MPS Limited (MPSLTD) Earnings Call Transcript

Sir, congratulations for the good set of numbers. And actually, I joined late the conference. So my question is regarding your Q4. So we have achieved a 31% EBITDA margin in the Q3 in this quarter. So these are sustainable? Or we can see some kind of improvement in the Q4 in FY '24?

I think -- again, we normally don't provide this type of guidance. But qualitatively what I can say is I think Q3 -- Q4 is very similar to Q3 and the goal, of course -- and very similar to Q3 in the sense that there was an outlier where we had these one-off expense in the Platform business. So Platform will go back to 36%. So with the exception of that one change, Q3 will be -- Q4 will be very similar to Q3. And again, like I was describing at the top of the call, the eLearning business should improve margins in the first half of FY '24. So Content margins should hold. Platform margin -- exit margin should be close to 36% of this year. And then next year, eLearning margin should continue to improve. Our goal, of course -- our next milestone is to move this from 25% to 30% on the eLearning side. So -- and we're hoping that by the second half -- so the first half of the year we take all the actions, and through the second half of the year we start seeing a result of those actions. So yes, margins will only continue to improve from here.

And sir, any guidance for the next year on the revenue front?

Not right now. I think the vision continues -- the bold vision continues to be on track to get to INR 1,500 crores by the end of 2027. And then, of course, once we've closed Q4 out -- I mean, possibly, we can have this conversation when we're talking about our Q1 results of FY '24.

[Operator Instructions] We have a follow-up question from the line of Keshav Garg from Counter Cyclical PMS.

Sir, just wanted to understand that what are you hearing from our major customers, sir, on the demand side and as well as on the pricing side?

I heard the demand side. What was the second part?

Current pricing. Is there any pricing pressure? Are the customers asking us to reduce our prices?

No. So on the demand side, not yet. But having said that, we have stepped up our interactions. So wherever we were doing quarterly meetings, we're now doing monthly meetings. We're trying to get our account managers to meet with our customers physically in person as much as possible. So we've definitely stepped up the activity in terms of being in front of our customers. So far, nothing yet on the demand side. On the pricing side also not as much. There is a lot of conversation around improving speed to market on the content side. In a response to a different question, I was talking about how there's applications of machine learning and AI that enables some of that. But there's a lot of conversation around how do we go quicker to market. But there's so far not been too much conversation around demand side. On price, of course, that happens every year, where we -- at lower prices, we get more volume. But that's been par for the course. Nothing unusual which would happen in a recession where people would ask for price cuts without any exchange for -- without an upside. So there, of course, price cuts do happen where there's potential volume upside. Those have happened already. So yes, we are, of course, studying the macro and making sure that we are in front of our customers as much as possible. And also now that in-person meetings are possible, we are trying to do as many physical meetings as possible, attending a lot of events as well. Nothing yet. And definitely if and when we do hear something, we'll report that on the earnings call.

We have our next question from the line of Rahul Jain from Dolat Capital.

Hope I'm audible.

Yes Rahul, we can hear you.

Hello?

Yes, go ahead, Rahul.

Yes, yes, yes. First of all -- congrats on the [ numbers ], first. Of course, you told about your prospects and all in terms of what kind of growth you see and all. But just to get a little deeper in terms of what aspect of the markets are helping you achieving this kind of growth, especially on the Content side, and also what is lifting up the traction on the Platform side of the business?

Sure. So when we look at our growth strategy, we don't think of our business as Content, eLearning and Platform. That was one big change we made a couple of years ago and possibly that mindset change has helped. We've started to look at our customers in market segments instead of business segments. So while we report our results as Content, eLearning and Platform, when we go to the market and we fight for market share, we look at the market as Scholarly, Education and corporate. And there's different approaches for each of these markets. For the Scholarly market, we are following a very basic price volume approach, where we are undercutting the competition to get more revenue and to get more -- and also to build more volume. In addition to that, we are following a bundling approach. So between our various -- so we have a complete product ecosystem, a SaaS-based product ecosystem. So we're trying to cross-sell as much across that ecosystem. And finally, we are also trying to cross-sell across our Content and Platform business for the Scholarly customer base. So the market view is enabling us to sell different things to our customers across MPS versus trying to sell individual products or services. So we're looking at like -- let's say, we go to a university press. We try to get more volume through the price volume approach, and then we'll try and cross-sell. So if there is a content customer, we'll try and sell them a platform. Or if there is a platform customer, we'll try and sell them content or an initial platform. So that's the approach for the Scholarly market, which is kind of helping us quite a bit. On the Education side, there's a couple of things that we're doing. With the current customers, we are following an approach where we are taking the onshore -- the U.S.-based capabilities around content development and design and combining that with our digital expertise that we acquired through our eLearning business. So taking our eLearning capabilities and our content capabilities and unlocking that synergy for our customer based -- on the Education side. In addition to that, we are focusing more on immersive learning, so really learning by doing. Those solutions tend to be high end, also tend to be more recurring in nature. As well as within the Education space, we are targeting not just the publishing community, but also educational institutions. So we're now directly working with community colleges, universities and continuing education institutions. So that's on the education side. And then on the corporate side, through the acquisition of EI Design, we've kind of inherited a marketing-led approach. There's a new proprietary capability that we've acquired from EI, where, basically, through their approach, we get a lot of awareness and interest into the company. And then we've always been good at converting that awareness and interest into business. So we're using -- we've kind of taken the EI approach that we acquired and spent -- I mean, we're spending more dollars in there to get even more leads and then converting that through our solid approach. In addition to that, we're expanding into newer geographies on the eLearning side. So we started doing business in India. We have new customers in Australia. So the rest of the world for the eLearning business has picked up, which is, again -- was something that we were not attacking before. But again, EI had a very strong customer base in the rest of the world, and we've kind of been building on top of that. Again, on the corporate side, we've also been leveraging on many industry partnerships. So we have partnerships with industry associations. We tend to be an award-winning vendor partner. We participate in all the award process. And also we have been very picky about the industries that we go after on the corporate side. We're trying to go after industries where there's sort of heavy spending on learning and development. So again, I think the big structural change that we've made is that instead of thinking of this as business lines, where we're trying to sell Content, Platform and eLearning to individual customers, we're now approaching it from a customer perspective from outside in, saying, that if you are a Scholarly customer, this is what -- this is your business problem and this is how we can solve it. And likewise, for education and corporate. And then within each of those markets, we are following different approaches that are accustomed to the market dynamics. So yes, it's been a very thoughtful exercise and it's been years in the making. Of course, we're seeing the results now.

Right. Just to add a little bit more here, if we could. If you could divide some of this incremental opportunity? Of course, the capability additions, new additions, those are fresh perspectives. But if you see from a client perspective, what is driving the traction? Is it simple market share win for us? Or is it even better budget on their part? Or some behavioral change in terms of how they are consuming some of this thing earlier versus a third party? Any such lever from a client perspective if you could have?

Again, different things for those 3 markets, right? So for our Scholarly customer, there's a desire to work with fewer partners, and we are one of the few partners that have both content and tech expertise. Normally, you go to a tech vendor for the platform and you go to a content vendor for the content expertise. Here, they're able to work with us across both things. It's like having 2 companies in one company or multiple companies in one company. And what it does for them is -- they're trying to push more content out there, so it increases their speed to market. So that's why on the Scholarly side, I think it's -- yes, it's market share, but it's basically almost a new market that we've created. So there's a Content market, there's a Platform market, and there's a Content plus Platform market that almost only MPS is operating in this third market that combines both these markets. So that's the play on the Scholarly side. On the Education side, again, on digital, historically, they've had different vendors for content and different for digital, and very few vendors that can provide both. So there's an element, again, similarly to Scholarly, that we've created a third pie. But another element to Education is that we've entered in an entire new market. So previously, our entire revenue from Education used to come from the major educational publishers. Today, we are working with some of these new learning companies that are emerging globally. We are working with universities, we're working with colleges. So there is a market expansion that happened on the Education side for us. And then on the corporate side, the market is growing at 10%, 12% on its own. The pie is increasing. Of course, we're winning more market share in that expanding pie.

Mr. Jain, does that answer your question?

Yes, it does. Just last question, if I may, which is related to -- I think Rahul you spoke a couple of quarters back that there is more content that is now getting created post-COVID in terms of research. Is there any change to that view in terms of your observation? Is that traction continuing, slowing down as well as [indiscernible]?

Yes, it's definitely continuing. And in fact, I think the customers are also getting -- becoming more thoughtful in their approach. So for example, a lot of the recent conversations are about speed. How do we push more content faster? And that shows that this is not just something that they're flirting with, but they're committed to. So earlier, the conversations were more discovery. Now it's more about, "Okay, we know we want to do this. What's the engagement model? And what's the tech behind that engagement model that will make sure our vision actually kind of fructifies?" So absolutely, if anything, I think we've moved from discovery to now implementation.

[Operator Instructions] We have our next question from the line of [ Naveen Bothra ], an individual investor.

Yes. Congratulations for a good set of numbers. Sir, my question is regarding the growth guidance, which we are saying that by FY '27, we want to be an INR 1,500 crore revenue company. When we see our current revenues of around INR 500 crores, INR 520 crores range, in the next 4 years -- it entails a huge compounding growth for the next 4 years. When we see our current revenues, except eLearning, that EI Design -- the major growth in MPS is coming through the inorganic part, EI Design. So if you can throw some more light on this growth guidance, how we want to achieve organically as well as inorganically? If you can throw some more light on it, it will be helpful?

Sure, sure. I'll do that. And before I -- I want to correct a data point that you shared. The eLearning business has not just grown because of the acquisition of EI Design. If we take EI Design out, the stand-alone eLearning business grew at 27% in Q3. Just to make sure that we're all on the same page, the standalone eLearning business for MPS without EI Design grew at 27%, which is a pretty phenomenal feat organically. So definitely, the eLearning business is growing faster than the rest of the segments. So it's not just inorganic. It's a blend of organic and inorganic. And what we envision is, as we scale from INR 500 crores to INR 1,500 crores, about 60% of the incremental revenue will come inorganically and 40% will come organically. So we think -- we envision it's going to be 60/40 split in the favor of inorganic as we take it from INR 500 crores to INR 1,500 crores.

And the capital allocation for the 60% part as well as the return to shareholders and all these things, if you can throw some...

So currently -- yes. So in what I described -- I should mentioned that. Sorry about that. What I've described was -- the underlying assumption is that the profile of acquisitions will be in the $15 million to $30 million range in revenue and will be funded from internal accruals. So that's the current -- the assumption -- when I talk about INR 500 crores to INR 1,500 crores, that's the underlying assumption on the inorganic side. Now having said that, if suddenly we find this great opportunity which is greater than $30 million in revenue and checks all my boxes of it's a growing company, it's EPS-accretive, it strategically enhances our capability portfolio, et cetera, then we would look at even a combination of debt and equity financing. But that again, we will have to detail out when the right opportunity presents itself. So far, the numbers that I'm giving to you assume we will acquire businesses in the $15 million, $30 million range and funded from internal accrual.

[Operator Instructions] We have a question from the line of [ Mahesh BP ], an individual investor.

Will you look at inorganic growth in Content vertical given that it is a very high-margin business?

Yes. So we are actually looking at all verticals. But the thing that we -- on Content, we would do an acquisition if it does provide us something meaningful, something new that we don't have. So on the Content side, as Sukhwant was describing in his opening remarks, we're focused entirely on Education and Scholarly. So if there's anything out there that gets us into a third -- there's lots of content at very different types of fields. So if something gets us into an additional field or within Education and Scholarly if there's some new capability that we do not possess, absolutely. So it has to be -- from our perspective, like I described, it has to be a growing company. It has to be EPS accretive. We're not looking at rescuing sinking ships anymore. We want things to be accretive. And finally, it should add some strategic advantage where we go to the market and we say, "This was asked before, but now this is this plus this," and therefore, there's sort of a multiplier effect. But -- so absolutely looking at that as well, but it will have to further -- the boxes a Content acquisition would need to check would obviously be far more than an eLearning acquisition or a Platform acquisition.

Is new logos also a factor?

No, I think -- so yes, on the eLearning side and the Platform side, yes. But on the Content side, I think that's a lazy approach. So just -- if the acquisition, all it provides us is new logos, that's not very interesting for us because that we should ideally just be doing organically.

We have our next question from the line of [ Parth Chavda ], an individual investor.

First of all, congratulations on amazing sets of numbers. I've been following the company from last 2, 3 years. And you set the right expectations and delivered on it. So congratulations on that. So my one question is -- am I audible? Hello?

Yes, you are.

Sir, it is not clear, though. Can you use your handset, please?

Yes, let's see if I can. Yes. So my question is, as of now, we are on 3 line of business: Platform, Content and eLearning. So is there any plan to expand the line of business through organic or inorganically with...

Yes. So organically, we are -- we've kind of already expanded into one more line, which is Marketing Communication. So we -- like I was explaining on the previous call -- in a previous question on a different context, we operate this business where we build these large physical and virtual experience centers for many of the leading brands in India, including large corporates as well as PSUs. So that vertical is now emerging organically as a vertical called Marketing Communications. Currently, all of that revenue was sitting within eLearning. When it becomes material, we can potentially -- currently, it's not material enough for us to call it a fourth segment. If it does, we will look at that. And of course, if an opportunity on the acquisition side presents itself to accelerate that aspect, we will pursue that. But other than that -- so the -- so we're currently looking at Content, eLearning and Platform. And of course, the fourth one is Marketing Communications, which we organically already invested and created. But the focus really is on these 3 plus 1 segments that we have.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Rahul Arora for closing comments. Over to you, sir.

Thank you, everyone, for your excellent observations and thoughtful questions. To conclude my comments, I'm delighted with our continued progress in this new phase of building scale for MPS. Market-leading margins in the Content business, sustainable organic and inorganic growth in the eLearning business and untapped potential in the Platform business form a potent combination towards Vision 2027, which I have articulated previously. But I repeat that my vision for MPS in 2027 is to create a compelling learning company at a meaningful scale that would help the world learn smarter. We aspire to be the provider of choice in a market that powers experiential learning experiences with the latest technology and innovation. What you're seeing today is the result of the hard work and diligence and the ownership mindset of me and my team over the last 5 years, very similar to the bamboo plant when you are at it, at it and at it and suddenly you start to see the results. I think this is -- we are now at the bamboo moment for MPS where things are finally starting to fructify and grow. So thank you for all your support and patience over the years, and look forward to your continued support going forward as well.

Thank you. On behalf of MPS Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.