ValuePickr Forum

MPS Ltd

The company has recently scheduled a board meeting on 14th Feb to consider results and interim dividend, if any.

I think if the co is going to pay another interim div, it could be a big positive. The co has already paid Rs 5 as div in last qtr and hence may end the year with a div of Rs 8-10.

At CMP of 120, it would become very attractive if the co pays out Rs 10 as div for FY13.

Views Invited

Ayush

Particulars

Dec. 2012 Dec. 2011 % YoY 9M FY13 9M FY12 % YoY - 9M FY12
Sales 4343 4366 0.53% 12381 12089 2.42% 19101
COGS to Income 0.00% 0.00% 24.60% 0.00% 0.00% 36.53% 0.00%
Empl. Costs to Income 0.45% 0.53% 15.99% 0.48% 0.56% 14.13% 0.56%
Oth. Expenses to Income 0.25% 0.37% 32.96% 0.26% 0.33% 21.45% 0.31%
EBIDTA 12.41 3.2 287.81% 32.09 12.24 162.17% 21.93
EBIT 10.51 1.04 910.58% 26.81 5.96 349.83% 11.25
Finance Costs to EBIT 1.33% 20.19% 93.40% 1.83% 14.09% 87.03% 11.56%
Tax Rate 26.10% 28.95% 9.85% 17.82% 25.97% 31.38% 25.29%
PAT 9.6 1.08 788.89% 24.53 5.33 360.23% 10.87
EPS 5.7 0.64 790.63% 14.58 3.17 359.94% 6.46

Based on Deepak Swamyji's Template.

Particulars Dec. 2012 Dec. 2011 % YoY 9M FY13 9M FY12 % YoY - 9M FY12
Sales 43.43 43.66 0.53% 123.81 120.89 2.42% 191.01
COGS to Income 0.21% 0.27% 24.60% 0.21% 0.33% 36.53% 0.34%
Empl. Costs to Income 44.62% 53.11% 15.99% 47.92% 55.80% 14.13% 55.95%
Oth. Expenses to Income 24.75% 36.92% 32.96% 25.55% 32.53% 21.45% 31.18%
EBIDTA 12.41 3.2 287.81% 32.09 12.24 162.17% 21.93
EBIT 10.51 1.04 910.58% 26.81 5.96 349.83% 11.25
Finance Costs to EBIT 1.33% 20.19% 93.40% 1.83% 14.09% 87.03% 11.56%
Tax Rate 26.10% 28.95% 9.85% 17.82% 25.97% 31.38% 25.29%
PAT 9.6 1.08 788.89% 24.53 5.33 360.23% 10.87
EPS 5.7 0.64 790.63% 14.58 3.17 359.94% 6.46

Correction in Sales figures, should be in Cr. while previous values were in lakhs.

Hi Ayush,

a general Thinking. A lot of articles are appearing these in Eco Times, Hindu, Business Standard regarding Press vs Digital and digital taking a leap. Doesn’t this is supposed to benefit MPS a lot…

Further the theory of maximum gain can be made when we can catch a company on cusp of a turnaround is also playing here…

Also High promoter efficiency which can be seen through the results and margin improvement (and it seems management is walking the talk ) and the Dividends which have been continuously highlighted by you… require a much closer look at this company…

we can see Repro has gained but again here MPS being the largest player and know focusing clearly on the profit making division looks a much better candidate at this price…

Waiting for your views…

ayush,

I saw the results of MPS and enthused by it.

The only thing that bugs me is there doesnt seem to be any revenue growth.

margin improvement is there but how much of this can be squeezed out of static sales growth is a question that needs to be answered.

dividend payout is good and div yield will surely restrict downsides.

regards

hitesh.

1 Like

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.

3 Likes

Fantastic to see an interim dividend of Rs 5 and fantastic Q3 results.

@Maveric: Yes, the digitalization is increasing everyday and does open up opportunities for this co. The business model of MPS is very different from Repro as MPS is not into physical printing like Repro.

@Hitesh: Yeah, the promoter has been very clear that in the first stage they have just tried reducing the costs and controlling the existing business. Its now that they would be working on growth plans. But still it seems growth would be slow at 15-20%.

The key thing to look here is the smart, quick and substantial turnaround done and the intent to pay out most of the cash flows as dividends. I think this co should be taken up as a case study to show the way valuations change with liberal dividends.

The best thing is the profile of the mgmt - IIM A, Harvard, Wharton guys managing the co.

Ayush

Conference Call By Capital Market

Highlights of the call:


  • The other income includes forex gain of Rs 1.81 crore and also income from mutual funds during the quarter.
  • The publishing services market size in the US is around USD 1 billion
  • The Average realized rate during the quarter is Rs 55.2 and Rs 54 for the nine months ended December 2012.
  • The turnaround in the last one year due to rectifying the following pain areas â 1) Loss making books division turned around and able to reduce the headcount to run efficiently. 2) The large production management in UK and US 3) large reduction in the corporate costs.
  • The tax rate is 18% for 9M'FY 13 and expected to be in the range of 27-28% for the FY'13. Also, it expects to be 27% for the FY'14.
  • It has hedged 65-70% of revenues for the six months.
  • It indicated that there is large opportunity in the publishing and upgrading its products and services inline.
  • ADI BPO Services, the Promoter of MPS, made an Offer for Sale to dilute its shareholding in MPS to 75% on 28th December 2012. The OFS, which was for 214,500 equity shares, received bids in excess of 10 lakh shares. The offer was fully subscribed at bid price of Rs 117 & above per share.

To elaborate a bit, loss making books division turnaround was achieved by shifting operations to Dehradoon which also resulted in lower manpower costs.

I expect more such shifting going forward resulting in lower cost, lower attrition and realisation of better value for real estate. It does not make sense for such a small BPO company to have operations across 8 different buildings in 6 different cities in India. I wish somebody had asked him about geographical rationalisation plans. The value of the real estate would be more than Rs 100 crore and its market cap is Rs 234 crore today. Publshing sector is going through a near death experience with even likes of Reader Digest going bankrupt. So every paisa counts for the publishers and by extension for the service providers. Its main competitior, Integra, is based only in two locations Pondycherry and Chennai with former being the main center. It would make sense to keep a token presence in Delhi and shift Gurgaon and Noida offices to Dehradoon and choose one location between Chennai and Bangalore.

Large reduction in corporate costs was achieved because of reduction in Macmillan related costs meaning high maintenance expatriate management

Significant cost savings in Marketing operations in USA

Other income included rental income besides Treasury income.

Nishith Arora indicated there is an opportunity wherever Content is being created.

On asked about capex, he indicated that it primarily involves creation of new technical frameworks.

Publishing service as such is not growing or growing at a very slow rate, but there is an immense scope in outsourcing of content related services in non publishing sectors like Advertising, Newspapers, Financial reporting etc. and MPS might go after it once its core business stabilises.

The principal risk to this company is technological since any technical innovation can make entire operations obsolete. MPS will have to be on its toes to be with the curve. The manpower costs of mainstream IT companies would be prohibitive for publishing companies and here the KPOs have a cost advantage. One cannot have costs lower than Non Engineering graduates working out of Dehradoon and Pondycherry.

Another risk is managing collection cycles because Reader Digest like bankruptcies will become the norm rather than exception. Do not expect steady exponential growth from this company because the core business is not growing much. A lot depends on management and execution and that is promising.

2 Likes

Thanks forsummarizingthe con-call. I think this is turning out to be a very interesting story and should be taken up as a case study to show the importance of dividends in valuation.

Though the business seems just ok but the mgmt seems really smart. If one reads between the lines, then it seems the mgmt has many more options to give positive surprises going forward - 1. they have shifted half of the operations at chennai and would be closing down the centre soon…so will also have free real estate. 2. They have been able to employ 400 ppl at dehradun very quickly…and this is a very good thing 3. They have been developing new products over one year and now expect to deliver some growth going forward…also they won’t be needing more employees to grow.

Given a dividend of already 10 till now and a final div remaining…the stock still seems interesting.

Ayush

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Just thinking… if this is such a sudden turn-around and seeing that the promoters bought this company at dead-cheap valuations… what are the chances that the books are being managed & dividends being given to boost up the stock price…

Also as per ayush’s post if they are also looking to consolidate processes and sell real-estate they would very well be on the way to profits within the year end itself…

I understand that the management seems to be good… but is this a possibility???

Wow, that’s interesting. First look at the books and if something seems amiss, please comment about that.

This is a very generic statement and can be made about any turnaround company but there has to be at least some basis for it.

Besides the leveraged buyout angle, another reason for the dividends can be that there is ample liquidity and assets with the company. The current business is not capital intensive.

Most investors are not comfortable with too much cash on the books.e.g. Market cap of MPS is 250 crore currently and it is in a slow growth sector. Swelect Energy, formerly Numeric Power, has 500 crore+ cash on its book. It is a well managed company, is in a hyper growth sector, payed 120 crore in special dividends and its market cap is Rs 140 crore.

As and when there is a need, getting the capital will not be an issue for the company. So distributing the surplus is a sensible thing to do.

1 Like

Any comments about the sharp drop to 125? Is it a victim of the midcap carnage?

ex divtdend of 50% =5.00 rs.

HI Ayush,

It does look like the company is doing fantastic work with turnaround and is in niche space and … all the positives… to top of it up there is so much of dividend… already Rs 10 paid and if we are lucky another Rs 5 as final one. If thats the case , @ 125, the stock is at or more than 10% dividend yield which is tax free… My only doubt is who are the sellers are current prices… Why are they selling… cant they see what is so obvious to us … !! In most cases , THE LORD MARKET is right. !!

Hi Amit,

I think risks are there in equities and one can’t be always 100% sure that things are 100% right in a co by looking at nos etc. Hence we diversify and keep a stock only upto a % in a portfolio. Plus we also look at some important pointers like - Promoter holding, tax payments, loan outstanding, working capital, dividends etc.

In the case of MPS,

1). the promoter holding is high at 75% (its tough for the promoter to just manipulate and exit) and it gives a lot of confidence

2). The co is paying decent taxes and going forward would be paying full taxes

3). The co is debt free with some cash on balance sheet

4). Co has already paid out 2 interim dividends of Rs 5 each and both the times, we have received the payments timely

5). The co is holding cocalls, giving presentations etc and hence seems to be transparent.

6). The co also has several properties in prime cities and locations. Which itself hold good value.

But, yes, we could still be wrong and hence one should do own homework and build conviction before investing.

Regards,

Ayush

1 Like

Ayush - Do you have details of the properties that MPS owns and rough estimate on the value of this real estate? Also, do we have any clarity from Management on what will they do with the surplus real estate - divest, lease out or redevelop?

This definitely looks to be a promising story and so will be keen to understand value of these safety buffers.

Hi,

Very interesting com Ayush. Though it looks like a niche technology hifi com it has good parentage and is rooted in an old industry. The growth rate of e-books in the US is astounding. Many might like to ignore this com as the "next hot thing" but "All generalisations are dangerous including this one" :)

I am pretty convinced with the opportunity size, but need to understand the com's competency in tapping this and the business moat in general. Asset light business based on "outsourcing" theme but more of a knowledge based technology driven outsourcing which can probably have moat. Need to dig deeper.

Wanted to quickly share some useful links for research. Pls pardon if some of them are redundant.

http://www.slideshare.net/happyeli/digital-publishing-trends-to-watch-this-yearandtheirpotential-impact-on-libraries

http://www.sourcingnotes.com/blog/holidayseasoncheerforpublishingoutsourcing#more813

http://www.youtube.com/watchv=OduQvO3OAzQ
This vedeo has interview of MPS Top Management in US. Interesting. Atleast we know this com is for real.

http://www.digitalbookworld.com/2012/mainpublishingtechnology-heats-up-more-acquisitions-to-come/
This is a must read. A similar com run by an Indian based out of US was aquired for $144m last year. MPS can be a serious take-over candidate.

http://www.digitalbookworld.com/2012/tenboldpredictionsforebooksanddigitalpublishingin2013/

http://www.tcs.com/news_events/press_releases/Pages/TCS_Digital_Publishing_Platform_MarkLogic_2012.aspx
Yes TCS is also into this!!!

Happy Research

Vinod

Hi,

One doubt. The Chennai plant has been bought by Repro from Mcmillan. In Repro concall they mention that MPS is into publishing business and Repro is into something totally different. But I am not able to understand, the Repro website mentions many things similar to MPS.

Overal I think MPS can be good turnaround candidate for investment.

Cheers

Vinod

Vinod, none of the links except TCS worked. Can you please check.

Repro is into publishing business i.e. they own printing presses and print actual books. MPS does everything related to book pulishing except printing using printing presses. This spans from Editing, proof reading, Digitisation of existing books after scanning using OCR, hosting, managing book sales and payments, gathering feedback and usage statistics of journals, converting from one format to another e.g. Kindle to Android to Apple compatbility check and modifications, App creation, digital yellow pages services etc. I have seen some books published by Wiley in which author has profoundly thanked MPS staff besides others who made the book happen.

Macmillan had invested tremendous amount of money in creating Technical Intellectual property which its competitors will take time to replicate.

The following gives an overview of competitive landsacpe but sadly does not include MPS:

I was earlier wrong in saying that Integra is there main competitor, the main competitor is Aptra which has 5600 professionals working across Dehradun, Delhi, Pune and Trivendrum

Instead of being an acquisition candidate, it would make much more sens to acquire small companies for their niche capabilities.

MPS has a competitive advantage in Journal services and it would be difficult for others to dislodge it:

MPS is also cited in this article saying India is emerging as a hub for publishing outsourcing:

The following employee reviews at glassdoor basically say that previous senior management sucked big time. The latest comment indicates much better perception of the management:

Presently, its usage is very low but going forward, Glassdoor is going to be a very helpful tool particularly in case of companies where humans capital is the most important distinguishing factor.

7 Likes