Stock Review: Core Projects and Technologies

 

The Mumbai-based Core Projects and Technologies is busy reworking its revenue model. The focus is clearly shifting to the domestic market. The government's commitment to the sector will act as a catalyst

 

CORE Projects and Technologies, which has so far generated over 90% revenue from overseas markets, is focusing on increasing its presence in India to tap the domestic growth potential. The company has entered into pacts with some state governments to incorporate its computer learning and training modules in educational institutes.

BUSINESS:

The Mumbai-based Core Projects and Technologies offers technology-based education solutions to government organisations and schools in the US and the UK. The company has acquired nine companies in the UK and the US in the past five years in an effort to expand its global reach. The company raised $150 million through foreign currency convertible bonds to fund the acquisitions. It plans to buy another company in the UK in next 2-3 quarters.

GROWTH OUTLOOK:

The company is currently in the process of expanding its presence in emerging markets such as India, South-East Asia and Africa. It has entered into strategic pacts with Microsoft, Oxford University and NASA for the same. The company plans to increase the share of domestic business in total revenue to over 25% by FY13, from less than 10% now.

   The company recently bagged a project worth 295 crore from the Haryana government to incorporate and maintain information and communications technology laboratories in 2,622 government schools in the state over the next five years.

   Also, the company is planning to foray into skilled development that includes vocational training. The company is in talks with the Maharashtra government and is likely to sign a memorandum of understanding by the end of the first quarter of FY12. It expects to draw nearly 20% of its education revenue from vocational training in coming years.

   The education space in India offers huge opportunity for private players. India requires nearly 20,000-25,000 quality schools, according to a study by NCERT.

   Moreover, the Union Budget for FY12 has proposed an increase in the amount of funding for education sector by 24% to 52,057 crore, thus creating suitable scope for private players to tap the sector.

FINANCIALS:

In April-December 2010, the company's net profit grew 30% year-onyear to 155 crore while net sales also grew 30% to 794 crore. Its operating profit margin has remained in the range of 35-37% over the past four quarters. The company sees operating margins remain steady in the coming quarter.

VALUATIONS:

At the current market price of 319, the stock trades at 16 times its earnings for the trailing 12 months. Given its initiatives to expand footprint in the domestic market coupled with the government's proposal to increase spending towards vocational training, the company is likely to post robust performance, going ahead. However, high client concentration makes the company vulnerable to any change in education model in the US and the UK.