Query Corner: HDFC Bank, Tata communications, UFLEX, GVK, Everonn, Claris, Ambuja Cements :: Business Line

52-WEEK FLOP: EVERONN EDUCATION :: Business Line

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Sizzling Stocks: Financial Technologies ; Everonn Education :Business Line,

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Financial Technologies was in the news last week as the Multi Commodity Exchange in which the company holds 31 per cent stake was granted permission to come out with a public issue. The stock has been in a downtrend since last March when the stock recorded the peak of Rs 1,670. This downtrend accelerated when it breached the key medium-term support at Rs 920 last December.

The stock is currently attempting to stabilise at the next support zone between Rs 650 and Rs 700. The going will get very difficult once this support is shattered. In the days ahead, the stock will face resistance around Rs 900. Short-term view will turn positive only on close above this level. Subsequent targets are Rs 1,060 and Rs 1,300.

Everonn Education (Rs 333)

Everonn Education that was pummelled in the first week of September as it crashed from Rs 439 to Rs 227, witnessed a revival in fortunes last week. The stock managed to close a whopping 30 per cent higher. The gaping gap formed on September 5 however still remains open and the ceiling of this gap at Rs 351 is likely to be the first resistance for the stock in the days ahead. Strong move beyond will take the stock to Rs 400 or Rs 440.

That said failure to move beyond Rs 351 will denote that the rally will be ephemeral and the stock could slide lower to Rs 267 or Rs 248 in the upcoming sessions

Everonn Education - Adverse corporate event could have overhang on stock:: Credit Suisse,

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● The founder CEO/MD of Everonn, Mr P Kishore, was recently
arrested by Indian investigating agencies on charges of bribery
and tax evasion. The Chairman of Board has resigned and a new
CEO has been appointed from within the top management (a cofounder
of the company).
● While immediate business continuity may not be a concern, we
see risks to business prospects over the longer term.
● At the highest risk is the government business (18-20% of sales
currently). Further, the promise of the large NSDC contract (a JV
with a government entity, not in our estimates) may not fructify.
However, we see minimal risks to the non-government businesses.
● We reduce our revenue and margin estimates, leading to EPS
cuts of 8-17% over the next three years. We believe that the stock
multiples could derate because of the event. Our DCF-based
target price falls to Rs340.
● While the stock has corrected sharply (to below book value), we
see limited catalysts near term. We downgrade to NEUTRAL.
Recent negative events
The founding CEO/MD of Everonn, Mr P Kishore, was recently
arrested by the Central Bureau of Investigation (CBI) on charges of
bribery and tax evasion. CBI has alleged that Mr Kishore paid a bribe
of Rs5 mn to suppress taxable income of Rs600 mn of the company
(out of an alleged concealed income of Rs1.1 bn). In our discussion
with management post the event (the new CEO – see below), we
understand that the company was not aware of this amount prior to
the event happening. We note that the amount disclosed as contested
tax claims (under contingent liabilities) as of Mar-11 in the annual
report is only Rs14 mn.
The underlying business could be impacted
Following this event, the Chairman of Board, Mr JJ Irani, resigned
from this position. The board has now appointed another whole-time
director, Ms Susha John as the CEO. We would expect Kishore to
stay out of the company activities until the charges are resolved.
Ms John is one of the co-founders of Everonn along with Mr Kishore,
and brings with her 25 years+ of experience. A business council has
been formed to advise the CEO, with two veteran directors of the
company: (1) Mr R Sankaran (40 years+ experience including at Tata
Steel), (2) Mr Joe Thomas (23 years+ experience including at P&G).
Management explained that over the past couple of days, senior
management has contacted key customers, bankers and reached out
to employees. We see little risk to business continuity in the absence
of Mr Kishore.
While the immediate business fallout could be minimal, over the
longer term this event could have negative repercussions on the
company prospects.
We expect that the government businesses (18-20% of revenue)
could be at the highest risk (possible blacklisting of the company if
charges are found to be true). We are now building no new contract to
be won by the company in the government ICT business. A lot of
expectations were also built around the NSDC contract of Everonn
(cumulative revenues of Rs140 bn over ten years, not in our
estimates), which has a risk of being downsized/cancelled, in our view.
The impact on the private businesses could be limited, in our view.
Downgrade to NEUTRAL
Based on the above risks, we cut our revenue estimates for Everonn
for the near term, leading to 8-17% earnings cuts over the next three
years.
It is likely that there may be further management changes at Everonn.
The corporate governance issues raised by recent events may have
an overhang on the stock over the near term (leading to multiple
derating). Despite recent correction and stock trading at 0.9x book, we
see limited catalysts for stock performance in the near term. Our
target price decreases to Rs340 (21% potential upside to Monday’s
close), and we downgrade the stock to NEUTRAL.
The risk to our downgrade comes from possibility of a buyout.

Everonn Education- 1Q FY3/12: Strong growth with margin expansion:: Credit Suisse,

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● Everonn reported decent 1Q FY3/12 numbers, with revenue and
EBITDA growing 45% and 69% YoY, respectively (both ahead of
estimates). Margin expansion came about despite
rollout/expansion of new businesses. Lower other income led to a
profit growth of 39% (16% below estimate).
● The key growth driver remains the ViTELS segment, which
clocked a 68% YoY revenue growth with improving margins.
● With revenue growth going ahead of growth in number of schools
and colleges, the company seems to be seeing good repeat
orders from existing customers (we hope to see an increase in
classrooms/school ratio when the number is reported on the
earnings call).
● We expect Everonn to continue to deliver strong growth rates and
retain our OUTPERFORM rating on the stock.
● We are hosting the earnings call of the company on Friday, 12
August, at 12 noon India time (2.30 PM HKT): India +91 22
44240300/ International +91 22 27786590. Passcode: 90681849.
Other highlights in the results announcement
● 10 schools in the K-12 segment went operational for the company
during the quarter. We note that management had earlier
indicated that Everonn owns only 10% of assets in these schools
with the rest owned by private investors.
● The skill development segment (under which the NSDC contract
falls) seems to be making good progress. There are 31 centres
operational.
● The company trained 1,200 people and placed 900 of them in the
first phase under a project with the Ministry of Rural Development.
● The company has signed an MoU with Tata Motors to train
100,000 drivers.

Everonn Education - Management meet notes: Growth drivers in place : Credit Suisse

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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

Query Corner: Long-term correction seen in SAIL :: Business Line

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I want your opinion on Patni Computer purchased at Rs 563 and SAIL bought at an average rate of Rs 160.

Ravindra Davda

Patni Computer Systems (Rs 367.5): Patni Computer has long-term resistance around Rs 575 where it peaked in June 2007. The stock once again spluttered around this zone in June last year and is in a sharp correction since then. The stock declined below its key medium-term support at Rs 423 this month. Subsequent supports are at Rs 360 and Rs 300.

The stock is close to the first support but is not showing any sign of reversal from here.

Investors with long-term perspective can however hold the stock as long as it trades above Rs 300.

But the medium-term is likely to be choppy for this stock and it can face resistance at Rs 420 and Rs 500 in the days ahead. Investors with short-to-medium term perspective should exit the stock on failure to move beyond these resistances.

The area between Rs 600 and Rs 620 will continue to act as a strong long-term resistance over the next couple of years.

Everonn Education Company Update; JV with NSDC; Emkay

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Everonn Education Company Update; JV with NSDC; Not Rated

Everonn Education has signed a Joint Venture Agreement with India’s National Skill Development Corporation (NSDC) to impart vocational training across the country over 12 years. We attended the Analyst meet and present our key takeaways:

n    Everonn and NSDC have jointly launched ‘International Skills School’ to impart vocational training with respect to various technical courses. Everonn’s wholly owned Skill development subsidiary, Everonn SKILL development Ltd. has been mandated by NSDC to train 15 million people (10% of NSDC’s overall target of 150 million) by 2022. NSDC will invest 27% as equity in the wholly owned Skill development subsidiary of Everonn Education Ltd. i.e. Everonn Skill development Limited (ESDL).

n    The NSDC was set up as part of a national skill development mission to fulfill the growing need in India for skilled manpower across sectors and narrow the existing gap between the demand and supply of skills. The NSDC is a public-private partnership, wherein 49% is owned by the finance ministry and the remaining 51% held by various industry bodies like the CII, NASSCOM, FICCI, Assocham, etc.

n    The courses offered under the same will be for nine different industries like Textile and apparel, Retail, Hospitality, Automobile, Healthcare, Construction, IT and ITeS (IT-enabled Services), Basic engineering and Multimedia. Duration differs from course to course and ranges between 3 weeks to 6 months.

n    Average fees for such technical courses works out to be Rs. 9000 (Ranges between Rs. 24,000 to Rs. 3,000 for different courses). Considering the estimated number of students at 15 mn, this turns out to be the revenues of Rs. 135-145 bn over next 12 years for Everonn. EBITDA margin to remain in the range of 23-25% initially and should improve going further, per management.

n    Everonn is looking to set up 271 centers across India. Currently there are 9 operational centers and company is planning to roll out 70 more such centers in next three months.

n    Capex requirement will be Rs. 3 bn in next 3 years. Of this, NSDC would provide Rs 0.142 bn as equity for 27% stake and Rs. 1.01 bn in the form of debt at a subsidized interest of 6%. The remaining Rs1.85bn will be funded by Everonn through internal accruals and external debt funding.

n    Vocational training, unlike other educational segments, does not face regulatory hurdles and remains attractive, per management. There will be no government intervention in the business. Two board members on the Board of Everonn Skill will be represented by NSDC. 

n    We believe Government’s partnership, great demand for the vocational courses and lack of skilled manpower, seem to be favorable for Everonn. However, there are several challenges with respect to (a) student acquisition being responsibility of Everonn (either though B2B or B2C) (b) Execution & scalability of the venture (c) Affordability of students and (d) industry and market acceptance of courses offered.

n    We do not have any rating on the stock. Company has done Revenue/EPS of Rs. 2908 mn (+54% YoY) & Rs. 25 (+33% YoY) for 9M FY11. At CMP of Rs. 681, the stock trades at 20x/14.8x/11x for FY11E/12E/13E consensus earnings of Rs.34/46/62.

Everonn Education: Polishing Skills :: Buy Target Price: Rs854:: Centrum

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Polishing Skills
We attended the analysts meet of Everonn Education
which was organized to share the details of National
Skill Development Corporation’s (NSDC) JV with
Everonn Skill Development (ESDL), a subsidiary of
Everonn. As per the JV, NSDC will hold 27% stake in the
company. While NSDC is to train 150mn workforce by
2022, ESDL has got the mandate to train 10% or 15mn
people across various industries. We believe this event
bodes well for the company in terms of growth
prospects though it would take time for it to scale up the
volume. We revise our target price to Rs854 against the
existing target price of Rs772 to factor in business from
this initiative.

Sizzling Stocks: Hero Honda Motors: Everonn Education : Business Line

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Hero Honda Motors (Rs 1,830.8)

Hero Honda, India's largest two-wheeler maker, declared an interim dividend of 3,500 per cent last week — Rs 70 a share of Rs 2 each on April 13. The stock sizzled almost 6 per cent during that session after that. This bullish momentum prolonged on Friday as well, and the stock broke out of its significant intermediate-term resistance at Rs 1,735 and its 200-day moving average by gaining 5.5 per cent. Volumes were good during both the trading sessions. Next key intermediate-term resistance is in the Rs 2,000-2,060 range.

The stock bottomed out in late February this year, after taking support from its long-term buttress around Rs 1,400. It has been on a medium-term uptrend since then.

However, it has a medium-term resistance at Rs 1,920. Inability to move above this level will lead the stock to revert to its immediate support at Rs 1,735 in the short-term.

Close below Rs 1,600 will mar the uptrend and drag the stock to Rs 1,400 in the medium-term.

Everonn Education (Rs 669.8)

The stock zoomed 13 per cent accompanied with heavy volumes last week. With this rally, it has breached its key resistance at Rs 650.

From its February low of Rs 435, the stock has been on a medium-term uptrend, and is hovering well above its 50- and 200-day moving averages. It now has resistance at Rs 700.

A strong move above this level can lift the stock higher to Rs 756 in the medium-term.

Failure to move beyond Rs 700 will pull the stock back to Rs 650 or Rs 600.

Only a dive below Rs 535 will mitigate the current uptrend and give room for the stock to decline to Rs 435-levels in the medium-term.

IDFC research, EVERONN - IDFC Emerging Stars Conference

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EVERONN 
OUTPERFORMER (RS500, MCAP: RS9.5BN / US$211M)


• VITELS – picking up momentum: VITELS had in its fold 1195 schools, 1812 colleges and 54 retail centres as of end-
Q2FY11. In schools, while new additions are being done at an average of four classrooms per school, Everonn (EEDU)
is also adding classrooms in existing schools. Thus the average number of classrooms per school is witnessing an
uptrend and now stands at 2.5 against 2.2 in Q1FY11.
• ICT – cherry-picking contracts: With the ICT segment yielding sub-optimal profits on the back of LI bidding as also
high debtor days, the management has been cautious in bidding for contracts. Selective bids by the management have
helped maintain EBITDA margins at 40-45% in the segment.
• Entry into K-12 and HE: The management is building its capabilities and tie-ups in its more recent initiative –
‘Educating India’. The initiative marks EEDU’s foray in the K-12 and higher education segments as ‘facilitator,
aggregator and manager’. While EEDU does not plan to own any institutes, it expects to get 7% of the total project
cost in addition to a management fee for managing the institutions. EEDU is looking to start 6-7 B-schools (under the
brand GSB – Global School of Business) and 10 K-12 schools in the next academic year (under the brand KenBridge
schools). A model B-school in Chennai is currently under operation.
• SKIL categorized as a co-promoter: In October 2010, SKIL was categorized as co-promoter in EEDU, which issued 4m
optionally convertible debentures to SKIL at Rs520 per share. This triggered an open offer of Rs587 per share, which
was completed on 27 November 2010 and led to SKIL acquiring 88,500 shares in EEDU. The deal between EEDU and
SKIL was so structured that post the open offer SKIL’s equity holding in the company would be lower than that of the
exiting promoter, P Kishore. As part of this agreement, EEDU has now issued 3.91m shares to SKIL and redeemed the
remaining OCDs (value of Rs46m). Post this transaction, SKIL’s stake in the company stands at 21.02% and the
existing promoter group’s holding has come down to 21.4% (from 26.9% earlier).
• Creating a strong Board: EEDU has inducted key industry veterans on its Board, including Tata Group veteran J J
Irani and Dr M S Vijay Kumar, senior associate dean at the Massachusetts Institute of Technology.

Everonn Education: Buy - Target Price: Rs772; Q3FY11 Result Update: Centrum

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Margin expansion on better sales mix
Everonn Education’s (Everonn) Q3FY11 results were in line
with our expectation. We believe investment in
subsidiaries such as Everonn Skill Development (ESDL),
Everonn School (ESL) and Everonn Business Education
(EBEL) will be key catalysts going forward. We re-iterate
Buy rating on the stock.

Credit Suisse: Buy Everonn Education- Well-positioned in an under-penetrated market

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Everonn Education Ltd
(EVED.BO / EEDU IN)
Well-positioned in an under-penetrated market
■  Main investment thesis: The Indian education sector is on the cusp of
multi-year strong growth driven by a favourable set of factors and low
penetration of organised private players. Demographics are favourable with
460mn children below the age of 20. We conservatively expect Everonn to
deliver 45%-plus revenue CAGR over the next three years from its traditional
business. Future investments, currently not built into estimates, include the
school management, B-school and vocational training segments which could
drive further growth. We see short-term catalysts in the form of strong growth
and school/college additions in the Dec-10 and Mar-11 quarters. Over the
longer term, we believe that growth in new initiatives and margin leverage
from existing businesses should drive consensus upgrades.

Credit Suisse: Everonn Education - Strong margin improvement; encouraging developments in new initiatives

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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

Of 'small-town' bulls and 'low-frill' needs:; Credit Suisse

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India Consumer Survey 2011 ------------------------------------------------------------------------------
New report: Of 'small-town' bulls and 'low-frill' needs


Survey 2011, we present our key findings from responses of over
2,500 respondents across ten cities in India.