Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MPS Ltd (BOM:532440, Financial) achieved a significant milestone with FX-adjusted revenue of INR546 crore in FY24, representing a 17.5% year-over-year growth.
- The company's top 15 customers now contribute to less than 60% of total revenue, indicating a more diversified customer base.
- The Content Solutions business saw a 7.5% revenue growth in FY24, with margins expanding to 40% on a standalone basis.
- The eLearning segment, despite some setbacks, grew by 6% in FY24 and is expected to see profitable growth in FY25.
- The Platform business, for the first time since the acquisition of HighWire, saw revenue growth and a 30% increase in profits on a consolidated basis.
Negative Points
- There was an EBITDA decline in Q4 FY24, although it is expected to improve quickly.
- The acquisition of AJE, completed in March 2024, was loss-making and impacted overall margins.
- The eLearning business faced challenges due to the deferment of a large project, affecting Q4 FY24 performance.
- The Content Solutions business experienced a temporary setback in the education segment, which is expected to correct in FY25.
- The company has a high reliance on inorganic growth to achieve its revenue targets, raising concerns about sustainable organic growth.
Q & A Highlights
Q: We have a new strategy like we are planning to make acquisitions every year. How do you ensure that the companies you acquire do not lose clients and employees, considering the cultural shift when a company gets acquired by a parent company?
A: We have not changed our strategy to do two acquisitions every year. We did two acquisitions in FY24. We have a modified acquisition playbook and are looking at larger bites. We focus on companies with inherent strengths, even if they are not high on margins upfront. We ensure acquisitions do not implode by looking at different types of assets, conducting thorough HR diligence for cultural and values alignment, and maintaining a disciplined approach.
Q: We are giving guidance on tripling our top line by 2027. Can you provide guidance on margin expansion by 2027 or 2028?
A: For FY25, we are projecting a 25% year-on-year growth in earnings. Our goal is to get the eLearning business to a 25% margin in the short term and 30% in the two-year term. We expect a 2% to 3% improvement in margins at a consolidated level, depending on how quickly the content and platform business scales.
Q: What is the impact of AI developments on your customers in each of the verticals you operate in, and how is it affecting your order book?
A: In the short term, we see positive revenue growth opportunities as customers need strong partners to enable AI in their workflows. In the medium term, we anticipate a consolidation of the supply chain, with customers working with fewer vendors. We are making investments to ensure we are one of the preferred vendors.
Q: What spaces do you see for future acquisitions, and will they be bolt-on acquisitions or in the same area to ramp up?
A: We are looking at opportunities for capability expansion, geographic reach, and adjacent market expansion. We aim to move up and down the value chain, expand into regions like the Middle East and Latin America, and scale our education space.
Q: Can you provide an update on the stalled experience center project and the overall margin outlook for the eLearning vertical?
A: Unfortunately, there is no new update on the stalled project. However, we have replaced it with other opportunities for FY25. We have won several projects in virtual reality and AI, and we expect a strong year for the eLearning business in FY25, both in terms of financial and strategic indicators.
Q: There has been a significant increase in intangible assets under development. Can you explain why these expenses are being capitalized and what they pertain to?
A: The increase in intangible assets is related to the acquisitions of AJE and Liberate. Based on purchase price allocation, certain amounts are allocated to tangible and intangible assets, with the balance going to goodwill.
Q: What is driving the change in headcount in the eLearning segment, and are we onto some strategic shift on the manpower side?
A: We have adopted a more balanced approach to workforce management, inspired by the successful model of Liberate. We are using more contractors and outsourcing to manage capacity and improve margins, while maintaining a core permanent workforce.
Q: How are we able to acquire companies at such good valuations in a competitive market?
A: The key differentiating factor is discipline. We have a strict framework for acquisitions and have walked away from many opportunities that did not meet our criteria. This disciplined approach has allowed us to make successful acquisitions.
Q: Can you provide a roadmap for the next acquisition planned for later this year?
A: The next acquisition is expected towards the end of the calendar year. We are taking time to settle down from the recent acquisitions of Liberate and AJE before taking the next step. We are also open to taking on some debt for future acquisitions.
Q: Is the FY25 guidance of 25% PAT growth conservative, considering the deferred order from FY24?
A: The guidance is conservative because it was provided earlier than usual. We aim to be cautious in the current environment, but we are confident in our ability to achieve the 25% PAT growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
