Birla Shloka FPO

Birla Shloka's valuations look expensive given its small operations. Investors can avoid its follow-on offer

 

IPO details

Price Band: Rs 45-50

Net issue size: Rs34.8 crore

Date: January 11- 13 '10


BSE-listed Birla Shloka Edutech has come up with a follow-on offer to fund its expansion plans and to meet its acquisition targets in future. It plans to spend over Rs 25 crore to bid for turnkey government projects and to upgrade its products. Post issue, the promoter group stake would fall from 56.7% to 34% at the higher end of the FPO price band.

BUSINESS:

The Rs 104-crore Mumbaiheadquartered company operates in the education sector. It provides multimedia based educational products and services to government and private institutions in the country. Currently, over 100 private schools are using its learning solutions. Birla Shloka has an audio-visual software product called XL@School. It consists of multimedia software for mathematics and science subjects. 

   The company has also bid for the contract floated by Maharashtra government, which is targeted toward 2,500 schools in phase I. The company has also bid for Madhya Pradesh government's ICT@school project.

FINANCIALS:

Birla Shloka Edutech runs a thin-margin business as 90% of its revenues currently come from trading of computer hardware and software. Margins are typically in the range of 1-3% for this business. Its main business activity of providing IT solutions to education sector has comparatively better margins of 15-24%, but forms a small portion of its total income. 

   In FY 09, its sales at Rs 104 crore, was up two-and-a-half times the previous year's sales. Since most of it was trading revenue, its net profit dropped by 18% to Rs 3.1 crore. 

   Going ahead, the company expects to improve proportion of its main activity since it anticipates winning government projects under Sarva Shiksha Abhiyan. Under this programme, the government aims to achieve universal elementary education of satisfactory quality.

VALUATIONS:

The shares currently trade at a P/E of 27 on BSE. After the FPO, its market capitalisation is likely to increase from Rs 34 crore to Rs 65 crore at the higher end of the price band. This would take its P/E to 43 based on annualised half-year ended September '09 earnings. Other companies that
operate in educational sector including NIIT and Edocomp, command a P/E of around 30. 

   Birla Shloka is betting on winning contracts from state governments in future. It has a steep competition from bigger established companies, which would make any projections about its future revenue challenging. Investors may avoid the issue.