Visit http://indiaer.blogspot.com/ for complete details Stake hike in subsidiary led to increase in goodwill and reserves
n Educomp Solutions (Educomp) held 69.4% stake in Educomp Infrastructure and School Management (EISML) for INR 500 mn. During FY10, it invested additional INR 4.9 bn in EISML towards incremental 8.8%, hiking its stake to 78.2%. The balance 22.8% is owned by the promoter and third party.
n EISML’s valuation, which hosts K12 business, has been computed by independent valuers. Its imputed valuation, based on consideration paid by Educomp towards incremental stake, is INR 16.4 bn.
n Cumulatively, Educomp has infused INR 5.40 bn in EISML towards equity till FY10. EISML’s net worth (ex-retained earnings) stands at INR 5.43 bn.
n Goodwill has jumped from INR 1.2 bn to INR 6.0 bn (36.6% of net worth), out of which INR 4.6 bn is towards the EISML transaction. Goodwill written off through reserves was INR 0.8 bn.
n Increase in security premium is INR 4.6 bn higher than premium received on equity issuances by Educomp, which is on account of increase in EISML’s goodwill.
n Educomp has given corporate guarantee of INR 6.3 bn against loan extended to EISML. Loans outstanding as at FY10 end stood at INR 3.6 bn.
BOOT to outright sale advances revenue/cash flow…
n During the year, Educomp changed the smart class business model from BOOT to outright sale and transferred all existing BOOT projects to EduSmart Services. This will advance revenue booking as well as cash flows through securitisation which is backed by corporate guarantee from Educomp.
n Corporate guarantee given to banks for secured loans obtained by third parties (primarily Edusmart) stood at INR 6.6 bn.
n The company’s revenue jumped 63.2% from INR 6.4 bn in FY09 to INR 10.4 bn in FY10. However, EBIDTA margins dipped from 48.1% in FY09 to 46.9% in FY10.
…. IFRS may lead to Edusmart’s consolidation
n Post migration to IFRS, in our view, considering the nature of transaction between Educomp and EduSmart, the latter is likely to be consolidated with the former, leading to elimination of revenues, profitability, and other inter-company transactions.
n This will also lead to consolidation of outstanding loans and receivables in Edusmart’s balance sheet.
Increasing debtor stretches cash conversion cycle; debtors > six months surge
n Debtors increased ~100% from INR 2.8 bn in FY09 to INR 5.6 bn in FY10, which, as a percentage of sales, stood at 53.2% (FY09:43.4%). However, debtors exceeding six months jumped from INR 0.8 bn in FY09 to INR 1.3 bn in FY10.
n The increase in debtors is primarily on account of amount to be received from Edusmart pending securitisation.
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