Core Education & Technologies Ltd, which has been hit by delays in payments by state governments as well as economic slowdown in the US, plans to raise Rs 200 crore in fresh funding from lenders as part of a debt restructuring programme.
The education services company has already knocked the doors of the corporate debt restructuring (CDR) cell to rework repayments for 50 per cent of its Rs 1,300 crore of advances. It is also in talks to recast the balance portion.
Core Education follows a business-to-government model. The company undertakes large and small contracts from the government to provide education services.
The company faced significant financial stress during the April-June quarter due to decrease in the sales revenue and increase in overdue trade receivables. The non-availability of Rs 85 crore sanctioned funds made matters worse. It posted a loss and a drop in revenues in the quarter.
A senior public sector bank executive said his bank has held preliminary discussions with the company, which is yet to make a detailed presentation.
Core is the second company in the education space to go for debt recast. Educomp is the other company, whose debt recast is still in the works.
Core Education’s consortium of lenders is led by State Bank of India . The other lenders are Standard Chartered Bank, Oriental Bank of Commerce, Punjab National Bank and Life Insurance Corporation, among others, according to Core Education's annual report for 2011-12.
Nikhil Morsawala, director (finance), Core Education, said the firm had sought a two-year moratorium for the loan.
It has also requested five to eight years for repayment. Of the additional funds to be infused into the company, Rs 30-40 crore will be brought in by the promoters, said Morsawala. The firm had adopted an aggressive business posture in India in the past two years. “We have 14,000 schools in 12-13 cities under Information technology enabled. This involves high capex and we have spent more than Rs 600 crore in those projects. We saw a cash-flow problem post the implementation of the project. We have Rs 300 crore receivable overdue,” he said.
Core Education had posted a net loss of Rs 33.36 crore for the quarter ended June 30, compared to a net profit of Rs 78.54 crore in the same period of FY13. Net sales stood at Rs 342.11 crore against Rs 482.64 crore in the same period in FY13.
Earlier, the company had plans to go for an international bond issue in 2011. However, the firm backed out due to the high interest rate sought by the prospective investors.
Later in January 2013, when Core Education was looking for funds, a $100 -million loan was arranged by a large financial services firm.
While $50 million was disbursed in January this year for its US subsidiary, Morsawala explained that the second tranche was not disbursed. “There was a market crash and this put us in a temporary logjam,” said Morsawala.
While the company had put forward a capital expenditure plan in January based on the expected inflows, the resources did not come in. Morsawala added that the company had Rs 450 crore worth of additional orders.
Later, projects worth Rs 48 crore had to be abandoned since there was no financial closure.
Liquidity was further squeezed by the slowdown in its US business. About 80 per cent of the company’s business is US-linked and 10 per cent each from India and the UK. “There was a situation where all states had stopped buying new products. The flow of new orders were temporarily halted,” he said.
While announcing its financial results for the first quarter, Core Education had said it has made a detailed plan for meeting its cash flow requirements for the next 12 months and also dropped the proposal of payment of dividend.
In a bid to reduce capex, Morsawala said Core Education has decided not to tender for ICT projects for the time being and instead focus on service-oriented businesses. “Vocational training, for instance, which is service-oriented, has an order book of Rs 75 crore. It is a segment which is less capital intensive and offers decent margins,” he pointed out.
Model Schools is another segment the company is bullish about. According to Morsawala, here the per student capital expenditure is low, since it works in a public-private-partnership model. He added it has requested the consortium to allow Core Education to spend on this model.
Under this, schools are proposed to be set up in educationally backward blocks (EBBs). There are 27 states / UT governments that have some of the blocks identified as EBBs.
According to Morsawala, the company will need 12-124 months to come back to its original position. In the past three months, the company has pruned down its staff strength by 250, mostly developers and marketing staff. The staff strength now stands at about 1,200.
Morsawala added that in the US, the focus would now be on smaller districts. With the Common Core State Standard being implemented there, the company expects the revenues from this segment to increase from next year onwards. US follows a July to June education calendar, where tenders are floated in January, bidding process is conducted in February and the contracts for education services are closed in May.
The firm is also looking to partner with smaller regional equipment suppliers in the US to provide content. Core Education has about 150 associates, who offer their content through their equipment.
Morsawala also anticipates a drop in revenues this year, where they expect to post revenues of Rs 1,350-1,400 crore this financial year from Rs 1,900 crore for last year. “The year 2014-15 will be when the real revival will happen,” he said.
