MPS may report revenue of 15% during FY14-17E: ICICIdirect

According to ICICIdirect.com, MPS is expected to report revenue, PAT CAGR of 15%, 29% during FY14-17E (average 38% EBITDA margins), respectively, vs. 4%, 18% reported during FY09-14 (15.1%), led by top clients’ mining and cost rationalisation.

MPS Ltd, earlier known as Macmillan Publishing, underwent a restructuring post its acquisition by Adi BPO in 2011. Overall, MPS has the building blocks in place and is poised to capture incremental opportunities in the publishing outsourcing space, by leveraging its vast service offerings, sticky client relationships and flawless execution. This coupled with a healthy balance sheet and attractive dividend payout (~75%) makes MPS an attractive investment story.

On firm footing post restructuring: MPS underwent a restructuring under its new owner Adi BPO. The restructuring helped consolidate the 1) business and operating locations – shifting operations to tier-II cities such as Dehradun and 2) employee base. This resulted in revenue, EBITDA and PAT growth of 14%, 89%, 120% CAGR, respectively, during adjusted FY12-14 period. The company’s focus to shift incremental hiring to Dehradun facility that currently employs ~1,000 people, ~35% of total employees (Dehradun has 50% vacant capacity) may aid margins further as costs are 30-40% cheaper relative to the company

Publishing outsourcing is a large, fragmented market: The global publication industry is estimated at $550 billion with the publication outsourcing market estimated at $1.5 billion. Though ~$1.1 billion (80%) worth of services were sourced from India, the market is fragmented with a large number of smaller players and fewer listed players. MPS features among the top three vendors in this business with the top four players accounting for ~12% market share (~$190 million revenue run-rate) Sales strategy focused on mining large accounts: MPS has streamlined its sales function and adopted a dedicated account manager strategy to focus and mine top 20 publishing groups. We believe this could drive the growth momentum as top 50 publishing groups had cumulative revenues of €52 billion in 2013

"We expect MPS to report revenue, PAT CAGR of 15%, 29% during FY14-17E (average 38% EBITDA margins), respectively, vs. 4%, 18% reported during FY09-14 (15.1%), led by top clients’ mining and cost rationalisation. We value MPS at Rs 1200-1300, i.e. 25-27x FY17E EPS of Rs 48.4, given improving fundamentals, strong market opportunity & growth prospects and high dividend payout (~75%). Though the P/E appears rich, at 0.9x, PE/G is modest given forecasted earnings CAGR", says ICICIdirect.com research report.

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