MPS Ltd – Updates Dec 2013

UPDATES – DEC 2013

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MPS has relocated a 400 staff to Dehradun and has a capacity of 1000 people without additional CAPEX. The cost arbitrage has already begun to kick in as this will be the centre for most of the new hires.

There is no CAPEX required for the foreseeable future.

R&D expenses on the Digicore platform are being put to test and are likely to be ready in 1-2 quarters. Test pilot projects are on with 2 clients of MPS.

With dropping “attention spans” plain text is getting outdated and infographics are becoming essential.                            http://piktochart.com/infographics-in-education/

Bangalore property rentals have not yet kicked in. Potential upside for other income. Property net worth in the range of 60 crore.

MAT credits are exhausted, all profits from Q2 onwards will suffer 33% tax.

Elements LLC was acquired for an undisclosed sum. Elements is a twin of the erstwhile MPS ; great reputation but poor balance sheet. Previous year the company had a turnover of $3.5million or  21cr but was loss making. MPS hopes to turn fortunes here by outsourcing to India.

Open access education is gaining huge acceptance in the market as the education market in general moves from a degree based system to vocational/ task based education.

Consolidation in the industry and the publishers exclusive focus in content creation continue to be largest growth drivers.

Elements LLC has great reputation in school publishing which is a focus area for MPS.

Dependance – top 5 clients contribute 56% and top 10 clients contribute 75%.

Rupee appreciation will have adverse affect in the profitability.

Average pay per employee has come down due to retrenchment of older employees.

The current employees too are not working at at optimal level, which indicates that more work can be executed without new hires.

4 new sales executives have joined in from ELEMENTS LLC further strengthening the presence in Europe and North America.

Goodwill paid for ELEMENTS LLC shall be written off over 15 years, in line with american guidelines.

Digicore is still one of a kind publishing tool as no other tool in the world is capable of covering such a wide range of publication services. Its efficiency however, shall be known after the current pilot project.

Valuation

No of Shares – 1.68cr

CMP – 185

M.Cap – 310 cr

Projected EBIT FY14 – 55+ Cr

projected PAT – 37+ cr

Companies in this space trade between 9-11 times the EBIT valuing the company between 495 – 605 cr. Add 60 cr bangalore property. Range is now 555 – 655 cr that translates into a share value of Rs 330 – Rs 360.

Keeping a MOS of 20% due to Foreign exchange movements MPS can be bought at current levels to achieve a target of 264-288 by Sept 2014, a 42% – 55% upside from the current levels.

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