It is a wonderful read indeed for any investor and I feel a “must read” for an MPS investor. The whole document is so “business-like” with clear articulation of the business philosophy of the management, the underlying business model, various business streams, its dynamics and its relevance for the overall business with clear updates on development that took place in each of its business stream (key client wins/ volume increase/repeat business/ new entry) in the last year. At the cost of sounding too adulatory, I can say that this MPS AR can rub shoulders with some of the best ARs I have seen so far (Ashiana/Nucleus). Few Insights for me from this AR
I was always skeptical of the “price pressure” experienced by the company and saw that as major risk. However, AR clears the air to me. The changing industry landscape is leaving no alternative for publishers to reduce cost. If the can’t, eventually they will diminish. Thus vendors delivering the solution at lower cost are advancing a “value proposition” to the publishers. Meeting the lower cost expectation is a function of business model tuned to do it driven by fine tuning number of factors (productivity increase through technology, domain knowledge, lower cost structure, asset sweating). Thus, service provider, who delivers the same value at lower cost consistently through well aligned business model , can derive immense benefit from it ( without compromising profitability). Through a business model one can create “lowest cost producer” advantage in not so commodity business!
My second insight, or rather validation of my hypothesis, is that management has all the traits of an astute investor who always seek highest value in acquisition with minimum risk.Following glimpse into thought process for acquisition illustrate that
“We acquired only the brand, employee profile and customer list of the acquisition target and not the Company liberating the company from the risk of hidden liabilities” “Best of all, our acquisitions were made with the blessings of the leading customers of those organizations translating into revenue visibility”
and for the upside
“The company was cautious in the price paid for these acquisitions and bought them while they were close to their respective break even points, creating a potentially remarkable upside for us”
Lastly, they have a clear understanding of what matters for shareholders
“At MPS we recognize that a robust balance sheet represents a credible foundation that eventually translates into credible stakeholder value. The company enjoys return on equity of 58 percent (2014-15, without factoring the late year QIP mobilization of 150 Cr) which is considerably higher than what shareholders would have expected to generate from alternative investment forms.”