MPS - Uncomplicated… Meeting with Nishith Arora, CEO and MD, MPS :: ICICI Securities, link

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Uncomplicated…
We met Nishith Arora, CEO and MD, MPS for a business update and
future strategy. The company, earlier known as Macmillan Publishing,
underwent restructuring in the last two years, 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.
Publishing outsourcing large 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. That said, MPS is well entrenched in top 20 global publishers and
that client stickiness may offset vendor churn. Discussions suggest MPS,
which earns ~$3-5 million from its top client, could be only servicing 5-
10% of its top client outsourcing spends and implies significant client
mining potential. In conclusion, focused account mining initiatives and
platform strategy could help sustain revenue growth momentum.
On firm footing as restructuring concludes…
MPS underwent a restructuring under its new owner Adi BPO. Mr Arora,
founder of Adi BPO, is a serial entrepreneur having founded and sold
International Typesetting and Composition. The restructuring helped
consolidate 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 23%, 314%, 400% CAGR during
adjusted FY12-14 period while H1 performance has been equally
encouraging wherein revenue, EBITDA and PAT grew 19%, 59% and
139% YoY to | 105.8 crore, | 37.6 crore and | 31.6 crore, respectively.
Further, employee costs as a percentage of sales declined 13 percentage
points (pp) to 43% in FY14 vs. 56% in FY12 while EBITDA per employee
rose from | 90k in FY12 to | 2.4 lakh in FY14. Going ahead, the employee
cost metric may improve further as incremental hiring may shift to
Dehradun where costs are 30-40% cheaper relative to company average.
Healthy balance sheet metrics; superior dividend payout ratio
Healthy revenue growth and margin expansion led to rising RoEs and
dividend payout of ~74% in FY14 (vs. ~38% in CY09). FCF/EBITDA
conversion also improved to 56% in FY14 vs. 46% in CY09. MPS has ~| 3
crore working capital debt and could leverage balance sheet strength to
fund M&A. The stock trades at 30x and 20x its FY14 EPS and H1FY15
annualised EPS of | 25.1 and | 37.5, respectively.

LINK
http://content.icicidirect.com/mailimages/IDirect_MPS_MgmtNote.pdf