Board to consider an interim dividend on the 05/08.
This IS a pedigreed company with a very capable new Management in place. Folks have done great work already in this thread. Like to acknowledge Ayush for bringing very capable management to notice- for the turnaround, and dividend conviction shown. Bagdu for excellent digging to highlight where are the edges this company holds/may hold. Vinod MS in some way for throwing up many more insights thru some excellent links. Its time to start converging on this Story.
Happened to spend some quality time today with a senior industry professional. From the high level discussions, following stand out:
1). New Management knew exactly what to do, where the flab was. They acted swiftly since taking over and have rationalised/ optimised the entire cost structure. Being hard core industry veterans - they are able to extract the best out of existing people and existing technology/process infrastructure. They have been ruthless where it mattered (top heavy segment, but very less business coming in from that segment say), but have also been seen to be objective & fair.
2). Macmillan biggest differentiator is Technology -tools/automation levels paly a big big role. Pedigree tehcnology/process development from own in-house requirements and evolving them over time in tune with new age requirements. Most others from India (big players like Integra or SPS or others like the acquired Aptera) are homegrown, playing catch up(?) -there are big gaps in end-end process delivery.
3). Journals -as highlighted by Bagdu is a 30 year old business for the company. Books have been there for say 10 years+, Digital Services for 3-4 years. Needless to say Relationships are heavily entrenched. Switch is very difficult and painful. Their biggest lead over rest is also in Journals - which require a much bigger role of automation/processes than say Books or digitising services
4). Business success will come to those - with better use of technology/automation - that ensures faster turnarounds. Manuscript to print/publish ready, example. DigiCore platform - is a very concrete step in that direction. Nobody else is probably anywhere near.
5). Publishing is a slow growth business, yes. It will always be like that. Print publishing is staring at near-death for Books, not true for Journals.
6). New Management control ensures pure play service provider - earlier conflict of interest is no more an issue. That should ensure some new business for the company.
7). The only inconsistent note in the whole story - there has to be one, right?
I did ask this question and the senior industry professional said Yes, this is a puzzling thing - unexplained!
Letâs see if most guys get this right? Tax your brains a bit - its easy enough to focus on this when you look at the big picture? must have been asked when guys first looked at the company!
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The other part that comes to mind when you go through this discussion thread on ValuePickr. We are not on top of the domain - technology/automation/processes and to a lesser extent -Business segments, which are the biggest, most promising, what is only good-to-have, etc.
To be able to extract the most out of a probable Management Q&A, its imperative to get on top of the domain - so we can ask the right questions!!
Request Bagdu and Vinod MS to take the lead and build on the excellent start made. Focus on Technology-Automation-Processes and the relative level of complexity needed to handle from the simplest service (digitisation, I would assume) to Technical Books which need some good design templates (which are probably one-off exercises) but need excellent Technical Editors (they would have to have plenty in-house to handle technical subjects of every hue) to Journals which would use Standardised design with very little change in design perhaps but lot of process automation/cross-referencing/archiving to more things I canât start imagining:).
Given lot of resource material availability, this should not be difficult to establish quickly. If we crack this well, we will understand the possible differentiators for the digital publishing business and be able to place MPS and competition also in some slots - that would be good enough preparation to get the most out of a Management Q&A.
Thanks a lot, Donald for taking it up 
Happy to hear such a positive feedback
Q1/Fy 13-14 Results outâŚ
Total Income up 2.9% to 39.79 Cr from 38.65 Cr.
EBIDTA up 9.9% to 8.11 Cr from 7.38 Cr.
Net Profit up 15.6% to 5.4 Cr from 4.67 Cr.
EBIDTA margin is 20.4% v/s 29.7% (MQ-13) and 19.1% (JQ-12)
NET Profit margin is 13.6% v/s 18.3% (MQ-13) and 12.1% (JQ-12)
Employee costs to Income is 52.1% v/s 44.5% (MQ-13) and 52% (JQ-12)
Other expenses to Income is 27.6% v/s 25.8% (MQ-13) and 28.9% (JQ-12)
Tax Rate 34.1% v/s 27.1% (MQ-13) and 28.5% (JQ-12)
EPS 3.21 v/s 2.78
Recorded TTM (sum of 4 quartr) diluted EPS: Rs. 19.39
At 03:10 pm on 05/08/2013, stock on BSE trading at Rs. 115/- DOWN over 6%
Sir,
Itâs your fine ânoseâ that needs to be complimented. And your persistence in constantly bringing it up for attention
. Also your questions helped me greatly in quickly forming impressions on important areas to focus on - while meeting the industry professional -arranged at virtually half-a-days notice.
The quality of discussion in existing ValuePickr thread must be complimented - was a big help - especially Bagduâs comments/clarifications. In an hour I was enough upto-speed to ask the right initial questions
It is a good, interesting prospect to investigate ind-depth, further.
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FY14 is likely to be a flat year for co.
US lawmakers are now gunning for BPOs and KPOs. check the link
http://www.dnaindia.com/mumbai/1869644/report-for-bpos-a-shocker-of-a-call-from-us
| Conference Call Highlights by Capital Market |
|
Nishith Arora, Chairman & Managing Director addressed the call The company witnessed subdued sales growth but managed to keep OPM above 20%. In Q2 it acquired Element LLC Florida. Terms of the deal are favourable for the company and it will enhance the company's publishing business. Its organic growth strategy is to acquire new customers and increase technology. Strong customer base gives the company confidence about the future. It also plans inorganic growth in areas where it is currently not present. Q1 sales grew 3% y-o-y to Rs 39.79 crore for the quarter ended June 2013. OPM stood at 20.4% against 19.1% The company booked MTM loss of Rs 4 crore which got absorbed in other expenses. That is why its OPM fell. Going forward OP margin will go up. It is confident of having OPM of 25% for FY 2014 barring unforeseen conditions. The company is trying to increase value added services. It is building platform under each of its SBU. The company does not have business with US government. Tax rate in FY 2014 will be around 33%. Element LLC acquisition was for 108 million dollars. It was asset purchase acquisition. Last year Element had revenues of $ 4 million. The company cannot give guidance on future sales expectations. Average exchange rate realized in June 2013 quarter was Rs 55.93. The company hedges 60% of revenues. For company Oct-Dec quarter is the best. Second best is July Sept qtr. 3rdbest is Jan-march quarter and the 4thbest is April â June quarter. The company is looking at Indian market but the Indian market is low volume and low price market. Top 5 customers account for 46% of business. Top 10 customers account for 75% of business. The company is planning to rent 1 floor of its 3 storey Bangalore property and it expects Rs 15 lakh as rent per month. |
the revenue from element will start flowing from current quarter
the average cost/salary of dehradun office is rs. 9000/pm/head
exploring newer market in africa
one clint in australia is the group of authors publishing e books
company is mainly in academics (journals) &educational material(element)
with acquisition of element relationship with national geo is likely to be established
declaration of dividend postponed to 12th august due to technical reason raised by bse for book closure
would like to mantain dividend payouts as per companies past records.but it will be decided by the board
not much impact of new bpo/kpo guidelines issued by govt. in usa.
Thanks for the updates Hemant & Mehul.
Ayush - anything you would like to add? No clarification on Element LLC Bankruptcy? No one asked about this?
A couple of other things they talked about in the call is that they are now focused as top line growth as the house is in order now and inorganic growth is they will be looking for [I suspect this may result into lower dividend payout].
Element acquisition is now completed via opening a US subsidiary and asset transfer not a buyout, hence hopefully bankruptcy should not be an issue [I am no legal expert].
There is price pressure on existing outsourced services but new services will get outsourced that should make up for it - they are looking for volumes even if it comes at slightly lower prices. June quarter had higher employee costs because of wages increase and they are already depositing EPF on total salary [as opposed to âbasicâ salary]. Want to create a platform based business than services outsourcing.
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The management is too reluctant to give any guidance about revenues. How thisshouldbe seen ? Does this sound anything like they are not clear about their future prospects or is it just normal for a company like MPS ? Experts, please guideâŚ
(Sorry If I sound a lil too naive, I am a novice)
platform or product based is having high revenue ^ margin business
wants to create the platform for journal publication
deduction of epf on total salary is more conservative approach
expansion in to inorganic field will result in to low dividend pay outs to fund the new projects
last quarter element acquisition no dividend
out of 3.21 eps they may have 60% pay out ratio.it may come to around rs 2/ as interim divided.today is the meeting.lets see
I liked the concall and felt the management is really clear about what they are doing and confident. The CEO seems hands on and the right guy The challenge is that the industry is such that bringing growth wonât be easy and hence the management has a very liberal dividend policy due to thisâŚthey are clear that they donât want to keep cash on balance sheet if they donât see opportunities.
They have been bringing in technological changes, building softwares and platforms which should help them in bringing growth. A major growth will come from acquisitionsâŚbut they will happen only if they find something good at the right price.
The co is confident at maintaining margins at about 25% and they hinted for growth in coming qtrs.
On the Element LLC Bankruptcy - if you read carefully, they did well by doing a asset purchase and not buying the co - as it will limit their liabilities. So as they had done asset purchase, so the foreign co filed for bankruptcy.
One negative for FY14 would be higher taxation at 33% vs about 22-23% last year.
Ayush
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50% dividend == rs 5.per share
Some thoughts on MPS.
The conference call was very informative. Dividend was the icing on the cake!
My only doubt being the Element acquisition; why acquire abankruptcompany? Was the buying price cheap(108 million$, whats an asset purchase?); a comparison to other similar acquisitions in US would help. Having said that the CEO sounds like a bargain hunting guy and would have paid the right price. The confident part of the con call regarding Element was that he said âWe have a range of services. We had only 1 missing piece and with the Element Acquisition we have filled that as well. We have the school and preschool related business nowâ.
Some previous concerns which got cleared; I always thought of books and journals being diminishing by the day with E-content. But as pointed out MPS main business is publishing for the educational and academic and scholarly space where Journals and Books made up 37% & 22% of revenue respectively in Q1FY14.
Infact regarding journals there are more authors and academicians coming forward to publish their research papers and other materials to make available to general public free of cost. Regarding books this seems to be a lot flat. However authors for books were getting in touch with MPS to get their books published which is new territory and this might keep the Books segment up and growing.
Also regarding ebooks as well they were testing areas to provide a platform for authors to publish ebooks to meet the demand for tablets and E-readers everywhere(However inspite of changing Technology services MPS has seen a degrowth in Digital services whereas Digital publishing has the most growth globally.
There are a host of opportunities MPS could grow at beyond books and journals. Like mobile platform database, interactive learning products etc. Hope these segments grow along.
The new most likely income which will get added from coming few quarters will be rental income from bangalore real estate(3 floors; 15lakhs each floor/month) and Element revenue(last year 4 million $)
There are few negatives and conflict of interests:
The company has hired the Dehradoon facility at high rent for long term from the parent company.Has the rent been agreed upon as per prevailing market rates?
Nishith and his Son Rahul are drawing very high salaries totalling more than 3 crore rupees. Is this in accordance with prevalent industry standards or because of their privileged position?
Milking the company to pay dividend can be questionable. Is this in the long term shareholders interest or only in the interest of promoters who may have leveraged themselves to buy this undervalued asset?
The company has huge resources: technical, real estate and human. Can this become a resource curse and handicap it by preventing it from innovating?
This company is undervalued. What I am not sure about is whether it is hugely undervalued unlike the other opportunities available in the current market.
Disclaimer: No change in relatively small positions acquired at a fraction of current price.
The above negatives differentiate a good company from a great company.
MPS has stated that one of the reasons for decline in revenues is increase in minimum wages. Government increased the wage by about 22% http://www.business-standard.com/article/pti-stories/uttarakhand-hikes-minimum-wages-for-labourers-113030700303_1.html
So, the company is paying a significant amount of its workforce Minimum wages. For 3 crores, it could expand its workforce by about 10%. Thatâs a different matter though. One cannot go lower than the minimum wages. Conclusion, there is no cost competition on HR front.No need to repeat that there is no competition on real estate costs.
Uttarakhand has one of the lowest Electricity tariffs in India.http://www.bijlibachao.com/News/domestic-lt-tariff-slabs-and-rates-for-all-states-in-india-in-2013.html
MPS has inherited Technological assets which it is building upon. So no competition there either except(important) from technological innovation.
The management has to decide whether it is in real estate business. If not, it should spell out a plan to get rid of non-essential real estate at the earliest because real estate boom,at least in NCR reason, will not last.
The only problematic part is that the industry it is in, is not growing. Management has indicated that it will go after new business. It can try its best, but it cannot change the growth rate of the sector.The topline in last 5 years, adjusted for dollar, has declined by about 33%. All the results that we see are because of operational efficiency. Its quite clear that, but for rupee depreciation, there is very limited scope for expanding margins from here.
Acquiring company is good. The key thing to watch out is integration.Acquiring Element minus its debt obligations and with its tax losses would have been more efficient financially.
Publishing might be declining, but associated sectors like e-learning are experiencing crazy growth exemplified by Coursera, Khan Academy, Udacity and Edx. Why canât it get some work from these guys?
Another possibility but a tough one is that it can expand horizontally into financial reporting. Financial sector spends huge resources in producing Client facing reports. Many of these are regulatory and standard in nature. Huge savings can be made by creating platforms and amortizing costs over large number of clients.
One important thing that MPS is missing is the buzz. Everybody knows Macmillan but try asking anyone about MPS. The company needs to work more towards building its brand for potential employees and Clients. Improving the website might be a good starting point. Then only can it some day can convince others to outsource some of their web content to itself.
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Thomson Digital India, part of TV Today group had announced the acquisition of Element in 2010 and there is still a press release on their website announcing the merger. Any idea why it fell through?
Their website gives a good overview of possibilities for MPS: http://www.thomsondigital.com/index.php
For an overview of other players: http://www.scribd.com/doc/53254746/Content-Services-in-India