MPS Ltd

[Donald]

At VP, we are always on the quest of bringing everyone on the same page - as quickly as possible.

An extensive Management Q&A such as the MPS one above is obviously an important first step. This ensures that a rich information base, industry & business data points are now available to everyone who wants to analyse/track the business. {In MPS case though, much data/info is already in public domain due to company presentations and concalls, interviews etc, as also important competition/other data points in this thread itself}

But as we mature as investors, we have seen a big difference between the way this information base/data points are INTERPRETED - a novice, a senior practitioner, an expert - often derive pretty different conclusions (not about investment-worthiness but about BQ or MQ) from the same. Sometimes, the REAL INSIGHTS are completely missed. (they are all before us, but somehow the dots don’t get connected)

We were alerted to this early on in 2013/14 when some of the experts/gurus told us - If you had told me this (some useful insight) a year back I would have loaded up on the opportunity. (Astral as an example, PolyMed as another). An industry domain insider will actually add lot more nuance to such interpretations because of his superior understanding.

That led us to struggle with producing Business Quality Insights and Management Quality Insights presentations that forces attention to what patterns we should be looking for/value…much like connecting the dots!

Thankfully with our constant prodding Rohit Balakrishnan and Ayush have produced just what is needed to spur on a more meaningful and insightful discussion on MPS - MPS BQ and MPS MQ Insights documents. Requesting them to share this, ASAP for our passionate Learners at VP !!

Cheers

[raj1968]

Thanks Donald and team for a detailed Q&A.
The discussion provides a lot of insight into management thinking. I did have a chance to speak to speak to Nishith during AGM and he is very consistent in his thoughts/plan which is evident from the Q&A.

It has been my core holding since more than a year.

Regards,
Raj

[ayushmit]

Hi Donald,

Thanks for your constant prodding to have a structured Management Quality and Business Quality worksheet for the businesses where we have worked seriously - it has been a tough task as I really struggled when I first started and used to keep procrastinating it but finally with your help on 2-3 companies, I have been able to put down my thoughts. And this exercise has been really helpful and I would strongly recommend it to everyone.

Here is my attempt for MPS - MPS_MQ_Insights.pdf (1.2 MB)

Views invited.

Regards,
Ayush

[piy_sharma]

Thanks Ayush for the comprehensive Q&A. This puts to rest a number of questions that were being raised on the forum.

The MQ sheet combined with the BQ sheet focuses the mind like nothing else that I have seen in my investing life. It is hard work but worth it in the end. A super template created by Valuepikr.

The story of MPS looks compelling with every passing day.

Looking forward to the BQ sheet too -). You can call me greedy.

Best Regards

Disc- Invested

[Donald]

Thanks Ayush for heeding VP Core Team Requests/Pleads/Temptations
(readers believe us …temptations included like"Pehle BQ sheet attempt karo ton, naya insight batate hain:))"

But really we are floored by the output this time. Some of the attributes that you have captured, the way you have captured focuses attention immediately on the key takeaways. I think I iike the opening the best - that it is a Management that has a firm grip on key success metrics - comes out powerful.

[rohitbalakrish_]

Thanks, Donald for working on this with me. You have been very patient with me

Working on the BQ sheet was an enriching task. It helped me understand MPS much better.
The BQ sheet has some really tough questions and working on it makes one clear how much one knows about the business/company.

Agree with @ayushmit that it’s a great excercise to keep a BQ & MQ sheet for business where one has worked in detail. It just makes a lot of things clear in your head and cuts the clutter.

Here is my attempt at MPS BQ - MPS_BQ_Insights.pdf (1.7 MB)

Views invited.

[manoj]

MPS BQ and MQ are awesome. Loads of info. I am new to MPS and please excuse my stupid questions.

In Management Q&A, I didn’t find much questions on Digital Publishing segment. eBooks, School books on tablets are fast becoming the norms of western world. Is MPS having any expertise in this segment ? Any plans to ramp up this segment in the future ?

[Donald]

Manoj,

You are right about that - we did not focus on digital publishing. Because that is not a segment that matters. Refer to the Segment info on BQ Sheet1.

Where is the FOCUS then - only one thing - if the business has done well in the past, why will it be sustainable in the future; Just why can’t somebody dislodge it from its perch in its own niche - that’s the one answer we want to find out - either way. Focus on where 80% of the business comes from.

Digital Publishing is an important segment no doubt in the overall publishing industry, and set to grow faster bigger in the years to come - the way content consumption needs are changing - multiple devices, multiple formats.

However competency - one would reckon is open to anyone and everyone, lots of players, not a protected market for them unlike the Academic/Educational Books & Journals segment; though they will continue to offer these services - more to complete service portfolio where existing customers - Academic/Educational customer need digital publishing/content transformation solutions, or newer customers like Apple say; volumes will be small, margin profile should be poorer. They might have some Marquee customers in this segment too, one can reckon. But the real moolah lies elsewhere

[manoj]

Got it. thanks a lot for quick reply. I am reading the real moolah lies elsewhere as … Multi B $ opportunity in print publishing outsourcing.

[Donald]

I think I could not explain properly.

The Moolah lies in servicing the needs of the Academic/Educational STM (Science Technology Medical) Journal & Books Publishers.

I would think catering to Digital Publishing requirements of these customers is profitable - as The Digitally transformed product is only (one of) the Outputs. The main technology service that MPS like providers provides is what is called pre-publishing processes & workflows. From the Time an author submits a manuscript or file to the publisher to proof-read to editing to cross-referencing author reference for scholarly articles referred, to integrating bibliography to design to content rendering/transformation or print. The technology service provider game is to provide quick turnaround from author file to reader consumed final product - to be available for the Publisher’s platform.

Catering to digital publishing requirements of non-STM segment like say an Amazon.com self publishing platform cannot be that profitable or for that matter say fiction or business or fashion books/magazines and the like.

Hope this time I could explain better

[manoj]

Thanks for the detailed explanation. Definitely it helps me to understand MPS deeper. You and your team is doing a great job.

[Mahesh]

Excellent work as always…Donald, Ayush, Rohit and others you all deserve a big round of applause for this…you guys are doing outstanding work out there.

All positives are more or less covered in Q&A, MQ, BQ…having studied this company in quite detail myself and being significantly invested in it over last more than one year, some points deserve attention :

(1) It’s almost a one person story – of Mr. Nishith Arora – it is this person who has transformed this company, has put all the pieces together, has created an exceptional brand image amongst investors, has been keen and instrumental to see that nowhere company falters be it profitability strategy or handling distressed investors at AGM. Agreed there are capable senior managers to handle every unit as also now his son is CEO but without this man I see such determination in no other guy and that’s a fact I need to accept. Tomorrow if this man is for some reason out of the story, the entire story will be very difficult to fructify.

(2) MPS has lagged and is still lagging relative to its capable Indian peers be it SPS, Newgen or even TNQ. First it was because of transformation into a profitable entity but even after the transformation, MPS seems to be not able to get organic growth. In my previous posts in this thread have enlisted YoY growth and EBITDA margins of each of the said and other entities and MPS clearly seems to be lagging in top line growth. Even if we see FY15, it’s because of acquisitions that the growth seems good otherwise it is just a single digit growth. Agreed, SPS has the backing of a large client but other few players have also grown well and really well.

(3) MPS is not having macro triggers as our other stories like PI had nor it is having any competitive advantage. It’s the positioning of the company in the industry that is majorly working to its advantage as industry doesn’t have room for too many players. In addition to positioning, what MPS is doing is putting all pieces or capabilities together so inline with industry trend, a client will not have to go to any other player if it chooses MPS. However, 70 % of the industry players are finding it difficult to post topline growth and are sustaining because of niche margins or confirm specific amount of yearly work they get.

(4) QIP was a great step as manager of a company but from investor point of view it was not that great if there was nothing on drawing board. In industries like this where new business is not coming thick and fast, time lost is opportunity lost…It’s not that only MPS is out there to grow and reach top, there are other players too…Agreed a late well thought out decision is much better than a cash burning decision, but there is a time limit to everything especially when you are raising money by promising something and six to nine months is ok but if this thing goes on and on it will surely have an effect on brand image of the company amongst investor community unless the late acquisition decision is like Macmillan which shuts every critics mouth.

Having said all these, it’s the current valuations which make MPS a no-brainer and risk seems to be very low as even without acquisitions it is trading at just 13 times FY16e EV/EBITDA which is mouth watering considering the past track record of Mr. Arora in acquisitions. If acquisitions are profitable without much debt then it could rerate the stock significantly from here on. Downsides seem to be capped unless company commits some sort of blunder that’s what I feel.

Rgds.

Discl. - invested in MPS

[hitesh2710]

Great job ayush and rohit.

Two documents give most of the insights one needs to have about the business and management.

A few things which come across are;

If the trend of outsourcing continues and accelerates in the industry, (currently at 2-3%) then there could be a huge addressable market. By getting into relationships with the biggies, MPS is ensuring that if and when the market opportunity explodes, it is there with all the right armaments to tap the opportunity.

After reading the book OUTSIDERS, and looking at the things MPS management did, it gives me a de javu feeling.
Turning around an ailing business, effective utilisation of cash (high dividend payout), dilution when the time is right to build a warchest for potential acquisitions etc point to a very astute management. It has till now had a stellar track of wealth creation and could continue to do so.

The economic characteristics of this company are fantastic. All it needs is some strong organic growth and a few smart acquisitioins. How these things pan out would decide the kind of returns generated hereon.

disc: invested

[Donald]

@Mahesh Mahesh

Just want to acknowledge your early work in MPS.
The competitive data that you had put up brought a lot of perspective for the early investors into MPS. You were he one who pointed to different margins at play among the bigger players, and other such data painstakingly put together.

Guys, if you give importance to this type of work at VP, please go back in this thread, and provide big-thumbs up (add your Likes) to that specific post that really stands out even today when you go back and browse the thread, among others

My perspective is that MPS is well known as a brilliant turn-around story in the last 2-3 years. What is interesting is that it could well be in the “Global Sweet Spot” that Management paints in 2015 AR (we should ignore the sleekly hyped up parts by Kolkata based AR expert, but not IGNORE the facts either)

Having said that, let me re-iterate for the benefit of newbies at VP
Do not start salivating at Mahesh’s well-meaning comments either, no matter how much you respect anyone’s work/contribution . Don’t think the Verdict is out in the open. I wouldn’t venture such adjectives as NO-BRAINER or mouth-watering valuations with some fixed multiples like EV/EBITDA or Acquisition track record, just yet. Can’t be as simple as that, can it. As Hitesh has astutely observed A lot depends on how the Management walks the Talk in the next 2-3 years; how it executes, especially on acquisition front - that can make or break it - Ticket sizes are much bigger 10x last times - one can’t help overemphasise.

The endeavour from here should be to dissect - Is it really in a Global Sweet Spot? Really? Why or Why not? Lets focus on that.

Let’s ask tough questions on Business Quality. Sustainability of Competitive advantage for a Long Time, Can someone dislodge it from its perch? What all can go wrong?? Predictability of the Revenues/Profitability, Can it be a consistent performer over 3-5-10 years, why or why not? A lot lies on the answers to the above questions - Any comfort (or discomfort) in Valuations can only be reflected from that. Our comments on Valuations will carry conviction only when backed up by indisputable facts/evidence either way.

Disc: I am invested, as disclosed in the Management Q&A post. Very small allocation 2 years back, added more recently. Having set the contours of the business that MPS operates in, I now find it has very little operational challenge, or disruptive competition, or Customer pressure. Everything works to its advantage, unlike many other quality businesses, It’s quite free to keep executing. Much of my confidence is an ACT of FAITH …The story can play out differently, if execution falters

Everyone - As influencers in this discussion/debate don’t forget to add your disclaimers. Its a MUST. Also Like to remind we need similar disclosures if & when you exit, within reasonable timeframes.

[Prdnt_investor]

Great work @ayushmit, @rohitbalakrish_, @aveekmitra and of course @Donald for making this all available to the forum.

One aspect which might add to the margin of safety for fresh buys at current levels is the possible exit route through a takeover of MPS itself!

Assuming that MPS reaches the 500 Cr sales over next 3 years (through both organic growth and acquisitions) at that time it might become a lucrative enough takeover candidate for biggies looking to enter the segment for sticky revenues (remember the entry barriers!)

And given both the larger peers SPI Global and Aptara got acquired (Links here and here) this might provide a possible exit route. With Nishith having nurtured and sold businesses at attractive valuation earlier this option might indeed play out.

Disc: Invested.

[mg108]

First, thanks to all the people involved in the questioning and the BQ MQ sheets - the output has come out beautifully smooth to read and grasp.
It is mentioned in the Management Q&A (last question) that TCS / Infosys sites reveal either they are already in this space or are fully ready to target this space. To which the answer was that new vendors will not be entertained. I have a doubt here that if likes of TCS really want to enter, can they not do it through acquiring existing players in this place and slowly build on.

[pikrohit]

Thanks to @ayushmit @rohitbalakrish_ and @aveekmitra for the Q&A

I totally agree with @mahesh points. I dont have any doubt that the management is just excellent. Its a delight to hear the management in concalls. However, low organic growth is a sour point for me. I dont understand why the story is not reflecting in the numbers. Management hasnt come out with convincing reasons for this inspite of saying many times that the opportunity is huge.

@Mahesh

(2) MPS has lagged and is still lagging relative to its capable Indian peers be it SPS, Newgen or even TNQ.

Discl: Close to 10% of my PF

[akbarkhan]

Thanks @Donald, @ayushmit, @aveekmitra and @rohitbalakrish_

It was great to read the management Q&A as well as the BQ and MQ docs prepared by you all. My takeaway is that, yes there is a huge opportunity size. I had begun to doubt this part as the revenue growth seemed to be missing. I am invested for more than 2 yrs. Thanks for helping me sustain the conviction in MPS. Waiting for the tipping point when the outsourcing by the publishers would really gather pace.

[Donald]

Content Services 2012: Journal Production Services: Changes, Trends and Future Directions - a dated 2012 article by Nishith on Publishers weekly

Selected excerpts. - helps in understanding the scope of work for MPS then, and how its moving. Maybe useful to track developments in these directions - where it has reached today. @manoj - we can look at articles like this to grasp the Journal/Technical Books Production Services market

Automation is key to journal publishing of any discipline. Special tools need to be scripted to reduce processing time and manual intervention while providing good and consistent quality output for on-time delivery. As such, MPS has a group of technologists and software specialists dedicated to developing tools for any process imaginable: file receipt/downloading, metadata extraction, template authoring, XML creation, pre-editing, copyediting, graphics processing (including auto-resizing of images), page composition, proof correction, bibliographic information/issue makeup, index generation and linking, quality control, and even file delivery. “We use an in-house tracking system to monitor each step and manage end-to-end production activities. Extensive reports are available and integrated with other production tools, along with real-time online status reports. And wherever possible, we integrate our tracking system with our client’s system.”

Many publishers these days are moving toward an online-only publishing strategy, thereby eliminating printing and distribution costs, says Arora. “The publishing model has shifted from ‘print then distribute’ to ‘distribute then print if required.’ The increased usage of mobile and handheld devices also means that publishers can get their content across to more readers than before. It is now possible to package rich multimedia and interactive content—something that readers have been looking for—as part of the article or issue. Obviously, for the print version, such content would have to be hosted separately and provided as links to readers.”

But journal publishers are way behind book publishers in moving content to mobile and handheld devices. And one main reason behind this tardiness, says Arora, is the popularity of the traditional subscription model. “As for delivering content over mobile and handheld devices, publishers are adopting different strategies. Some are providing tools for searching content on mobile or handheld devices with full content access available via the host website. Some are using Adobe Digital Publishing Suite to create issue-based rich-media journals that take full advantage of the functionalities offered by such handheld devices as tablets. Others go for native app development for iOS and Android platforms. Then there are those looking for a hybrid iOS and Android compatible app—which supports both images and HTML5-based embedded content—that can be used as a wrapper for a single issue or multiple journals.”

[manoj]

@Donald Thanks for sharing the link. Nishith clearly articulated the trend even way back in 2012 and his recent article adds much more clarity on MPS future.

Excerpts from the recent article :
"… Aptara was purchased by iEnergizer; an 80% stake in SPi Global was purchased by CVC Capital Partners from Philipine Long Distance Telephone (PLDT) Company; and Lumina Datamatics was created by folding Datamatics data conversion services into PreMedia Global. The next round of consolidation has already started with MPS Limited purchasing Element LLC, EPS, and TSI Evolve—all three based in the U.S.—and assembling a large war chest for further acquisitions.

All these changes mean that some publishing services companies will emerge stronger through the process and be the market leaders of the future. The successful publishing services companies are likely to be end-to-end players servicing the needs of the academic, educational, and self-publishing market segments with a strong focus on technology, workflow management, and high quality content creation, production, transformation, and delivery services supplied from multiple geographies. In fact, the publishing services companies of tomorrow with full-spectrum capabilities will increasingly clone the publishing clients that they serve."

Am surprised to see he mentioning even the self-publishing market segment. Tells me Nishith is clearly on the watch-out for disruptive things, regardless of market sizes.

And here is another chart showing split up of costs in producing a book. Be it hardcover book or e-book, there is always content design, digitization, typesetting, editing, etc., involved.