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IPO REVIEW

The IPO of technology-based education provider Everonn is priced attractively.

Investors have developed a keen interest in technology-enabled education providers ever since Educomp's performance after its listing.

The IPO which hit the markets a year and half ago was priced at Rs 125 and currently trades at an astonishing Rs 2,200 levels. Will the market continue to be as positive to companies that wish to enter this space? Promoters of Chennai-based Everonn Systems would surely be hoping for it.

The business of e-teaching
There is nothing extraordinary about the business model of Everonn Systems. The 10 lakh schools and 17,500 colleges in the country need cost-effective interactive solutions to meet the demand of a diverse course curriculum.

By creating content once and distributing the same across many schools, colleges and corporates which follow the same syllabus and processes from a central location, Everonn is trying to eliminate the replication of content, infrastructure and teaching professionals.

While the logic is sound, is there money in putting up expensive IT infrastructure and convincing people to switch to a different mode of imparting education?

The government will provide
Everonn's MD P Kishore believes that the 6 per cent of GDP target in the current Five Year Plan for education and computerisation of private schools will boost its revenues (70 per cent comes from government schools) and take care of funding needs of its customers.

However, its dependence on government is also a cause for concern. The bidding, implementation and recovery takes a year and has been causing a problem in the company's cash flow and contributing to the higher interest and finance charges.

Funding growth
To finance some of its ongoing projects, develop infrastructure for high margin segments and fund acquisitions, the company is raising resources to the tune of Rs 66 crore.

A part of this, Rs 14 crore, was raised from the Temasek arm, IndoChina Pre-IPO Equity (Mauritius). Nearly 60 per cent of the Rs 50 crore public issue will be used to fund the ongoing West Bengal project where the company is providing IT solutions to 459 schools. 
 

VALUATIONS
	2007	2008E
Sales	43.0	81.0
EBIDTA	17.0	32.4
Op Mar (%)	40.0	40.0
Net Profit	4.9	7.2
Net Margins (%)	11.0	50.0
PE at125	25.0	23.0
PE at 140	29.0	27.0
Figures in Rs crore

Valuations
While the company has had a 40 per cent plus sales growth and 40 per cent operating margin, at the net level, higher interest costs and depreciation (write-offs based on project period) have dented the net margins to 12 per cent.

Analysts say that margins will stay at these levels for the next two years as the proportion of government projects will continue to be the bread-and-butter for Everonn.

At the higher end (Rs 140) of the price band the stock is priced 27 times its estimated FY08 earnings while at the lower end (Rs 125) the discounting is 23 times. While Educomp has had an impressive record of consistent growth, its current P/E at 128 indicates the scope for appreciation for its smaller rival.

Issue opens: July 5
Issue closes: July 11