Business of Educomp Solutions Ltd.
Educomp was incorporated in 1994 as Educomp Datamatics Pvt. Ltd. the company is in the business of developing educational content, which is aimed at increasing teacher productivity. Educomp has developed a repository of educational content, which the teachers can access and use it in the classrooms. Educomp also provides education infrastructure solutions and provides training to teachers both on methods of education and also technology. In addition to this the company is also engaged in online tutoring and distributes education software.
The company was founded by Mr. Shantanu Prakash who is an MBA from IIM Ahmedabad, and has been looking after the overall operations since that time and Mr. Jagdish Prakash who takes care of the warehouse and logistics and operational issues. Mr Jagdish Prakash has over 48 years experience in Steel Authority of India Ltd. (SAIL).
Financials
The turnover of the company has increased quite consistently over the last few years clocking Rs.32.17 crores last fiscal which was Rs.11.15 crores in fiscal 2001. The profit has also grown from Rs.1.15 crores in 2001 to Rs.6.32 crores last fiscal.
Objects of the Issue
The company plans to raise funds to carry out expansion activities. Educomp’s Smart_Classtm project is estimated to take about Rs.17.5 crores. This project involves providing education led content to teachers starting from kindergarten and extending till the 12th standard. What this means is that the company facilitates the delivery of educational content right in the classrooms. It is also involved in the providing infrastructure consisting of networking, computers and display system. While Educomp invests money in all this upfront it generates revenues over a number of years i.e. the duration of the project. The forecast stands for 225 schools joining this project over a horizon of the next two years. Projects of similar nature are also expected to be executed in partnership with the government and semi government bodies. In such cases there are funds available in schemes such as Sarva Shiksa Abhiyan (SSA) and the ICT@School projects under the Ministry of Human resources Development.
Also money is being earmarked to establish a facility, which will take care of developing educational content with a focus on the US markets. This is expected to cost the company Rs.11 crores approximately. Another revenue generating area that the company wishes to focus in on is the online tutoring for the US market and expenditure to the tune of Rs.1.65 crores is expected here. This would involve setting up a facility with 50 tutors in Delhi. An amount of Rs.8.05 crores has been earmarked to be invested in the US subsidiary of the company as the US has been identified as a major market for Smart_Classtm projects and also for online tutoring.
Conclusion
The price band that the company is offering its share is between Rs.110 and Rs.125 and the offer shall open on 19 December and close on 22nd December. The EPS for last fiscal comes out to be Rs.5.29, which is before the number of shares increase after the new issue. This translates into a slightly higher P/E multiple of 23 times at the higher band.
While the background of the promoters is good as also the business model and the area in which the company operates in is also a high growth and potential area the issue has been priced aggressively. If one couples the expensive pricing with the fact that the markets are also ruling at all time highs the IPO becomes a very risky one.
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