MPS hosted a conference call on Nov 03,2022. In the conference call the company was represented by Mr Rahul Arora-CMD and Mr Sunil Malhotra-CFO.

Key takeaways of the call

Revenues of the company adjusted for Forex stood at Rs 125.6 cr in Q2FY2023 as against Rs 110.4 cr up 13.77%. Growth in revenues was driven in content business by scholarly customers particularly journals and books; in e-learning business growth was driven by standalone and EI design; and stability in platform business.

Content business revenue grew by 10% YoY and profit grew by 30% YoY in Q2FY2023. Growth was led by Journal solution business and given the highly profitable nature of the business the scale up also led to margins improvement. Growth was led by both established as well as new customers. The books division also did well with trends towards offshoring continuing in education business which further helped improving margins.

E-learning business grew significantly in Q2FY2023 due to addition of EI Design and impressive double digit growth in MPS interactive and Topsim. Revenue grew from consistent flow of projects from both the company’s star accounts as well as new customers. Revenue growth in Topsim was due to increased contribution from products enabled by Topsim cloud.

Also order book grew by 20% as the company booked significant and sizable orders. Pipe line is robust across different type of work, geographies and across different training strategies.

The company had mentioned that there was delay in delivery of an e-learning project from Switzerland facilityin Q1FY2023 which is back on track in Q2FY2023. However, the company has not recognised the revenue in Q2FY2023.

The platform business of the company is finally stabilising given the distress nature of Highwire business.

Operating profit of the company grew from Rs 30 cr in Q2FY2022 to Rs 40 cr in Q2FY2023. Increase in operating margin is primarily due to improved operating margin of content business. Of the growth around 2-3% is coming from currency depreciation and the balance from operational performance.

New Brand: The company in October launched a new brand identity named ‘EI’ for the e-learning business. The idea behind the new brand and its value proposition is adopting emotional intelligence as a common thread in the way the company address the needs of learners and its customers.

ESOP: The process is in progress and the company expects to close the same in the current financial year.

Acquisition: Acquisition continues to be very much part of the company’s growth strategy. At any given point of time the company is examining 10-15 opportunities and currently around 4 are in active conversation. The company expects some to close in perceivable future.

The company will do the acquisition only if any new capability is added. Capability should also be niche.

The company will acquire assets with revenues of US$ 10 million plus. The assets with growing revenues and are profitable. The company is scouting for assets both in India and international.

Customer diversification: The company is significantly diversifying its customers base. Top 10 customers contribution is less than 50% of the total revenues currently when compared to 80% 5-6 years back and top 15 customers contribute less than 55% of the total revenues currently when compared to 5-6 years back. As such the company does not see any major impact due to loss of top customers as it is well diversified.

Growth: Across the business the company has multiple approaches to grow; one by deeper mining the 600 customers which it has across businesses ( Initially it has identified 30 star accounts which are really big and increase the star accounts to 100 going forward); two the company plans to grow through new capabilities and partnerships and by developing new products and three by  acquiring new logos through both offline and online marketing as such the company is increasing its sales force.

Those accounts which are large in size, which have future potential and companies which are blue-chip are classified as star accounts.

On the inorganic side, the company has changed its strategy from acquiring distressed assets at distress prices to acquire growing assets at reasonable valuations. EI Design is one such acquisition.

Europe and UK: The company earns around 34% of its revenues from Europe and UK region and around 84% of the revenues in US$ terms. Most of the clients of UK and Europe are Global clients. The company is not witnessing any negotiation in prising from UK and Europe clients due to currency volatility.

Merger: The Board of Directors of the company have accorded the In-principle approval for merger of E.I. Design with MPS Interactive Systems Limited (MPSI). MPSI is a direct subsidiary, E.I. Design is a step-down subsidiary of MPS.

Outlook: The company is in line to cross the Rs 100 cr PAT in FY2023.

Various factors give the company confidence including the company’s content business is doing exceptionally well with the scholarly customer base. The company expects the growth to unfold for the rest of the year. With the steady pick up in content business in Q2, the performance will be better in second half of the year.

The company wants to maintain operating margins in content business at around 40% with operating leverage kicking in, the company also plans to increase platform business margins to 40% and eLearning business margins to initially increase to 25%(which is the industry standard) than to 30% levels.

With respect to recessionary trends, the company is not hearing anything with respect to any volume reduction from the customers. However, the company is aware and watchful of the overall trend.