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Educomp’s Q2FY12 PAT of INR128mn (including MTM forex loss of
INR374mn) was significantly below expectation, on back of higher losses
in online and higher learning segments. Though SmartClass performed
well during the quarter, management’s FY12 guidance is aggressive, in
our view. We are 8‐13% below consensus on our FY12‐13 EPS estimates
and expect the earnings downgrade cycle to continue. While a dip in
capex in Q2FY12 is a key positive, sustaining it for a few more quarters is
important for any re‐rating of the stock. We maintain ’HOLD’ with a
target price of INR200/share.
SmartClass performs well, but most other segments disappoint
Educomp continued its good show in the SmartClass business with 6,818 classroom
additions (up 28% YoY) in Q2FY12. Management has maintained its FY12 guidance of
~ 40,000‐45,000 classroom additions (12,000 in H1FY12), which we believe is
aggressive. We have built in 34,000 additions in FY12, implying 45% YoY growth in
H2FY12. The INR38mn EBIDTA loss in its subsidiary Learning.com (INR88mn profit in
Q2FY11) was a negative surprise. Management indicated this was due to legislative
changes in key market, Texas (US). We believe these losses could continue for a few
more quarters. Higher learning also reported lower sales and higher losses.
Lower capex guidance for H2FY12
After incurring heavy capex in the past many quarters (and significantly higher than
Street expectations), it dipped during Q2FY12, as guided by management. No capex
was incurred in higher learning versus INR1,050mn in Q1FY12. Further, K‐12 capex was
INR480mn versus INR1,150mn in Q1FY12. Management has guided for even lower
capex in H2FY12, which is a positive.
Outlook and valuations: Concerns persist; maintain ‘HOLD’
At CMP of INR174, the stock is trading at lower P/E of 5.9x and 4.3x FY12E and FY13E
earnings, respectively, which looks attractive. Potential stake sale in subsidiaries or
some of the K‐12 schools could be a trigger for the stock. Our target price of INR200 is
based on 5x FY13 P/E. We maintain ‘HOLD’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Educomp’s Q2FY12 PAT of INR128mn (including MTM forex loss of
INR374mn) was significantly below expectation, on back of higher losses
in online and higher learning segments. Though SmartClass performed
well during the quarter, management’s FY12 guidance is aggressive, in
our view. We are 8‐13% below consensus on our FY12‐13 EPS estimates
and expect the earnings downgrade cycle to continue. While a dip in
capex in Q2FY12 is a key positive, sustaining it for a few more quarters is
important for any re‐rating of the stock. We maintain ’HOLD’ with a
target price of INR200/share.
SmartClass performs well, but most other segments disappoint
Educomp continued its good show in the SmartClass business with 6,818 classroom
additions (up 28% YoY) in Q2FY12. Management has maintained its FY12 guidance of
~ 40,000‐45,000 classroom additions (12,000 in H1FY12), which we believe is
aggressive. We have built in 34,000 additions in FY12, implying 45% YoY growth in
H2FY12. The INR38mn EBIDTA loss in its subsidiary Learning.com (INR88mn profit in
Q2FY11) was a negative surprise. Management indicated this was due to legislative
changes in key market, Texas (US). We believe these losses could continue for a few
more quarters. Higher learning also reported lower sales and higher losses.
Lower capex guidance for H2FY12
After incurring heavy capex in the past many quarters (and significantly higher than
Street expectations), it dipped during Q2FY12, as guided by management. No capex
was incurred in higher learning versus INR1,050mn in Q1FY12. Further, K‐12 capex was
INR480mn versus INR1,150mn in Q1FY12. Management has guided for even lower
capex in H2FY12, which is a positive.
Outlook and valuations: Concerns persist; maintain ‘HOLD’
At CMP of INR174, the stock is trading at lower P/E of 5.9x and 4.3x FY12E and FY13E
earnings, respectively, which looks attractive. Potential stake sale in subsidiaries or
some of the K‐12 schools could be a trigger for the stock. Our target price of INR200 is
based on 5x FY13 P/E. We maintain ‘HOLD’.
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