MPS Ltd

I think few issues about MPS needs reiteration (may be at the cost of repetition) ….

1) MPS is in a business where outsourcing was not a default choice for end customers. Because, it is the end product of the customer; not something happening in the back end to improve profitability or efficiency or stuff like that. It the the FINAL PRODUCT which a player like Elsevier or Cengage give to its end customers. So, the emotional, strategic, executional involvement of the customers with MPS type companies would be extremely high. And this engagement would evolve slowly and steadily.

2) Inevitability of customers of MPS giving away more and more jobs / projects to players like MPS would be evident if we study the financial and market performance of many of the publishing giants who are in the listed space …. All of them are suffering profitability pressure and are laggards in the market. But their pre-eminence as a publisher is undisputed and would remain so for many many years because of their reach, association and credibility in the academic field.

3) MPS is not a high tech business … Their transition from a BPO to Technology player is some time away, if at all. They are among those companies who are trying to solve a problem for its end customers …. “How to produce a technical journal or a book without compromising on any factor of output at a lower cost” …. Cost / Ease / Volume are three key determinants … On Cost, Dehradun is their answer; On Ease, a technology platform, integration with vendor is their answer; On Volume they have readiness with 50% unutilized capacity in Dehradun. But it would come once Cost / Ease / Quality gets firmly settled in the mind of the customer.

4) Large acquisition failure is the single biggest risk factor for MPS …. I think customer decamping them for a lower cost is a negligible probability event. MPS has shown success in turnaround and tiny acquisitions. My gut feel (no solid reason to back) is they would do well if they do smaller acquisitions slowly than some big bang acquisitions as cost of failure would be unbearable. And, I don’t think, MPS has the operational capability or management bandwidth to manage large acquisitions.

5) .To me a modest investment case is built on assuming a 12% revenue growth, 15% profit growth from organic business and a 20% – 25% margin from a Rs. 200 – 250 Cr additional revenue from inorganic / unutilized capacity led growth in 3 years. So, a Net Profit of about 125 – 150 Cr. over 3 years + dividends.

My though note after management meet and an investment template prepared is being shared.

Disc.: I am invested and no transaction in last 30 days.

MPS Thoougt Note sept15.docx (15.4 KB)

MPS Ltd Sept15.ppt (234.5 KB)