Thursday, October 29, 2009


Numbers in line with estimates; Eduresource grew substantially: Everonn Education (Everonn) reported consolidated sales of INR 731 mn, up 70% Y-o-Y, in Q2FY10. A substantial portion of the incremental revenues was contributed by its hardware trading subsidiary Eduresource that grew 2.4 times Yo-Y. Revenues in its Vitels segment grew 67%, to INR 348 mn, while ICT segment grew by a marginal 6%, to INR 139 mn.

EBITDA up; drop in ICT margins cause for concern: EBITDA for the company was higher by 74% Y-o-Y; EBITDA margin was, however, lower by 510bps Q-o-Q, as a substantial portion of the incremental revenues originated from Eduresource – an extremely low-margin business. Also, the ICT segment, despite reporting 6% Y-o-Y growth in revenues, posted 18% drop in PBT. We believe margins in the ICT business could continue to remain under pressure as competition intensifies amongst the existing players.


Plans to move up the education value chain; execution key concern: Everonn has announced an ambitious plan of venturing into management of education institutions (schools & colleges) through its ‘Educating India’ project. Currently, the project is at the conceptual stage, with the exact timelines and business model still unclear. We believe execution will remain a key challenge in this venture, especially since Everonn has little experience in managing educational institutions.

Outlook and valuations: Risk-reward favourable; maintain ‘BUY’: We maintain our revenue and sales estimate for Everonn and expect a consolidated topline CAGR of 47% and net profit CAGR of 68%, over FY10-11E. Everonn is currently trading at P/E of 17x FY10E and 11x FY11E. Adjusting for aggressive revenue recognition (refer risk factors), the company is trading at a P/E of 13x FY11E. The Vitels segment remains key driver for the company’s valuation. We believe continued strong performance will drive a re-rating in the stock. We maintain ‘BUY’ on Everonn.

To see the full report: EVERONN EDUCATION