Happened to come across 3 month old article on web which concerns MPS Ltd. :
Formation of KITU Unit for M/S MPS Limited Bangalore Employees.
An overwhelming majority of employees of MPS Limited at Bangalore have enrolled themselves as members of our Union. Accordingly a General Body was held on Sunday the 18th February 2018 at No. 18th Cross, Sampangiramanagara Bangalore, in which the following have been elected unanimously as Office bearers and Unit Committee members of MPS Ltd Bangalore Unit of Karnataka State IT/ITeS Employees Union.
Office Bearers:
Sri. Sridhara. M.L (President)
Sri. Honnesha Gowda. (Secretary)
Sri. Edward Thomas. S (Treasurer)
Unit Committee Members:
Sri. Vijay Kumar N.P
Sri. Madhusudhana. D.K
Sri. Suresh. S
Smt. Anuradha.
Smt. Yogalakshmi. L
Sri. Naveen Kumar. K
Sri. Ajay Bhat. S
Sri. Mallikarjun Swamy. M
Sri. Vijay. J
MPS Limited Bangalore has been harassing its employees individually to accept the transfer to a so called Unit at Dehradun or face the wrath of dismissal. They were asked to resign forcefully by accepting a mere compensation amount of one month Basic salary. The Management resorted to a number of illegal terminations of those who questioned forced resignation and for not reporting to its Dehradun office. Several Senior Employees who have put in more than 20 to 25 years of service are facing untold mental agony due to the consistent and persistent intimidation and threatening by the Management. As a Union espousing the cause of Workmen, KITU has raised an Industrial dispute vide no. UKAB-2/PTN/CR- /2017-18 in order to protect the employees of MPS Limited from the illegal and unjustified acts of the Management.
Core business was flat this quarter, expect to grow 5-7 % in the content side and double digit on the platform side in the next FY. Growth in core content solutions should be driven by pricing increase
Core margins in the quarter in the core business were lower due to shifting of revenues into other quarters. On a yearly basis the margins in the core business will be in the same range as earlier, however margin levers will lead to some improvement
The eLearning business is where the growth is, management mentioned that the loss has been contained in this business, and hope to turn a corner in the next couple of quarters before hitting the sustainable margins in FY20.
eLearning business has lot of opportunities to be cross sold to existing customers.
Discl : Invested
SEBI Registered Investment Adviser (INA100008832)
VRDDHI Capital
While the results appear flattish, I think these are pretty much in line with the management guidance. One thing that persuades me to stick with the company (holding since about 2 years now) is the integrity of the management. Despite having >300 crores in their banks, they took their time with the acquisition instead of buying the first available option. Also, promoters not selling their own shares at market peak, instead holding them during the lull period further is point considering since they could have offloaded their stake during the QIP phase at higher values.
Further, with TIS acquisition now completed and results (in terms of increased revenues) already visible, I think best would be to see the next few quarters (at least 1 year) to ascertain the future. The management (specially under Mr. Rahul Arora) seems to have making all the good moves and the guidance seems very realistic.
Do you recall if management gave more details in this regard?
Lets try to brainstorm on how they cross-sell their current services to clients of TIS.
Since they have a lot of content solutions, probably they can easily make use of them while creating / upgrading learning content of old / new potential corporate clients.
Now lets come to the other direction of cross-selling.
MPS (www.mpsinteractive.com) seems to be offering Custom eLearning, Gamification and Serious Games, Learning Websites, Micro learning, Macro learning, Simulations, VR/AR/Animations. I doubt if any of them would be useful to regular MPS business.
Thanks
Disclosure: Newbie investor who just read this interesting thread of discussion. Not invested but will closely track on how this new acquisition turns out.
I Agree. It is a niche business. To really understand what it is doing and what it is capable of in the future, I think we should study its competitors or foreign counterparts, and what has been their trajectories. In that way, we can know how big a market it has. And whether we can expect the numbers to grow by at least 15% YoY.
Furthermore, this company is not popular with the fund houses, therefore, is likely to be available at a sharp discount in a continued bear market. Or in case of even a minor disruption the stock will sharply fall. Being patient is likely to pay-off.
After a sharp rally in the last week (stellar show by the mid cap and small cap stock), MPS announced yesterday evening that the CS has resigned. Now in the backdrop of a spate of CS resignations lately and companies being marred by Corp Gov scandals, I hope MPS is not the latest skeleton in the cupboard. Any clue as to why the CS resigned?
Steep erosion in value today, looks as if market was hoping for good result & Revenue/profits/EPS fiigures have dissapointed (as compared to previous quarter.)
Thats due to a sharp drop in revenues and profits from their main Content segment. I wonder if anyone attended the conference call today and the insights from there?
@Mahesh
hello sir,after reading long but most interesting thread on VP about MPS,what is your opinion after significant drop in price,thanks in advance
Problem with MPS is management not accepting some facts related to business and painting rosy picture always to investor community. If you track my previous posts when I was highly critical of management talks, management always said they will do something different and create a strong business specific to MPS where other peers were failing. Steady Cash generation has always been good of this business but deployment of cash has never been good. What management is doing is deploying cash in such businesses and targets who are ailing already with a hope to create a great business out of them. Such thing happened with macmillan but can’t happen with every target. Macmillan was a great business of a good size even before acquisition and was going through just some bad years because of lack of focus of management. Post macmillan every acquisition aroras have made have not been able to succeed well as expected…to just scout for bargain buys in the field is never a good strategy ; rather a good strategy is to buy reasonable valuation buys of good scale who have good profitable scalability scope…unless this strategy is implemented I dont think there much scope of wealth creation here.
Does anyone know why Nishith arora has taken back seat? There is a clear deterioration in MPS’s performance post his leaving executive role. The content business has taken a sustained knock in last three years. will it ever get back to growth stage?
no that was a special dividend of 50 Rs. Yet this co will maintain reasonable payout based on history. key is how does the corporate training segment behave amidst downturn. still worth a bet, given a good trackrecord in acquiring carve-outs at reasonable px
Their dividend rate is generally great.Their dividend yield is about 13 percent at this dividend payout ratio and at half the ratio it is 6 percent(still better than after tax FD).Plus the stock is available at 5.6 p/e.
Yes Mahesh you were right. This quarter for the first time they have shown good momentum both in content and the platform segments - although the platform is entirely due to the Highwire acquisition. Did anyone attend the con call today - 29 Jan 2021?
Outlook for the content biz(legacy biz) is surpirisingly getting better and management is hiring for the same.(See headcount nos in PPT).
Lot of room still to expand margins in the platforms biz(targetting 45% EBITDA by Q1-Q2FY22).
E-Learning has seen a dip in the last but is looking good and Margins should be in the range of 20-25%.
Acquisitions will be the way forward also and management will be giving quantitative targets on financials for Vision 2023 soon.
My views:
With the current biz model and outlook,MPS can deliver an EPS of Rs 55-57 in FY22.
Management’s forte has been to acquire and turnaround businesses by cost management, labour arbitrage and geographical arbitrage. Growing an acquired business has been tough for them.
Future acquisitions will determine the pace of earnings expansion beyond the 55-57 EPS which is the existing business potential.
Current valuations appear very cheap with a FY22 EPS of 55-57 and cash/share of Rs 90 on the books. Should rerate if management delivers on targetted numbers.
We’ve diversified our customer base. Back in 2015, we billed 125 customers. And last financial year, we invoiced 897 customers . Our top 5 used to be 66% of our revenue but now is about 37% of our revenue. And our top 10 used to be 90% of our revenue and is now 49% of our revenue .
In the past 5 yeas We’ve enhanced our management debt, both at the senior management level but also at the next 3 levels of management. We’ve expanded our geographic footprint. We’ve added presence in the U.K., Germany and Switzerland in Europe, Mumbai and Kolkata in India and Texas and California in the U.S.
Elearning Business
Fiscal year '21 was challenging for MPS Interactive due to attrition in key industry sectors such as energy, aviation, manufacturing and travel caused by the pandemic economy. New orders came to a standstill and movement to accrue existing order book was also significantly delayed or reversed. In some of our strongest accounts, we saw significant delays to delivery and accruals due to lack of available client personnel.
However, as part of the strategic plan, we sought and gained several new logos and developed lovely client relationships. We also took steps to market several high-value, high-impact solutions. We were able to hold new orders steady as compared to the prior year. We also placed organizational focus on significantly reducing expenses. These actions, along with the reawakening in some sectors, put us on the right footing for a profitable and strong start to fiscal year 2022.
our goal over the next 2- to 3-year period, to get this business entity back to INR 90 crores, INR 95 crores , from current level of 60 cr.
In terms of how the market is perceiving us, so every year, we apply to this entity called Brandon Hall, which is known as the Oscars of learning. This past year, we won 34 Brandon Hall awards in April of 2020, and we’re expecting to continue the same trend in 2021 as well. So from a perception positioning market acceptance standpoint, I think we are definitely in a position to be at a much higher scale. When we say over 30 awards, there are possibly only 2, maybe 3 companies in the world that got those number of awards.
on the eLearning side, it’s essentially project-based revenue. Every year, there’s a certain sales-level activity that has to be done to build up the order book. So it’s a project-based business. Having said that, we do have customers that have been working with us for over a decade. Our top 10, would account for 50%, 60% of our revenue .
Highwire business
Our initiatives have shown strong results as we reported our PBT level of INR 18 crores for the period of July 1, 2020 to March 31, 2021, as against losses at the PBT level under previous ownership.
HighWire was founded on 3 core principles: innovation, service and community. And we are essentially trying to reinvigorate those 3 principles.
We’ve also recently onboarded a senior domain specialist. His name is Tony Alves. He is the Head of Product Management, to perform the role of a thought leader in the community in partnership with John Sack, who’s the Founding Director.
We have improved our service levels. So when we bought HighWire, we had over 450 tickets open on the support side. Today, we have less than 200 tickets open on the support side.
from our perspective, the business that we have acquired is definitely of a much smaller scale than what HighWire used to be. So we basically acquired something like a $13 million, $15 million business. But we know that in the history of HighWire, not so long ago, 3, 4 years ago, HighWire was at $25 million in revenue. So our first milestone as in every acquisition is really going to be about moving this $13 million to $15 million of revenue back to the $25 million of revenue. And then we’ll probably achieve normalcy in organic growth.
Reasons for decline in revenue in Q4FY21 in platform business: there was a lot of revenue that was already lost by HighWire prior to the acquisition. So some of that is now playing out where customers are exiting their agreements. And this will play out now for the next 2 or 3 quarters even as you will see the stable movement over the next 2 or 3 quarters. On the margin side, we expect margins to be our highest in the platform business, and we will see improvements quarter-on-quarter sequentially speaking until we settle on a high margin for the platform business.
Content Solution business
Content Solution business reported revenues of INR 229.22 crores on an FX-adjusted basis compared to INR 205.29 crores in the previous year, a growth of 11.6%.
The positive change can be attributed to the successful implementation of a robust business continuity plan and stabilizing our customers’ businesses after the initial lockdown setbacks, step-up in the volume of work from several of our core customers and onboarding of new customers.
our content business is now reviving. We’ve already seen double-digit growth this past year. We expect that to continue going forward as well . And content business is a high-margin business. And any addition to revenue is mostly margin accretive because we already have a lot of the fixed cost deployed.
we can make a 2-year call in the sense that this business can get to the $38 million, $40 million level from current level of $30 mn . if you are able to capture a higher share of the newly added customers, that’s what’s really giving us the confidence that this line of business will grow.
On quarterly movement, we essentially held our own as we transition from Q3 to Q4. Q3 is typically our strongest quarter every year. So while we did not hit any operational speed bumps as we transition from Q3 to Q4, our EPS was suppressed by as much as INR 3.11 because based on the Finance Act 2021, depreciation of goodwill is not deductible while computing taxable business profits, and this is true for past transactions and was made effective April 2020. This effect has then been captured in our Q4 results, though minimal cash movement is expected . This has resulted in a onetime hit of INR 5.61 crores and has impacted one of our subsidiaries, which is called MPS Interactive Systems Limited . This is in respect of the business we acquired from Tata Interactive Systems in financial year '18/'19. This has not resulted in any direct cash outflow because the MPS Interactive System is having carried forward losses to the tune of INR 9 crores.
what we’ve seen is the platform business, a customer, when they sign the contract with you, they either sign a 3-year contract or a 5-year contract, sometimes also 7-year contracts, though those are rare. But we’ve easily seen most customers go into 3, maybe 4 terms of the contract and renew them. In terms of the revenue, really, 60% to 70% of revenue that we capture is captured through licensing and providing the access to the platform. But publishers like to also specifically customize or even sometimes just configure the platform for their own use. And then the balance, 30% of the revenue comes on top of the annuity revenue, which again is built out in collaboration between us and the customer.
In terms of acquisitions,
our strategy is fairly straightforward and simple. We do not acquire businesses for scale. We acquire businesses for scope. So we acquire businesses that can provide us meaningful value, enhance our competitive advantage and really allow us to then grow within this space. So each of the acquisitions, for example, that you’ve seen in the past that 7, 8 years, all the acquisitions have added new capabilities to MPS, which we open to our existing customer base, but also we’ve unlocked synergies between groups.
From our perspective, we have certain factors that we look at. We want to make sure that the business that we’re acquiring has had some premier status at some point in the journey. So #1, #2 at some point in this space. Second, the business adds meaningful capabilities to MPS. So it’s not just more of the same. And thirdly, there’s a motivated seller.
Business Model in Content business
on the content side, we largely work with publishers. So we work with educational publishers, which includes K-12, college as well as continuing education and professional. We work with academic and STM publishers.
So just to back up, on the education side, publishers produce content, both digital, but also they have print product. And on the academics, we also work with academic and STM publishers, which is essentially content lead to research. There, the format tends to be where there seems to be a bigger bias towards journals. And so 60-40 journals. It’s about 60% of the ratio and the balance is books and digital products. We also work with some trade publishers, so fictional/nonfictional type of publishers. We also work with databases and directories as well.
In terms of what are the services we’re providing these customers, we’re providing them content offering and content development services. If it’s an educational publisher, it’s mostly delivered in the U.S. For some other publishers – type of publishers, we also do this activity in India. Then we have what we call content production, which is basically once the content is finalized, the entire journey from the manuscript to the delivery of the content – and the delivery could be digital. It could be print. It could be multiple formats. That entire activity is called content production. And all of the activity is delivered through our India operations. And our largest operations in India for content production are in Dehradun.
So in terms of the revenue patterns, while our pricing tends to be per page, per screen, per project, much of our revenue has a recurring nature to it in the sense that there are certain customers with which we are in as vendor partners. So most publishers work with a certain select vendor pool. So while we do not know whether – what the type of revenue will be at the beginning of the year, we are able to predict the volume of revenue on the content side.
In addition to our core business, we are also launching this year new business streams. For example, we are now establishing a digital studio that’s focused on online education as a business unit. We’re launching an experience center business unit called [ Imagine You ] later on in the year. We are also exploring new applications for existing products and services.
