The promoters had acquired the company for Rs 38 crore at Rs 37 per share. I believe most of the money would have come from the finances and hence these liberal dividends. So far, they have got Rs 14 per share as dividend. They sold some shares recently for 2.5 crores, so about Rs 20 crore remains. Some of that would be their own money and some would be borrowed. So expect liberal dividends for some more time.
The primary reason for a sudden spurt in profitability post acquisition was removal of high pay of top management and Board of Directors. Refer Management remuneration in previous year’s Annual Reports. There was a full 10% reduction in manpower cost. Besides this Management has done some intelligent cost rationalizations which are continuing. Refer their corporate Presentation.
There is tremendous value locked in their real estate which the company will no doubt realise over time. Look at their investor presentation. Glossy buildings in Bangalore(2), Chennai(2), Gurgaon, Delhi,Noida and Dehradun. MPS is an old company and these buildings are at least 10 years old. Hence these buildings are not on the ourskirts but in city centers.There have been some brilliant initiatives like using Cloud computing instead of using their own hardware and software recently. This will free up space, capital and IT manpower. This will help them scale up rapidly. They have some very valuable IP in terms of Software systems that were developed over the years. They have developed trust with key clients which cannot be replicated easily. These are all moats which their competitors don’t have.
The constrain of Macmillan parentage has gone, so the potential customers will not have to think twice now before giving business to a rival. The publishing sector as such, is growing at a very small rate and there is considerable cost pressure. But there are some sub sectors like journals which are here to stay. Journals are a key business for MPS.
Digital is growing like anything. There is no reason why part of Annual reports and financial communications publishing cannot be outsourced. Educational content, web marketing content are some other areas which MPS can cater to.
I initially did not like Nishith Arora’s son being hired as a Marketing Manager but he has shown good results so far. These guys have been involved in some charitable activities in their private capacity much before MPS happened. Look for Nishith’s comments in his discussion with other IIM A Alumni like Narendra Murkumbi and Sanjiv Bhikachandani on The Entreprenurial lifecycle.
Being on the right side of the technology ahead of the competition can create a winner. MPS seems to be having the right approach, competent Management and a solid foundation for creating a wonderful company. So far it has done right things. If it continues to do so, we are looking at a company that might some day be recognised as best in its league globally.