I ran the following stock screen just for fun :

M.Cap > 1000cr, PE<25, D/E<0.5, 3 year ROE>30%,ROE>40% and ROA>30%, and here is what i found :

Suven Life Sciences, eClerx, Blamer Lawrie, MPS, TCS and Accelya Kale.

What i ran were basically the current ratios of a company i greatly admire – MPS, and in return i found that these ratios simply threw up 5 other companies that most investors respect and admire.

Anyway, I primarily ran the screen to see if MPS was relatively cheap or expensive and i got my answer. You have to pay for quality and MPS is not overpriced at the moment.

My other question was whether MPS at these prices should stay in your portfolio as a dividend spewing machine or can one still expect growth from it.

The Q2 con call throws some light on those questions.

  1. North America is growing rapidly and is showing promising new growth.
  2. ELEMENTS focuses on K-12, basically school business and EPS on higher and professional education.
  3. Both these acquisitions have brought the ability to offer a) new services and b)existing services to new clients. MPS has been effectively able to deepen relationships with exiting and new clients as a result of these acquisitions.
  4. People are beginning to outsource new services which are all awesome for MPS.
  5. Salary inflation offshore is about 10%, and onshore is about 2-3%, also Dehradun takes in a lot of entry level people who work at minimum wage.
  6. Of the 2900 employees on roll as on Sept, 960 were in Bangalore, 640 in Chennai, 840 in Dehradun, 240 in Gurgaon and the rest in Noida and Delhi.
  7. Dehradun has a capacity of 2,000, thus expansion being out marginal costing benefits.
  8. MPS’s largest competitor is 3X its size.
  9. MPS is not the no1 vendor for any of its top clients. Therefore there is still plenty of market share that can be captured.
  10. Operating margin today is 38%, the best operate at 50%. There is still a lot of room to grow using levers on the revenue front as well as some on the cost front.
  11. DIGICORE has been gaining signifiant ground with almost all major customers using various components everyday. The vision for MPS is to be completely on the platform as quickly as possible.
  12. MPS also has DOWNSTREAM outsourcing for editing jobs mostly in the USA.

At the CMP of 7,00 the company has a M.Cap of 1,200r which can easily generate 65-70 cr of PAT valuing the company at 17-18 times current year earnings. Considering that a FD is at 14 PE  🙂 MPS with the current capacity for growth from its subsidiaries and a payout ratio of upto 60, yields about 2.5-3% dividend, i still think there is a lot of the ride left before this counter begins to tire out.

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