MPS Limited (MPSLTD) Earnings Call Transcript & Summary

Lined up for you, MPS. Now this company reported a strong Q3 revenue surged nearly 5% quarter-on-quarter. Profit after tax also jumping 37%. We have with us, Rahul Arora, Chairman and CEO of the company now joining in. Rahul, thank you for joining in. This is Reema here. So it's a strong quarter. You've clocked in a top line growth of about 39%. I understand part of it, when you look at it on a year-on-year basis, is on account of the acquisition.

But what's the outlook looking? Because Q4 is typically a strong quarter for you. How do you expect Q4 to play out? And for each of the 3 segments that you operate in, can you tell us the outlook and the visibility?

Happy Friday, Reema. Thank you for having us on the show. So I think overall, back in Q1, we had given a guidance of 30% revenue growth and 25% EBITDA margin growth. So we are essentially tracking against that guidance. Q3, we significantly made up for lost ground in Q1 and Q2 and Q4 will again be very similar in terms of us beating the guidance that we had shared, which was 30% revenue growth and 25% EBITDA growth. So in terms of the 3 markets that we are in, research, education and corporate all 3 markets, we have very strong place. Our strategy, of course, for each of these markets is slightly different. For research, it's more about a value chain consolidation, whereas for education we are shifting closer to the end consumer of learning. And finally, within corporate, again, we are trying to make a bit of tech play. So all 3 markets represent significant opportunities for MPS, and we're very uniquely positioned to capture those opportunities.

So for next year, Rahul, are you in a position to give us a guidance on revenues and margins because margins already are now well above 30%?

Yes. So I think we've shared earlier guidance for FY '28, which you call Vision 2027, which is to get to INR 1,500 crores at similar margins by then. And we are now on track. If you look at FY '25 and where we will close out. We've caught up our lost ground. And I think very pretty uniformly grow across those 3 years. So yes, it's difficult to give guidance by FY '26 right now, but very confident about FY '28 and the INR 500 crores goal.

Rahul, one thing that you mentioned as far as Q3 is concerned, is that you signed a 3-year contract with a minimum insured volume or tool usage, so with that, what is the kind of revenue visibility that is now assured as far as Q4 is concerned, in FY '26 is concerned? And if you could share more details on this particular 3-year contract.

Yes. So obviously, I can't give too much detail because we are covered by NDA, et cetera. But essentially, the essence of the contract is, we've been working with this customer for over a decade. We're in a very strategic position and I think both parties realize that the next 3 years are extremely important. And we basically arrived at a model where our revenue keeps growing year-on-year, and that allows us to unlock some economies of scale, and we've passed on some of those efficiencies to them. In terms of assured revenue, typically, within the research market, 90% or 95% of our revenue is locked in ahead of the year. Similarly, in education, 80%, 85% is locked in. Within corporate, it's more 70%. So our business tends to be very predictable from that standpoint. And that's why our margins tend to be higher than some of our competitors in industry in general because we're able to plan around the upcoming revenue.

What percentage of your revenues is linked to corporate spending and is that because corporates were -- it's a little tight fisted where it came to spending over the last couple of years, given the challenges on the global front economy. Is that cycle now turning? And what do you expect on the corporate front?

Yes. So corporate is much smaller for us now. It's less than 15% of our revenue. We have not -- and maybe because we are small, we haven't seen that tightening just yet. But yes, we have little exposure. And within the exposure our business is, in fact, doing very well. So we haven't seen that tightening. Perhaps when it comes to learning in a downward cycle, corporates do overinvest in learning and development. So perhaps that's the reason.

One reason for the strong growth has been inorganic acquisitions that you've done, and you've completed successfully in the past, are there any more inorganic acquisitions in the pipeline? We understand that you were looking to do one particular acquisition by the end of FY '25. Is that on track? As far as the targeted entity is concerned, what will be the spend that you will go ahead and look to make that particular acquisition at? And what will be the revenue profile margin profile of the targeted entity?

Sure. So as you described, we are serial acquirers, we tend to acquire 1 or 2 assets every year. In the next round, we are focused on the education vertical. The last time we did acquisitions in education was between 2013 and 2015, so long overdue from that standpoint. In terms of the type of assets that we're looking at, essentially, we're looking at companies that are in the $15 million to $30 million range in terms of revenue. Companies that have at least a 10% to 15% EBITDA margin that we can then come in and grow and improve. And companies that have synergies with our business that allow us to unlock revenue growth across the incumbent business as well. So overall, those are kind of the characteristics that we look at. In terms of where we're FY '25 has been the busiest year we've had over the last 4 or 5 years in terms of the number of deals we looked at, we haven't closed one yet. But as that happens, we would, of course, be here and reporting that.

Got that. Also, last year marks, over the last couple of years, you've been expanding into newer geographies to. So whether it's China, where you open up your center, but New Zealand, Australia, Brazil, South Korea, what's the contribution of these newer geographies? How are they panning out for you?

So really good. So APAC is now roughly 30% of our revenue. I personally have relocated to Singapore to kind of spearhead some of this growth that we've seen. We are very bullish on the region. So overall, North America used to be a majority of our revenue today, North America is more like 45%. I think looking out 2, 3 years, we probably will be in a position where the Western world is less than 70% of our revenue, and the balance really is coming from Asia Pacific. I think some of the reasons for this type of growth include a market that still has to catch up with -- specifically on education and learning to catch up with some of the maturity that we've seen in the West. And MPS is kind of uniquely positioned to bring a lot of that into this marketplace with the IP that we have. Yes. So we'll just keep going deeper within Asia Pacific over the next couple of years. I think we are very bullish on this particular geography.

Thank you so much all for joining us. As we speak, the stock today is up over 12.5%. Clearly, the market likes the results and the commentary that you've just given us. Time now for a short break, we'll tell you why stocks like CYIENT, Tejas Networks and a whole host of BSFI stocks are passing trade today.