(1) we need to be fair to the management and respect the fact that to turnaround MPS from a messed up situation to 35 % + EBITDA margin situation must not have been an easy task and Mr. Arora did it in a very short time which is commendable. While doing this he must have done a trade off between less lucrative and more lucrative contracts because of which topline was bound to suffer initially which is ok. Company is able to sustain its topline at this margins signifies that company has credibility in the eyes of clients and has some relative advantages because of which clients are coming to it. That’s the end of one side — positive.
If we wanted only a steady dividend earner opportunity this side was ok but what we want is a real long term wealth creator. Now for that organic growth has to start somewhere. What I expected personally is the growth to start post stabilisation which didn’t happen in FY15 and there is no sign yet. Possible gaps were filled by acquiring three small entities and if now gaps are filled FY16 should at least see a double digit organic growth which we will need to check as the year progresses.
(2) Extreme Pricing pressures that Mr. Arora has talked about remain a puzzle for me frankly. So far amongst peers only SPS gives volume as well as value figures and over last many years both growths are almost similar so at least SPS is not facing pricing pressure. Even if we consider the fact that it’s almost an offshoot of a big publisher then also in the reported official statements pricing variation could not be that drastic and ultimately market forces come into play. Newgen’s volume figures we were able to derive in past AR which was discontinued recently and from that also pricing pressures was not that evident. Infact if such pricing pressures was there then it actually means for such a healthy value growth they recorded tremendous volume growth which seems unlikely. However, small industry players feedback suggests a definite pricing pressure from clients. So is it that from a messed up situation in which MPS was acquired when it was on verge of loosing contracts, new management had to resort to significant discounts — if that’s the thing then post stabilisation at least such pricing pressures should subside — or is it that new management is playing a strategy to regain its top position by compromising on pricing because of the advantages Dehradun facility provides ??
(3) regarding currency risks, major threat is philippines and until both the currencies move inline there seems to be not much threat to Indian counterparts. However we need to keep a watch of that.
(4) When MPS was acquired it was at no. 3 or 4 position from which it seems to have slipped to 6 or 7……the way efficiently and in a very quick time super turnaround was made, topline growth seems to be not that easy……its high time now that organic growth needs to start and FY16 and FY17 are crucial for that. So far company’s strategy has been good and even numbers that we see seems to reflect that but for this story to remain relevant over many years to turn out to be a great wealth creator that we all are searching for, organic growth has to start now that’s what I believe.
Rgds.
Discl. – Invested in MPS over last ~one year. Forms ~23 % of my portfolio. No transactions done in last 30 days.
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