SEBI (Research Analyst) Registration Number: INH200004471


9 May 2018

Take Solutions - Fundamental Analysis

About




Take Solutions (Incepted in 2000) is a Chennai based life sciences and supply chain management service provider. The company's clients include some of the top global Pharma companies. It basically offers knowledge-based end-to-end services in the Life Science space under the brand name Navitas Life Sciences (Drug development - Clinical trials - Regulatory submissions - post marketing safety surveillance).

Business

Take Solutions operates in a highly technical domain and thus understanding the business can be tough for some. Our team has put in a good number of hours to present the business to you in a simple way.


The SCM vertical has seen it's revenue share go down from 43% to 18%, while the revenue share of the Life Sciences vertical has gone up from 57% to 82%. Take Solutions is moving towards become a pure Life Sciences company. Geographically, the company derives 81% of the revenues from USA, 12% from Europe and 7% from Asia. In 2015, the company acquired Ecron Acunova  for Rs 115 crores and this acquisition was aimed at getting the feet deeper into the life sciences business. The entire life science business as been re-grouped under the subsidiary Navitas Life Sciences.

The drug development cycle is long. The major phases of this cycle are: Drug Discovery (Molecule is identified), Pre-clinical trials (Tested on animals), clinical trials (Tested on humans), regulatory submissions (the findings are submitted to regulators), post approval monitoring (reporting of adverse events to the regulator) and manufacturing (drugs are manufactured and sold to the public). Take Solutions provides services in the Clinical, Regulatory and Safety phases.

Take Solutions is the first company in India to have conducted a clinical trial of stem products, further the company claims to have done 7% of all biosimilars trials in India.

Industry Outlook

Why do Pharmaceutical companies outsource? Basically to focus their resources on R&D, marketing. Outsourcing also helps reduce to cost of R&D and helps companies complete the cycle faster.



The life sciences outsourcing market stood at $32 Billion in FY17 and is expected to increase to $37 Billion by FY20. The biggest outsourcers are the large innovators (companies that discover new drugs) while generics (manufacturers of drugs whose patent has expired) account to just 10% of outsourcing market.

Typically, the cost of clinical trials in India and other BRICS countries is half of the cost of clinical trials in USA. It is estimated that of the trials required, just 36% are conducted in USA and the rest are conducted in emerging markets. Further, larger demographics of countries like India and China give a more diverse set of people for trials.

The CRO (Clinical Research Outsourcing) industry is expected to grow on the back of downsizing of workforce of pharmaceutical companies and a steady increase in the number of drugs entering clinical trials. CRO companies are now adding value by providing data management and analysis as the value chain expands.

Financials


Take Solutions has seen a 14.5% rise in revenues for 9MFY18 and the revenues have grown at a CAGR of 18.13% p.a. over a 3 year period till FY17 and at 13.83% p.a. over a 5 year period. Over the last 3 years, the margins have expanded as the profit grew faster than the revenues. The margins and tax rate for take solutions are given below:


The tax rate at 13.54% is lower than the corporate rate of tax in India (~30% + Cess). An investor should further look into the tax exemptions enjoyed by Take Solutions and the period till which these exemptions are there (if any). The margins have fluctuated in a narrow range which indicates that the management tries to maintain a proper profit target for each project.


The return ratios have been picking up since FY14 but still are at lower levels than the FY12 & FY13 numbers. The company has very low debt and has largely remained debt free. The company's return ratios are also above the cost of capital.

Shareholding


The promoters have maintained a high stake in the company and have also increase their stake on YoY basis. The stake of institutions has also gone up while that of retail investors has gone down.

Valuations

PE Ratio - 21
PB Ratio - 3.1
Market Cap - 3,223.5 Crores

Take Solutions trades at a PE ratio which is lower than the general market. Are market participants assigning a lower PE because of the inherent risks present in the CRO business? There is always a risk of rupee appreciating against the dollar and hitting the topline and bottomline for the company. The business is geographically concentrated in USA (> 75%) and any protective measures by the USA Government can be a big negative for the company.

Will you invest in Take Solutions at the current price? CRO business can benefit from the rapid growth in the Biosimilars industry which relies heavily on clinical trials (however, the domestic contribution in Take's business is small).

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