Jul 21, 2017

Communications - Media MPS Ltd

Company Update MPS Ltd

Bloomberg Code: MPS IN

India Research - Stock Broking

BUY
Recommendation (Rs.)
Moderate Topline Growth, Margins Impacted Due to Stronger CMP 597
Rupee Target Price 777
MPS Ltd (MPSL) consolidated revenue impacted due to the stronger rupee during Previous Target Price 736
the quarter witnessing a YoY growth of 8.1% compared to revenue growth of 18.0% Upside (%) 30
in the constant currency terms. In reported revenue terms, it registered Rs.669 Mn
Stock Information
in Q1FY18 compared to Rs.619 Mn in Q1FY17. The Content solution segment,
Mkt Cap (Rs.mn/US$ mn) 11151 / 173
highest contributor, degrew by -7.2% during the quarter to Rs. 523 Mn compared
52-wk High/Low (Rs.) 774 / 556
to Rs. 563 Mn in Q1FY17. However, Platform solution segment posted a strong
3M Avg. daily volume 20269
growth of 163.5% in the quarter to Rs. 146 Mn from Rs. 55 Mn in Q1FY17 increasing
Beta (x) 0.6
its weight in segment contribution to 21.8% during the quarter which stood at
Sensex/Nifty 32029 / 9915
mere 8.9% in same quarter last year. The geographical contribution during the
O/S Shares(mn) 18.6
quarter stood at 60.0% from the North America, followed by Europe at 38.0%. The
Face Value (Rs.) 10.0
contribution in terms of top 5 / 10 stood at 56.0% / 72.0% respectively in Q1FY18
Shareholding Pattern (%)
compared to 64.0% / 82.0% in Q1FY17. The EBITDA margins impacted during
Promoters 67.8
the quarter due to the unfavourable exchange rates witnessing a drop of -353 bps
FIIs 5.8
(basis points) to 30.6% in Q1FY18 compared to 34.2% in Q1FY17. EBITDA during
DIIs 7.3
the quarter stood at Rs.205 Mn compared to Rs.211 Mn in Q1FY17. Other income
Others 19.1
during the quarter stood increased mainly on account of write back of the liability
of Rs. 41 Mn resulting in the other income of Rs. 80 Mn. PAT & PAT Margins during Stock Performance (%)
the quarter stood at Rs. 204 Mn & 30.4% respectively compared to Rs. 164 Mn & 1M 3M 6M 12M
26.4% in Q1FY17. Absolute (1) (12) (20) (13)
Relative to Sensex (3) (19) (32) (25)
Valuation and Outlook Source: Bloomberg

MPS continues to commit to the inorganic approach for growth by enhancing Relative Performance*
the service and products offering capabilities to the existing and new clients. We 130

expect the operating performance continues to be impacted in the near term due to
110
the recent acquisition and until the associated costs get streamlined. We maintain
our positive view on the company and maintain “BUY” recommendation with the 90

upwardly revised target price of Rs. 777 resulting in the upside potential of 30% on 70
consolidated FY19E EPS of Rs.43.8 for a period of 9-12 months.
May-17
Feb-17
Mar-17
Jul-16
Aug-16
Sep-16

Nov-16
Dec-16
Oct-16

Apr-17
Jan-17

Jun-17

MPS Ltd Sensex

Exhibit 1: Valuation Summary Source: Bloomberg; *Index 100

YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E

Earnings Revision (%)
Net Sales 2239 2572 2887 3075 3383
YE Mar FY18E FY19E
EBITDA 804 910 931 984 1120 LL LL
Sales (%) 0.2 0.2
EBITDA Margin (%) 35.9 35.4 32.2 32.0 33.1
EBITDA (%) LL (6.8) LL (6.5)
Adj. Net Profit 614 712 700 725 815
PAT (%) LL (6.1) LL (6.0)
EPS (Rs.) 33.0 38.3 39.8 39.0 43.8 Source: Karvy Research

RoE (%) 35.3 26.6 23.6 18.9 17.7

PE (x)* 28.6 17.3 17.2 15.3 13.6
Source: Company, Karvy Research; *Represents multiples for FY15, FY16 & FY17 are based on historic market price Analyst Contact
Sharanabasappa VS
For private circulation only. For important information about Karvy’s rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, 040 - 3321 6274
Thomson Publishers & Reuters sharanabasappa.vs@karvy.com

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 Jul 21, 2017
MPS Ltd

Exhibit 2: Q1FY18
Consolidated Standalone
YE Mar (Rs. Mn)
Q1FY18 Q1FY17 YoY (%) Q1FY18 Q1FY17 YoY (%)
Income 669 619 8.1 543 507 7.2
Employee cost 298 280 6.5 241 233 3.6
Other expenses 166 128 30.1 110 90 22.4
Expenses 464 408 13.9 351 323 8.8
EBITDA 205 211 (3.1) 193 185 4.3
Other Income 80 32 146.6 79 32 151.4
Depreciation 23 11 107.3 21 10 97.1
EBIT 262 233 12.6 251 206 22.2
Interest 1 1 0.0 1 1 0.0
PBT 261 232 12.6 251 205 22.2
Tax 58 68 (15.7) 70 58 19.9
PAT 204 164 24.4 181 147 23.2
EBITDA Margin (%) 30.6 34.2 (353) bps 35.4 36.4 (97) bps
EBIT Margin (%) 39.2 37.6 156 bps 46.2 40.6 568 bps
Net Profit Margin (%) 30.4 26.4 400 bps 33.3 29.0 432 bps
Source: Company, Karvy Research

Exhibit 3: Segmental Financials

YE Mar (Rs. Mn) Q1FY18 Q1FY17 YoY (%)
Segment-wise revenues
Content Solutions 523 564 (7.2)
Platform Solutions 146 55 163.5

Segment-wise Contribution
Content Solutions 171 223 (23.6)
Platform Solutions 53 25 109.9

Segment-wise Contribution Margins (%)

Content Solutions 39.6 32.6 (700) bps
Platform Solutions 45.8 36.4 (931) bps
Source: Company, Karvy Research

Exhibit 4: Geographic Concentration (%) Exhibit 5: Client Concentration

70 100% 542 600
471 459 460
60
63

400
82.0%
60

60

50
76.0%

75.0%
74.0%
55

55

72.0%

50%
64.0%

40
61.0%

59.0%
58.0%

56.0%
43

200
42

30
39

38
34

20 93
0% 0
10
3

3
2

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

0
Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Top 5 clients contribution (%)
Top 10 clients contribution (%)
North America UK/Europe Rest of the World Clients Billed (No.s)
Source: Company, Karvy Research Source: Company, Karvy Research

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 Jul 21, 2017
MPS Ltd

Key Takeaways of Conference Call

Acquisitions: MPS has changed its stance on the acquisition currently considering the profitable & healthy companies as
potential target.
Increase in other income: Other income during the quarter stood increased mainly on account of write back of the liability of
Rs. 41 Mn resulting in the other income of Rs. 80 Mn.
Growth Prospects: MPS continues to aspire to reach the revenue of Rs. 4000 Mn by FY18E through organic and inorganic
routes.

Exhibit 6: Revised Earnings Estimates

YE Mar - Consolidated FY18E FY19E
% Change
(Rs. Mn) Earlier Revised % Change Earlier Revised % Change
Net Sales 3068 3075 0.2 3375 3383 0.2
We expect the EBITDA margins to be impacted
EBITDA 1056 984 (6.8) 1198 1120 (6.5)
assuming a stronger rupee in next two years.
EBITDA Margins (%) 34.4 32.0 (240) bps 35.5 33.1 (240) bps
Adj. Net Profit 773 725 (6.1) 867 815 (6.0)
EPS (Rs.) 41.5 39.0 (6.1) 46.6 43.8 (6.0)
Source: Karvy Research

Key Risks
yyConcentration risk due to dependability on few clients.
yyCurrency volatility could impact revenue estimates.
yyOutcome of inorganic growth.

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MPS Ltd

Consolidated Financials

Exhibit 7: Income Statement

YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Revenues 2239 2572 2887 3075 3383
Growth (%) 13.5 14.9 12.2 6.5 10.0
Operating Expenses 1435 1662 1956 2091 2263
EBITDA 804 910 931 984 1120
Growth (%) 27.7 13.3 2.3 5.7 13.8
Depreciation & Amortization 55 41 67 62 65
Other Income 108 184 202 150 150
EBIT 857 1053 1066 1072 1204
Interest Expenses 3 2 2 1 1
PBT 854 1051 1064 1071 1203
Tax 317 339 324 345 388
Adjusted PAT 614 712 700 725 815
Growth (%) 45.8 15.9 (1.8) 3.7 12.4
Source: Company, Karvy Research

Exhibit 8: Balance Sheet

YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Cash & Cash Equivalents 165 143 168 1098 1573
Sundry Debtors 393 450 602 538 592
Loans & Advances 254 312 325 386 442
Investments 1590 1690 2059 1950 2200
Net Block 326 359 474 472 466
Miscellaneous 89 97 175 108 113
Total Assets 2818 3050 3803 4552 5387
Current Liabilities & Provisions 249 239 282 306 326
Debt 0 0 0 0 0
Other Liabilities 8 17 50 50 50
Total Liabilities 257 256 332 356 376
Shareholders Equity 186 186 186 186 186
Reserves & Surplus 2375 2608 3285 4010 4825
Total Networth 2561 2794 3471 4196 5011
Total Networth & Liabilities 2818 3050 3803 4552 5387
Source: Company, Karvy Research

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 Jul 21, 2017
MPS Ltd

Exhibit 9: Cash Flow Statement

YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
PBT (including exceptional item) *931 1051 *1023 1071 1203
Depreciation 55 41 67 62 65
Interest 3 1 2 1 1
Tax Paid (261) (376) (327) (345) (388)
Inc/dec in Net WC (115) (97) (156) 93 (95)
Other Income (14) (135) (95) (150) (150)
Others (94) 3 (67) 0 0
Cash flow from operating activities 504 488 447 732 636
Inc/dec in capital expenditure (95) (69) (180) (60) (60)
Inc/dec in investments (1415) 31 (357) 109 (250)
Others 15 5 144 150 150
Cash flow from investing activities (1495) (33) (393) 199 (160)
Inc/dec in borrowings (1) 0 0 0 0
Issuance of equity 1478 0 0 0 0
Dividend paid (438) (493) 0 0 0
Interest paid (3) (1) (1) (1) (1)
Cash flow from financing activities 1036 (494) (1) (1) (1)
Net change in cash 45 (39) 52 930 475
Source: Company, Karvy Research; * including Exceptional item

Exhibit 10: Key Ratios

YE Mar FY15 FY16 FY17 FY18E FY19E
EBITDA Margin (%) 35.9 35.4 32.2 32.0 33.1
EBIT Margin (%) 38.3 40.9 36.9 34.9 35.6
Net Profit Margin (%) 27.4 27.7 25.7 23.6 24.1
Dividend Payout Ratio (%) 71.3 69.2 0.0 0.0 0.0
Net Debt/Equity (x) (0.06) (0.05) (0.05) (0.26) (0.31)
RoE (%) 35.3 26.6 23.6 18.9 17.7
RoCE (%) 49.3 39.3 34.0 28.0 26.2
Source: Company, Karvy Research

Exhibit 11: Valuation Parameters

YE Mar FY15 FY16 FY17 FY18E FY19E
EPS (Rs.) 33.0 38.3 39.8 39.0 43.8
DPS (Rs.) 23.5 26.5 0.0 0.0 0.0
BVPS (Rs.) 137.6 150.1 186.4 225.4 269.2
PE (x)* 28.6 17.3 17.2 15.3 13.6
P/BV (x)* 6.9 4.4 3.7 2.6 2.2
EV/EBITDA (x)* 21.7 13.3 13.5 10.2 8.5
EV/Sales (x)* 7.8 4.7 4.4 3.3 2.8
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price

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 Jul 21, 2017
MPS Ltd

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : <5%

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