Report date: January 2015

Look Beyond Software Sector To Tap

The Wealth Creating Potential
In Indias New Cities
Cities already matter to India. Currently about 30% of the
population resides in cities. Across the world, the stride of
migration from rural to urban areas is increasing. By 2030, 40%
and by 2050, about 70% of the population will be living in cities,
and India is no exception. It will need about 500 new cities to
accommodate the influx.
Interestingly, urbanization in India has for the longest time been
viewed as a by-product of failed regional planning. Though it is
inevitable, and will only change when the benefits of urbanization
overtake the costs involved, it is an opportunity for achieving faster
growth.

As the software sector

gets
threatened
by
cheaper cost destinations
like
Philippines
for
outsourced services, new
cities in India could make
the
outsourcing
proposition
very
attractive for high quality
services in publishing,
education and law.

Urbanization and migration to larger towns and cities, which are

underway as we write this, has overtime been equated to
overcrowded cities and lack of job opportunities. However, if
handled better, this can lead to immense wealth building opportunities in new cities of India.
Currently, 60% of Indias population continues to remain
employed in agriculture and allied activities. As farms
get mechanized and productivity improves, there is
bound to be a spillover of labour from villages to towns
and cities. Moreover, educated youth will seek employment
in manufacturing and services in order to improve quality of
life. It is but natural the overcrowded cities in India cannot
accommodate and employ the migrated labour productively.
However, as smaller towns in India become cities with good
employment opportunities, the influx of labour will get
distributed rather than getting concentrated in few cities.

40% of India to live in cities by 2030

Data Source: Mckinsey

Most importantly, the new cities may be able to offer good infrastructure and cheaper real estate to businesses
that look to compete globally in terms of operating costs. And as the software sector gets threatened by
cheaper cost destinations like Philippines for outsourced services, new cities in India could make the
outsourcing proposition very attractive for high quality services in publishing, education and law.

MPS LTD.

Page 1 of 19

21 January, 2015

Not just that, the construction of infrastructure in the new cities will itself create significant number of jobs to
sustain livelihood there. As per McKinsey estimates, India will need to build 350 to 400 kilometres of subways
and metros in addition to about 20,000 kilometres of roadways every year, over next few years, for creation of
new cities. This will mean migration of both skilled and unskilled labour to the new cities.
Thus urbanization and migration of labour to industries of competitive advantage is an important signal of the
Megatrend we see shaping up over the next few decades. Well managed companies with solid business models
in this space can act as an anchor for investors who wish to create wealth through this opportunity over the long
term.

MPS LTD.

Page 2 of 19

21 January, 2015

This new outsourcing boom will redefine the nuances of publishing industry
We live in a digital era. With the pace mobiles and tablets are making inroads into our lives companies that have
technological capability in this sphere (both in the device market as well as providing digital solutions) are in for a
bounty. While the device market has become commoditized; the digital & technology solutions market is still in its
nascent stage but is slowly gathering pace.
One industry that will be most impacted by the digital & technological advancement is - publishing. The global
publishing industry is an over US$400 bn market. But the digital segment constitutes just US$ 33.6 bn or less
than 10% of the overall industry size. With a tilt towards digitization, the publishing industry is likely to witness a
dramatic change.
Education and journals (scientific, technological & medical) are two areas which have immense potential. A shift
in reading preferences (from books to digital devices) further acts as a catalyst. While publishers would generally
opt to do all the pre-publishing work in-house; advancement in technology and renewed focus to reduce costs and
time has led to outsourcing. This brings along huge opportunities for companies like MPS Ltd that offer end to
end services in the pre-publishing space and also have the technological capability to deliver on complex
projects. That too at a fraction of a cost incurred in the US and Europe!
While the barriers to entry in low end services (type setting etc) may be low increased amount of automation and
the need for an integrated workflow system that publishers have started asking for; puts MPS Ltd on a strong
footing. Also, the fact that the company has tie up with all top 20 publishers across the globe provides some long
term visibility even if the outsourcing budgets of publishers shrink amidst slowdown.
Further, in the pre-press business, gamut of offerings, ability to churn an existing customer and delivery time
matters the most. This is where MPS has an edge. Over the years, it has focused on deepening client relationship
by mining more from existing customers. Pricing discounts were the key to attract more business. While one may
think that this would have led to margin erosion the picture is entirely different. Since this is a service industry
employee cost management is the key to extract operating leverage. When we spoke to the management of
MPS, we realized that it has hit the nail on its head. It has not just relocated the workforce to cost effective
destinations but also put in place process for training semi skilled workforce from smaller towns and cities. The
scalability comes at a marginal cost, thus overriding margin concerns emanating from pricing discounts.
All in all, MPS Ltd is a perfect recipe to ride on the outsourcing boom. The fact that this is somewhat skilled
outsourcing as compared to traditional BPO services is a signal of a potential Megatrend in the making. Indias
status as a favored outsourcing destination due to its inherent language competency further indicates the long
term business potential for companies like MPS that operate in this space.

MPS LTD.

Page 3 of 19

21 January, 2015

How will MPS ride the Megatrend opportunity

Turnaround with new management in place

MPS Ltd is a classic management turnaround story. Initially known as Macmillan, it catered to high-end
technology and digital-publishing needs of publishers. Subsequently, the company underwent a demerger to
form MPS Ltd and Macmillan Publishers India Ltd. In the year 2011, ADI BPO Ltd (owned by Nishith Arora)
bought out Macmillans stake in MPS Ltd and took management control of the company.
Since the takeover, the performance of MPS Ltd has changed drastically. Post acquisition, the average
annual growth in revenue (CAGR) stood at 11% over the two years (FY12-14) period. In the pre-acquisition
phase, the company registered a 1.4% fall in revenues over a 5 year period (FY05 to FY10). Not only
revenues even the EBITDA margins have registered substantial improvement after a change in guard at the
top level. From making a loss at the operating level in FY10, the EBITDA margins surged to 33.7% in FY14.
The return ratios (RoNW and RoCE of 46.9% and 68.9% respectively in FY14) also showed a major
improvement driven by growth in profitability.
Renewed focus to boost growth (focusing on volumes, client mining, inorganic growth strategy etc) and cost
optimization measures (shifting of employees to low cost destination in Dehradun) has resulted into a
dramatic turnaround. Further, the outsourcing potential is also quite huge (global publishing outsourcing
market stands at just US$ 1.4 bn as compared to the global publishing industry size of over US$ 400 bn)
signifying the headroom available for business expansion.

Client mining strategy to boost revenues

At MPS, the focus of the new management is
predominantly on volumes. By focusing on volumes the
intention is to deepen client relationships and take them
to the next level. Currently, MPS offers just 3-4 services
to one particular client out of its full spectrum of services.
Client mining strategy (extracting more business out of
an existing client) will ensure that MPS becomes more
important to the publisher in the overall scheme things.
This strategy has borne fruits in the past. As can be seen
in the chart, the revenue contribution of the top 5 and 10
clients has increased over the last 3 years. While such a
move can result in margin erosion as pricing takes a
backseat the results so far have been encouraging due to
cost optimization measures and steps taken to enhance
productivity.

Client concentration at MPS

Data Source: Company

Shifting to low cost destination (Dehradun) to aid margins

After the ADI acquisition, there were huge doses of cost optimization that boosted profitability. Being in a
service industry employee cost management is a key to sustain and/improve margins. This is where new
managements plans to shift employees to a low cost destination like Dehradun paid off. Post the acquisition,
employee cost as a percentage of sales fell from 55.9% in FY12 (annualized) to 41.5% in FY14. The average
salary per employee has also fallen from Rs 0.5 m in FY12 (annualized) to Rs 0.29 m in FY14 as there was a
re-alignment of staff to Dehradun; a key margin lever.

MPS LTD.

Page 4 of 19

21 January, 2015

Employee cost reduction helping boost margins

60

Employee cost/sales (%)

EBIDTA (OPM), In %
Cost per employee (RHS;Rs m)

45

0.7

0.5

30
0.4

15
-

0.2
FY12

FY13

FY14

Data Source: Company & Equitymaster

Currently, the seating capacity at Dehradun is 1,600 which can be scaled up to 2,000. The current strength is
just 800 indicating that further addition is possible without any incremental capex if the business expands.

Strong relationship with top publishers

MPS Ltd has strategic relationships with major publishers like Cengage, Oxford, Elsevier, Wiley etc. It also
finds itself amongst the top 3 vendors that publishers generally outsource from. Over the years, by increasing
its service offerings and technical knowhow it has been able to deepen the existing relationship and mine
more from its existing clients. Also, a structural change (vendor consolidation) in the industry is helping the
company. Consolidation eliminates smaller players. This opens up the addressable market for MPS Ltd as it
would be able to garner a higher share of the outsourcing budget of any publisher.

Sharing a good share of profits as dividends

The new management of MPS has shared a healthy portion of profits with minority shareholders in the form of
dividends over the last 3 years. In that period, it has paid out 60% of its net profits as dividends. Being asset
light has enabled the company to return excess cash to its shareholders. Going ahead, we expect the pay out
to decrease marginally (55% over the next three years) considering that the company is scouting for
acquisitions in order to fill the void in some of its offerings.

An integrated pre-publishing service provider

MPS Ltd is an integrated service provider with presence across traditional (61% of revenues as of FY14
standalone figures), digital (29%) as well as fulfillment services (10%). Books and journals fall under the
traditional segment and MPS provides complete end to end print & digital publishing services for scientific,
technical & medical (STM) publishers. In the digital segment, it provides data capture, scanning, image
processing, web production services etc. Fulfillment services include customer support and database &
directory services. 60% of the business is from STM and 40% is from education; a balanced & diverse mix,
making it a preferred choice for publishers.

MPS LTD.

Page 5 of 19

21 January, 2015

The challenges to watch out for

Risks to profitability

Currency risks: MPS earns half of its revenues from its North American clients and majority of the
balance from European clients. Similar to all companies involved in the services outsourcing space, MPS
too faces currency risks; any volatility in the same could lead to wide fluctuations in profits. However, the
company does mitigate this risk by taking adequate foreign exchange forward cover for 6 months into the
future.

Risks to growth

Competition from other low cost destinations: With the global BPO/KPO space becoming more
competitive with emergence of low cost destinations such as the Philippines - which can give competition
to already existing markets such as India it does increase the broader risks for the service providers. As
mentioned in the companys latest annual report, the increasing availability of equipment, processing
knowledge and low cost commoditization, the barriers to entry into typesetting and other low-end services
have eased significantly.

Industry/client concentration risk: Given that the company gets a large chunk of its revenues from the
publishing industry; within this, a few clients contribute to a huge portion of the revenues (top 5 clients
contribute to about 57% of revenues; top 10 about 75%), this does expose the company to the risk of
client concentration. Further, as mentioned above, with a large chunk of revenues coming in from specific
regions, any adverse impact on those economies, could lead troubled times for MPS as well.

Liquidity risk

Low liquidity: While high promoter stake may not necessarily be a bad thing, for a small sized company
it could be a concern in the form of lower trading volumes and daily turnover. MPS promoters hold about
75% stake in the business. As such this only leaves about 25% as free float or the amount of shares
available for trading in the market. Average traded deliverable volumes stood at about 2,500 during the
past one year, while the average daily deliverable value (turnover) for the shares stood at Rs 2 m per day,
which is not a very high amount in absolute terms.

About company
Based out of Noida, MPS Limited is a publishing services company with over four decades of experience with
major publishers worldwide. The company provides services which helps its clients to transform and enrich their
content across mediums print to mobile. The companys services include everything from production of books,
journals, magazines right from subscription management to BPO services.
The five key areas of focus include book & journal publishing solutions; technology solutions; digital publishing
solutions; creative & interactive solutions and fulfillment & BPO services.
In 2011, the current promoters (ADI BPO Services) took over from Macmillan and since then have been working
towards restructuring the business. The key area of focus for the new management has been cost reduction and
consolidation of facilities. The current promoter group owns 75% stake in the business.

MPS LTD.

Page 6 of 19

21 January, 2015

The company earns about 61% revenues from the traditional services segment, 29% from its digital services, and
balance from the support services segment. The company earns about a half of its revenues from the US and
Europe each. MPS clientele includes Wiley, Oxford University Press, Macmillan, McGraw Hill etc. It has
production facilities at 6 locations across the world, and about 2,891 people on its payrolls.

Key Management Personnel

Mr. Nishith Arora is the Chairman & Managing Director at MPS. He has vast experience in the international and
domestic outsourcing sector. Mr Arora completed his MBA from IIM Ahmedabad, as well as a Management
program at Harvard Business School in 2009. He is the founder of International Typesetting and Composition
(subsequently sold and renamed as Glyph) and ADI BPO/Neuetype. He is also the co-founder of ADI Media, a
leading B2B magazine publisher. The ADI companies employ over 2,000 people with facilities in Noida and
Dehradun.
Rahul Arora is the Chief Marketing Officer at MPS. He is the son of Mr. Nishith Arora. An MBA from the Indian
School of Business (ISB) at Hyderabad, Rahul focuses on leading the company towards its marketing mission,
that of relentless pursuit of customer delight.

MPS LTD.

Page 7 of 19

21 January, 2015

Risk Analysis

Note: See the ERM table on the page 11

In order to further improve our risk analysis of companies we have come out with a revised Equitymaster Risk
TM
TM
Matrix (ERM ). The ERM
is broken down in to 4 sub heads namely industry risk, performance risk,
TM
management risk and balance sheet risk. (For details please refer to the ERM at the end of the report).

Regulatory Risk
Some businesses are subject to regulations by external government agencies. These businesses are subject
to regulatory risk since they do not have the liberty to operate in a free environment. Excessive regulations
can create bureaucratic hassles and impede growth. Thus, higher the regulation, higher is the risk of volatility
in profit and growth for any business. The regulatory framework in India is not very restrictive for publishing
solutions companies. Therefore, companies such as MPS Ltd do not face high regulatory risk. As a result, we
have assigned a rating of 9 to the stock.

Cyclicality Risk
An industry cycle is characterized by an upturn as well as downturn. Businesses whose fortunes typically
swing with industry cycles are known as cyclical businesses. Cyclical businesses do well during an industry
upturn and vice versa. On the other hand, there are some businesses that are not very cyclical. These
businesses are more immune to changes in industry cycles in the sector and have less risk. In short, if the
business is cyclical higher is the risk. While the publishing business is not cyclical in nature, the outsourcing
budget of publishers depends upon their financial strength and the need to outsource (high in-house cost,
poor turnaround times, inability to address needs of certain segments etc). Thus, we assign a risk score of 7
to the company on this parameter.

Competition Risk
Every industry is characterized by competition. However, some industries where entry and exit barriers are
typically low have higher competition risk. Low barriers means more players can enter into the industry there
by intensifying competition. There are loads of fragmented companies in the pre-press offerings space which
compete with MPS Ltd. However, vendor consolidation can work to the companys advantage. As a result, we
assign a rating of 5 to the company on this parameter.

Sales Growth
Over the eight year period (actual history of past 5 years and explicit forecast for the next 3 years), the growth
is estimated at a CAGR of 8.1%. We assign a risk rating of 2 to the stock on this parameter.

Net Profit Growth

Over the eight year period (actual history of past 5 years and explicit forecast for the next 3 years), we expect
an adjusted net profit CAGR of 20%. We assign a medium risk rating of 6 to the stock on this parameter.
MPS LTD.

Page 8 of 19

21 January, 2015

Operating Margins
Operating margin is a measurement of what proportion of a company's revenue is left over after paying for
variable costs of production such as raw materials, wages, and sales and marketing costs. A healthy
operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. The
higher the margin, the better it is for the company as it indicates its operating efficiency. The average
operating margins over the 8 year period (actual history of past 5 years and explicit forecast for the next 3
years) stands at 22.7%. We therefore assign a score of 7 on this parameter.

Net profit margin

Net margin is a measurement of what proportion of a company's revenue is left over after paying for all the
variable and fixed costs inclusive of interest and depreciation charges. Net margin is the final measure of
profitability. It reflects the total profits the company takes home. Higher the margin, better it is for the company
as it indicates better pricing power and effective cost management. The average net margins over the 8 year
period (actual history of past 5 years and explicit forecast for the next 3 years) stands at 15.3%. We thus
assign a score of 6 on this parameter.

Return on net worth (RoNW)

RoNW is an important tool to assess a company's potential to be a quality investment by determining how
well the management is able to allocate capital into its operations for future growth. A RoNW of above 15% is
considered decent for companies that are in an expansionary phase. The average RoNW over the 8 year
period (actual history of past 5 years and explicit forecast for the next 3 years) for MPS Ltd stood at 29.9%.
We assign a score of 9 on this parameter.

Earnings Quality
This measure helps us assess the quality of earnings reported by the company. For instance, some
companies may follow aggressive accounting practices and recognize revenues earlier than warranted.
Earlier recognition of revenues boosts profits. However, at the same time they do not generate sufficient
operating cash flow (OCF). This signifies debtors are not liquidated on time as sales were booked in advance.
Such companies face working capital issues and their quality of earnings is poor. We assess earnings quality
by dividing operating cash flow to net profits. Higher the ratio better is the quality of earnings. The average
OCF/net profit ratio over the 8 year period (actual history of past 5 years and explicit forecast for the next 3
years) stands at 0.9x. We assign a higher score of 10 on this parameter.

Transparency
Transparency is the key to any business. Transparency can be gauged by assessing the past dealings of the
company with various stakeholders, the way it displays its financial information and the frequency of
management's desire to communicate with external shareholders whenever some unfortunate incident
happens. The easiest way to gauge the same is checking the level of disclosures in the company's quarterly
MPS LTD.

Page 9 of 19

21 January, 2015

financial updates and annual reports. Transparent managements would get a higher rating. We have
assigned a score of 7 to the company on this parameter.

Capital allocation
Apart from honesty, capital allocation skills are equally important in assessing management quality. By capital
allocation we mean how the management chooses to deploy capital in the business. There are many
instances where growth is given priority over returns on the investment. This results in a company with larger
size but with poor returns. Management's are enticed to increase the size since their compensation is tied to
the size of organization they manage. Also, they sometimes destroy shareholder wealth by making expensive
acquisitions or by diversifying into unrelated areas. Hence, capital allocation skills assume great importance in
gauging management quality. Capital allocation skills are good when return ratios depict resilience. In short,
more stable/higher the return ratios better the capital allocation skills. MPS Ltds return ratios have improved
over the years, due to improved profitability amidst change in management. Further, it has maintained healthy
dividend track record in the past indicating managements intention of rewarding shareholders in case there is
no investment opportunity available. We assign a score of 7 to MPS on this parameter.

Promoter Pledging
Promoters typically pledge their shares to take a loan which is generally infused in the company. This
exercise is generally resorted to when all other sources of external liquidity dry out. The risk with this strategy
arises when share price falls. This triggers margin calls. If management is unable to provide some sort of a
collateral to the lending party from whom the money is borrowed that party may sell the shares to recover its
money. This accentuates the share price fall. Hence, higher the promoter pledging higher is the risk. As of
Sep 2014, none of the promoters equity was pledged. As thus, we assign a risk rating of 10 to the stock on
this parameter.

Debt To Equity Ratio

A highly leveraged business is the first to get hit during times of economic downturn, as companies have to
consistently pay interest costs, despite lower profitability. We believe that a debt to equity ratio of greater than
1 is a high-risk proposition. MPS is a virtually debt free company (FY14 D/E was 0.04x). We thus assign a
score of 9 to the company.

Interest Coverage Ratio

It is used to determine how comfortably a company is placed in terms of payment of interest on outstanding
debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense
for a given period. The lower the ratio, the greater are the risks. Being virtually debt free, analysis of the
interest coverage ratio stands redundant. We thus assign a rating of 9 to the stock on this parameter.
It may be noted that leverage, return generating capability, earnings quality and management risk get the
highest weight in our matrix. Hence, scores assigned to these factors influence the overall score.

MPS LTD.

Page 10 of 19

21 January, 2015

Considering the above analysis, the total ranking assigned to the company is 103. On a weighted basis, it
stands at 7.8. This makes the stock a low-risk investment from a long-term perspective. However, the
valuations too are important criteria for evaluating the riskiness of a stock. We recommend investors read
the valuation rationale carefully before investing.

ERMTM
Company Specific Parameters

Weightage (B)

Weighted
(A*B)

9
7
5

5.0%
5.0%
5.0%

0.5
0.4
0.3

2
6
7
6
9
10

5.0%
5.0%
5.0%
5.0%
10.0%
10.0%

0.1
0.3
0.4
0.3
0.9
1.0

7
7
10

10.0%
10.0%
10.0%

0.7
0.7
1.0

9
9
103

10.0%
5.0%

0.9
0.5
7.8

Points
1

Industry risk

Regulatory risk $
Cyclicality risk $
Competition risk $
Performance risk
Sales growth
Net profit growth*

Operating margins
Net margin
RoIC / RoNW
Earnings Quality (OCF/PAT)
Management risk
Transparency $
Capital allocation $
Promoter pledging $
Balance Sheet risk
Debt to equity ratio
Interest coverage ratio
Final Rating#
*Excluding extraordinary gains

Riskiness (A)
High - Medium - Low
2 3 4 5 6 7 8 9

10

For qualitative factors, denoted by $ sign, lower the risk, higher the rating
For any risk parameter if the score is below or equal to 4 it indicates high risk. The risk score of these parameters is highlighted in red color.
For risk parameters where the score is above 4 riskiness is low. The risk score of such parameters is highlighted in grey.

MPS LTD.

Page 11 of 19

21 January, 2015

How we value companies set to ride the Megatrend?

Please note that this service is an offering unlike anything we've launched in the past. And hence it is of utmost
importance that you understand our methodology of valuing companies that are selected for this service fairly
well.
In other words, the characteristics of the companies that get recommended here will be different than the ones we
recommend in our other offerings. We will of course ensure that all the companies come equipped with strong
business fundamentals run by management teams that are both shareholder oriented as well excellent deployers
of capital.
However, the key point of differentiation is going to be the expected growth rates we believe. You see,
since the Megatrend is still in its early years, the companies within it will also be in the early stages of their lifecycles. As a result, most of these would be taking off from a lower base and thus growing both their topline as well
as bottomline at a fast pace. In fact, even if we end up recommending some large companies, the opportunity
before them is going to be so huge that they would still qualify as growth stocks.
In view of all this, we felt that our traditional valuation methods would need some modification and be replaced by
a brand new valuation architecture which we have devised especially for this service. The inspiration behind
this new metric is of course one of the foremost gurus of growth stocks, Peter Lynch.
We believe that Peter Lynch's famous PEG (Price to Earnings Growth) ratio would be an apt valuation
criterion for the kind of stocks that will find a place under this service. However, we are going to introduce a
slight variation here.
Other than comparing the company's PE to its own growth rate, what we are also going to do is compare the
stock's PEG with those of the broader markets.
Allow us to explain. You see, the Sensex traded at a PE of around 17.8x based on its FY14 reported earnings and
there's a consensus that over the next 2-3 years, the growth rate in its earnings is likely to be in the region of
17%-18%. Consequently, the Sensex is trading at a two year forward PE (only one quarter is left before FY15
ends) of around 12.8x and the PEG that you get by dividing this 12.8x PE by an expected growth rate of 18% is
around 0.71. Thus, the Sensex trades at a PEG of 0.71 based on its forward PE and consensus earnings growth.
Here is the calculation to help you understand better...

Sensex
Sensex EPS (Rs)
Sensex PE (x)

2014
28,785

2015

2016

2017

1,372

1,619

1,910

2,254

17.8

17.8

15.1

12.8

Growth rate

18%

Sensex PEG

0.71

MPS Ltd (Rs)

932

MPS EPS (Rs)

25.8

33.6

37.3

46.4

MPS PE (x)

14.9

27.7

25.0

20.1

Growth rate

22%

MPS PEG

0.93

MPS LTD.

Page 12 of 19

21 January, 2015

Now, coming to MPS Ltd, the stock traded at a PE of around 14.9x based on its FY14 reported earnings. MPS
Ltds earnings have grown by about 19% on a compounded basis over the past five year period. We expect the
company to report similar earnings growth (22% CAGR) over the next three years. Also the company's return on
equity has been inching up over the last few years after the new management took charge.
Thus, based on its expected growth rate, the stock trades at a two year forward PE (only one quarter is left before
FY15 ends) of around 20.1x as per our calculations. When you divide this with the expected growth rate, we
get a PEG in the region of 0.93x for MPS Ltd.

MPS LTD.

Page 13 of 19

21 January, 2015

Market Data

Follow Tenet III - Invest with patience

Current price
Market cap

Rs 922 (BSE)
Rs 15,679 m

NSE symbol

MPSLTD

BSE code

532440

No of shares

16.8 m

Free float

25.0%

Face value

10.0

FY14 DPS
Dividend Yield (FY14
at current prices)
52 week H/L

17.0
1.8%

Companies that have the potential to ride the key signals of the
Megatrend are here to stay. Hence it is important that investors keep
their patience to invest in phases over a long period. Investors
therefore should not attempt to put in all their money at one go.
As we said before, there will be few peaks and troughs in each of the
7 signals before the full benefits of the Megatrend are realized.
Hence investors should invest...even in the best stocks in
phases over a long period, so that they get the opportunity to
invest at attractive valuations.

Rs 995/202

The Best Price to buy the stock

For Latest Update On This
Recommendation, Click Here

Based on the PEG calculation, the stock does trade at about 31%
premium to the Sensex PEG. However, according to us, for the
stock to become a strong buy, it will have to trade at least a 25%
TM
discount to the Sensex PEG. Thus, while the ERM score tells
you the stock is on the low risk category, current valuations warrant
additional margin of safety in valuations.

Rs 100 Invested Is Now Worth

1,600
1,200

MPS: Rs 1291
BSE-500: Rs 159

800

For the stock to become a strong buy, it will have to fall by

around 30% from its current levels. Hence the best price to buy
the stock will be Rs 650 or lower.

400
-

Jan-10

Sep-11

May-13

Jan-15

What should investors do?

Stock Price Performance
(as on 20th Jan 2015)

MPS

Index*

Over 1 Year

316.8%

42.4%

Over 3 Year

200.9%

20.6%

Over 5 Year

66.8%

9.7%

# BSE 500 Index

Returns over 1 year are compounded annual averages
(CAGR)

Thus, at current prices, it may not make sense to invest your money
into this stock at these levels. Considering the fact that the stocks
PEG is higher than that of the Sensex, the stock is into the
overvalued category.
As a result, we would recommend our subscribers to wait for a
correction and then invest at lower levels. Considering the current
valuations investors should not take any exposure to the stock at this
juncture; and invest only when the stock moves closer to our
best buy price of Rs 650 or lower.

Shareholding (%,Sep-14)
Category
Promoters

(%)))
75.0

FIIs

0.1

DIIs

0.0

Others
Total

MPS LTD.

Get The Latest Update On This Recommendation. Click Here

24.9
100.0

Page 14 of 19

21 January, 2015

Financials at a glance
(Rs m)
Sales
Sales growth (%)
Operating profit

FY14

FY15E

FY16E

FY17E

1,883

2,165

2,555

3,066

14.8%

15.0%

18.0%

20.0%

634

783

948

1,174

33.7%

36.1%

37.1%

38.3%

434

566

627

780

23.1%

26.1%

24.5%

25.5%

Current assets

662

942

1,178

1,474

Fixed assets

189

188

188

187

314
1,165

343
1,473

386
1,752

442
2,103

Current liabilities

243

349

405

479

Net worth

926

1,128

1,352

1,630

Total debt

(5)
1,165

(4)
1,473

(5)
1,752

(6)
2,103

(Rs m)

FY14

FY15E

FY16E

FY17E

Net sales (Rs m)

1,883

2,165

2,555

3,066

PAT (Rs m)

434

566

627

780

No. of shares (m)

16.8

16.8

16.8

16.8

EPS (Rs)

25.8

33.6

37.3

46.4

Price to earnings (x)

35.7

27.4

24.7

19.9

8.2

7.2

6.1

5.1

16.7

13.7

11.5

9.5

Operating profit margin (%)

Net profit
Net profit margin (%)
Balance Sheet

Others
Total Assets

Others
Total liabilities

Valuations

Price to sales (x)

Price to book value (x)

MPS LTD.

Page 15 of 19

21 January, 2015

Tanushree Banerjee started her career at Equitymaster covering the banking and financial sector
stocks along with scrutinizing the RBI policies. And over the last decade, developed our research
processes that have helped us pick out various multibaggers, across all sectors. A firm believer of
"safety first" when it comes to investing, Tanushree closely follows the investing philosophies of
Warren Buffett, Seth Klarman and Joel Greenblatt. Apart from being the Co-head of research team,
she is the Managing Editor of our large cap recommendation service, StockSelect and our daily free
e-letter, The 5 Minute WrapUp.

MPS LTD.

Page 16 of 19

21 January, 2015

Definitions of Terms Used

Buy recommendation: This means that the investor could consider buying the concerned stock at
current market price keeping in mind the tenure and objective of the recommendation service.

Hold recommendation: This means that the investor could consider holding on to the shares of the
company until further update and not buy more of the stock at current market price.

Buy at lower price: This means that the investor should wait for some correction in the market price so
that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of
the service.

Sell recommendation: This means that the investor could consider selling the stock at current market
price keeping in mind the objective of the recommendation service.

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014

INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on
October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora
group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and
recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
i.

ii.

iii.

Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman
Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No.
INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in
general, and services related to financial planning and research in various financial instruments including mutual
funds, insurance and fixed income products to customers. It offers asset allocation and researched investment
recommendations through its financial planning services through its website www.personalfn.com
Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012
Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most
successful consumer newsletter publishers in the world.
Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides
straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of
Equitymaster.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:

a.
b.

c.

Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject
company.
Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one
percent or more securities of the subject company at the end of the month immediately preceding the date of
publication of the research report.
Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest
at the time of publication of the research report.

MPS LTD.

Page 17 of 19

21 January, 2015

DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:

a.
b.
c.
d.
e.

Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past
twelve months.
Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject
company in the past twelve months.
Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant
banking or brokerage services from the subject company in the past twelve months.
Neither Equitymaster nor it's Associates have received any compensation for products or services other than
investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company
or third party in connection with the research report.

GENERAL DISCLOSURES:
a.

The Research Analyst has not served as an officer, director or employee of the subject company.

b. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.

MPS LTD.

Page 18 of 19

21 January, 2015

Equitymaster Agora Research Private Limited. All rights reserved.

Disclosure:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity
research Company. The Author does not hold any share in the company/ies discussed in this document.
Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.
Please read our detailed Share Trading Guidelines here.
Disclaimer:
This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be
reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the
consent of Equitymaster.
This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use
by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where
such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would
subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document
is sent or has reached any individual in such country, especially, USA, the same may be ignored.
This document does not constitute a personal recommendation or take into account the particular investment objectives,
financial situations, or needs of individual investors. Our investment recommendations are general in nature and
available electronically to all kind of investors irrespective of subscribers investment objectives and financial
situation/risk profile. Before acting on any advice or recommendation in this document, investors should consider
whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value
of the investments referred to in this material and the income from them may go down as well as up, and investors may
realize losses on any investments. Past performance is not a guide for future performance, future returns are not
guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and
its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of
the date appearing in the material and may be subject to change from time to time without notice. This document should
not be construed as an offer to sell or solicitation of an offer to buy any security in any jurisdiction. Equitymaster and its
affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a
consequence of his or any other person on his behalf taking any investment decisions based on this document.
MPS LTD.

Page 19 of 19