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Educomp Solutions Ltd.
Analyst meet takeaways
„Focus on asset light model
Educomp hosted its first analyst meet since listing. Management highlighted that
most key businesses will in asset light mode over next 2-3 years. Smart Class
requires no capex currently and capital intensity in K-12 too would reduce over
next 2-3 years given focus on expanding dry management. Other key takeaways :
„ Management highlighted that market opportunity in Smart Class remains
large given its plan to target over 35000 schools in phase one. Given
presence in 5500 schools currently and 98% market share, it believes a 30%
yoy growth is achievable. Retains guidance of adding 25000-30000 class
rooms in FY11 and over 300000 class rooms over next 5-6 years.
„ Secures leadership position in content through launch of 3D content. It
intends to price 3D offering at a premium to other Smart Class content.
Believe there is scope for margin expansion in Smart Class given economies
of scale and increase in sales productivity.
„ Management reiterated that all new deals would be at 20% corporate
guarantee levels. Recently received funding approval at 15% corporate
guarantee for lower fund amount.
„ K-12: Strong focus on execution. Has 50 operational schools and visibility for
another 30 schools. Has set up teacher training academy to cater to training
and recruitment demand for Educomp K-12 schools. Likely to sign up JV with
another strong brand.
„ We retain Buy rating with PO of Rs760. Addition of second outsourcing
vendor, further reduction in debtors & recent success in securing limited
recourse funding should help re rate the stock. Forecast EPS CAGR of 27%
(FY11-13e).
Price objective basis & risk
Educomp Solu (EUSOF)
Our PO of Rs760 is based on a 2-year PEG of 0.8x and implies a target multiple
of 18x FY12e. Our PO reflects potential de-rating given that the Smart Class
revenue stream is now likely to be volatile. We retain our Buy given the strong
27% CAGR in earnings FY11-13E, and the turnaround in FCF on shift to new
business model. Besides Educomp remains the only listed education service
provider with offerings in K-12 and is a emerging player in vocational/
supplemental education.
Risks to our valuation are higher losses in new initiatives, higher-than-anticipated
cut in Smart Class pricing, acquisition-related risks and managing multiple growth
initiatives.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Educomp Solutions Ltd.
Analyst meet takeaways
„Focus on asset light model
Educomp hosted its first analyst meet since listing. Management highlighted that
most key businesses will in asset light mode over next 2-3 years. Smart Class
requires no capex currently and capital intensity in K-12 too would reduce over
next 2-3 years given focus on expanding dry management. Other key takeaways :
„ Management highlighted that market opportunity in Smart Class remains
large given its plan to target over 35000 schools in phase one. Given
presence in 5500 schools currently and 98% market share, it believes a 30%
yoy growth is achievable. Retains guidance of adding 25000-30000 class
rooms in FY11 and over 300000 class rooms over next 5-6 years.
„ Secures leadership position in content through launch of 3D content. It
intends to price 3D offering at a premium to other Smart Class content.
Believe there is scope for margin expansion in Smart Class given economies
of scale and increase in sales productivity.
„ Management reiterated that all new deals would be at 20% corporate
guarantee levels. Recently received funding approval at 15% corporate
guarantee for lower fund amount.
„ K-12: Strong focus on execution. Has 50 operational schools and visibility for
another 30 schools. Has set up teacher training academy to cater to training
and recruitment demand for Educomp K-12 schools. Likely to sign up JV with
another strong brand.
„ We retain Buy rating with PO of Rs760. Addition of second outsourcing
vendor, further reduction in debtors & recent success in securing limited
recourse funding should help re rate the stock. Forecast EPS CAGR of 27%
(FY11-13e).
Price objective basis & risk
Educomp Solu (EUSOF)
Our PO of Rs760 is based on a 2-year PEG of 0.8x and implies a target multiple
of 18x FY12e. Our PO reflects potential de-rating given that the Smart Class
revenue stream is now likely to be volatile. We retain our Buy given the strong
27% CAGR in earnings FY11-13E, and the turnaround in FCF on shift to new
business model. Besides Educomp remains the only listed education service
provider with offerings in K-12 and is a emerging player in vocational/
supplemental education.
Risks to our valuation are higher losses in new initiatives, higher-than-anticipated
cut in Smart Class pricing, acquisition-related risks and managing multiple growth
initiatives.
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