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Everonn Education Ltd------------------------------------------------------Maintain OUTPERFORM
Strong margin improvement; encouraging developments in new initiatives
● Educomp reported strong Dec-10 quarter results with revenues
4% below, EBITDA 11% above and profits 15% above estimates.
● Margin expansion of 300 bps QoQ versus our expectation of a
300 bp decline was the key highlight of the quarter. This came as
a result of an increasing proportion of higher margin businesses,
as well as improvement in ViTELS margins.
● School additions in ViTELS were strong (140), though college
additions were muted (63). Importantly, the classroom penetration
within schools continues to rise quickly. We believe this will remain
a key margin driver for the business over the near term.
● Everonn’s growth trajectory remains solid (40%+ 3-year CAGR),
with increasing comfort on margin improvement. In this context,
the shares look attractive at 3.6x EV/EBITDA and 8x P/E (FY12).
We thus retain our OUTPERFORM rating on the stock.
● We make adjustments to our model to account for recent equity
issuance. As a result, our EPS goes down 7% over FY11-13, and
our target price falls to Rs760
Strong growth continues
Everonn reported strong Dec-10 quarter results with revenue up 44%
YoY (4% below estimates). Margins expanded a sharp 300 bps QoQ
to 38% (versus our expectation of a 300 bp decline). Thus, EBITDA
grew 57% YoY and came in 11% ahead of estimates. Margin surprise
flowed down to the bottom line with profits beating estimates by 15%.
A look at the segment details shows that growth was driven by the
ViTELS segment, while ICT remained muted. This shift in mix (ViTELS
is the higher margin segment) along with margin increase in ViTELS
led to overall EBITDA margin expansion.
Classroom penetration continues to rise
Growth in schools in the iSchool segment was strong, with 140
schools added (the quarter-end number was up 54% YoY). Additions
to the college segment were lacklustre with only 63 colleges added
(the QE number rose 34%). We believe this weakness in college
additions is temporary and expect a return to growth from the current
quarter.
Importantly, classroom penetration in iSchools continues rising. The
QE average classroom/school ratio rose to 2.9 from 2.5, implying a
6.3x incremental ratio. We believe this is a key margin driver for the
business. We build a 6x incremental classroom/school ration in our
models for FY3/12 – and there could be a nice upside to our numbers.
Management indicated that the new business initiatives could break
even by next year. Importantly, two schools under the ‘Educating
India’ programme are set to open for the 2011 academic session.
Retaining our Outperform
Everonn continues to deliver strong growth with encouraging margin
trends. We believe the ViTELS business will be a strong growth and
margin driver over the near term, and expect EBITDA and EPS
CAGRs of 40% plus over three years. In this context, we find the stock
cheap at 3.6x EV/EBITDA and 8x P/E (FY3/12). We retain our
OUTPERFORM rating. Our EPS falls 7% for FY11-13, as we build the
dilution impact of recent equity issuance, while our target price (DCF)
falls to Rs760.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Everonn Education Ltd------------------------------------------------------Maintain OUTPERFORM
Strong margin improvement; encouraging developments in new initiatives
● Educomp reported strong Dec-10 quarter results with revenues
4% below, EBITDA 11% above and profits 15% above estimates.
● Margin expansion of 300 bps QoQ versus our expectation of a
300 bp decline was the key highlight of the quarter. This came as
a result of an increasing proportion of higher margin businesses,
as well as improvement in ViTELS margins.
● School additions in ViTELS were strong (140), though college
additions were muted (63). Importantly, the classroom penetration
within schools continues to rise quickly. We believe this will remain
a key margin driver for the business over the near term.
● Everonn’s growth trajectory remains solid (40%+ 3-year CAGR),
with increasing comfort on margin improvement. In this context,
the shares look attractive at 3.6x EV/EBITDA and 8x P/E (FY12).
We thus retain our OUTPERFORM rating on the stock.
● We make adjustments to our model to account for recent equity
issuance. As a result, our EPS goes down 7% over FY11-13, and
our target price falls to Rs760
Strong growth continues
Everonn reported strong Dec-10 quarter results with revenue up 44%
YoY (4% below estimates). Margins expanded a sharp 300 bps QoQ
to 38% (versus our expectation of a 300 bp decline). Thus, EBITDA
grew 57% YoY and came in 11% ahead of estimates. Margin surprise
flowed down to the bottom line with profits beating estimates by 15%.
A look at the segment details shows that growth was driven by the
ViTELS segment, while ICT remained muted. This shift in mix (ViTELS
is the higher margin segment) along with margin increase in ViTELS
led to overall EBITDA margin expansion.
Classroom penetration continues to rise
Growth in schools in the iSchool segment was strong, with 140
schools added (the quarter-end number was up 54% YoY). Additions
to the college segment were lacklustre with only 63 colleges added
(the QE number rose 34%). We believe this weakness in college
additions is temporary and expect a return to growth from the current
quarter.
Importantly, classroom penetration in iSchools continues rising. The
QE average classroom/school ratio rose to 2.9 from 2.5, implying a
6.3x incremental ratio. We believe this is a key margin driver for the
business. We build a 6x incremental classroom/school ration in our
models for FY3/12 – and there could be a nice upside to our numbers.
Management indicated that the new business initiatives could break
even by next year. Importantly, two schools under the ‘Educating
India’ programme are set to open for the 2011 academic session.
Retaining our Outperform
Everonn continues to deliver strong growth with encouraging margin
trends. We believe the ViTELS business will be a strong growth and
margin driver over the near term, and expect EBITDA and EPS
CAGRs of 40% plus over three years. In this context, we find the stock
cheap at 3.6x EV/EBITDA and 8x P/E (FY3/12). We retain our
OUTPERFORM rating. Our EPS falls 7% for FY11-13, as we build the
dilution impact of recent equity issuance, while our target price (DCF)
falls to Rs760.
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