Stock Review: EdServ Softsystems

 

To Invest 45% Of Recently-Raised 130 Cr In School Biz, Portal, Infrastructure

 

THE stock of the Chennai-based education and placement company EdServ Softsystems has outperformed the broader market in the past one year. It has gained over 50% during the period against the 21% gain in the benchmark Sensex.

   Incorporated in 2001, EdServ provides online training and placement solutions. It offers education support to over 50 schools in Tamil Nadu and Andhra Pradesh along with school ERPs through its training academy — Vidhyadhana.
   The company provides online development and deployment to the students across the country within a web based framework via its online education portal lampsglow.com.

   The company has entered into franchisee based business model in several states for vocational skills training. It has recently bagged a deal spread over 5 years in Gujarat. As part of the project, EdServe will set up and execute three skill enhancement centres in the state. The company expects to receive more prominence in the vocational training space in the coming quarters. Going ahead, the company plans to expand its school network by securing projects from over 700 schools in Tamil Nadu and Andhra Pradesh in the next two years. With a current dealer network of over 200, the company plans to expand its reach further by leveraging on the wide visibility achieved by its online portal.

   The company has recently raised 130 crore to expand its presence in the higher education and career placement segment. It intends to deploy nearly 45% of the fund proceeds towards its school business, around 20% towards its online portal and the balance towards its infrastructure development.

   The company has posted robust growth in the June 2010 quarter with over three-fold increase in the topline to 21 crore from the year-ago levels. Of this, vocational training program contributed 55% and the school education business contributed 25%. Given the increased investments towards Vidhyadhana academy, the company expects the share of its school business to increase in the coming quarters.

   At the current market price of 237.6, the stock trades at nearly 16 times its EPS for the trailing 12 months. The management expects to increase its revenue three-fold in FY11.

   Considering a conservative net margin of 26% (which is lower than its average margin in the previous four quarters), its FY11 estimated P/E works out to be 7.3. This is much lower than the P/E range of 17-23 for other players in the education space.