MPS Ltd

[desaidhwanil]

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.”

[constantseeker_]

completely agree Dhwanil. Was delighted to read such a comprehensive and candid AR

[vishal]

Interesting !!

[varadharajanr]

I was very impressed by the AR - I think the beet on MPS comes down to basically a question of capital allocation capabilities of nishith - which IMHO are outstanding. I had been a little conservative - thinking he was playing to galleries but he is making all the right noises but I think he is extremely shrewd and can pull this off.

[KS16]

Agreed. One of the most impressive ARs, of recent times. I am almost tempted to double my allocation in MPS
Disc- invested…views might be biased. Pl do your own research

[ayushmit]

Yes, Dhwanil. Its one of the best AR…very well articulated. Feels proud to be a shareholder

Ayush

[Mahesh]

Board to consider 1st Interim Dividend

MPS Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on July 20, 2015 inter alia to consider and approve the Un-Audited Financial Results (Standalone and Consolidated) for the quarter ended June 30, 2015, and to consider the declaration of 1st Interim Dividend for the Financial Year 2015-16.

Further the Company has inform that pursuant to Clause 36 of the Listing Agreement, provisions of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and the Company’s Code of Conduct for regulating, monitoring and reporting of trading by insiders, the trading window for dealing in the Equity Shares of the Company by designated persons including Directors, is closed from July 04, 2015 to the close of business hours on July 22, 2015 (both days Inclusive), on account of disclosure of Un-Audited Financial Results (Standalone and Consolidated) of the Company on July 20, 2015 for the quarter ended June 30, 2015 and consideration of payment of Interim Dividend.

[hitesh2710]

MPS results out today

topline has grown from 50 cr in q1 fy 15 to 60 cr in q1 fy 16 a growth of 20%.

Op profit up from 18 cr in q1 fy 15 to 22 cr in q1 fy 16. a growth of 22%.

Bottomline optically looks low bcos there was extrardinary income of 7 crores in q1 fy 15 which was not there in q1 fy 16.

EPS for the quarter at 7.73 per share and an interim dividend of Rs 7 per share declared.

It seems to be good on the back of encouraging management commentary post q4 fy 15 results.

The concall should be interesting to listen in to as to sources of growth and guidance if any for next few quarters.

[Mahesh]

Agree hitesh…

heartening is the EBITDA margins at 38.97 % (standalone) & 34.68 % (consolidated) v/s 32.66 % (standalone) & 33.43 % (consolidated) last year same quarter…key point to note here is Q1 is historically the lowest margin quarter (in FY13 margins in Q1 were 23.04 % & in FY12 Q1 margins were 19.09 % & in FY11 Q1 margins were 6.84 %).

Prima facie results look good…although at subsidiary level revenues and margins are subdued but that may be because of integration of last quarter’s acquisition.

Concall commentry will be key and eagerly awaiting major acquisition announcement.

Rgds.

Discl. - Invested

[Mahesh]

Q1 FY16 Earnings Call of

MPS Ltd
Date: Tuesday, 21 July 2015
Time: 16:00 hrs (IST)

Participants:
Mr. Nishith Arora – Executive Chairman
Mr. Rahul Arora – CEO
Mr. Sunit Malhotra – CFO
Mr. A. Sakthivel – Financial Controller

Dial In Numbers:
+91 22 3960 0670
+91 22 6746 5870

[vnktshb]

Missed the call. Can anyone please share the key takeaways

[drgrudge]

You can listen to the concall here: http://www.researchbytes.com/eventdetails.aspx?confId=93240

Or you can wait for some time for the company to upload here:
http://www.adi-mps.com/Investors/InvestorsOverview.aspx

[Nikhilg]

Some notes that I could jot down:

• Careful consideration of acquisitions currently going on, nothing final yet. They want to be extremely careful, hence no timelines. Can be US or/and India focused. Can be 1 large or even 2-3 medium sized. Arora said that personally he hates debt-ridden targets.
• Dividend policy to remain in place till MPS achieves certain scale/crosses first hurdle (which I assume is acquisition integration).
• No worries on sustaining margins. Despite outsourcing being cost-driven, it is also relationship-driven, which is not easy to displace.
• Meaningful competitors are 3-5 from India, of which few operate at even higher margins, and others at lower/similar. The largest of these is $100M in size.
• MPS to focus on deepening business with existing big clients. They are still a small share of the wallet.
• Within specific segments, K12 segment is seasonal, and they have started to create content with the clients; in Science and Tech Management segment too they have started to create content with the clients, which is an indication of deepening relationships.
• No new client wins in this quarter.
• Tech automation presents an opportunity for MPS rather than a threat.
• Over the long term, they may even consider opening up an office in UK in addition to US.

My question is, one hand they say that there is tremendous runway for growth within existing clients and they have been working to deepen the relationships within these etc. But if you look at the numbers the revenue from top 10 clients has only grown by 3% over the last year.

Disc: Invested in the company.

[Mahesh]

@vnktshb
Nothing new in the q1Fy16 concall except total employee count at 2982 out of which 1034 based in Dehradun…First time Rahul Arora faced almost all the questions with Mr. Nishith Arora only replying to acquisition questions…I think New CEO will take at least two more concalls to reply comfortably the tactful questions of investor community… He might not be able to reach anywhere near to Mr. Nishith Arora’s confidence and body language which we all are used to hear in every concalls…to my surprise first time Mr. Nishith Arora sounded relatively low but that may be because of AGM proceedings the day before…

@Nikhilg
Rgdg, dividend policy, if I have heard him right he was of the opinion that if he feels generous dividend policy is coming in the way of crossing the first hurdle of doubling the revenues in 3 years then he will immediately rethink on that and discontinue generous dividend payment…it’s not that after crossing the first hurdle he might rethink dividend policy…

Rgdg, your last point, one needs to understand that there might be constraints of increasing substantially the revenues % f m top 10 clients…already it’s near 80 % and it’s in best interest of the company to not let it go above 85%…I think it must have reached a point of maturity.

Discl. - Invested in MPS

[cool_aksh]

Hi @Mahesh,

Mgmt talks about 3-5 meaningful competitors of MPS out of which two are of $100M sales in size. Who’re these 3-5 meaningful competitors and especially top two? I’m surprised that nobody asked this pointed question to the mgmt and even mgmt seemed to be ducking it.

Aprat from this, it was good to know that Nishith Arora personally hates debt ridden acquisition targets and their assurace that they will be very careful in making the right acquisition and that they are mindful of the facts that bad acquisition can destory the company.

[Nikhilg]

Mahesh, thanks for the clarification on the dividend policy.

Regarding the sales from top clients, apologies on that.

Mistakenly, I took the sequential quarter numbers instead of YOY. The corrected numbers are:

- Overall sales growth (in USD) 14%
- Growth from Top 5 32%
- Growth from Top 10 27%

So yeah, it looks like they are walking the talk, which is pretty good.

@cool_aksh, somebody did ask, but the management just responded that some are sub-divisions of listed players and others are private.

[cool_aksh]

@Nikhilg,

Yes, somebody asked but it was not quite pointed and mgmt ducked the question rather than mentioning the names saying that some of these are pvt players and some are publicly listed but business is only a sub-division so numbers are not publicly available. But, they didn’t mention the names of these players.

[Mahesh]

@cool_aksh
Yes management has always ducked this question and I don’t know why !!! I see no point in keeping investor community ignorant regarding competition and that especially from a transparent management with high corp.gov.standards like we have in MPS…

Anyway, the top two players which MPS management must be talking about are SPI GLobal & Aptara (Ienergizer)…other larger player is Innodata and now even SPS (Scientific Publishing Services) from India also must be larger than MPS (in FY14 it went ahead of MPS with a topline of 208 cr. vs. MPS’s 198 cr.)…

Another thing to note is although Mr. Rahul Arora stated that MPS must be no. 3 player in the industry but, eventhough FY15 numbers of peers are still awaited, it might be only no. 5 or 6 player in the industry…This is the reason why management is so serious regarding inorganic growth as it needs to regain atleast no.3 position where it was under Macmillan era…

Peers have exhibited robust organic growth since last many years which is the reason why now we have players like Newgen & Lumina Datamatics very near to the scale of MPS, SPS overtaking MPS, TNQ emerging in 100 cr. + club with Amnet likely to do so in FY15 and there are even talks in the industry that Impelsys has reached near MPS…

Rgdg. debt-ridden acquisitions, it was nice to hear that Mr. Nishith hates debt but from his talks I see a faint line inbetween that if he sees the opportunity then dividend policy might be curtailed temporarily and such acquisition might went through…I personally see no problem in this provided he can handle integration well…

[cool_aksh]

Thanks @Mahesh for, as usual, your detailed explanation. I’m in awe of your indepth single handed research. Truly inspirational. Thanks a lot.

[richdreamz]

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.

My summary:

1. 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.

2. 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.

3. 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).

4. 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.

5. 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.

6. 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.

7. Ethical promoters, excellent education background, entrepreneur family (Vandana Luthra of VLCC is Nisihth’s sister).

8. Risk here - Improper utilisation of raised capital, key client risks.

9. 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.

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• Adding the below content (based on my internet readings):

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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.