MPSLTD - MPS Limited Share Price

In the earnings call for Q1 FY'26, management of MPS Limited provided a cautious yet optimistic outlook, emphasizing that despite a muted revenue growth of 3.9%, the company is poised for a remarkable year ahead. EBITDA grew significantly by 22.51%, reflecting better operational efficiency and margin management.

Key forward-looking points highlighted by management include:

1. Headcount Increase: Total headcount rose from 3,007 to 3,263, indicating a readiness for scaling operations.

2. Geographical Growth: North America rebounded, contributing 51% to total revenue, up from 48% in the previous quarter.

3. Education Business Growth: The Education Solutions segment experienced substantial growth, with revenue up 56.64%, entirely driven by organic strategies.

4. Research Solutions Segment: While overall revenue declined slightly due to down-sizing at AJE (now at a USD 12 million run rate with a 23% EBITDA margin), EBITDA growth of nearly 10% in other areas was noted.

5. Corporate Learning Framework: A strategic plan is in place to consolidate eLearning operations, enhancing governance and operational efficiencies.

6. Acquisition Pipeline: Management has indicated a robust pipeline for potential acquisitions in FY'26, expecting to close multiple deals.

7. Targeted Growth Expectations: Although Q1's results were softer, management anticipates resuming strong growth with expectations of 10%-15% organic growth excluding AJE, and a return to normal growth rates in FY'27.

8. Amalgamation Strategy: The approved merger of ADI BPO Services with MPS Limited aims to simplify the shareholding structure and foster operational agility.

Executives expressed confidence in sustaining margins and revenue growth while navigating the evolving economic landscape.

Here are the major questions and their corresponding answers from the Q&A section of the earnings transcript:

Question 1: "I wanted to understand the overall growth in the last few years...can you just throw some light here?"

Answer: "We've intentionally scaled back our focus on AJE, leading to a year-on-year decline of about INR20 crores. Without AJE, our Research Solutions would have seen organic growth rates of around 10%, and overall growth would have been approximately 15%. AJE's profitability is improving; its EBITDA margins stand at 23% currently, and we expect them to move above 30% as we progress through FY'26."

Question 2: "On a yearly basis, the impact would be around INR80 crores?"

Answer: "Correct. The projected run rate for AJE in FY'26 is USD12 million. My earlier comments about INR20 crores pertained to Q1 FY'26 versus Q1 FY'25."

Question 3: "What is the rationale for the margins part? Was this planned or client-related?"

Answer: "Margins have always been a priority for us. We aim for high margins to support organic growth of 10%-15%. Our discipline in capital allocation has led us to exit low-margin businesses. We structured AJE to cut costs and improve revenue despite temporary declines."

Question 4: "What will be the revenue of AJE going forward?"

Answer: "AJE's revenue was USD18 million last year, now down to USD12 million. We expect that revenue trajectory to stabilize soon as our restructuring and improvement efforts take effect."

Question 5: "When can we expect to see growth in AJE?"

Answer: "We expect visible results in FY'27, given that we're entering partnerships, enhancing product offerings, and expanding beyond the Chinese market. This year, we forecast USD12 million for AJE while future partnerships will boost growth."

Question 6: "Is there any impact from the recent IPO filings of customers?"

Answer: "Both of our large clients going public had a positive impact on our business, pushing for margin improvements and product development, which increased demand for our services and strengthened our relationship."

Question 7: "About the rise in other expenses, which line item has impacted?"

Answer: "Our other expenses increased by INR3.76 crores, mainly due to outsourcing costs and hosting expenses. This aligns with the revenue growth in our Education business while we managed costs in other areas."

Question 8: "How does AI influence client budgets?"

Answer: "Clients are utilizing AI primarily for operational efficiency, leading to faster turnaround times. We are seeing substantial demand for our services, and AI is also a component of new revenue sources. Clients view AI as both a cost-saving tool and a way to add value."

Question 9: "Is the decline in Corporate Learning volume of 32% intentional?"

Answer: "Yes, we're undergoing a turnaround in Corporate Learning. While we might be a quarter behind our initial expectations, we are focused on restructuring this segment to enhance effectiveness. Margins are expected to improve significantly."

Question 10: "What's the status of your acquisition pipeline?"

Answer: "We have a robust pipeline with three advanced deals expected to close this fiscal year. We focus on education technology firms with stable revenues and margins, and we plan to support management in majority stakes while relying on cash accruals and potential debt."

These answers encapsulate the company's current strategies and expectations, particularly regarding growth, restructuring, and future acquisitions.