I feel results are decent if you look at yearly performance.
Sales 223.87cr Vs197.72cr
EPS 36.38 Vs 25.05
Not sure we can look at quarterly numbers for them as they are not a typical IT company.
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Agreed Raj but given the high expectations from such stock, there will always be a knee jerk reaction from these type of results. Also, already there must be a leak since there was a sell off by close - from 930 tops to 900 odd…I think, this type of result, can give a good 10-15% correction - I plan to add, if it comes to 700s
Disc - usual, as above
MPS results will be lumpy as raj1968 mentioned.
In another announcement the management change has been announced wherein Nishit Arora steps down as CEO and his son Rahul Arora takes over. If the young blood can drive revenue and profit growth it could be good for the company.
Coming to valuations, at around 900 it trades at 25 times trailing reported earnings of 36 on consolidated basis… (there is an element of extraordinary of 7.72 crores in this year’s results which needs to be taken into account)
total dividend of 22 paid during the year.
Dividend yield of around 2.4% at cmp should limit downsides.
Management commentary in concall should be the key to price action bcos expectations for next year would be based on that.
subsidiaries seem to have contributed revenue of 20 crores and net profit of close to 3 crores if one looks at the standalone and consolidated figures.
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Although MPS results are on expected lines…interesting thing to note is Nishith Arora has resigned as MD and will in all probability not be involved in day -to-day running of the company…his daughter-in-law also has resigned…
What necessitated this management change that will be important to observe…may be a precursor to merger with a larger firm which might be needing joint management which is not nishith arora style of working.
Tomorrow’s concall commentry will be very important.
Rgds.
Discl… - invested
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To add…TSI which was acquired at end of FY15…its numbers must not have been counted in the numbers which should be approx. 13-15 cr. INR with loss at net level which should straightaway get added in FY16…
However, frankly speaking, growth has been very tepid if we consider the way the company started the fiscal with…this becomes very important to note especially when we have its peers growing quite well…management will have to act soon in FY16 to revive the growth trajectory and current management changes must have been done keeping that in mind…
Rgds.
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What an inopportune moment for nishit arora to step down post a QIP and poor results.
BTW they are struggling to grow. No wonder they keep trying to acquire companies.
Why cant they grow when competitors are growing?
Someone better ask the hard questions to the management tomorrow in the concall.
Hi All, As I am located in Chennai, this is probably the first AGM that I m likely to attend. If we have any questions, lets consolidate and I will see if we can raise them. A few from my side would be:
- What is the companies’ strategy for deploy the QIP proceeds?
- The nagging question - why dividend payout + QIP at the same time?
The above questions are common and are likely to be covered by others who attend the AGM. But let’s see the management’s tone.
Thanks,
Ravi.S
Disc - Invested in MPS
NitishArora is the man who is the brain behind bringing up the company from a Market Cap of Rs 50 crores to Rs1600 crores with in a period of 42 months . I feel that it is important for us to know the reasons for changing his roll -I would not agree that he is ’ stepping down ’ as many have commented - .I request you to ascertain this important information at the AGM. Thanks .
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Nishith will be whole time director. This means he will continue to be in executive role.
Concall commentary was on the whole satisfactory and the recent management reorganisation seems to be to provide smooth transitioning of leadership to son wherein MPS seems to be on verge of acclerated revenue growth phase and Mr. Rahul Arora will therefore be able to prove himself, of course under father’s active guidance, quite comfortably. With a vision to reach USD 80-100 mn. scale by FY18 (approx. 500-600 cr. INR) and emerge as second or third largest player from current sixth or seventh position in the segment, coming few years will be interesting to watch, especially how well they manage on margins front. FY16 might be crucial to set proper pitch to reach the vision and how well they choose inorganic targets as also how well they are able to integrate the target and make it reach company’s margins levels will be key monitorable. One thing seems given that entire QIP proceeds worth 150 odd cr. might be spent this fiscal itself but whether management is ready to take any baggage over and above that will be crucial for market valuation of the stock. Management seems to be also looking at debt-laden opportunities, however is hesitant to go for them. In case management decides to go for any such acquisition what might happen is it might straightaway lower dividend payout.
MPS story so far has been on three pillars – High Margins, High Dividend Payout and High Corporate Governance Standards. Top line growth was so far missing from the story and that might well come into picture from now on. However,if it’s at the high expense of first two pillars then the story might fade somewhat. But, if its only with a slight compromise on first two pillars, the story might shine well and really well.
Let’s keep our fingers crossed.
Rgds.
Discl.- Invested
Note - This is part of a general discussion and is not in anyway buy/sell/hold recommendation.
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Does anyone have a transcript of the call. Could not attend unfortunately.
Disclosure: Invested
Following are the notes from MPS concall
- Rahul acknowledged that company’s current revenue does not do justice to company’s elaborate offering and deep rooted relationship with the top publishers
- Muted quarterly performance is not a negative surprise to management. Revenue was also affected by negative GBP movement as company derives around 66% revenue in GBP
- Rahul also acknowledged that company is at very interesting juncture both in terms of business dynamics and client relationships
- Current head count is 2900 out of which 44 are located outside India
- Company received another order for a content management suite of Digicore from the Australian publisher who had ordered content creation suite last year. Company has started to bear fruits from the investment it had made in created digicore platform
-Company is looking for larger acquisitions- preferably with companies having focus in US market. However, it is also evaluating couple of smaller opportunities in UK. Company would prefer number of smaller acquisitions rather than a single large acquisition as it will reduce the risk for the company (in terms of making a very large mistake) - Company will be very reluctant to look at opportunities which are debt ridden
- So far company has made acquisition where seller was “wanting to exit” the business, hence got a good valuation. One important criteria is new client addition that company can do with the help of acquired company
- Management indicated that there is good growth traction in existing business and organic growth is likely to be strong. Company recently got entry into two new clients. One was because of TSI evolve relationship and the other because of aggressive offering by the company
- Digicore monetization- company is monetizing Digicore through various means including licensing, customization, hosting, and other support services.
- Technology contributes around 8-10% of overall revenue but is very important part of the business as it helps company improve productivity and seamlessly integrate the workflow with the large client’s technology platform
- Technology solutions add huge value to client hence company has changed the pricing policy. New pricing policy is based on the “value delivered” instead of “cost plus” approach. Thus, the pricing based on new pricing model is substantially higher than the earlier one
-Books contribute 24%, Journals-34%, 10% from Technology to topline - Top 10 clients contributed 82% of business in FY 15
- Staff cost will stay at 40-45% going forward
- Company is playing a catch up with larger peers due to lost time during 2007-10. However, the transformation of the company is over and company is likely to grow rapidly from hereon.
- In 2-3 years, company aspires to achieve USD 80-100 million company
- Margins- can remain this level and also improve from here on, if the revenue keeps increasing.
Overall, I feel that management has a very clear road map of journey ahead and approaching it step by step. We may encounter few muted quarters in between, the medium term story looks very interesting
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Overall in the concall I felt that the management sounded pretty confident on the growth front. The management mentioning the revenue target of USD 80 - 100 million in 2 - 3 years time frame was a big surprise for many of us since they dont give any guidance.
Including Inorganic growth??
He didnt mention it specifically, but I think it would be including the inorganic growth.
Thanks Dhwanil for the notes. Muthu I dont think the researchbytes link works properly.
@ankitgupta, They’ve mentioned it like revenue potential based on the top 2 players who are in USD 80-100 million and will be looking to close the gap in 2 to 3 years. I guess that is not revenue guidance since they don’t usually give that.
Researchbytes link is working fine and double checked again. Hope you’re having an account and trying there.
Ya agree with you. They mention that they ‘aspire’ to hit that figure in 2 - 3 year time frame. In the previous concalls, they wouldn’t even mention any figures on revenue or margin front.
@desaidhwanil Great sum-up of the entire concall…Just one correction…company derives 66 % revenue in USD and not GBP…it derives 29 % revenue in GBP & 4 % in Euro…
If not 80 mn. USD revenue (500 cr. INR), then atleast INR 400 cr. revenue by FY18 seems easily doable as it will get achieved simply by using 150 cr. QIP proceeds (for acquisitions)…So far MPS has acquired most of the companies at ~0.5 times sales ; as it goes for larger acquisitions, such lucrative valuations might not be possible but I don’t think it will pay more than 1x times sales for any acquisitions…so evenif we consider buying 150 cr. revenue for 150 cr. funds available with the company, the telly goes to 236 cr. current revenue (including TSI) + 150 cr. acquired revenue = 386 cr. without any organic growth.
Concern for me is on two fronts – first EBITDA margins and other Balance Sheet (from which PAT margins will indirectly get derived). A company which is operating at even 15 % + EBITDA margins, has reasonable scale (say 40-50 cr.) and has nil debt in its balance sheet will seldom get sold out at cheap valuations and in expensive valuations management might not be inclined to go. So what will come into picture will be two kind of targets – first those operating at pathetic margins or are loss making and other who are debt-heavy.
If management goes for first kind of plays then it will be EBITDA margin dilutive in a significant way in the first couple of years and then based on management capability if it is able to improve on margins then it might prove significant value creator for shareholders in the long run. However, this might be possible in Indian targets only or those US plays where opportunity for outsourcing is significant (I doubt many such plays will be available as many small US players have already established offshore presence via tie-ups). Best suited will be niche players who by themselves might not be able to sustain but in combination with MPS might show significant improvement. Such plays might not come very cheap.
The other option – the debt-heavy plays (which management might be hesitant but must not be averse to as has already stated that two of the opportunities that have come their way have high debt component – Mr. Arora has not said a blunt NO for them and thats to be noted), such plays will be lucrative targets as they come cheap, offer significant scope for margin improvement and bring with them high revenue. If management goes for them they might be significant Balance Sheet health dilutive for first few years (say minimum 3 years) and then based on management capability if its able to achieve good margins coupled with good revenue growth then it might prove a boon for shareholders. Such plays bring with themselves good number of clients, mostly small publishers which MPS is targetting for platform business. However, it might bring debt on books of MPS as well as high working capital requirement which will need to be managed efficiently by the management.
Since the management has cited preference for multiple acquisitions, second option might not actually materialise. However, in any case, one thing is clear, in FY16 we might settle for much lower EBITDA margins (say 23-25 %) at a consolidated level (this doesn’t mean negative growth but only additional revenue at lower margins). Post that it all depends on management “capability” as these will be the largest acquisitions post MPS-takeover by ADI and at consolidated level, this might break the historical revenue high of MPS (under Macmillan era) of 38.8 mn. USD achieved in FY08.
I am stressing on the word “capability” because if we go into the history of MPS, we have seen this backfiring one time – with the same vision and vigour, it was Macmillan which ramped up revenues of MPS (I am only talking about the ADI-acquired business here and not other business) from USD 18.1 mn. in FY04 to USD 37.3 mn. in FY07 and then to USD 38.8 mn. in FY08 by acquiring multiple companies, Charon Tec, Interactive Composition Corporation (ICC) and Compset Inc… With a consistent 45 % + margins at which company was operating till FY04 ( I am talking about only ADI-acquired business margins here), the said acquisitions halved margins to 22 % in FY06 and then further down to 9 % in FY07 then to 4 % in FY08 and finally making it a loss making entity in FY10. Although reasons for such disaster, management style, etc. were different at that time and with Mr. Arora finally acquiring MPS by knowing its history, he must be very well aware of the mistakes that went into such disaster, but acquisition and integration is not an easy business.
Having said all these, although I am concerned and want to watch inorganic moves of MPS very closely, but, have no hesitation in admitting that when ADI acquired MPS, I was not expecting such a spectacular turnaround either (ofcourse it was supported by Dehradun facility which was already with ADI at the time of acquisition). However, one thing is clear, organic growth might not be more than 5-8 % even in FY16 and its actually the inorganic growth that will be key to realising the vision of the management. Even if we see the status of acquisitions done so far, revenue growth has not infact come and magins also are at only ~20 % level ; but then these acquisitions were actually meant to plug the gaps in service offerings and not loose out on getting shortlisted as core vendor of major publishers so its fine.
It was a beauty to see MPS ramping up its revenues from just USD 4.9 mn. in FY01 to USD 18.1 mn. in FY04 at consistent 45 % + margins and see it double its mcap over the same period…then again it was a delight to see Mr. Arora transforming MPS from a loss making entity with USD 32.2 mn. scale in FY11 to a healthy 35 % + positive margin entity with USD 36.6 mn. scale in FY15 and see its mcap rise by almost 10 times over the period…Now is the crucial period for this company where it aims for the top 3 slot in the segment again and if its able to do it with even 23-25 % EBITDA margin and nil debt on books over next three fiscals, I will be very much satisfied.
Let’s keep our fingers crossed.
Rgds.
Discl. - Significantly Invested in MPS
Note – This is not a Buy/Sell/Hold recommendation and is just part of a general discussion post an event. No investment/divestment decision should be based on this.
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