will check and get back
4 % depreciation of Euro, GBP against INR in past one month is very sharp one and we need to keep watch on it as MPSās 47 % revenues (FY14) are coming from Europe and 30 % of the total sales appears to be actually billed in European currency rather than USD.
Rgds.
1 Like
Mahesh
Good point - I think MPS from hereon is purely a bet on the managementās execution and capital allocation capabilities. From the research I have done, acquiring customers is a very long and laborious process and tuck-in acquisitions with a consequent follow-on to shave off costs are the only way to build scale in this business (similar to a technology business).
My sense is that Nishith Arora is an ethical, hard nosed person with an eye for value (thatās why he bought MPS for Rs. 38 Cr. !) and this is a story that could play out like eclerxās in the medium term.
I have been trying to speak to a few people in this industry but have not had much success.
1 Like
Hi
Can any of the boarders dig up more on a company called impulses? Itās a bangalore based Co. into digital publishing. All the major publishers are its clients including brittanica, Thomson press etc. If someone has MCA access could they please share its financial? More interested as this company is run by Mr sameer shariff who is a Wharton graduateā¦ Seeing similarity in MPS in thisā¦ It could throw more light on sustainability of mps growth in futureā¦
Sorry for the typo itās Impelsys
Sreekath
Find attached impelsys numbers. Do you have access to the impelsys management ? If yes, their perspectives on what MPS does could be quite useful.
Hearing about a horse from another fellow horse is the best perspective one can have.
Hi there
Sorry I donāt have access to the management of impelsys. However from what I know is this company has an established position in the digital publishing spaceā¦ It is successfully garnering more than 200 clients all over the world in its portfolio. Recently started services catering to content management for ios and Android platforms for most of its publishers.
If MPS is going into digitization way for its set of publishers it would be useful to know the groundwork done by impelsys in this segment.
Btw vardarajan could you share the complete set of numbers for 2013 & 2012 as certain numbers esp topline seems to be missing.
Regards
Sreekanth
For 2012 and 2013 - the P & L is missing - so only the profits carried forward exists.
Sorry
Does any VP-er have access to management in any of these companies ?
)- hurix
)- newgen imaging
)- impelsys
Sreekath
Find attached impelsys numbers. Do you have access to the impelsys management ? If yes, their perspectives on what MPS does could be quite useful.
Hearing about a horse from another fellow horse is the best perspective one can have.
Hi Sreekanth & Varadharajan,
The missing revenue numbersof Impelsys for FY13 and FY12 are 33.5 cr. and 20.8 cr. respectively. However, key thing to note here is that these numbers (provided by Varadharajan and me) are only Indian entity numbers which is actually owned by Impelsys Inc. Hence, if we talk of Impelsys group numbers then at consolidated level they seem to be reaching ~INR 150 cr. mark.
This is what I talked about before, that, due to stagnation in sales over last few years because of varied issues like miscalculated books-segment acquisition, ownership change, etc., , MPS seems to be loosing out to its peers in terms of scale wherein good peers have grown at a healthier pace and so today we have SPS, Newgen, Impelsys, Publishing Tech.Group, Lumina, etc. closing the scale-gap with MPS.
I have listed in the following table industry players above 100 cr. scale :
|
(fig. in INR) |
Revenue |
EBITDA Margin |
Cash/Debt Status |
Institutional Shareholding |
CAGR |
|
Spi Global |
1000+ cr. (FY14) |
~20 % ( based on the data when ownership changed hands ) |
n.a. |
80 % ( CVC Partners ) |
n.a. |
|
Aptara |
627 cr. (FY14) |
20.09 % |
~620 cr. Net Debt |
32 % ( Prudential plc, AXA Investment, NFU Mutual, F&C Asset ) |
17.75 % ( FY11-FY14 ) |
|
Innodata |
390 cr. (FY14) |
11 % |
100 cr. + Net cash |
28 % ( Vanguard, Blackrock, Morgan Stanley, Perritt, Royce, etc. ) |
12.21 % ( FY11-FY14 ) |
|
MPS |
197 cr. (FY14) |
33.52 % |
25 cr. Net Cash in BS (FY14) |
0.13 % |
10.50 % ( FY11-FY14 ) |
|
Lumina Datamatics |
169 cr. (FY14) |
n.a. |
n.a. |
27 % ( JM Financial, NEA Indo US VC ) |
n.a. |
|
SPS |
156 cr. (FY13) |
52.18 % |
33 cr. Net cash in BS (FY13) |
90 % ( BC Partners via Springer ) |
13.74 % ( FY10-FY13 ) |
|
Publishing Technology Group Plc |
155 cr. (FY14) |
7.35 % |
~36 cr. Net Debt |
15 % ( L&G Life, Almandine Capital, Criseren Investments ) |
13.50 % ( FY11-FY14 ) |
|
Impelsys Group |
~150 cr. (FY14) |
n.a. |
n.a. |
n.a. |
n.a. |
|
Newgen |
119 cr. (FY13) |
41.66 % |
41 cr. Net Cash in BS (FY13) |
59 % ( Franklin Templeton, Abraaj Capital, ePlanet Ventures ) |
20.51 % ( FY10-FY13 ) |
After that you have ample number of good players in 50-100 cr. range like TNQ, Hurix, Integra, Cenveo, Jouve, Codemantra, Contentra, Amnet, Ninestar, etc. and even larger number of players in 1-50 cr. range like C&M, S4, Diacri, Antares, Ditech, Exemplarr, OKS, Exeter, Vakils, Realty Premedia, Transforma. etc.
Most of these players have carved out their niche ; for ex., Impelsys which you talked about, is focussed on platforms and is riding high on the success of its IpublishCentral platform...hence, to compare MPS and Impelsys in that sense is not proper as MPS is still more focussed on traditional KPO work of production side (prepress) of Journal and Books (forming 62 % of FY14 sales) and platforms contribute only ~10 % of its FY14 revenues... Similarly, Hurix, after struggling for initial few years has now found success with its platformisation strategy....SPS, Newgen, TNQ, C&M, etc.'s offerings and sales profile are more like MPS whereas Spi, Aptara and Lumina Datamatics have sales coming from other segments where MPS is not present (non-publishing) but majority of their salesstill comprise of publishing bpo services.
In the table, we have only FY13 numbers of SPS and Newgen and their FY14 numbers whenever they come will make the picture even clearer. If you just look few years before, say FY10, then these players were much smaller relative to MPS...what happened is MPS remained stagnant and these players grew at a faster pace...you will also find in the table 3 Years' CAGR in revenue of each of the player.....In this if you exclude the acquisition done by MPS in FY14 as also check its FY10-FY13 CAGR for l-t-l comparison with SPS and Newgen, you will find that MPS has underperformed its peers quite badly....
|
w/o Acquisition FY11-FY14 |
FY10-FY13 |
|
|
MPS 3 Years' CAGR |
8.79 % |
3.48 % |
Hence, today what we have is MPS being the fourth largest player in the world in publishing BPO space but 5 of its peers very close to its scale of operations.....FY15 will be crucial as if MPS doesn't grow its revenues by atleast 10-15 %, it could very well slip to 7th or 8th position in this one year itself....Growth via acquisitions is good but organic growth has to start somewhere as one can't defend its position only via acquisitions.
Having said all these, there is also a sliver lining in this entire picture for MPS which is --
== if its good peers are able to grow at reasonable pace, why can't MPS grow ?? Its an undisputed fact that MPS has one of the widest offerings amongst all mentioned peers except Aptara (Ienergizer)....
== Peer like SPS and C&M Digital have been able to operate at 50 % + EBITDA margins consistently and Newgen also is having decent EBITDA margins (41.6 %) at standalone level (at consolidated level it seems to be more closer to 34-35 %), so whay can't MPS maintain 40 % + EBITDA margins consistently and even grow on it ?? Here, it is safe to assume a 32-38 % EBITDA margin range in the long run while factoring in currency fluctuations, pricing pressures, etc.
== Platform focus has paid rich dividends to its peers like Impelsys and Hurix (which saw significant improvement in EBITDA margins once platform sales went up), so why can't MPS gain similar advantage ?? Here, we need to keep in mind that platformization strategy success requires a good amount of upfront investments, especiallyin sales which company is not inclined to do as yet...what I can derive from the concall commentries is that management is keen to slowly and steadily grow its platforms business and is right in its strategy of first testing it out with live projects of its major clients so that such projects could become a case study to sell the product to that clients as also other clients....although management has stated a 3 year time frame for this, but, by seeing the aggressiveness in events participations as also good one and two pages adverts in leading industry magazine, management seems to be pushing its products right away.....
== Mr. Nishith Arora has a very good experience in the business in the sense that he founded ITC in 1999 and eventually sold it off at 3 times sales (16 cr.//52 cr.) in 2007 to Infomedia...even at that time ITC's expertise in high-end work was quite appreciated and it had quite a good clientle.....so, with such more than one decade experience in the space, and now a great company like MPS under his fold, why can't Mr. Arora take his company to next level ?? He seems to be a genuine guy and has so far walked the talk...what I like most is he has never created a rosy picture and always toned down the expectations ; (a case in point here is Element acquisition for which post Q1 good performance he was forthwith in pointing out that Element is a cyclical business)...with now his son and daughter-in-law also inMPS, it shows promoters' commitment to see MPS grow...so far, he has been fair in his dealings and also his background seems to be quite clear with only one group company Adi Media which is into magazine publishing business (looked after by his wife and is profit making) and Adi BPO's operations curtailed down (FY13 core business revenue only 4 cr. down from 20 cr. in FY12) with focus on only MPS...another key thing to note here is that funds for acquiring MPS were arranged mostly via internal borrowings (~22 cr. interest-free loan from Mr. Nishith Arora and interest-bearing 9 cr. from Adi Media with external borrowing of ~24 cr.); in case of a fund requirement (in addition to cash on books of MPS) to the tune of 40-60 cr. for acquisition, it can easily be arranged by promoters themselves which gives a good leeway in the process...
== In each of the 100 cr. + entity of the industry except MPS (and ofcourse Impelsys data are unavailable), institutional ownership is significant so why can't MPS, with a stated intent of equity dilution in case of significant fund requirement, attract good insitutional participation ??? Although as an investor, institutional ownership structure is immaterial, but, what happens is, it helps in letting the stockcommand richer multiples and also if PE player comes, with its resources, it can assist the capable management in fixing the weak spots and enhance the pace of topline growth....Whenever MPS decides to dilute, institutional appetite is going to be strong as there are not many businesses which have scope for consistent 25-30 % + EBITDA margin operation and this is the reason why in each of the player, either a strong PE player in present in case of unlisted entities or strong institutional funds are present in case of listed entities....If we look at holding structure of MPS, pure institutional ownership is just 0.13 % which if combined with HNI and PMS holdings comes to just 9 % of the equity.
So, now, with industry having good growth prospects, busniess having good margin profile and stock being underowned from institutional perspective, question comes of valuations asto whether the current valuation are right or not...
What we can do here is compare the valuation commanded by MPS peers on the bourses wherever they are listed. To do that I have provided below valuation commanded by three of the peers viz., Ienergizer (Aptara), Innodata and Publishing Technolgy Group Plc.:
|
Revenue |
EBITDA % |
EV/EBITDA |
EV/Sales |
P/E TTM |
|
|
Ienergizer ( @IPO in 2010 ) |
928 cr. (155 cr.) |
24.4 % (37.5 %) |
7.70 (10.01) |
1.97 (3.75) |
8.90 (20.88) |
|
Innodata |
397 cr. |
11 % (only Content Services division considered otherwise Loss Making) |
7.05 (only Content Services division considered otherwise Loss Making) |
0.82 |
Loss Making |
|
Publishing Technology Plc |
155 cr. |
7.35 % |
13.05 |
0.96 |
19.33 |
|
MPS |
197 cr. |
33.52 % |
14.48 |
4.85 |
23.35 |
Now, here also, PTG is focussed more on platforms whileInnodata has a different client focus (although largest client of MPS and Innodata are common). Still, what we cancount is the range of EV/EBITDA multiple commanded.
When Ayush initiated the thread it was a no-brainer with a caution that we had not seen the execution of the management......when Hitesh pointed the stock recently, it was a goodopportunistic bet which turned out very well post Q1 good nos., bullish market sentiments and aggressive dividend policy of the management....
From hereon what I feel is it only deserves to quote at current and even richer valuations if it gets migrated from opportunistic bet to longterm portfolio bet....this thing will get clearer in next two quarters nos....the only thing missing from the story is good topline growth which if comes at current margins can let the stock quote at much richer valuations...
[ Discl. - had a very small position for tracking purpose when Ayush initiated, increased my exposure slghtly post aggressive dividend announcement by the company post Q1FY15 nos..]
[quote="Mahesh, post:191, topic:347503866"]
> Hi Sreekanth & Varadharajan,
>
> The missing revenue Impelsys for FY13 and FY12 are 33.5 cr. and 20.8 cr. respectively. However, key thing to note here is that these numbers (provided by Varadharajan and me) are only Indian entity numbers which is actually owned by Impelsys Inc. Hence, if we talk of Impelsys group numbers then at consolidated level they seem to be reaching ~INR 150 cr. mark.
>
> This is what I talked about before, that, due to stagnation in sales over last few years because of varied issues like miscalculated books-segment acquisition, ownership change, etc., , MPS seems to be loosing out to its peers in terms of scale wherein good peers have grown at a healthier pace and so today we have SPS, Newgen, Impelsys, Publishing Tech.Group, Lumina, etc. closing the scale-gap with MPS.
>
> I have listed in the following table industry players above 100 cr. scale :
>
> (fig. in INR)
>
> |
>
> 1000+ cr.
>
> (FY14)
>
> |
>
> ~20 %
>
> ( based on the data when ownership changed hands )
>
> |
>
> 80 %
>
> ( CVC Partners )
>
> |
>
> 627 cr.
>
> (FY14)
>
> |
>
> ~620 cr. Net Debt
>
> |
>
> 32 %
>
> ( Prudential plc, AXA Investment, NFU Mutual, F&C Asset )
>
> |
>
> 17.75 %
>
> ( FY11-FY14 )
>
> ---|---|---|---|---|---|---|---
>
> 390 cr.
>
> (FY14)
>
> |
>
> 100 cr. + Net cash
>
> |
>
> 28 %
>
> ( Vanguard, Blackrock, Morgan Stanley, Perritt, Royce, etc. )
>
> |
>
> 12.21 %
>
> ( FY11-FY14 )
>
> 197 cr.
>
> (FY14)
>
> |
>
> 25 cr. Net Cash in BS (FY14)
>
> |
>
> 10.50 %
>
> ( FY11-FY14 )
>
> 169 cr.
>
> (FY14)
>
> |
>
> 27 %
>
> ( JM Financial, NEA Indo US VC )
>
> |
>
> 156 cr.
>
> (FY13)
>
> |
>
> 33 cr. Net cash in BS (FY13)
>
> |
>
> 90 %
>
> ( BC Partners via Springer )
>
> |
>
> 13.74 %
>
> ( FY10-FY13 )
>
> |
>
> |
>
> |
>
> |
>
> |
>
> Publishing Technology Group Plc
>
> |
>
> 155 cr.
>
> (FY14)
>
> |
>
> ~36 cr. Net Debt
>
> |
>
> 15 %
>
> ( L&G Life, Almandine Capital, Criseren Investments )
>
> |
>
> 13.50 %
>
> ( FY11-FY14 )
>
> ~150 cr.
>
> (FY14)
>
> |
>
> 119 cr.
>
> (FY13)
>
> |
>
> 41 cr. Net Cash in BS (FY13)
>
> |
>
> 59 %
>
> ( Franklin Templeton, Abraaj Capital, ePlanet Ventures )
>
> |
>
> 20.51 %
>
> ( FY10-FY13 )
>
> After that you have ample number of good players in range like TNQ, Hurix, Integra, Cenveo, Jouve, Codemantra, Contentra, Amnet, Ninestar, etc. and even larger number of players in range like C&M, S4, Diacri, Antares, Ditech, Exemplarr, OKS, Exeter, Vakils, Realty Premedia, Transforma. etc.
>
> Most of these players have carved out their niche ; for ex., Impelsys which you talked about, is focussed on platforms and is riding high on the success of its IpublishCentral platform...hence, to compare MPS and Impelsys in that sense is not proper as MPS is still more focussed on traditional KPO work of production side (prepress) of Journal and Books (forming 62 % of FY14 sales) and platforms contribute only ~10 % of its FY14 revenues... Similarly, Hurix, after struggling for initial few years has now found success with its platformisation strategy....SPS, Newgen, TNQ, C&M, etc.'s offerings and sales profile are more like MPS whereas Spi, Aptara and Lumina Datamatics have sales coming from other segments where MPS is not present (non-publishing) but majority of their comprise of publishing bpo services.
>
> In the table, we have only FY13 numbers of SPS and Newgen and their FY14 numbers whenever they come will make the picture even clearer. If you just look few years before, say FY10, then these players were much smaller relative to MPS...what happened is MPS remained stagnant and these players grew at a faster pace...you will also find in the table 3 Years' CAGR in revenue of each of the player.....In this if you exclude the acquisition done by MPS in FY14 as also check its FY10-FY13 CAGR for l-t-l comparison with SPS and Newgen, you will find that MPS has underperformed its peers quite badly....
>
> |
>
> w/o Acquisition FY11-FY14
>
> |
>
> |
>
> |
>
> ---|---|---
>
> MPS 3 Years' CAGR
>
> |
>
> 3.48 %
>
> Hence, today what we have is MPS being the fourth largest player in the world in publishing BPO space but 5 of its peers very close to its scale of operations.....FY15 will be crucial as if MPS doesn't grow its revenues by atleast 10-15 %, it could very well slip to 7th or 8th position in this one year itself....Growth via acquisitions is good but organic growth has to start somewhere as one can't defend its position only via acquisitions.
>
> Having said all these, there is also a sliver lining in this entire picture for MPS which is --
>
> == if its good peers are able to grow at reasonable pace, why can't MPS grow ?? Its an undisputed fact that MPS has one of the widest offerings amongst all mentioned peers except Aptara (Ienergizer)....
>
> == Peer like SPS and C&M Digital have been able to operate at 50 % + EBITDA margins consistently and Newgen also is having decent EBITDA margins (41.6 %) at standalone level (at consolidated level it seems to be more closer to 34-35 %), so whay can't MPS maintain 40 % + EBITDA margins consistently and even grow on it ?? Here, it is safe to assume a 32-38 % EBITDA margin range in the long run while factoring in currency fluctuations, pricing pressures, etc.
>
> == Platform focus has paid rich dividends to its peers like Impelsys and Hurix (which saw significant improvement in EBITDA margins once platform sales went up), so why can't MPS gain similar advantage ?? Here, we need to keep in mind that platformization strategy success requires a good amount of upfront investments, sales which company is not inclined to do as yet...what I can derive from the concall commentries is that management is keen to slowly and steadily grow its platforms business and is right in its strategy of first testing it out with live projects of its major clients so that such projects could become a case study to sell the product to that clients as also other clients....although management has stated a 3 year time frame for this, but, by seeing the aggressiveness in events participations as also good one and two pages adverts in leading industry magazine, management seems to be pushing its products right away.....
>
> == Mr. Nishith Arora has a very good experience in the business in the sense that he founded ITC in 1999 and eventually sold it off at 3 times sales (16 cr.//52 cr.) in 2007 to Infomedia...even at that time ITC's expertise in high-end work was quite appreciated and it had quite a good clientle.....so, with such more than one decade experience in the space, and now a great company like MPS under his fold, why can't Mr. Arora take his company to next level ?? He seems to be a genuine guy and has so far walked the talk...what I like most is he has never created a rosy picture and always toned down the expectations ; (a case in point here is Element acquisition for which post Q1 good performance he was forthwith in pointing out that Element is a cyclical business)...with now his son and daughter-in-law also it shows promoters' commitment to see MPS grow...so far, he has been fair in his dealings and also his background seems to be quite clear with only one group company Adi Media which is into magazine publishing business (looked after by his wife and is profit making) and Adi BPO's operations curtailed down (FY13 core business revenue only 4 cr. down from 20 cr. in FY12) with focus on only MPS...another key thing to note here is that funds for acquiring MPS were arranged mostly via internal borrowings (~22 cr. interest-free loan from Mr. Nishith Arora and interest-bearing 9 cr. from Adi Media with external borrowing of ~24 cr.); in case of a fund requirement (in addition to cash on books of MPS) to the tune of 40-60 cr. for acquisition, it can easily be arranged by promoters themselves which gives a good leeway in the process...
>
> == In each of the 100 cr. + entity of the industry except MPS (and ofcourse Impelsys data are unavailable), institutional ownership is significant so why can't MPS, with a stated intent of equity dilution in case of significant fund requirement, attract good insitutional participation ??? Although as an investor, institutional ownership structure is immaterial, but, what happens is, it helps in letting the richer multiples and also if PE player comes, with its resources, it can assist the capable management in fixing the weak spots and enhance the pace of topline growth....Whenever MPS decides to dilute, institutional appetite is going to be strong as there are not many businesses which have scope for consistent 25-30 % + EBITDA margin operation and this is the reason why in each of the player, either a strong PE player in present in case of unlisted entities or strong institutional funds are present in case of listed entities....If we look at holding structure of MPS, pure institutional ownership is just 0.13 % which if combined with HNI and PMS holdings comes to just 9 % of the equity.
>
> So, now, with industry having good growth prospects, busniess having good margin profile and stock being underowned from institutional perspective, question comes of valuations asto whether the current valuation are right or not...
>
> What we can do here is compare the valuation commanded by MPS peers on the bourses wherever they are listed. To do that I have provided below valuation commanded by three of the peers viz., Ienergizer (Aptara), Innodata and Publishing Technolgy Group Plc.:
>
> |
>
> |
>
> |
>
> |
>
> |
>
> Ienergizer
>
> ( @IPO in 2010 )
>
> |
>
> 928 cr.
>
> (155 cr.)
>
> |
>
> 24.4 %
>
> (37.5 %)
>
> |
>
> 11 %
>
> (only Content Services division considered otherwise Loss Making)
>
> |
>
> 7.05
>
> (only Content Services division considered otherwise Loss Making)
>
> |
>
> |
>
> |
>
> |
>
> |
>
> |
>
> Publishing Technology Plc
>
> |
>
> 23.35
>
> Now, here also, PTG is focussed more on platforms has a different client focus (although largest client of MPS and Innodata are common). Still, what we is the range of EV/EBITDA multiple commanded.
>
> When Ayush initiated the thread it was a no-brainer with a caution that we had not seen the execution of the management......when Hitesh pointed the stock recently, it was a bet which turned out very well post Q1 good nos., bullish market sentiments and aggressive dividend policy of the management....
>
> From hereon what I feel is it only deserves to quote at current and even richer valuations if it gets migrated from opportunistic bet to longterm portfolio bet....this thing will get clearer in next two quarters nos....the only thing missing from the story is good topline growth which if comes at current margins can let the stock quote at much richer valuations...
>
> [ Discl. - had a very small position for tracking purpose when Ayush initiated, increased my exposure slghtly post aggressive dividend announcement by the company post Q1FY15 nos..]
[/quote]
50-100 cr. 1-50 cr. salesstill
especiallyin inMPS, stockcommand
Mahesh - wonderful analysis.
one of the reasons why MPS is struggling with sales growth so much is that having been a captive of macmillan, the DNA of the company was never to go out and source business - this was a phenomenon I saw in eserve BPO which got sold to TCS by citigroup.
Hence, the need to do small tuck-in acquisitions primarily for the clientele - I would say, not a bad strategy, given that nishith arora seems to be a grounded guy and recognizes that he can create good value.
A quick chat with any of these companies mentioned would greatly enhance our understanding - mahesh, did you meet any of these companies ?
I will try and speak to a contact of mine who might know someone in this space.
numbersofRevenue
EBITDA Margin
Cash/Debt Status
Institutional Shareholding
CAGR
Spi Global
n.a.
n.a.
Aptara
20.09 %
Innodata
11 %
MPS
33.52 %
0.13 %
Lumina Datamatics
n.a.
n.a.
n.a.
SPS
52.18 %
7.35 %
Impelsys Group
n.a.
n.a.
n.a.
n.a.
Newgen
41.66 %
FY10-FY13
8.79 %
|
Revenue |
EBITDA % |
EV/EBITDA |
EV/Sales |
P/E TTM | |
|
7.70 (10.01) |
1.97 (3.75) |
8.90 (20.88) | |||
|
Innodata |
397 cr. |
0.82 |
Loss Making | ||
|
155 cr. |
7.35 % |
13.05 |
0.96 |
19.33 | |
|
MPS |
197 cr. |
33.52 % |
14.48 |
4.85 | whileInnodata cancount goodopportunistic
You are right Varadharajan and this is the reason why we need to give some time to the management to initiate topline growthā¦now Macmillan tag is behind and already negative growth (cc) is arrested in FY14ā¦what we need is decent topline growth, say 12-15 % in INR terms in FY15 if INR remains at 60 levels for the rest of the fiscalā¦
Rgdg. Acquisitions, yes, not only small (like element) even mid- size acquisition (like integra) will also be fine but what I meant was based on such strategy valuation canāt be assigned to the stockā¦
Noā¦I didnāt had an opportunity to interact with mentioned companies management but fortunately was able to have a detailed discussion with one of the analyst of an international credit rating agency which also rates one of the major peer of MPSā¦to dig deeper into the sector as also cross check the facts what I did was gathered as much info as possible on most of the companies mentioned and found the space interesting enough to have long term exposure provided can get at right valuationsā¦
Have covered most of the prominent companies present in the space so you can check with your sources if you can find access with any of themā¦itās worth mentioning here a Chennai-based company Exeter premedia which has similar (to digicore) platform called āExeter collaboration suiteā,itās a very small company operating at ~40 % Ebitda marginā¦it is also seen pushing its platform aggressivelyā¦
The beauty in this space is high Ebitda margins coupled with under penetrated market because of its limited sizeā¦so with this what you have is good cash generation and if management is capable enough a bout of aggressive growth for some years and then again stable muted growth but with good marginsā¦most of the good companies (put stress on the word āgoodā here) are operating at 25 %+ Ebitda marginsā¦so, for MPS to now migrate to long term portfolio bet, it only needs to show topline growth as other ingredients are already presentā¦good margins and aggressive dividend policy will restrict the downside to 8-9x FY15 EBITDA but itās only topline growth that will rerate the stock and nothing else (of course one can also count on any acquisition but I will not put much attention to this aspect)ā¦
Feel free to get back in case of any query.
Rgds.
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Hi Mahesh
Once again excellent analysis. The facts that you have highlighted by demonstration of peers in the industry only adds to my skepticism of ability of the company to scale itās operations further. I would lay more stress on digitization as the future roadmap for MPS. However having said that, how much will clients want to stick to existing vendors who would be implementing the system for very first time? Isnāt competition a key concern here? Secondly as more players move to the same basket of services, wouldnāt it be more of volume driven game (I believe nishit stressed on this part in the previous concall)?
Mahesh further requests
1). Would it be possible to know for a given publisher how much each vendor provides service (something like an order book) would be helpful to understand concentration of revenue in the industry.
2). What is the name of the peer of mps which has a credit rating?
Regards
Hi sreekanth,
What you actually mean by ādigitisationā ??..if you mean old traditional material getting converted in digital form itās a good area but not a great area to focus on as it will have limited scope and there will be many players onto itā¦if you mean content getting produced in digital form, today actually most of the content is getting produced for digital format in addition to printā¦itās not a simple business as it looksā¦you need to win the trust of the client for him to stick with youā¦client stickiness is there but what I am told is that publishing outsourcing pie has itself remained stagnant over fy12 and fy13 but size of contracts have become larger and no. of vendors with which each client worked with has become shorter and so good players have increased marketshare v/s marginal playersā¦many of the small players who mushroomed to take advantage of the space have got wiped out or are making lossesā¦
Although prima facie there doesnāt seem high entry barriers but building of relationship is itself a great entry barrier and you will not scale up unless client builds complete trust on youā¦so in this aspect MPS seems to be quite insulatedā¦
Also MPSās focus on automating entire production to delivery workflow by offering a platform is a good strategy as not many players have concentrated on this and with this what could happen is those clients which are out of reach of MPS at present because of limited volume of work they can outsource could actually come within the reach of MPS with this platformā¦
Mr. Arora might be right in his saying that actual volume of work might have increased (for MPS) which is not reflecting in cc toplineā¦this is because when Macmillan tag gets removed, and a new management which is having largely BPO type background (via adi and neutype) comes in, premium pricing will automatically go and general pricing will set in, especially when outsourcing pie is not increasing at brisk pace and good peers are backed by good PE/Institutions and are having spare capacity to take the workā¦if mr. Aroraās words are to be believed, MPSās largest client, Elsevier, actually doubled the volume of work post him taking over ; but thatās not reflecting in the topline as if we take into consideration neutypeās (dehradun) work which got migrated to MPS post acquisition, there hasnāt been much growth (and Infact significant degrowth) in FY13ā¦but all these takes time as first you need to deepen the relationship and then take on the highend work which will bring with it stability in pricingā¦Mr. Arora seems shrewd enough to handle this and that is the reason why I feel FY15 is a real test for MPS not only to defend its position as a worldās leading publishing kpo co., but also check the management ability of mr. Aroraā¦since you have doubt on the growth prospects industry has to offer, let me say one thing clearly from what I am able to gather in my research work that mr. Arora has aptly put in one of the concall that there are enough organic as well as inorganic opportunities to grow in this businessā¦the key thing is how much you want to forego on marginsā¦if you want to stick to 35 % + margins, organic opportunity (excluding platforms business) will be stable growth (8-10 % cc) and inorganic opportunity (acquiring company in similar traditional kpo work and improve its margins) will be good growth as there are many companies out there in 10-70 cr. range which because of stagnating revenue and relatively muted margins want to sell out (even some pe-backed cos. are there)ā¦if you want to forego margins and go to 20-25 % margins, organic opportunity will be relatively good but I donāt think Mr. Aroraās aim and style of working is this as if we check his background, he has always worked on high Ebitda margins (in ITC, Adi and neutype)ā¦
Rgds.
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Mahesh
Agree with you - Nishith arora is supposedly a grounded, value oriented guy and I do not see him bottom fishing for scale - quite sensible.
The thing that fascinates me in this space is lots of fragmentation with high EBITDA margins (similar to how IT services was in the early 90s) and then came along infy, tcs who figured out the right optimization between margins and revenue growth, organically or otherwise.
more than revenue, it is commentary on order bookings that is critical since this is a high margin, predicable business - if the company can integrate an acquisition and show visibility to a $ 5- $ 10 mn topline inorganically + 5-7 % organic growth, this will be a compelling story.
Again, I feel it is critical to get an industry insiderās view on this industry.Trying hard to talk to a CEO of a fellow competitor - will keep one informed
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Providing below is 4 Years' Average EBITDA margin of many of the peers of MPS to assess the operational matrix of the sector as also 3 Years' CAGR in Revenues achieved by each of the peer to assess the scope of future revenue growth for MPS.
Key takeaways emerging out of the provided data are :
|
3 Years' CAGR in Revenues = 50 % + |
3 Years' CAGR in Revenues = 30-50 % |
3 Years' CAGR in Revenues = 20-30 % |
3 Years' CAGR in Revenues = 15-20 % |
3 Years' CAGR in Revenues = 10-15 % |
3 Years' CAGR in Revenues = 1-10 % |
|
|
100 cr. + Revenue |
0 |
1 |
1 |
1 |
3 |
0 |
|
50-100 cr. Revenue |
1 |
0 |
0 |
3 |
0 |
1 |
|
1-50 cr. Revenue |
4 |
4 |
2 |
4 |
2 |
3 |
|
Total |
5 |
5 |
3 |
8 |
5 |
4 |
(1) Out of the 31 peers' 3 Years' CAGR in Revenues data available, 70 % of the peers have grown at a 3 Years' CAGR of 15 % + with 33 % of the peers (10 peers) growing at a CAGR of 30 % +.
(2) In 100 cr.+ scale range, 50 % of the peers have exhibited a 3 Yrs. CAGR of 10-15 % whereas there are also peers of this size who have grown at 50 % + (1) ; two of the peers have grown at 17 % + CAGR (one peer larger in size than MPS).
(3) In 50-100 cr. scale too, 80 % of the peers have shown a 3 Years' CAGR of 15 % + with one peer growing at even 50 %.
(4) There is wide diversity in 1-50 cr. scale range, but, even in this scale, 73 % of the peers have grown at a 3 Years' CAGR of 15 % +.
|
4 Years' Average EBITDA Margin Range 40 % + |
4 Years' Average EBITDA Margin Range 30 % + |
4 Years' Average EBITDA Margin Range 25-30 % |
4 Years' Average EBITDA Margin Range 20-25 % |
4 Years' Average EBITDA Margin Range 10-20 % |
4 Years' Average EBITDA Margin Range 1-10 % |
|
|
100 cr. + Revenue |
1 |
1 |
0 |
1 |
1 |
1 |
|
50-100 cr. Revenue |
0 |
0 |
1 |
2 |
2 |
0 |
|
1-50 cr. Revenue |
2 |
1 |
5 |
3 |
4 |
5 |
|
Total |
3 |
2 |
6 |
6 |
7 |
6 |
(5) In case of 4 Years' Average EBITDA margin, 37 % of all the peers (across all scales) are operating at 25 % + EBITDA margin whereas if we take the benchmark as 20 % + then 56 % of the peers operate at such level. Out of6 peers operating at sub-10 % margin level, 3 peers are of sub-5 cr. scale level.
(6) From the data it seems that if MPS management executes the strategy right, thereis agood scope for it to grow its revenues at atleast 12-15 % CAGR over next 2-3 years. In case of EBITDA margins, by seeing the operational matrix of peers of similar scale and model, it is possible for MPS to maintain 35 % + EBITDA margins and even improve on it on a sustainable basis.
Data of Each of the Peer
Peers with Revenues 100 cr.+
|
4 Years' Average EBITDA Margin |
3 Years' CAGR in Revenues |
|
|
Aptara |
21.51 % |
17.75 % |
|
Impelsys Group |
n.a. |
57.52 % ( Consolidated CAGR ) ( Standalone CAGR = 33.51 % ) |
|
Innodata |
11.85 % |
12.21 % |
|
Lumina Datamatics |
n.a. |
n.a. |
|
Newgen Knowledgeworks |
33.70 % (Standalone 4 Yrs. Avg. EBITDA %) (4 Years' Average Consolidated PBT % = 30.14 % ) |
20.18 % (Standalone) ( Consolidated 3 Years' CAGR = 20.50 % ) |
|
Publishing Technology Plc |
7.62 % |
13.50 % |
|
Spi Global |
n.a. |
n.a. |
|
SPS |
55.02 % |
13.74 % |
Peers with Revenues between 50-100 cr.
|
4 Years' Average EBITDA Margin |
3 Years' CAGR in Revenues |
|
|
Amnet Systems |
23.18 % |
50.39 % |
|
Hurix Systems |
17.51 % |
18.59 % |
|
Integra Software |
10.94 % |
3.46 % |
|
Ninestars Information |
22.15 % |
18.27 % |
|
TNQ Books & Journals |
27.91 % |
15.24 % |
Peers with Revenues between 1-50 cr.
|
4 Years' Average EBITDA Margin |
3 Years' CAGR in Revenues |
|
|
Altivolus Infotech |
27.38 % |
15.21 % |
|
Antares Publishing |
5.42 % |
12.19 % |
|
C&M Digitals |
59.31 % |
24.20 % |
|
Contentra Technolgies |
10.27 % (3 Years' Average) |
7.98 % (2 Years CAGR) |
|
DiacriTech |
14.10 % |
16.48 % |
|
Ditech Process |
10.54 % |
25.66 % |
|
Deanta Global (Amnet Systems associate which is covered under 50-100 cr.) |
3.02 % (FY13 Ć¢ Otherwise Loss Making) |
291.15 % (2 Years' CAGR) |
|
Exemplarr Worldwide |
28.57 % (3 Years' Average) |
44.17 % (2 Years' CAGR) |
|
Exeter Premedia |
29.61 % |
36.35 % |
|
E-edit Infotech |
42.67 % |
4.51 % |
|
Jouve India |
20.87 % (3 Years' Average) |
37.45 % (2 Years' CAGR) |
|
Mizpah Publishing |
19.72 % |
- (1.99) % |
|
OKS Prepress |
17.29 % |
6.11 % |
|
Perfect Digital Media Resources |
6.36 % |
18.85 % (2 Years' CAGR) |
|
Quadrum Solutions |
25.32 % |
11.63 % |
|
Reality Premedia |
38.67 % (3 Years' Average) |
392.53 % (2 Years' CAGR) |
|
S4 Carlisle Publishing |
9.19 % |
16.93 % |
|
Transforma |
22.19 % |
33.88 % |
|
Vakils Premedia |
27.57 % |
66.31 % |
|
V-Prompt Eservices |
9.09 % |
76.65 % |
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In 50-100 cr. scale range, one peer Cenveo Publisher Services (which acquired Glyph from network18, Glyph consists ofITC founded by Nishith Arora which was acquired in 2007 by Infomedia) was missed and so providing the revised table of 50-100 cr. scale range below :
Peers with Revenues between 50-100 cr.
|
4 Years' Average EBITDA Margin |
3 Years' CAGR in Revenues |
|
|
Amnet Systems |
23.18 % |
50.39 % |
|
Cenevo PublisherServicesIndia |
31.66 % |
5.28 % |
|
Hurix Systems |
17.51 % |
18.59 % |
|
Integra Software |
10.94 % |
3.46 % |
|
Ninestars Information |
22.15 % |
18.27 % |
|
TNQ Books & Journals |
27.91 % |
15.24 % |
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Hi Mahesh,
Fascinated to see the depth and breadth of your digging once you are at it. Lot to learn from you. I was just wondering as most of the above companies are unlisted, how do you access their financial data?
Hi Aksh,
From company registrars, credit rating agencies, annual reports, data providing agencies (like gbr, hovers,etc.), etc.
Rgds.
2 Likes
MPS acquires US based content creator coā¦
EPS looks very interesting, EPS was foundered by former MacMillan executives in 1994. EPS offers services like art rendering, Art development, Art response ( reviewing) and offers production services likefull service management, design, editorial and page layout & composition. Looks like EPS acquisition will help MPS to offer moreServices to educational publishers.EPS co website - http://e-p-s.com/production_services.html