticals. The company now has 16 products in the former and six products in the latter. To aid a foray into new verticals and geographies, the company has relied mainly on acquisition-led growth. The company has seen a substantial ramp-up in its revenues and profits in FY-07, from a relatively small base in the preceding years, making for a limited track record to evaluate its sustainable prospects. Consolidated revenues have seen a jump from Rs 48 crore in FY-06 to Rs 182 crore in FY-07 due to integration of a US-based life sciences business acquired earlier.
Profit margins have been consistently higher than similar-sized peers; but have witnessed moderation to 26 per cent in FY-07, from 33 per cent the previous year. This can probably be attributed to the change in business mix, due to the integration of acquired businesses. Net profits have scaled up to Rs 33 crore from Rs 10.8 crore the previous year.
The share of product licence revenues to the total has grown to 43.21 per cent in FY-07 from 28 per cent two years ago, indicating expansion of product base and market acceptance of products. Increased new product installations as compared to customisation, has seen the share of service revenues decline from 67 per cent to 42 per cent of the total over the same period.
Prospects
Take Solutions scores high on the two factors that would give any company a competitive advantage — business platform strength and domain knowledge. Take’s products are developed on an emerging Service Oriented Architecture (SOA) platform which will support seamless collaboration of the company’s processes with those of external stakeholders. The company’s strength also lies in its domain centricity which could serve as an entry barrier.
In today’s environment where manufacturing and consumption have become highly dispersed, the demand for supply chain execution and collaboration solutions is on the rise.
Take’s product suite in this vertical is well placed to meet this demand. Besides, the recent acquisition of Clear Orbit, USA in June this year, may also strengthen the company’s presence in this vertical. In the life sciences segment, the company offers cost-effective solutions catering to clinical trial planning and management process where 40-50 per cent of the R&D spends occur. Products for regulatory compliance, to aid risk management and governance in this vertical are also being developed.
Risks
A limited track record of operations on the current scale and execution risks associated with the company’s acquisition-led strategy are the key risks associated with this offer.
The aggressive acquisition strategy may lead to difficulties in integrating personnel and operations. Though the company’s intention is to remain strongly product-centric, services still bring in substantial revenues and new product launches were limited in FY-07. Any future shortening of the product life-cycle will also require greater efforts on product development.
Offer details: The company is issuing 21,00,000 equity shares of Rs 10 each to the public out of which 1,00,000 shares is reserved for subscription by eligible employees.
The issue is open from August 1 – August 7, 2007. The company plans to raise Rs 141.7 crore – Rs 153.3 crore through the issue, out of which Rs 83.5 crore is for repayment of debt utilised for acquisitions.
The rest is to be used towards further acquisitions, product development, for developing infrastructure and for prepayment of term loan.