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Educomp Solutions Ltd.
Analyst meet takeaways
Quick Comment: We believe that despite ~30% growth
in new classrooms added, SmartClass revenues may
grow by just ~5-7% yoy in FY12e due to the absence of
one-time revenues recongnized in FY11e from the
transfer of old contracts to the new model in FY10. We
forecast overall revenue and net income growth of 10%
and 11% yoy respectively in FY12e. Educomp is trading
at 15x FY12e EPS, which is a 9% premium to the
broader market. Maintain UW
What's new: We attended Educomp’s analyst meeting.
The key takeaways are as follows:
SmartClass has penetration in ~5500 schools and
~50,000 classrooms in India: Management expects to
ramp up to ~300,000 classrooms over the next 5-6
years.
Expect prices to remain stable in SmartClass:
Management remains comfortable with current price
levels in SmartClass. It believes that price increases in
SmartClass is possible but higher prices could lead to
growth slower than the current potential. Management
remains confident of maintaining SmartClass margins at
~55-60% at the current price levels.
Renegotiation of hardware prices with schools
during the term of the contract is unlikely:
Educomp’s management indicated that it is unlikely to
book losses if schools renegotiate for lower hardware
prices during the term of the contract. Educomp has
contractual clauses under which it has the right to take
back the hardware and get the entire amount for the
term of the contract as penalty from the schools in the
event of any delinquency. So far, the delinquency rate
has been less than 1% of total SmartClass schools
IFRS adoption may not lead to consolidation of
Edusmart: Management indicated that it is in the
process of evaluation of impact of adoption of IFRS
accounting standards and is seeking independent third
party opinion. As of now, it believes that IFRS adoption
may not lead to consolidation of Edusmart with the
company and also K-12 school trusts with Edu Infra
Other Key Highlights
1) Educomp has a long-term agreement to source
content for the SmartClass business partly from third
party on an exclusive basis (www.Designmate.com
and www.eureka.in).
2) Management showcased “SmartClass 3D” content
during the analyst meet. It plans to launch it as an
independent offering and schools will have to pay
separately for this product.
3) Currently SmartClass has ~393 sales people and
management expects to ramp it up to ~450 by FY12:
4) Expect the higher education and online, supplemental
businesses to remain in investment mode for another
18-24 months.
Company Description
Incorporated in 1994, Educomp provides education technology
solutions for the K12 segment. Educomp creates and delivers
digital content to schools. It also provides training to
professionals, and its retail business includes online tutoring
portals. It has also ventured into running preschools and K-12
schools at various locations in India. Apart from India, Educomp
is present in similar business segments in Singapore, the US,
and Canada.
India Education Services
Industry View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Educomp Solutions Ltd.
Analyst meet takeaways
Quick Comment: We believe that despite ~30% growth
in new classrooms added, SmartClass revenues may
grow by just ~5-7% yoy in FY12e due to the absence of
one-time revenues recongnized in FY11e from the
transfer of old contracts to the new model in FY10. We
forecast overall revenue and net income growth of 10%
and 11% yoy respectively in FY12e. Educomp is trading
at 15x FY12e EPS, which is a 9% premium to the
broader market. Maintain UW
What's new: We attended Educomp’s analyst meeting.
The key takeaways are as follows:
SmartClass has penetration in ~5500 schools and
~50,000 classrooms in India: Management expects to
ramp up to ~300,000 classrooms over the next 5-6
years.
Expect prices to remain stable in SmartClass:
Management remains comfortable with current price
levels in SmartClass. It believes that price increases in
SmartClass is possible but higher prices could lead to
growth slower than the current potential. Management
remains confident of maintaining SmartClass margins at
~55-60% at the current price levels.
Renegotiation of hardware prices with schools
during the term of the contract is unlikely:
Educomp’s management indicated that it is unlikely to
book losses if schools renegotiate for lower hardware
prices during the term of the contract. Educomp has
contractual clauses under which it has the right to take
back the hardware and get the entire amount for the
term of the contract as penalty from the schools in the
event of any delinquency. So far, the delinquency rate
has been less than 1% of total SmartClass schools
IFRS adoption may not lead to consolidation of
Edusmart: Management indicated that it is in the
process of evaluation of impact of adoption of IFRS
accounting standards and is seeking independent third
party opinion. As of now, it believes that IFRS adoption
may not lead to consolidation of Edusmart with the
company and also K-12 school trusts with Edu Infra
Other Key Highlights
1) Educomp has a long-term agreement to source
content for the SmartClass business partly from third
party on an exclusive basis (www.Designmate.com
and www.eureka.in).
2) Management showcased “SmartClass 3D” content
during the analyst meet. It plans to launch it as an
independent offering and schools will have to pay
separately for this product.
3) Currently SmartClass has ~393 sales people and
management expects to ramp it up to ~450 by FY12:
4) Expect the higher education and online, supplemental
businesses to remain in investment mode for another
18-24 months.
Company Description
Incorporated in 1994, Educomp provides education technology
solutions for the K12 segment. Educomp creates and delivers
digital content to schools. It also provides training to
professionals, and its retail business includes online tutoring
portals. It has also ventured into running preschools and K-12
schools at various locations in India. Apart from India, Educomp
is present in similar business segments in Singapore, the US,
and Canada.
India Education Services
Industry View: Attractive
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