MPS Ltd

[Mahesh]

yes Augustine…EPS looks a good fit and again this acquisition seems to be more for widening the services portfolio to get shortlisted for core vendor status of some of MPS’s top clientle…what price is paid and what sort of revenues does EPS generate that will be interesting to watch…primafacie EPS doesn’t seem to be larger than 1-2 mn. USD in size…however, announcement is timed appropriately to coincide with frankfurt conference/exhibition which is on tuesday, 7th Oct. where MPS is a gold sponsor and Mr. Nishith & Rahul Arora are representing the company in the event.

Rgds.

[srnarayan]

Very Cheeky acquisition imo

If the deal is around 1-2 mn USD what impact does it have on future dividends?

How much EPS accretive will this deal be? (Assuming its impact will be seen in # or Q$ of this year)

With this acquisition is management also signalling somewhere that growth rates can be sustained through inorganic routes?

It will be very interesting what kind of EPS and PE stock will command at the end of the year…

My own gut feelin is EPS should be somewhere near 30-35 and PE would be about 35 (hoping it touches the magical 4 digit by this year itself!)

again lets hope market will cheer this news after the long holidays as the stock is consolidating between 570-610 levels for quite sometime

Regards

Sreekanth

[Mahesh]

Hi Sreekanth,

Few things need to be noted with regards to this Electronic Publishing Services (EPS) acquisition :

(1) ~1-2 mn. USD is I am talking of likely yearly revenues of EPS and not the likely deal size.

(2) In all probability, MPS would not have got this acquisition cheap (less than 2x to 3x ev/sales). This is because :

(a) EPS is not a weak bankrupt company like Element which MPS acquired last year at ~0.5 times sales.

(b) Looking at the employee addition figures, EPS seems to be an existing growing company and it seems a profit-making entity.

©EPS ishaving all the three offices at good locations (headq. at one of the most prominent location in Manhattan New York).

(d) Senior management seems to be continuing with the company (EPS) post acquisition as can be seen from the statement of EPS’s president Eileen Mitchell.

(e) Company is having existing running projects (v/s Element which almost had nil projects when acquired) and the clientle seems to be very good in the form of McGraw Hill, Pearson, Harvard University Press & NPG.

(f) EPS seems to be having great strength in higher education text books segment wherein it is involved in many of the projects of standard text books.

(3) Hence, this seems to be more of a ‘combination of strengths’ deal rather than ‘distreseed assets’ acquisition and such deals usually don’t come cheap. With EPS what MPS will be able to do is deepen the relationships with its existing major clients like McGraw Hill and NPG and addon high potential clients like Pearson and Haravard University Press to top 10 list in case they are already MPS’s clients.

(4) EPS seems to be weak in offshore-relationships and MPS seems to be weak in speciailised onshore offerings like Rights & Permission Management and rich content development for HE textbooks which are crucial for snatching such contracts. Also, such contracts will bring with it high margins provided proper offshore-relationships can be established. However, there might not be 100 % offshoring possible in case of EPS as MPS had done in case of Element (where only few project management and senior marketing peoplewere continued and all other thingwas moved offshore). A certain amount of people (~45 % of the existing workforce of EPS) wll need to be continued onshore and that will mean higher expenses too. Whether all the existing three locations will need to be continued or not thats unclear as if its so then it will mean additional expenditure on that part too as the existing locations of EPS command a very premium rent per sq.ft.

(5) All will depend on existing profitability profile of EPS as one thing is sure that MPS will definitely be able to improve on that. Since only the existing cash will be used to fund this acquisition, I think this should beearning per share accretive for MPS. Its no doubt a high potential acquisition and signals management’s will to see MPS emerge as a clear leader in publishing kpo field.

(6) More than topline growth rate, whatthis acquisitionwill add to is bottomline growth rate as EPS’s currentcontracts’ profile of specialisation in biology, medical, social science and geoscience textbooks will bring with it high margins despite its high onshore involvement as the combination of MPS-EPS will enable operational synergies to kick-in.

If we assume that half of the existing cash will be spent on this acquisition, we can atleast count on a 60 % payout on consolidated PAT in FY15 based on the management commentry and its history with this regards.

What valuations will be commanded that purely depends on what category an investor puts this stock into. This acquisition is not a major one but it surely makes MPS reach closer to it being regarded by majority as a long term portfolio bet from an opportunistic bet. Q2 and Q3 numbers in addition to company’s underowned shareholding structure (wherein not a single entity owns more than 1 % equity in the company despite it being fourth largest publishing kpo player in the world) will also play a role in letting MPS command its deserved valuations on the bourses.

Rgds.

Discl. - Invested

[Mahesh]

MPS coverage in Publishers Weekly magazine as part of tracking of frankfurt book fair 2014 participating publishing solution providers.

Frankfurt Book Fair 2014: Navigating the Digital Landscape

By Teri Tan |

Oct 03, 2014

Frankfurt Book Fair 2014: Navigating the Digital Landscape

Tracking (and Dealing with) Key Workflow Trends at MPS

Newer and better workflows, tools, and processes are watchwords in the digital solutions industry. With the rise of self-publishing, open access, and interactive multimedia, the push for ever-dynamic content delivery across different platforms and devices is relentless.

For Narendra Kumar, senior v-p of technology at MPS Limited, the trends and shifts in workflow have never been more obvious than in the last few years. âThe adoption of public domain DTDs [document type definitions], albeit customized to fit internal needs, is the most significant since many publishers have already developed and used their own DTD in the past,â Kumar says. âSuch adoption of a standardized tag set, further moving toward standardized workflows, is good news for digital solutions providers like MPS, as well as online retailers and aggregators.â

Standardizing, automating, and simplifying workflows and processes are ways to obtain higher content accuracy and faster turnaround times. âSTM publishers, for instance, are standardizing page layout and minimizing title-to-title design variation,â says Kumar, adding that âauto-page-proof production using standardized layout requires an efficient and streamlined workflow management system. Our product, DigiComp, is being used by several publishers to autogenerate page proofs from XML files.â

Achieving faster turnaround times is also about avoiding rework and minimizing delays. As Kumar explains, âThis means shifting the process of checking the submission of artwork, content, and accompanying materials right to the start of the workflow management system. It improves efficiency and reduces wasted resources.â

Publishers are also embracing SAAS (software as a service) models for specific processes. Cloud-based digital publishing platforms, for instance, enable different people to work simultaneously on a specific project. They improve work efficiencies, and this reason alone has convinced the more conservative publishers to adopt them. At MPS, DigiEdit enables authors, reviewers, and copyeditors to review and edit content using a WYSIWYG-based system with XML in the background.

âNow that publishers are either overhauling or revamping their legacy tracking systems, dynamic cloud-based workflow management platforms are gaining favor,â Kumar says. âImplementing a highly configurable e-tracking system that is integrated with other in-house platforms gives publishers more operational agility to meet ever-evolving editorial and production processes in a shifting publishing world.â The quest for seamless job and metadata exchanges, he adds, has fast-tracked the integration of different publishing systems, platforms, and processes.

âEliminating redundancies to produce a more streamlined and efficient workflow is the goal. Even manuscript submission and peer-review systems, which used to be separate, are being integrated into the production workflow,â according to Kumar. Back in 2010, Kumar and his team developed MPSTrak, a comprehensive workflow management system that offers a plug-and-play model with editorial, production and content management components. It integrates seamlessly with DigiEdit, DigiComp and DigiEnhance (to add interactivity to the content) modules of MPS DigiCore platform.

âPublishers have turned to ePub, the de facto standard, to support the multitude of devices in the market,â he explains. âSo the workflow is now designed in such a way that the content is processed and finalized as a single standard, say XML, and then transformed into formats such as ePub, PDF, Mobi, and HTML. It is a one-source multi-product publishing process.â Kumar explains that the fast-growing demand for online-only multimedia-enriched materials has prompted publishing workflows to evolve and produce multi-deliverables for both print and online: âFor instance, we have developed an efficient workflow to deliver multi-folio content to iTunes App Store for clients who sought help in distributing content across various mobile platforms.â

Another key trend, Kumar says, is the increasing call for semantic tagging and enrichment to ensure highly accessible and searchable content; at MPS, this means validating client content against CrossRef and PubMed databases to find DOIs (document object identifiers) or retrieve missing bibliographic and metadata information. âMy teamâs role is to quickly identify industry trends and publishersâ needs, and to either develop new solutions or adapt existing workflows to meet those needs.â Visit booth P17 in Hall 4.2 for more information.

[Mahesh]

Link to latest October’2014 internal newsletter of MPS. Its an interesting read which provides a case study of Emerald Publishing Group as also reveals the award of contract to MPS from McGraw Hill for its products MPSTrak and DigiEdit.

http://adi-mps.com/Newsletter/issue9/newsletter_01102014.html

MPS has also recently launched a revamped dedicated website for its platform MPSInsight :

https://www.mpsinsight.com/

MPS seems to be taking its platform business quite seriously which is a good sign.

Its worthwhile to note here that MPSInsight is already currently in use by Nature (NPG), Palgrave-Macmillan, IEEE (Institute of Electrical & Electronics Engineers), IOP (Institute of Physics), RSC (Royal Society of Chemistry) amongst others.

[raj1968]

http://www.bseindia.com/corporates/ann.aspx?curpg=1&annflag=1&dt=&dur=D&dtto=&cat=&scrip=532440&anntype=A

Excellent result…

[kunalpatel_5267]

Good figures in margin expansion along with topline and bottomline growth.

http://www.bseindia.com/corporates/ann.aspx?curpg=1&annflag=1&dt=&dur=D&dtto=&cat=&scrip=532440&anntype=A Link: http://www.bseindia.com/corporates/ann.aspx?curpg=1&annflag=1&dt=&dur=D&dtto=&cat=&scrip=532440&anntype=A

Excellent result…

[Utuser91]

My two cents on why the 20% circuit is not just misplaced euphoria (I am still in the infancy of company analysis so please bear with me). Firstly, no exceptional income to prop up the bottom line as against last quarter. Yet earnings were stellar. More interesting is the acquisition cost of EPS. Based on the footnotes, looks like it was around USD 1.2 million which is far lesser than what was expected. Management needs to confirm this but if this turns out to be true then it is nothing short of a steal.

[amitayu]

@utuser ,this year also we can expect very good dividend because the acquisition cost for EPS is 7 crores and still they have 30 crores of cash plus current investment. so still 23 crores of cash is available

[desaidhwanil]

Very decent results for the quarter, though would have loved a 20% kind of top line growth. Nevertheless, high quality businesses should not be evaluated on quarterly performance alone. Here are the key concall highlights

)- Q2 topline growth in USD terms -17%

)- EPS acquisition was done at USD 1.2 million while the 9 month revenue for EPS is USD 1.9 million and PBT for first 9 months is USD 0.35 million.

)- Of the total revenue 56% is contributed from north america and 42% from Europe. - Typically, 60% revenue comes from STM segment and 40% from Education segment. Profitability of both the segments is similar

)- Volume growth is much higher than revenue growth. Thus, as expected the pricing is going down. However, management is very comfortable as they are more focused on volume as it helps increase the dependence of publishers on MPS. Management does not see this situation (where publisher ask for lower price in return of more business volume) changing

)- Even though on quarterly basis, element may have shown loss, it is because of MPS not able to meet its quarterly billing targets. However order book remains strong and Element is on course to churn out a profitable year

-Total head count on 30th September is 2891. Out of that around 840 are located at Dehradun, 640 at Chennai, 960 at Bangalore and Rest are in Delhi & NCR region.

)- Management is witnessing a increasing trend of major publishers outsourcing more and more services. At the same time vendor consolidation also is gathering momentum. Earlier publishers used to work with large number of vendors which has now been reduced to 4-6.

)- For MPS, two important acquisition rationales are

1. Ability to offer more services

2. New customer acquisition

EPS acquisition fulfills both these critereas

)- MPS is present as vendor in all top 20 publishers. However the business volume may vary. At the same time MPS is not the top vendor with any of the publisher. It is no.2,3 or 4 vendor with many of them. Hence there is enough head room to increase business with these clients

)- Largest competitors of MPS is around 3 times larger than MPS. One of its competitors (operating in similar segments) have EBIDTA margin of over 50% consistently while some of them are making losses. However, MPS management will strive to be nearer to its competitor with 50% margin. At least that is the wish list. There are enough levers with the company in terms of operating leverage, productivity increase etc to increase margin from here on as well. However, continuous business growth is key to maintaining/improving margins

)- Overall order book pipeline is robust. In terms of marketing efforts, MPS’s business with existing customers is growing and it is also able to acquire new customers

)- Management thinks that cost rationalization is a continuous process and they try to do it on day to day basis

-Bangalore real estate- Two properties. One with 45,000 sq. ft is completely occupied by the company. Another one on Brigade road with 27,000 sq. ft. 2/3 of the space is rented out to Cannon while the 1/3 is lying vacant. Management indicated that it will try to monetize the same as soon as possible.

)- Dividend policy is to maintain certain pre-defined threshold of cash and distribute the rest as dividend. The same policy will continue in future as well.

-Top-5 customers contribute 57% of the business (Q1 -51%) while Top-10 account for 74% (Q1-69%). This means, client mining is gaining traction.

)- Digicore, DigiComp and Digedit are developing very well with both internal team and external clients are using it. Few new clients have started using DigiComp recently.

[vnktshb]

Source Economic Times

Our goal is to try and move margins higher: Sunit Malhotra, MPSLtd

ET Now: Please walk us through your key earning highlights. Also, tell
us about the key drivers that backed robust top line performance, not just year
on year but sequentially also.

Sunit Malhotra:
Our earnings growth is a result of revenue growth. Besides, there has been an improvement in operating margin as our costs are fairly under control. We are leveraging greatly on our unit in Dehradun and taking advantage of the infrastructure thatwe have created there

ET Now: Strict focus on cost optimisation coupled with steady double
digit top line growth has been the main constituents of turnaround in operating
margins. EBITDA margins have expanded by a good 14%. What is your trajectory
over the next couple of quarters?

**Sunit Malhotra:
**Historically, our margins have grown because of the importance of
Dehradun in our play. We have over 800 people there in Dehradun. So that helps
us improve our operatingmargin. It was 26% in the same quarter last year, and this year it is 38%. In the previous quarter also, we had achieved 38%. So, it’s not just a one-quarter thing.

We have companies in this business who have an operating marginof 50%. So, our goal is to try and move our margin up. It can happen if we continue to grow our revenue aggressively and leverage on our Dehradun facility as much as possible.

ET Now: What were the key order-wins in the last few months? Where does
your order book stand now? What is the traction you are seeing in two big
segments - books and the digital division?

Sunit Malhotra: The growth, if you look at quarter two, has been more on the
education side of our portfolio. Overall, MPS’ portfolio is 60% in what we call
STM and 40% in education. In education we are seeing a surge. Our top clients â
both in the school as well as on the higher education side â have driven our revenue growth.

ET Now: Any big client wins in last six months? How does the revenue
concentration stack up from top five clients? What kind of growth do you
envisage for your top clients â especially in US and Europe â for FY15?

**Sunit Malhotra: **Our top five customers account for around 50% of our revenue. Our top 10 customers account for around 70%. We are growing our relationship with our top clients. We have acquired more clients. So that gives us a heightened opportunity. We have made acquisitions, which give us an opportunity to cross-sell some of the new services to our existing clients, as well as cross-sell some of the older MPS services to the new clients.

How will it pan out over the next 12 to 18 months in terms of revenue? We don’t exactly
know. I prefer to stay away from such statements. All I would say is that we are
confident of our relationships with clients. We see them growing. As far as
Europe and the USare concerned, a little over half our business today is in the United States. And we expect it to remain that way. The rest of it would be primarily Europe.

[myprasanna]

@Dhanwil: Thank you very much for the detailed con-call coverage.

[Mahesh]

FY14 results of major peers of MPS like SPS, Amnet, Hurix, etc. are out and based on the trend observed as also post Q2 numbers of MPS, the stock deserves to be a long term portfolio bet because :

(1) Peers seem to be growing handsomely (25-35 % topline growth YoY) ; and it’s not the small insignificant peers but even larger ones like SPS (200 cr. + topline) and Amnet (75 cr. + topline) which have grown 34 % and 27 % respectively in FY14…results of Newgen, TNQ will soon be out and will be interesting to watch…hence, there is no reason why MPS should face much problem in growing by 15-20 % YoY in FY15 as well as FY16…

(2) Peers are growing by expanding margins and that too at a healthy pace with SPS EBITDA margins reaching record 54 % in FY14 and Amnet expanding its margins by ~800 basis points and Hurix expanding its margins by ~200 basis points…hence, sustenance and even improving of 40 % Ebitda margins for MPS is a real possibility which will mean robust cash generation for the company on a sustainable basis…

(3) Third and most important thing is attractive inorganic growth which new management seems to be expert at…acquisition of Macmillan and Element was a loss-making acquisition so one can understand the pricing discount that management was able to extract…but recent acquisition of EPS was a real steal at just ~0.5 times sales even when the company was making 15 % + PBT margins…although one can’t bet on many of such deals coming MPS way but one thing is certain that management seems to be having its ears close to the ground and so whenever such opportunities arise, MPS might be the first one to grab them…this expertise of management will prove very fruitful in mid-size acquisition which MPS might attempt in 2015 as there are many PE/VC players who have run out their exit times…

(4) Generous Dividend distribution policy coupled with high corporate governance standards adopted by the company are the factors which will let this company command a sticky portfolio choice in the times to come…even recent appointment of CS who was since last many years with TV18 is a step in right direction and more one goes deep into it more one starts adoring the management style of Mr. Arora.

It’s rare for a company to possess all the factors like :

ethical management,

following of high corporate governance standards,

visibility of 15-20 % YoY topline growth for next couple of years,

operations at high EBITDA margins of 40 % +,

very low CAPEX requirement with already 30 % of the spare capacity still available which can be enhanced to 40 % by just a minor fit-out,

willingness of the management to share robust cash generation of the company with the minority shareholders,

underowned equity ownership structure with 75 % promoters holding and not a single entity/person holding more than 1 % equity in the company with majority of the significant peers having high institutional ownership,

enough inorganic opportunities available in the market and company having capability to raise funds for small (10 % of the topline) acquisitions via internal cash generation and flexibility to raise funds via equity dilution for any mid-size or larger acquisition with no necessity to raise debt.

A real long term sticky portfolio bet always needs such rare combination. Will update as soon as other peers results are out.

Rgds.

Discl. - Invested

[piy_sharma]

Hi Mahesh,

Thanks a lot for the info. The depth and the breadth of your research is truly amazing. There is a lot to learn from you and i hope that i can imbibe some of your qualities when it comes to research and investing.

I always had questions on how this company can increase revenues and felt that it had to be inorganic. It is great to see that the company is paying less than a dollar for every dollar of revenue that it is acquiring. This really confirms that the management is very cognizant of the fact that it has to acquire revenue cheaply.

However, i am uncomfortable about our dividend policy. Why should the management which can probably envision acquisition targets as you suggest, be willing to pay such large amounts of dividends and deplete the warchest? Is this a ploy to keep the investors happy, fully knowing that this money can be better spent elsewhere?

Having stepped on the treadmill, will it be able to step off and announce that the dividends will be tapered to fund future growth? My experience is that once the dividend tap has been turned on, it is very difficult to turn it off.

How much of the present valuation is based on the future dividend payoff’s versus future growth? This is the question that we need to answer as at Rs1250 crs, it is not really going cheap.

I would like to build an optional value of Rs 100 revenue cr business acquisition in the near future, but the funding of this is a question mark as the cash has not been retained.I agree that it can be funded by both equity and debt, but is it really required?

Regards

Disc- Invested

[Mahesh]

Hi P Sharma,

In a low CAPEX business wherein a company has the potential to serve its clients and therefore grow its revenues at a heathy pace for atleast next 2-3 years with enough spare capacity available, it is best to distribute the cash (generated) amongst minority shareholders provided management is ethical and has the guts and willingness to share its own hard work with passive investors. Just look at the other way round and you will find that why I am so impressed with the genuineness of the management – when MPS was acquired there was no Dehradun facility…Dehradun facility was of ADI and what it did was tranferred the operations (and not the facility) of ADI to MPS…while doing this, what it could have done is transfer the cash from MPS to ADI and filled its own personal pocket…but, instead, what management opted for was paying rich dividends from the begginning…

To look at this with another angle, management might have done this to increase valuations of its share on the bourses…doesn’t it benefit minority shareholders too ?? but, what I think is this is the wrong assumption as if this would have been the motive, management would have not refrained from giving forward projections on forget the topline but also on margins…by giving simple forward projections on margins valuations of the share would have been far richer from the beginning rather than the gradual rise that we had seen…

Lets look at the third angle…is it wise on the part of the management to pay muted dividends and build the warchest for acquisitions…here, lets assume that management would have paid only 4 rs. constant dividend for FY12 till FY14…then it would have spent ~20 cr. rather than ~55 cr. (~75 cr. if we count FY15 interim dividend) actually spent and therefore would have the cash of ~58 cr. on books…with this increased cash would the nature of acquisitions so far had been different – i think NO – as it has done the right acquisitions at right price and at right time so far…with the increased cash could it have benefited nature of future acquisitions – possibly yes, mainly on funding-- but, instead, it would have been far better if a mid- to large- size acquisition gets funded by PE/institutional funding —also, if you look in disguise then any mid- to large-size acquisition will bring with it PE/institutional investors as there are not many companies of such size in the industry which are operating w/o the support of such funding…so, it would be wise on the part of management to give equity in MPS as a consideration of such acquisition so that institutional guys can automatically get stake in the company w/o paying much cash and with this they can support the combined entity better…for such dilution MPS management (ADI) can’t recede the control of MPS and for that it is prudent to adopt a benefit-all strategy wherein minority investors get benefited by the rich tax-free dividends as also increase in valuations of the company on the bourses while at the same time management (ADI) gets benefited as 75 % of such rich dividends are coming to itself so that in future it can support the funding requirement of MPS as also entire company gets benefited because of commanding of rich valuations on the bourses as future equity placement, if any, will be at such richer rate and therefore will mean low equity dilution as against high beneficial revenue and profitability impact.

Regarding your point on reversal in dividend policy…I don’t think it will happen till a major equity dilution is made in the company in favour of some sort of institutional entity…you see there is no real trigger for this…this rich dividend paying policy is benefiting management more than minority shareholders because of 75 % promoter holding…there is no major CAPEX requirement as still 30 % spare capacity is readily available which can easily get increased to 40 % by a simple fit-out…minor acquisitions to build service portfolio can get easily funded even after paying out rich dividends while for major acquisition either the target itself will have institutional presence or it will be in the interest of the management to have a good institutional investor inplace to keep the combined entity ontrack as also to tackle the growth at higher scale…you see presence of a good institutional investor will be highly beneficial for the company once it goes all out in its platformization strategy (for ex., presence of Helion has done wondersfor platform business of Hurix wherein from just 3 cr. revenue from platforms in FY12 it has turned up 12 cr. revenue in FY14 with platforms now contributing 20 % to the overall topline of the company)…

Regarding how much of the current valuations factor-in rich dividends…I think downside safety is built into the stock because of rich dividends but if you look at valuation aspect, what will happen is with company delivering quarter after quarter, new set of long term investors will come in which will value the company more on EV/EBITDA basis on FY16, FY17 and FY18 numbers…because of rich dividends, ethical promoters and high corp. gov. standards adopted, previous long term investors will refuse to dilute their holdings till PE presence comes in or till any significant negative development sets in…valuations that you currently experience seem to be because of this in addition to exceptional management delivery…lets take here my own example…if you ask me then worst case valuations for such stock has to be 8x forward EV/EBITDA…but, even my average purchase price (i made significant investments in the range of 530-625) is higher than 8x FY15e EV/EBITDA (closer to 10.5-11x)…when you have underowned thinly traded stocks with such good fundamentals, what long term investors like me look at is more of downside potential rather than upside potential as upside is the variable of how the perceived good management delivers…such stocks are not sold unless you reach significant overvaluation zone or some significant company specific negative development sets in (both seem far away for the time being)…hence, till I am comfortable with downside potential of the company, I don’t mind adding it after every quarter delivery…however, make a note that this is my personal investment strategy and I can be wrong and while making investment do not follow anybody’s strategy and do your own hard work and then only invest after building own strong conviction…

Rgdg. your last point asto is equity/debt funding really required…I will say here that it will be foolish of the management to not raise equity funding in 1HCY2015…this is because a company which is looking at growing aggressively in the years to come, it will be best to satisfy its fund requirements in its best period and as per my analysis the best period for MPS in the medium term (organic) will be Q1CY2015…atpresent you have sector growing, your peers growing with an expanded ebitda, you yourself growing at a heathy pace and working at 40 % + EBITDA margins, valuations of your shares are at resonable level @13.5x FY15e EV/EBITDA, markets are talking about you, longterm investors are finding your business atttractive to invest and you have delivered more than what was expected from you…now what else you ask for ??? if you don’t raise equity funding in this golden period then it will be an opportunity lost and I don’t think Mr. Arora is that foolish to let this opportunity slip off his hands…I believe an ideal rate for equity placement should be 800-1000 per share in Q1CY2015 and if management gets this rate it might opt for it…you see in this industry for growth resources and contacts will be equally important and Mr. Arora seems to be a guy who works by combination rather than solely…if you want to sell your platforms aggressively you need to have resources and expertise to negotiate a good deal with SI which Mr. Arora is solely lacking but in combination with PE player it could clinch a win-win deal…similarly, if you want to acquire a company with good clientle and services/platform expertise, contacts of PE player might go a long way in ensuring that such deal lands in your pocket…hence, I belive in the long term interest of the company as well as its shareholders (to ensure that MPS becomes a multi-year exceptional wealth creator), first round of equity funding to the tune of 80-100 cr. is very much required at this stage…

Feel free to get back in case of any further query.

Rgds.

Dicl. - Invested in MPS

[Mahesh]

TNQ FY14 results also out today…topline increased by 35.2 % to firmly reach 100 cr. + club…more heartening is the fact that EBITDA of TNQ expanded by whopping 1896 basis points to reach 42.36 % which is even higher than MPS’s FY14 EBITDA margins…so with this we have SPS (208 cr. topline) and TNQ (116 cr. topline) , both the peers of 100 cr.+ scale operating at higher than MPS’s FY14 (and even higher than 1HFY15) EBITDA margins while smaller peer Amnet (75 cr. topline) operating at close to MPS’s FY14 EBITDA margins…so we have quite a good evidence of the fact that 40 % + EBITDA margins are sustainable as also the segment (especially Indian players)seems firmly at the start of an upcycle (suggested by exceptional organic topline growth registered).

Rgds.

[myprasanna]

@Mahesh: TNQ and SPS seems like Pvt limited companies. How did you get to know their results? Any links you can provide will be very helpful.

[Mahesh]

Hi prasanna,

The numbers are taken from their ARs filed with mca…in case you want them just drop me a mail I will send them to you…

Rgds.

[kmuthu_gct]

@Mahesh

EBITDA margins…so we have quite a good evidence of the fact that 40 % + EBITDA margins are sustainable as also the segment (especially Indian firmly at the start of an upcycle (suggested by exceptional organic topline growth registered).

Hi Mahesh,

players)seems

Please share the topline growth of these peers comparing with MPS growth. Is visibility of 15-20 % YoY topline growth for next couple of years for MPS only (or) industry wise or rough # of peers how much would be the growth % expected. Thanks.

-Muthu

[Mahesh]

Hi Muthu,

First -- please find below the YoY topline growth % and EBITDA margins of MPS as well as mentioned peers (whose FY14 numbers are out) from FY12 -- time from which ADI tookover MPS.

YoY Growth in Topline post ADI's takeover of MPS :

	FY14	FY13	FY12
MPS	20.30 %	4.12 %	7.65 %
SPS	33.46 %	29.38 %	23.47 %
TNQ	35.20 %	32.16 %	9.13 %
Amnet	27.55 %	67.86 %	36.87 %
Hurix	13.18 %	16.18 %	3.67 %

EBITDA Margins post ADI's takeover of MPS :

	FY14	FY13	FY12
MPS	33.52 %	26.17 %	10.31 %
SPS	54.86 %	52.18 %	58.57 %
TNQ	42.36 %	23.39 %	30.45 %
Amnet	35.86 %	27.54 %	24.82 %
Hurix	24.18 %	23.98 %	15.75 %

Now, the YoY growth that you are seeing in FY14 is partly helped by currency depreciation, but, despite that, the growth witnessed by peers is heartening and suggests possibility of sustenance of atleast 15-20 % YoY growth for larger players in the industry. Post ADI's takeover, the new managementseems to havefirst concentrated on stabilising the operations and from FY14 we are seeing growth which has picked up pace in 1HFY15 inline with peers' trend. Q3FY15 (which also happens to be seasonally the best quarter) will be key monitorable and if currency stays at current levels, I will be disappointed to see Q3 consolidated topline coming below 70-72 cr. with EBITDA (excluding forex effect) at 43 % +.

It is difficult to talk regarding entire industry as there arenumber ofsmall players which are geting wiped out as also there are many small niche players who are registering stable growth with high margins. But, one thing which seems to be clear is larger players are becoming larger and larger and that too at a brisk pace and with expanding margins. MPS seems to have lost out the race so far probably because of messed up affairs under the Macmillan management. However, post ADI's takeover, management seems to be plugging the loopholes in its offerings and Element and EPS acquisitions seem to be more for that rather than buying revenue. The strategy seems to be to first get shortlisted as 'Core Vendor' of all major publishers and not loose out on the vendor consolidation drive currently happening at publishers end. Second step seems to be to buy volume by offering pricing discounts so that it can move up the ladder from say 5th core vendor to 3rd or 2nd core vendor. Third step seems to be to cross-sell the service offerings with fourth step being to win the big clientle for platform business.

We seem to be atpresent at only the second step of the management strategy and so FY16 should see MPS growing inline with its peers. As the management gets slight success in third step, it might go for acquisitions that buy itself reasonable revenues.

However, remember that these are all expectations and we need to check the delivery every quarter. Itmight be only post Q2FY16 that wemight see a linear trend in growth for MPS.

Rgds.