MPS Ltd

MPS Q2FY24 Concall Notes & Investment Thesis

MPS has three business divisions

1. Content Solutions
2. E-Learning Solutions
3. Platform Solutions

Content Solutions

• Launched new capabilities linked to the Journal Editorial Office, or JEO, that are
  placed in a more strategic position in the value chain, which has not only resulted in
  new business from net new customers, but also improved the stickiness and quality
  of revenue with existing customers.

• Star account strategy in the scholarly market is yielding excellent results, and hoping to scale the strategy to other business segments.

• The education side of Content Solutions business had a seasonally modest Q2,
  which is expected to correct itself in the second half of the year and particularly in Q4.

• Bullish about content solutions in FY ’24 with a robust second half.

E-Learning Solutions

• Outlook on the business for the rest of FY ’24 continues to be bullish. All critical
  lead indicators for revenue, including order book and high probability deal
  pipeline, are appearing positive.

• Hoping to announce a large experience center project in the coming months.

Platform Solutions

• Double-digit Revenue Growth for the first time since the acquisition of HighWire in the
  first quarter of 2020.

• Operating leverage in the platform business is the highest across all of our Segments

• Have two product launches planned in the business segment and are confident that
  these will create new revenue streams in the longer term for MPS.

• October, 2023 launched DigiCore Pro. This is an end-to-end publishing workflow
  solution based on the principles of single-source publishing, a methodology that
  reduces inefficiencies and increases the speed of delivery for the clients. This new
  publishing system supports content authoring, online submission, editorial and peerreview tracking, interactive peer review, post- acceptance production tracking, and
  delivery to hosting platforms.

• In November launching THINK365, the cloud-based version of Think ecommerce and subscription management system. THINK365 is a software-as-aservice model and a modernization of the current desktop version.

• MPS’s Mission has now transitioned from Support and Delivery to Product Development.
  This includes new Product Launches, Active Product Roadmaps, and Upgrades.

• New customer acquisition strategy that involves Product and Service bundling (for
  example with DigiCorePro) and Price Warriorship is gaining traction and is helping to develop a new customer base.

• The feedback from the industry and the scholarly community is highly encouraging.
  HighWire and MPS now stands as the only “serious” independent choice, since two of
  the larger competitors have been acquired by publishers.

• Robust pipeline of RFPs with new customers.

• Overall, the platform business has progressed from consolidation to a growth phase.

MPS Labs in AI/ML

Instead of perceiving AI/ML as a threat, we’re viewing it as an opportunity to differentiate
ourselves once again in a market that’s highly fragmented and ripe for consolidation. To
spearhead this transformation, we earlier had launched a new initiative called MPS Labs,
which is pioneering our AI/ML initiative. It’s headquartered in Bengaluru and has a team of
over 100 professionals with relevant expertise.

Acquisitions Strategy

• Pursuing acquisitions of healthy, at least 15% EBITDA businesses that are also growing,
  at least a 10% revenue scale over a three-year period.

• Will not acquire anything that’s below 15% EBITDA margin on a standalone basis. And want to make sure that on the content side, we are north of 40%. On the platform side, we’re north
  of 45%. And on the e-learning side, we’re north of 30% at some point. So, if we do acquire
  something less than those numbers, then our goal will be to get them to that level in 6 months to
  18 months. As of now, we’re not expecting any margin erosion as we scale either organically or inorganically.

Guidance

• On a conservative basis, confident of crossing INR130 crores in PAT in FY ’24.
  60% of the growth is going to come from acquisitions, and 40% of it is going to come
  from organic growth. So, 500 crores to 900 crores organically and 900 crores to 1,500
  crores inorganically.

• Between FY ’23 and FY ’28, expecting a 25% CAGR.

Valuation

Market Cap: ₹ 2,948 Cr.
P/E: 30.4

Assuming 130 cr PAT in FY24 as base case.
H1 PAT = 49 cr
Therefore H2 PAT should be 81 Cr

Let’s assume Q3 PAT of 40 cr and Q4 PAT of 41 cr.
Will be expecting following results for Q3 & Q4.
Q3FY23 PAT was 23 cr. So 73.9% YOY Growth for Q3FY24
Q4FY23 PAT was 25 cr. So 64% YOY Growth for Q4FY24

Currently trading at 22.6 FY24 PAT.

Based on the company’s past track record. They have always exceeded the guidance which they have given so pretty confident that they will do upwards of 130 cr PAT in FY24.

Disclaimer: Invested & Biased.