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● We recently met Everonn management for a business update.
● In iSchool segment, management plans to invest into sales force
expansion and branding starting this year. We believe these are
necessary investments in order to bridge gap with competition, but
could lead to some margin pressure in the near term.
● Management is bullish on the college segment (margin leverage
expected) and the retail segment (new revenue streams driving
growth). However, the bulk of growth in the coming years is
expected to come from new businesses, which are expected to
grow to half of the consolidated revenues in five years. Among
these, the skill development and school management show the
highest potential and greatest near term visibility.
● Our EPS estimates in the near term go down 8-9% and target
price goes down 5% to Rs720 as we build in investments into new
businesses. At 9.7x FY12 P/E (34% three-year EPS CGAR) and
5.6x EV/EBITDA, we find the stock attractive and retain
OUTPERFORM
Focus on growing market share in iSchool segment
It has been two years since Everonn launched the iSchool product,
and the company has sold over 4,350 units (classrooms) to over 1455
schools during this time.
While this is a reasonable achievement for a company which prior to
this had no presence in the school segment, the larger competitor
Educomp has clearly strengthened its lead in the market and
established strong market dominance: Educomp sold 27,154 units in
FY3/11 versus only 2,331 by Everonn. Educomp’s guidance for
FY3/12 is for 40,000-45,000 units (45-65% yoy). In comparison,
Everonn is targeting 50% YoY growth in this business. In addition to a
clear dominance in terms of customer mindshare, we believe
Educomp’s scale in Smartclass is also helping the company bring
about product innovations such as the recently announced Digital
Teaching System (please read, Educomp Solutions: New smartclass
innovations should help maintain leadership, published on 17 May).
In our discussion, Everonn management acknowledged this issue and
indicated that in FY12 they will invest into: (1) expanding sales force
(iSchool sales team has remained at ~100 people for two years, while
Educomp’s team has grown to 4x that of Everonn); and (2) better
branding. On both these parameters, company hopes to use the
Edupreneur model to drive local sales efforts. We believe these are
the key differentiators in the market place for this business and are
pleased to see management focus on these. However, these could
lead to some margin pressures in the near term.
Bullish on rest of ViTELS
Management expects strong growth in the college segment to
continue, which could drive margin improvements on a large fixed cost
base (studios, VSAT bandwidth and low utilisation of current college
infrastructure).
In addition, the retail segment is becoming increasingly important in
VITELS (more than 33% of ViTELS revenues in FY3/11). In this
business, management is bullish on growth in the following. (1) The
testing business: While the CAT entrance exam was a small
opportunity, it has become a good success story which management
hopes to showcase and win other testing contracts. (2) Admission
counseling to students looking to apply to foreign universities:
Management could start reporting this separately once they attain
reasonable scale.
New revenue streams will generate half of revenues by five
years
Everonn is investing into a number of new businesses, and
management targets the new revenue streams (excluding ViTELS,
ICT, Edures and Toppers) to contribute over 50% of the company’s
revenues in five years. Two of the new businesses where action has
already started are skill development and school management.
The recently signed JV with National Skills Development Corp.
(NSDC) has a potential of reaching annual revenue of Rs10 bn, feels
management, with negligible equity investment from Everonn.
Preparation is already underway in terms of developing content and
infrastructure for the business, and management expects meaningful
revenue contribution from FY3/13.
In the school segment, company has ten schools ready for the 2011-
12 academic session (with Everonn holding only 10% of the assets).
Agreements with partners have been finalised for 40 schools for the
next academic session (out of a targeted 50). Revenue contribution
(from both streams: 6% project cost and 15% revenue share) could
start becoming meaningful only from FY3/13.
In FY3/11, around Rs550 mn of content development cost for new
businesses was capitalised, while the expected number for FY3/12 is
~Rs200 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We recently met Everonn management for a business update.
● In iSchool segment, management plans to invest into sales force
expansion and branding starting this year. We believe these are
necessary investments in order to bridge gap with competition, but
could lead to some margin pressure in the near term.
● Management is bullish on the college segment (margin leverage
expected) and the retail segment (new revenue streams driving
growth). However, the bulk of growth in the coming years is
expected to come from new businesses, which are expected to
grow to half of the consolidated revenues in five years. Among
these, the skill development and school management show the
highest potential and greatest near term visibility.
● Our EPS estimates in the near term go down 8-9% and target
price goes down 5% to Rs720 as we build in investments into new
businesses. At 9.7x FY12 P/E (34% three-year EPS CGAR) and
5.6x EV/EBITDA, we find the stock attractive and retain
OUTPERFORM
Focus on growing market share in iSchool segment
It has been two years since Everonn launched the iSchool product,
and the company has sold over 4,350 units (classrooms) to over 1455
schools during this time.
While this is a reasonable achievement for a company which prior to
this had no presence in the school segment, the larger competitor
Educomp has clearly strengthened its lead in the market and
established strong market dominance: Educomp sold 27,154 units in
FY3/11 versus only 2,331 by Everonn. Educomp’s guidance for
FY3/12 is for 40,000-45,000 units (45-65% yoy). In comparison,
Everonn is targeting 50% YoY growth in this business. In addition to a
clear dominance in terms of customer mindshare, we believe
Educomp’s scale in Smartclass is also helping the company bring
about product innovations such as the recently announced Digital
Teaching System (please read, Educomp Solutions: New smartclass
innovations should help maintain leadership, published on 17 May).
In our discussion, Everonn management acknowledged this issue and
indicated that in FY12 they will invest into: (1) expanding sales force
(iSchool sales team has remained at ~100 people for two years, while
Educomp’s team has grown to 4x that of Everonn); and (2) better
branding. On both these parameters, company hopes to use the
Edupreneur model to drive local sales efforts. We believe these are
the key differentiators in the market place for this business and are
pleased to see management focus on these. However, these could
lead to some margin pressures in the near term.
Bullish on rest of ViTELS
Management expects strong growth in the college segment to
continue, which could drive margin improvements on a large fixed cost
base (studios, VSAT bandwidth and low utilisation of current college
infrastructure).
In addition, the retail segment is becoming increasingly important in
VITELS (more than 33% of ViTELS revenues in FY3/11). In this
business, management is bullish on growth in the following. (1) The
testing business: While the CAT entrance exam was a small
opportunity, it has become a good success story which management
hopes to showcase and win other testing contracts. (2) Admission
counseling to students looking to apply to foreign universities:
Management could start reporting this separately once they attain
reasonable scale.
New revenue streams will generate half of revenues by five
years
Everonn is investing into a number of new businesses, and
management targets the new revenue streams (excluding ViTELS,
ICT, Edures and Toppers) to contribute over 50% of the company’s
revenues in five years. Two of the new businesses where action has
already started are skill development and school management.
The recently signed JV with National Skills Development Corp.
(NSDC) has a potential of reaching annual revenue of Rs10 bn, feels
management, with negligible equity investment from Everonn.
Preparation is already underway in terms of developing content and
infrastructure for the business, and management expects meaningful
revenue contribution from FY3/13.
In the school segment, company has ten schools ready for the 2011-
12 academic session (with Everonn holding only 10% of the assets).
Agreements with partners have been finalised for 40 schools for the
next academic session (out of a targeted 50). Revenue contribution
(from both streams: 6% project cost and 15% revenue share) could
start becoming meaningful only from FY3/13.
In FY3/11, around Rs550 mn of content development cost for new
businesses was capitalised, while the expected number for FY3/12 is
~Rs200 mn.
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