Stock Review: Everonn Education

 

A strong topline and margin add more scores to Everonn Education's report card. The government's renewed focus on vocational training across the country and some of the company's new initiatives are going to script a new chapter in its history

 

EVERONN'S performance continues to remain robust. It posted a 72% CAGR growth in its topline over the past five years. Also, it has reported a consistent improvement in its operating margin. The government's proposal to increase spending on vocational training across the country and the company's new initiatives to expand its market presence are likely to keep the growth momentum strong. However, uncertain cash flows from its new subsidiaries and fragmented nature of the industry continue to be a concern.

BUSINESS:

Incorporated in 1987, Everonn Education is a Chennai-based education and training company. It offers a range of services, including creation of knowledge resources, designing and delivering learning and training programmes and setting up infrastructure for these services. Present across 27 states in the country and operating from 9,897learning centres, Everonn offers services to over 3 million students. The company operates in two segments: Instructional and Computing Technology (ICT) and Virtual Technology Enabled Learning Solutions (ViTELS). While ViTELS contributes over 60% of the company's total revenue, ICT forms 22% and the balance comes from the business through Everonn's subsidiaries – EDURES and Toppers.

GROWTH OUTLOOK:

The company has created a scalable and replaceable technology platform to impart training to create educational entrepreneurs – EDUPRENEUR. The initiative would help the company to expand its reach at the district level in the country. Everonn has signed up seven such deals already and expects to end FY12 with 100 districts integrated within its reach.

   Another business initiative taken up by the company is called Educating India. As part of the initiative, Everonn will act as a facilitator, aggregator and the manager of the schools and colleges. The projects can be co-owned by retail investors chipping in as low as 5 lakh.

   The venture is likely to increase the customer stickiness from as low as 5 years to as high as 30 years. Everonn has chalked out plans to set up 10 such institutions spread across various states, including Tamil Nadu, Andhra Pradesh, Chhattisgarh, Gujarat, Rajasthan and Maharashtra. It expects to end FY12 with the setting up of 50 schools and colleges in all.

   The company has been investing in its subsidiaries, including Everonn Skill Development and Everonn Business Education, among others. While the former is likely to break even by this quarter, the latter is expected to start generating revenue in the next three quarters.

FINANCIALS:

Everonn continues to report a decent financial growth over the quarters. During the 12 months ended December 2010, the company's revenue and net profit grew by over 75% each. But its operating margin dropped by 100 basis points (bps) due to the fluctuating operating costs.

   However, profitability is once again improving. During the December 2010 quarter, operating margin expanded by 300 bps sequentially to 38.1%. The company has invested nearly Rs 40 crore towards its two new subsidiaries funded through internal accruals. During the December 2010 quarter, while the existing subsidiaries reported a decent growth in revenues, the new subsidiaries reported a 76% drop in its EBIDTA. However, the businesses are likely to break even in coming quarters.

VALUATION:

At the current market price of 568.9, the stock trades at 18.7 times its earnings for the trailing 12 months. The company's future growth looks promising, given its initiatives and the government's thrust on mass education.

A NEW SCRIPT


• Everonn has measured up with its December quarterly show. Net revenue edged 7% up, EBIDTA grew 16% and net profit climbed 22% from the previous quarter

• A 300-bps margin expansion reflects that the company is back on the growth track

• ViTELS - Everonn's higher margin business - continues to be the main growth driver. It added 140 schools, 63 colleges and five centres in this segment

• The company has a wide network of 9,897 learning centres

• New business initiatives are likely to break even in 2-3 quarters. The resumed business momentum and the government's proposal to increase spending for vocational training are the key growth drivers