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- Jun 13, 2015 - MPS Ltd: Cross currency movements hurt
MPS Ltd: Cross currency movements hurt
MPS Ltd has announced the fourth quarter results of financial year 2014-2015 (4QFY15). The company has reported around 5.4% YoY growth in sales, while net profits have declined by 3% YoY during the quarter.
Performance summary
- Sales increase by 5.4% YoY during 4QFY15. In dollar terms, sales were up by 5% on a YoY basis in 4QFY15. North America contributed about 54%, while UK/Europe contributed 44% to the overall revenues. In all 126 clients were billed in the quarter. Contribution from top 5 clients stood at 66% at the end of 4QFY15.
- Operating profits increase 9.3% YoY during the quarter.
- Net profits fell by 3% YoY due to sharp fall in other income (-65.2% YoY).
- Pursuant to the QIP, the number of equity shares increased by 1.79 m. The money raised from QIP (about Rs 1.5 bn) will be used to fund inorganic growth, strategic initiatives, general & corporate purpose etc.
- The company has zero debt and cash equivalents of Rs 1.75 bn inclusive of the money raised via QIP which is parked in liquid investments temporarily.
| (Rs m) | 4QFY14 | 4QFY15 | Change | FY14 | FY15 | Change |
| Income from operations | 521 | 549 | 5.4% | 1,973 | 2,239 | 13.5% |
| Expenditure | 342 | 353 | 3.3% | 1,343 | 1,372 | 2.1% |
| Operating profit (EBDITA) | 180 | 197 | 9.3% | 630 | 867 | 37.7% |
| Operating profit margin (%) | 34.5% | 35.8% | 31.9% | 38.7% | ||
| Other income | 18 | 6 | -65.2% | 67 | 44 | -33.6% |
| Interest | 0 | 2 | 2300.0% | 4 | 3 | -23.7% |
| Depreciation | 13 | 12 | -12.1% | 53 | 55 | 3.0% |
| Profit before tax | 184 | 189 | 2.4% | 640 | 854 | 33.5% |
| Exceptional items | 0 | 0 | NA | 0 | 77.2 | NA |
| Tax | 54 | 62 | 15.4% | 218 | 317 | 45.2% |
| Profit after tax/(loss) | 131 | 127 | -3.0% | 421 | 614 | 45.8% |
| Net profit margin (%) | 25.0% | 23.0% | 21.4% | 27.4% | ||
| No. of shares (m) | 18.6 | |||||
| Basic & diluted earnings per share (Rs) $ | 36.4 | |||||
| P/E ratio (x) * | 22.6 |
$ As reported by the company
What has driven performance in 4QFY15?
- Topline increased by 5.4% YoY in 4QFY15. The top 5 clients contributed about 65% to the revenues in FY15 as compared to 60% in FY14 indicating that the client mining strategy is bearing fruit. In terms of currency contribution, 66% of the business was in USD, 29% in GBP and 4% in Euro at the end of the year. Revenue growth was a bit subdued due to negative cross currency movements during the quarter.
- Operating profits increased 9.3% YoY during the quarter as margins improved by 1.3% to 35.8%. Total employee count stood at 2,900 at the end of the quarter. The low cost Dehradun facility has about 1,016 employees at the moment.
- The net profits fell 3% YoY on the back of a fall in other income (-65.2% YoY) and increase in interest expenses.
What to expect?
At the current price of Rs 813, the stock is trading at a multiple of 17.6x our estimated FY17 earnings. The growth in the current quarter was subdued due to cross currency effects. However, vendor consolidation and the ability to provide an end to end service makes MPS preferred choice for its clients.
Further, the company has raised Rs 1.5 bn through QIP and is on look out for acquisitions to grow inorganically. The 2-3 acquisitions (TSI, Element etc) that the company has made in the past have blended well and turned value accretive indicating management's capability to identify growth targets and inter-mingle them well with the existing business. Plus, it is a high margin, high ROE business. However, current valuations are slightly on the expensive side. As a result, we maintain our view of buying the stock at Rs 650 or lower.
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