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MPS Ltd: Base effect kicks in - Views on News from Equitymaster
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MPS Ltd: Base effect kicks in
Feb 2, 2015

MPS Ltd has announced the third quarter results of financial year 2014-2015 (3QFY15). The company has reported around 12.2% YoY growth in sales while net profits have surged by 8.6% YoY during the quarter.

Performance summary
  • Sales increase by 12.2% YoY during 3QFY15. North America contributed about 55% while Europe contributed 43% to the overall revenues. Dollar revenue growth came in at 12% for the quarter.
  • Operating profits increase 4.5% YoY during the quarter.
  • Net profits increased 8.6% YoY due to fall in interest and depreciation expenses.
  • MPS has declared an interim dividend of Rs 10 per share for the fiscal under consideration.
  • The company has passed an enabling resolution to raise money via QIP to the tune of Rs 1,500 m.

Consolidated performance snapshot
(Rs m) 3QFY14  3QFY15  Change 9MFY14  9MFY15  Change
Income from operations  563 632 12.2% 1,451 1,689 16.4%
Expenditure  319 377 18.0% 1,002 1,019 1.7%
Operating profit (EBDITA) 244 255 4.5% 450 670 49.1%
Operating profit margin (%) 43.3% 40.4%   31.0% 39.7%  
Other income 16 17 3.1% 49 38 -22.1%
Interest 2 0 -90.5% 4 1 -86.5%
Depreciation 14 12 -15.0% 40 43 8.1%
Profit before tax 244 260 6.4% 455 665 46.1%
Exceptional items  0 0 NA 0 77.2 NA
Tax 86 87 2.1% 164 254 54.9%
Profit after tax/(loss) 159 172 8.6% 291 488 67.7%
Net profit margin (%) 28.1% 27.3%   20.0% 28.9%  
No. of shares (m)         16.8  
Basic earnings per share (Rs)          29.0  
P/E ratio (x) *         24.3  
*On a trailing 12 month basis

What has driven performance in 3QFY15?
  • Topline increased by 12.2% YoY in 3QFY15. The growth appears to be slightly low as compared to previous quarters because of the base effect. The top 10 clients contributed about 84% to the revenues in 3QFY15 indicating that the client mining strategy is bearing fruits.

  • Operating profits increased 4.5% YoY during the quarter as overall expenditure cost jumped 18.0% YoY. Total employee count stood at 2,862 at the end of the quarter. The low cost Dehradun facility has about 1,000 employees at the moment.

  • The net profits increased 8.6% YoY on the back of modest operating performance and a fall in interest (-90.5% YoY) and depreciation (-15.0% YoY) expenses.
What to expect?
At the current price of Rs 895, the stock is trading at a multiple of 24.3x its trailing 12 month (TTM) earnings. The growth in the current quarter was subdued due to base effect. However, vendor consolidation and the ability to provide an end to end service makes MPS preferred choice for its clients. Further, the company is also looking out for inorganic expansion and has passed an enabling resolution to raise Rs 1,500 m to meet the funding needs in case the need be. Though the overall growth prospects appear bright considering the expensive valuations we maintain our view of buying the stock at Rs 650 or lower.

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