Buy Take Solutions, target Rs 143: Axis Securities

Axis Securities has given a buy recommendation on Take Solutions (TSL) with a target price of Rs 143.

Shares of Take Solutions traded at Rs 123 around 2:45 pm on 16 July, 2019. The brokerage has set a nine-month horizon for the stock to hit the target price.

Investment rationale by the brokerage:


Strong growth trajectory
FY19 revenue surged 28 per cent year-on-year (YoY), led by strong traction in Clinical business. Ebitda has grown 25 per cent YoY (36 per cent adjusted).

TSL maintained a robust Ebitda margin of nearly 20 per cent (adjusted for one off expenses during Q3 and Q4), the company has benefitted from sale of the SCM vertical which was low on Ebitda.

Order book remained robust at $240 million, and management aims to be a $500 million company by FY21 ($289 million in FY19) and is confident of achieving growth of over 25 per cent in FY20 growing both organically and inorganically.

Strategic acquisitions in USA to boost growth
TSL’s has completed acquisitions of US based KAI Research (full service CRO) and DaraCeutics (Clinical functional service provider) to strengthen its Clinical vertical in US, these acquisitions would start contributing in business from Q1FY20.

Together these debt free companies contribute $ 35 mn and are profitable at operational level.

Clinical vertical to witness exponential growth
Life sciences outsourcing business is expected to reach $44 billion by 2021 (currently nearly $37 billion) that potent large addressable market for TSL.

As much as 80 per cent of the outsourcing growth opportunity lies within clinical business; clinical business contributed 31 per cent to the FY19 revenue as compared to 29 per cent in FY18.

TSL would continue to grow its share in revenue from Clinical business and management plans to have nearly 60 per cent revenue share from Clinical segment by FY21E.

The margins in Clinical business is healthy at 16-18 per cent, though lower than regulatory and PV segments and we expect blended margins to be nearly 18 per cent for FY20E/FY21E.

Valuations
The valuations are conservative as TSL is trading at lower valuations compared to global peer, with coming quarters’ performance at par with expectations and reclassification of industry as Pharmaceuticals (previously classified as IT) in stock exchanges, TSL has the potential to be re-rated at higher multiple.