I have initiated a position in MPS after having done a bit of research for the past 1 month on the publishing industry and reading through this informative thread thrice over.
Firstly, congrats for the members for identifying this turnaround during initial stages itself. There are very high chances of this turnaround further fructifying into growth story coupled with high return ratios of the business.
Nishith Arora has fantastic business acumen, going by his MPS buy out, turning it around, other small acquisitions. A la Piramal. At the current stage the company is in, his eye for making that inorganic growth happen is crucial.
I liked the new structure now, Nishith concentrates on strategic acquisitions (for inorganic revenue growth) while his son Rahul on day to day operations (for organic revenue growth). Rahul has even moved to US to be closer to clients which should enable his objective.
At the current price, the stock is lower than the price paid by Goldman Sachs, HDFC Bank at the beginning of the year (836 INR whereabouts) - super timing with the stake sale and still promoters hold 68% (I like it).
Fair amount of re-rating is YET to come given the very high ROCE, Free Cash Flow, dividend yield, opportunity to grow within a slow growing industry (things would change I believe once publishing becomes easier with digitisation). I do believe that publishing industry is at cross roads. DIGITISATION is the way to go and the vendors will immensely benefit due to this. MPS is on the right side of it.
The risk reward ratio at the current price seems skewed towards reward disproportionately and is one of the major reasons for me getting into this stock.
We are at initial stages of this story and if organic growth even if it comes to 10-15% secularly and inorganic growth comes through 1 or more high ROCE and 1.x times sales, we are headed for stars. When this thread was started the story was in its Infancy.
Ethical promoters, excellent education background, entrepreneur family (Vandana Luthra of VLCC is Nisihth's sister).
Risk here - Improper utilisation of raised capital, key client risks.
MPS looks like "Hawkins characteristics PLUS growth oriented promoters PLUS mini Piramals". An explosive combination to have.
As stated earlier, I'm invested, so my positive rant could be due to this bias. So, do your own due diligence before any action on this stock and this is not an investment advice.
- Adding the below content (based on my internet readings):
I started with the idea that why should we look at MPS as an export oriented company when there might be a lot of potential in generating domestic revenues. My relevant questions and answers:
1) Does Digital India wave not benefit MPS?
A simple example, I do NOT see future kids carrying heavy books for their schools/colleges. It's all in a TABLET. My toddler son was given a tablet during admission for his 'courses'. While I objected, they said it is mandatory.
2) India is one of the largest english speaking nations in the world. Indians speak a lot better English than many developed countries. So, the scope of publishing industry (in English) is immense. Given that demographic stage that we are in, it does not only benefit consumption oriented companies, but also 'more educated people' resorting to more journals, books for consumption as well as content creation.
3) Workflow based publishing solutions will thrive because we cannot have all online material in a single format. Heck, even a simple e-book has multiple formats, 1 for Apple, 1 for Amazon format etc. Journals would have a very different set up (Scientific, Technical etc. Journals) and so publishers would need the vendors to provide customised solutions. One size fits all will not work here. Hope MPS works on 'future apps and software products' addressing this market.
4) I was impressed that MPS has APPLE Inc. as one of its clients. Having worked with Apple as an IT outsourcer, I know the rigorous evaluations Apple make to select a vendor. I hope MPS nurtures Apple account as part of their mining and generate further revenues and added to the fact that Apple WILL have to concentrate on India for its future growth. India will play a very important role for Apple from here on.
One point with respect to "increasing margins".
- The Dehradun facility currently employs 1000 and a further 1000 can be accommodated at full capacity. BUT the current 1000 are working ONLY in 1 shift (read in the AR?). Typically, we can have 3 shifts catering to different timezones. I assume here 2 shifts can suffice as majority of the revenues are from US and Europe. So, this facility can employ 3*2000 = 6000 employees, 5000 to be conservative. So, I do not see ANY major capex with respect to employee addition - even the computers are shared as well. I worked in IT industry, so I know . Do you agree with me? All the MPS needs to do now is generate business, mine the existing customers. It's good that currently it only has 3-4% of clients budget. Huge scope for improvement.