Price for qip will determine if bidders are willing to pay premium for companies ambitions.
Management is share holder friendly factor to be kept in mind promoter holds over 68%
2016 qip @830
2022 buyback @900
1 Like
Concall
Sukhwant Singh on Content Soln
In the post-pandemic period, the Content Solutions business of the company experienced strong momentum in Q4 and throughout FY '23. The business demonstrated significant operating leverage, resulting in a 34% growth in PBT for the fiscal year and a 47% growth in Q4. The growth was primarily driven by the scholarly line of business.
The implementation of the Going Gestalt growth strategy yielded positive results, with the revised go-to-market strategy enabling the exploration of growth synergies between scholarly content, platforms, educational content, and e-learning. Cross-selling and upselling efforts, with a focus on STAR accounts, led to robust growth in the top 10 content solution customers and double-digit growth in three of the top 10 accounts.
The company successfully launched new capabilities, including a peer review solution that garnered a significant multiyear win with a prestigious new customer in Q4 of FY '23. Substantial investments were made in AI/ML-based image and research integrity solutions, which generated noteworthy demand from clients.
Anthony Alves on Platform Soln
In Q4 of FY '23, the Platforms business of the company witnessed a 2.4% revenue growth compared to the same period in FY '22. This growth marked a significant milestone in the third year of the company’s ownership of HighWire, indicating a strong foundation for FY '24 and beyond.
Several factors contribute to the transition of the Platform business into a healthy and growing phase. Firstly, the company’s mission has shifted from support and delivery to product development, encompassing new product launches, active product roadmaps, and upgrades.
Additionally, the new customer acquisition strategy, which involves bundling products and services and adopting a price warrior approach, has gained traction and facilitated the development of a new customer base.
The feedback from the industry and scholarly community has been highly encouraging, particularly due to the company’s position as an independent choice following the acquisition of two major competitors by publishers.
Rajesh Jumani on e-Learning
The eLearning business segment has become the company’s second-largest, accounting for 25% of total revenue in FY '23 with INR127 crores. Profitability in this segment more than doubled throughout the financial year, and there was a 50% improvement in Q4. All four entities, including the Swiss entity, showed positive performance, recovering from the pandemic-related decline.
The acquisition of EI Design validated the company’s acquisition strategy of acquiring growing assets at compelling valuations. Besides strong financial indicators and significant margin improvements, operational indicators were also highly positive. The company has achieved market-leading status in service delivery and quality in the eLearning practice, reflected in high customer satisfaction (CSAT) scores.
The soft launch of Magineu, the Experience Center business, was highly successful, with a notable project completed at India Energy Week. The business unit exceeded expectations in its first year and demonstrated better margins than the eLearning segment. The company aims to scale Magineu as a substantial business segment for marketing communications by FY '25.
5 Likes
Some of the numbers like ROCE, and ROE are impressive but these 4 reasons are making me hesitant.
- The YOY sales growth has been nominal for the past 3 years. While the company’s margins are expanding and have reached 40%. Based on the past 10 years’ data on OPM & NPM, one can see that OPMs vary between 34% and 40%. Looks cyclical to me and the company is operating now at peak margins.
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As I understand, there are two components to growth in a stock’s price. One, PE expansion, and the other, growth in earnings. The PE expansion has already happened with the current PE of 21.4 looking slightly overvalued. Regarding earnings growth, the current earnings yield of 6.6% is almost equal to that of G-Sec or FD rates. – not offering much scope for growth in terms of earnings.
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Stock P/E of 21.4 and a price-to-sales ratio of 6.2 are reducing the margin of safety for me.
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As pointed out by a few investors above, the management has taken approval for QIP for an aggregate amount of up to 250 crores for a period of 12 months and will use this amount (deployed within 2 quarters) if some large opportunities become available. (Source: Earnings call). But historically, QIP has not been favorable for individual retail investors. When MPS Ltd. raised Rs. 150 crores in March 2015 via QIP at an issue price of Rs. 836 per share (5% discount of Rs. 880 – floor price), the stock price went down by 22%. (https://economictimes.indiatimes.com/markets/stocks/news/qip-issue-a-harbinger-for-good-times-for-a-stock-think-again/articleshow/54439185.cms). In this case, as some analysts have pointed out in the earnings call, the company could reduce dividends (they have been good dividend givers in the past) and raise debt instead of QIP as raising equity has been a costly incidence for the company. The management is conservative, and they never want to raise debt beyond CFO or PAT. But I am not sure if it’s the right thing to do now.
Some reasons why this company could be in your watch list:
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The company has revised its acquisition strategy - from buying asset-heavy struggling companies and turning them around to buying EPS-accretive companies from day 1. This, if done properly, can be a great inorganic growth avenue for the company. (Recently they bought a company called EI design based on this thesis which was positively received by Mr. Market)
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The company is currently making 500 crores of revenue and wants to triple this by FY’28.
Strategy: 60% of the growth to come from acquisitions and 40% organic growth. And the plan they have to implement this strategy looks solid. If they are able to execute well, tripling their revenue seems achievable. -
94% of the company’s revenue (FY22) is generated from USA & Europe.
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The current market price is in the vicinity of an all-time high price. Though the latest results given by the company have been good, Mr. Market has already factored in those earnings. Its better to wait if the company goes for the QIP route and then take the decision. The approval for QIP will expire in a year. So probably one can wait, watch, and then act accordingly.
Disclosure: Watchlisted, not invested.
Would love to know your thoughts.
5 Likes
My two cents:
- The company is a IT platform business. While there may be some shallow cyclicality owing to economic slowdown in the west, the margin fluctuations are likely due to periodic acquisition of margin-dilutive businesses which are then turned around and brought up to speed margin wise. Whether this strategy will continue to work in future, we’ll have to see. There has been some indication of acquiring better quality businesses, so let’s see how that goes.
- With a market cap of 1852 crores, a topline of 501 crores, and PAT of 109 crores, the Market Cap to sales is around 3.7, and the PE ratio is around 17. If the QIP happens, it will take the market cap to around 2100 crores, and thus the PE to almost 21. But if they use the capital to make a smart acquisition which adds to the topline and is margin-accretive, then the PE will still be in the high teens. My view is for a debt-free company with an EBIDTA of around 35% and a dividend yield of around 4%, not to mention ambitious growth plans, the valuation seems fair if not cheap, especially compared to other IT companies.
- I agree that the QIP could be a concern since there are always risks involved in inorganic-led growth, and equity dilution is rarely a good thing for existing share holders. I trust the management though, since they have created a lot of value for shareholders ever since they took over more than a decade ago. I am optimistic that they know what they’re doing. Whether that trust is misplaced, only time will tell.
- My big concern continues to be potential for AI-led disruption. Rahul Arora seems confident they will be fine (as mentioned in the last concall). I will be watching this closely though.
Disclosure - Invested, biased.
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- PE is 17 not 21.7. You need to look at Consolidated numbers and not Standalone
- Acquisition is key part of their strategy.
- Dividends have been historically good, so that reduces risk of bad capital allocation.
- Highwire acquisition seems to have stabilized. So that can now grow.
- There is good operating leverage in the Platform business, provided it starts to grow again.
- eLearning has been growing very well over last 1-2 years and now has good margins. Management wants margins to be 30%, currently at 25% from this segment.
I made a small entry recently at 1100.
7 Likes
Q1 Results came in at 12.55 today and after a heady run since morning, it cooled off to close at about 7%…
Here are the results and investor presentation links
FY28 projection for revenue is 1500 crore, with a cagr of 25%
PS - invested recently
3 Likes
Company seems to be growing well with moderate valuations and decent ROE.
Negligible debt. With Rs 205 Cr surplus cash. Dividend paying company. Did buybacks in FY21 and FY22
It’s checking a lot of boxes with me.
Will hope to add more as good results continue and confidence builds.
Disc. Invested recently.
3 Likes
Hello Ish,
MPS management in Q1FY23 concall has confirmed that QIP is only last option incase there is any acquisition which cannot be done via internal accruals or raising debt…The hangover is kind of away now and the results are over strong…the recent 3 days price action gives the hint that strong hands waiting for the QIP hangover to get over has now entered…
Your views please…
1 Like
Another Acquisition
Liberate Learning Pty Ltd (Australia), Liberate eLearning Pty Ltd (Australia), App-eLearn
Pty Ltd (Australia), and Liberate Learning Limited (New Zealand) (“Liberate Group”).
MPSi agreed to acquire 65% of the shares held by the shareholders of each entity of
Liberate Group for a consideration of AUD 9.32 Million which is payable as per the terms
of SPA and other transaction documents.
The remaining 35% shareholding of each of the entities of Liberate Group will be acquired
by MPSi in subsequent tranches based upon valuation methodology as agreed under the
transaction documents.
Looks like a 50 crore acqusition (for 65%) of a co doing a revenue of 45 cr at 40% margin !!
Here is the link to the Liberate group https://www.liberatelearning.com.au/ Client profile looks whose who in Aus, starting from BHP Billiton onwards !!
PS - invested
9 Likes
MPS Q2FY24 Concall Notes & Investment Thesis
MPS has three business divisions
- Content Solutions
- E-Learning Solutions
- Platform Solutions
Content Solutions
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Launched new capabilities linked to the Journal Editorial Office, or JEO, that are
placed in a more strategic position in the value chain, which has not only resulted in
new business from net new customers, but also improved the stickiness and quality
of revenue with existing customers. -
Star account strategy in the scholarly market is yielding excellent results, and hoping to scale the strategy to other business segments.
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The education side of Content Solutions business had a seasonally modest Q2,
which is expected to correct itself in the second half of the year and particularly in Q4. -
Bullish about content solutions in FY '24 with a robust second half.
E-Learning Solutions
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Outlook on the business for the rest of FY '24 continues to be bullish. All critical
lead indicators for revenue, including order book and high probability deal
pipeline, are appearing positive. -
Hoping to announce a large experience center project in the coming months.
Platform Solutions
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Double-digit Revenue Growth for the first time since the acquisition of HighWire in the
first quarter of 2020. -
Operating leverage in the platform business is the highest across all of our Segments
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Have two product launches planned in the business segment and are confident that
these will create new revenue streams in the longer term for MPS. -
October, 2023 launched DigiCore Pro. This is an end-to-end publishing workflow
solution based on the principles of single-source publishing, a methodology that
reduces inefficiencies and increases the speed of delivery for the clients. This new
publishing system supports content authoring, online submission, editorial and peerreview tracking, interactive peer review, post- acceptance production tracking, and
delivery to hosting platforms. -
In November launching THINK365, the cloud-based version of Think ecommerce and subscription management system. THINK365 is a software-as-aservice model and a modernization of the current desktop version.
-
MPS’s Mission has now transitioned from Support and Delivery to Product Development.
This includes new Product Launches, Active Product Roadmaps, and Upgrades. -
New customer acquisition strategy that involves Product and Service bundling (for
example with DigiCorePro) and Price Warriorship is gaining traction and is helping to develop a new customer base. -
The feedback from the industry and the scholarly community is highly encouraging.
HighWire and MPS now stands as the only “serious” independent choice, since two of
the larger competitors have been acquired by publishers. -
Robust pipeline of RFPs with new customers.
-
Overall, the platform business has progressed from consolidation to a growth phase.
MPS Labs in AI/ML
Instead of perceiving AI/ML as a threat, we’re viewing it as an opportunity to differentiate
ourselves once again in a market that’s highly fragmented and ripe for consolidation. To
spearhead this transformation, we earlier had launched a new initiative called MPS Labs,
which is pioneering our AI/ML initiative. It’s headquartered in Bengaluru and has a team of
over 100 professionals with relevant expertise.
Acquisitions Strategy
-
Pursuing acquisitions of healthy, at least 15% EBITDA businesses that are also growing,
at least a 10% revenue scale over a three-year period. -
Will not acquire anything that’s below 15% EBITDA margin on a standalone basis. And want to make sure that on the content side, we are north of 40%. On the platform side, we’re north
of 45%. And on the e-learning side, we’re north of 30% at some point. So, if we do acquire
something less than those numbers, then our goal will be to get them to that level in 6 months to
18 months. As of now, we’re not expecting any margin erosion as we scale either organically or inorganically.
Guidance
-
On a conservative basis, confident of crossing INR130 crores in PAT in FY '24.
60% of the growth is going to come from acquisitions, and 40% of it is going to come
from organic growth. So, 500 crores to 900 crores organically and 900 crores to 1,500
crores inorganically. -
Between FY '23 and FY '28, expecting a 25% CAGR.
Valuation
Market Cap: ₹ 2,948 Cr.
P/E: 30.4 (Standalone)
P/E: 23.9 (Consolidated)
Assuming 130 cr PAT in FY24 as base case.
H1 PAT = 60 cr
Therefore H2 PAT should be 70 Cr
Currently trading at 22.6 FY24 PAT.
Based on the company’s past track record. They have always exceeded the guidance which they have given so pretty confident that they will do upwards of 130 cr PAT in FY24.
Disclaimer: Invested & Biased.
9 Likes
Thank you Sir for pointing it out. Have updated the post accordingly.
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How is the PE 30.4?
Their TTM PAT is at 122 Cr
Updated for both standalone & consolidated numbers. Thank you for pointing it out.
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Result came at 2.23 PM today
Another below expectations (relative terms) result and market gave it the ‘treatment’ today.
2 Likes
They would need a miracle to even come within touching distance of 130 Cr guidance for FY-24. Frankly, only 10% revenue growth in an acquisition driven business is low not even looking at industry conditions.
2 Likes
As per the Q3FY24 con-call - the management has withdrawn the guidance … as they are likely to miss it by a reasonable margin - no new guidance shared… key reason being deferment of a 40 Crs contract that was to be executed within 90 days (across Q3 and Q4). Management does not have clarity around when the contract will start… One of the few positive developments during the concall seemed to be that they are on the verge of acquiring a 20 Mn USD company within Q4 and another similar deal likely to happen within CY 24.
11 Likes
One of the weird filter criteria (yet I follow strictly) is assessing the management based on the arrogance of the leader (or promoter) as the case may be.
Arrogance on a public platform (wherein usually such leaders are over-cautious) is outcome of the ingrained nature/ behaviour of such leader. Sooner or later such arrogance shows up in eventual under-performance of the organization.
I found MPS CEO to be arrogant and has been one of the reasons for self for not investing in this company.
5 Likes
Frankly, I find Rahul to be sincere and transparent. Even a lil humble (referring to Q3 and Q2 concalls). In past, he has delivered on his forecast.
One worse than expected quarter and we are pointing out flaws. We need to give management some rope here.
As of today, this is a business with 28% ROE, solid Cash from Ops for last 10 years, >150 Cr Net cash, >2% div yield.
Yes, the topline and bottomline growth has come down. But it should pick up considering the management commentary.
Now all this is available at a PE of ~20-21 (Consolidated basis).
In current hot market, this does not seem so bad.
6 Likes
Dr. Piyush Kumar Rastogi as an Independent Director and Member of the Audit Committee of the Company effecting from the end of the day today i.e. 28 January 2024 due to completion of tenure
Why did he not extend his tenure ?