Educomp Solutions: Buy

-


Investors can buy the shares of Educomp Solutions, considering the bright growth prospects for its key verticals and the stock's sizeable valuation discount to its historic levels.

At Rs 2,088, the stock trades at 26 times its likely 2008-09 earnings. This is not cheap under current market conditions. But Educomp has locked into most if its contracts where it licenses digital teaching content on long-term basis, typically over a five-year period.

Continuing triple digit growth in high-margin segments such as Smart Class and retail & consulting, a healthy order pipeline for its services that cater to IT-enablement of government schools, support the valuations. Educomp's focus on the education sector also lends resilience against any broader slowdown as schools are unlikely to scale down investments in innovative teaching methods. With the Government's IT-enablement programme continuing on course, the company appears well placed to ride out the present slowdown in the economy.

Smart Class, where Educomp provides teaching content and education solutions across classes, boards and subjects, accounts for nearly 70 per cent of its revenues and enjoys a an EBIT (earnings before interest and tax) margin of 60 per cent. This segment continues to add hundreds of schools under its fold, with a current roster of 1,267 schools and 1.43 million students using this service. For the past six quarters this segment has managed triple digit growth, over same periods in the preceding years.

The retail segment, a tutorial service led by the math Web site mathguru.com is growing at over 600 per cent, and from insignificant contribution a couple of years ago now contributes 11 per cent of its revenues. The business enjoys a 70 per cent margin and would contribute to higher margins as it adds users.

Educomp's Information Communication Technology (ICT) business continues to win a string of Rs 50-100 crore orders and works with as many as 14 State governments. These projects are for a five-year duration and are mainly volume driven as they involve IT-enablement of Government schools. Given the present economic crisis and Government thrust on public spending, Educomp may continue to be well placed to tap into increased budgetary allocations on education. But Government deals may mean longer receivable cycles and expanding working capital requirement.

Most of Educomp's projects involve upfront capex for which additional debt may be required. But the company has tied up loans for its capex requirements over the next few years. An increase in its debt-equity ratio, at 1.22 for 2007-08, would mean increasing interest costs

Popular posts from this blog

IOB capitalises on hike in stake by LIC

-
Indian Overseas Bank rose 1.53% to Rs 46.45 at 10:31 IST on BSE, after the biggest domestic instutional investors Life Insurance Corporation of India hiked its stake in the state-run bank. The bank made this announcement after trading hours on Wednesday, 25 March 2009. Meanwhile, the BSE Sensex was up 126.19 points, or 1.31%, to 9,794.09. On BSE, 31,003 shares were traded in the counter. The stock had an average daily volume of 1.93 lakh shares in the past one quarter. The stock hit a high of Rs 47 and a low of Rs 45.95 so far during the day. The stock hit a 52-week high of Rs 156.80 on 2 May 2008 and a 52-week low of Rs 37.55 on 9 March 2009. The mid-cap bank stock had underperformed the market over the past one month till 25 March 2009, falling 3.17% as compared to the Sensex's 8.60% rise. It had also underperformed the market in the past one quarter, declining 33.94% as compared to the Sensex's 1.04% rise. The bank's current equ The current price of ...
Read more

Lok Housing & Constructions builds on fund raising plans

-
Lok Housing & Constructions jumped 6.99% to Rs 107.90 at 11:20 IST on BSE ahead of a board meeting to consider fund raising options from both foreign and local market, including an institutional placement. Meanwhile, the BSE Sensex was down 50.50 points, or 0.30%, at 15203.73. On BSE, 1.86 lakh shares were traded in the counter. The scrip had an average daily volume of 4.74 lakh shares in the past one quarter. The stock hit a high of Rs 115 and a low of Rs 102 so far during the day. The stock had a 52-week high of Rs 390.50 on 1 January 2008 and a 52-week low of Rs 96.25 on 12 June 2008. The scrip had underperformed the market over the past one month till 12 June 2008, falling 26.55% compared to the Sensex's 10.18% decline. It had also underperformed the market in the past one quarter, falling 31.39% compared to Sensex's 3.24% fall. The small-cap housing projects developer has an equity capital of Rs 42.88 crore. Face value per share is Rs 10. The current...
Read more

Griffin Chemicals surges on re-listing

-
Griffin Chemicals was trading at Rs 29, up 2220% on re-listing after six years on Bombay Stock Exchange (BSE). The counter saw miniscule volume of 4769 shares. The stock opened at Rs 23, up 1740% against its last traded price of Rs 1.25 on 8 August 2002. The Griffin Chemicals stock was highly volatile today. It opened at Rs 23 and then rallied ahead to Rs 50 but soon eased to a low Rs 22. The surge in Griffin shares reminds of unprecedented rise in stock prices of KGN Industries on its re-listing day. KGN Industries, run by Ahmedabad-based Memon family, had re-listed at Rs 100 per share after nearly seven years in May 2008 this year. The stock had risen to a high of Rs 55,000.
Read more