Investment Stocks IT Sector Take Solutions and Firstsource Solutions

Take Solutions

About Company
Chennai-based `352-crore IT company, Take Solutions, operate in the niche areas of supply-chain management and life sciences. The company had reported a sharp fall in net profit in FY10 following a slump in demand for its solutions due to the economic turmoil in the US and Europe. But since the March quarter, the company has been witnessing a gradual recovery in demand and is expected to post growth in FY11.

Incorporated in 2000, Take Solutions is a global technology solutions and services provider. The company is serving a wide and diverse customer base of 400 marquee clients across 16 countries with a diverse set of products and services across the industry value chain. It has nearly 20% domain experts in its total employee base of 750. The supply chain management (SCM) division contributes 52% to revenue and another 43% comes from the life sciences solutions.

It earns nearly two-third of the revenue from the US, while the remaining is from the Asia Pacific region. In the life sciences vertical, the addressable space is worth $16 billion. The market potential for SCM solutions is worth $54 billion. Given the current business size of the company, it still has a wide scope of growth in these segments.

Growth
The company has focused on organic growth as well as strategic acquisitions, which have helped in increasing its product portfolio and market reach.

The company is well equipped to expand in the new regions across global markets such as Europe wherein it is likely to increase its realised revenue to 20% over the next three years. The company has recently launched a suite of applications in the SCM vertical to tap the increasing opportunities in the cloud computing space. During the next two years, Take Solutions plans to launch six products in SCM and LS domains together.

Financials
Sales and net profit of the company grew at a compounded growth rate of 73% and 112%, respectively over the past six years. After a sluggish performance in FY10, it resumed growth in the June 2010 quarter. During the quarter, the company’s net revenue grew nearly 35% to `109 from the year ago.

The growth was coupled with improved operating efficiency. It’s operating margin improved by 770 basis points to 21.5% during the quarter. Net profit more than doubled to `15 crore. Its order book size has swollen from $43 million in the March 2010 quarter to $52 million currently.

Investment levels
Current price - Rs 29
Returns Expected - 70 to 80%
Holding period - 18 to 24 months

Investors can add some stocks at current levels. The price is expected to come down till 25 and even till 21 so investors can add few more stocks at these levels as well.

Holding period could be 1 to 2 years to get good returns. Markets correction could bring pressure on stock price.

Please visit below link to read the company MD’s speech and also to view its Sept 10 quarter results,
http://www.takesolutions.com/images/press/TAKE%20Solutions%20Results%20Q2%20FY11-%20October%2029%20-2010.pdf

Firstsource Solutions

Firstsource to focus on Organic growth

Pure-play BPO firm Firstsource Solutions plans to focus on organic growth and expand its existing platforms, with acquisitions not a priority for the moment, a top company official has said. “Our priorities revolve around organic growth and our focus is on growing our existing platforms,” Firstsource Solutions managing director & CEO Matthew Vallance said here.

The firm operates in four verticals-healthcare, financial services, telecom and an Asia Business Unit (India business). If the company does indulge in an acquisition, it would be a small-size one, he said. “If at all we acquire a company, it will be a small one.” The company has also “substantially improved” its staff-retention, another key focus area for it, he said. “We are focusing on reducing attrition and in Q3, there has been a substantial improvement in our staff-retention numbers,” Vallance said. Firstsource clocked 4.8% growth in revenue to Rs 514.6 crore in Q3 OF FY11, vis-a-vis the yearago period, while its profit-aftertax increased 4.9% to Rs 35 crore.

The company expects to achieve a strong performance in both revenue and profitability in Q4 of FY11, on the back of strong collections, a healthy order-book and the full impact of its Barclaycard deal in the UK, Vallance said.

Investment Level
Current price - Rs 18
Returns - 50 to 70%
Duration - 18 to 24 months

India's software industry sees little US impact but market nervous
Though the US is the largest market for India's software and outsourcing exports, the domestic industry feels the ratings downgrade of the world's largest economy will have little impact on its fortunes, even as markets remained nervous.

'The economic crisis in the US, unfolding over the last few days, does not have any major bearing on the country's private sector. Although the global economic environment is a cause for concern, it is not likely to impact the Indian IT industry, in the near-term future,' said the National Association of Software and Services Companies (Nasscom).

India's software and outsourcing generated total revenue of $76 billion in 2010-11, out of which exports accounted for $59 billion. The US was the single largest export destination, having accounted for 61.5 percent of the exports or about $36 billion.

'The industry is closely intertwined with the global economy and has a burgeoning domestic market which is equipped to sustain growth. The US is and will continue to be one of the largest markets for us, and in case of an economic slump, we see the Indian IT industry strengthening its partnership with the US customers,' said the IT lobby.

The developments, however, saw the sector-specific index for information technology scrips at the Bombay Stock Exchange (BSE) fall over 236 points, or 4.33 percent, as investors feared adverse impact of global developments.

In fact, the drop in the IT index of the exchange was the steepest after that for realty industry at 4.46 percent.

All major software firms listed on the BSE closed in the red with leading firms like Infosys losing 4.73 percent, Tata Consultancy Services shedding 4.49 percent and Wipro falling over 2.5 percent.

'With talks of a double-dip recession in the world's largest economy, Indian exports are also likely to be impacted,' said the Associated Chambers of Commerce and Industry of India (Assocham), a leading industry chamber.

India is the 14th largest creditor to the US with an overall exposure estimated at $41 billion.

On the other Hand

Once the dust settles on the economic crises in western countries and also Indian stock market recovers then this sector will also recover.

Investors need to follow the market and updates before doing investment in this sector.

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From technological solution to business solution company
Infosys is transforming itself from a technological solution company to a business solution company, helping enterprises to grow with technology that is best suited to them. In the verticals segment, Infosys is focusing on healthcare, logistics, life sciences, consumer packaged goods, retail, telecom, energy, manufacturing, insurance, banking and financial services. Infosys wants to focus more on some profitable verticals while reducing its commitment in some other areas not offering growth. This involves restructuring its operations and investment, which may reduce its margins for some time. The stock market may batter the company’s share to nearly Rs.2000 in the future. Infosys’s consulting business is most profitable compared with is rivals’.

China operations
In the meanwhile, Infosys’s US employee Jay Palmer wants to prove that the company broke the law on US visa rules. Infosys has accused him of lying. Ultimately, this issue may be settled outside the court by the company. Its BPO unit is concentrating on risk elimination of its clients to move up the value chain. Infosys is going to invest $100 million in China. It wants to triple its revenue from the present $80 million to $240 million in three years. There are 3300 employees for Infosys in China. Out of this, 150 are Indians and the rest Chinese. Infosys plans to recruit 45000 people this fiscal.

Infosys is a good share to acquire at a price of around Rs.2000

Price near year’s low
The shares of Infosys are being traded in the stock markets at Rs.2374 now. Weekly high and low prices were Rs.2500 and Rs.2343. Monthly high and low were Rs.2838 and Rs.2343. Yearly high and low prices were Rs.3493 (on 07.01.11) and Rs.2343 (on 12.08.11). In other words, the company’s share price is very nearly its yearly low. IT industry is not doing well now. There are reports that the IT sector faces a layoff in the immediate future due to the economic crisis being faced by the USA and European countries. Infosys is not doing well after the exit of several stalwarts from its Board. Inspite of all these things, investors can invest in the company’s shares if the share price drops to around Rs.2000 in the present crisis. They can hold it for medium term of one to two years for a target price of Rs.3000.

Kamath will steer Infosys to top
TCS has already sped past Infosys in growth. Cognizant has also closed in now. The exit of N.R. Narayana Murthy from Infosys has really affected the management of the company. But one silver lining in the murky clouds is that K.V. Kamath is in charge of the company now. It was K.V. Kamath, who drove the growth of ICICIBank and made it as India’s largest private sector bank in India. He is a visionary and his skills are now available to Infosys. Investors can surely expect good results and growth from the company under the leadership of Kamath. Kamath will be looking forward for overseas acquisitions to spur the company’s growth. Infosys is a cash rich company with $4 billion in its coffers. Therefore, money is not a problem for Infosys. It is already targeting two US companies for acquisition. As it is a cash rich company, the high interest rate regime will not affect its growth.

Kamath made ICICI the largest private bank in India
There are some opinions voiced that Narayana Murthy’s style of functioning and Kamath’s style of functioning are different and as Chairman emeritus, Murthy may try to stop Kamath’s aggressive plans. But I feel this is unlikely. Chairman emeritus is only an honorary post and has no powers. Moreover, Murthy agreed to Kamath’s appointment as the leader because of his confidence in him. Therefore, a conflict is unlikely to develop between them and investors need not worry about this. After all, it was Kamath’s aggressive policies that led to the growth of ICICI.

Vertical strengths
The company has strengths in package implementation, consulting and portfolio products. City Savings Bank, operating in Philippines, has selected Infosys’ Finacle banking software for its core banking solution. This news has come after a US bank cancelled its contract with Infosys. In the short term, Infosys will have to sacrifice its margins for growth as it has to make bigger investments to build customer relationships. For the June quarter, Infosys posted a growth of 20% in its revenue to Rs.7485 crore and 15.6% in its profits to Rs.1722 crore. These figures as such are good. But if you compare it with the figures of leading players like Cognizant and TCS (revenue growth 30% and profit growth 20%), it looks that Infosys has fallen from its lead position precipitously. But it can take satisfaction that it is better than Wipro, which has posted a profit growth of less than one per cent.