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Everonn Systems India

Everonn Systems India

Capitalising on the growing government spend on IT education
But as the BOOT model requires higher investment and working capital, ROA will be lower

Incorporated in 2000, Everonn Systems India is promoted by P Kishore, who was closely involved in implementing computer literacy projects in the Nilgiri district of Tamil Nadu since 1987. The company won its first contract for computer education in 332 schools in Tamil Nadu in 2000.

Everonn is now a fully integrated knowledge management, education and training company offering a range of services including creating knowledge resources, designing and delivering learning and training programs and setting up infrastructure and delivery platform.

One of the two strategic business units (SBUs) of Everonn is institutional education. The SBU sets up IT education infrastructure in institutions (schools and colleges), delivers IT education under the build-own-operate-and-transfer (BOOT) model and offers turnkey education and software solutions. Currently, the company has a presence in eight states, over 1,300 computer labs and 1,900 schools, and trained 1.2 million students. The SBU contributed 68% of the revenue in the year ending March 2007 (FY 2007) with earning before interest, tax, depreciation and amortisation (EBITDA) margin of 42.8%.

The second SBU is a virtual-and-technology-enabled learning solution (Vitels) SBU. It provides specialised content through an interactive remote delivery mechanism to institutions, specially colleges and schools and working professionals. The company has built its virtual learning brand, Zebra Cross, V-Schools, V-Colleges and V-Placement, and operates through 197 delivery centers covering 101 colleges, 83 schools, three retail and 10 Hughes Net (Direcway) centres. The SBU contributed 32% of the revenue in FY 2007, with EBITDA margin of 37.1%.

The proceeds of the present issue along with the funds raised through preferential allotment to India China Pre-IPO Equity (Mauritius) are to be utilised to support the two SBUs’ working capital requirement, mergers & acquisitions, investment in subsidiary set up to retail educational aids, tools and other products, and brand building

Strengths

  • Of the 1,900 schools under operation in the institutional education and Infrastructure services SBU, the contract for 183 schools is set to expire in FY 2008. The balance contracts are to go through FY 2010.
  • Everonn has plans to add at least 1,000 schools in a year by using the IPO proceeds. Recently, it won a Rs 30-crore contract for 1,256 schools in Gujarat. As per the management, the order book of Rs 110 crore is to be executed over three-3.5 years.
  • The Vitels SBU has the first mover advantage and has plans to add another 250 virtual classrooms in FY2008. It has also tied up with PMC School of Logistics, Singapore, to tap the South-East Asian market. The revenue from the Singapore tie-up would start only in FY 2009.

Weaknesses

  • The BOOT model involves heavy upfront investment to build school projects. This can put pressure on profit in the initial periods and the working capital requirement would also be high.
  • The business is seasonal in nature and the maximum revenue and profit are usually registered in the second and fourth quarters of the financial year.
  • The operating profit margin has fallen by 550bps to 41% in FY 2007 over FY 2006 (compared with FY 2005, OPM is down almost 1,000 points). The main reasons for the fall in FY 2007 were the infrastructure-deployment expenses at the 216 schools under the Karnataka government contract, which started only in February 2007 with no addition to revenue. Also, expenses on new initiatives taken by the Vitels division impacted margin. Though the revenue grew 39% to Rs 43.04 crore, net profit fell 1% to Rs 4.86 crore in FY 2007.
  • Everonn had entered into an agreement with Hughes Escorts Communication (HECL), now Hughes Communication India, on 20 March 2002 for five years as a lead partner to help HECL in developing remote education and training through satellite broadband technologies. The contract has expired and HECL is yet to renew it. Failure to renew the contract could have a negative impact on Everonn’s revenue and profit.

Valuation

At the price band of Rs 125-140, FY 2007 EPS on post-issue equity works out to Rs 3.4 – Rs 3.5 and P/E 36.8 – 39.9. The sector is currently enjoying very high market fancy due to expectation of high growth rates. Educomp Solutions is trading at P/E of 129 times and NIIT at 37 times.

Everonn Systems India: Issue Highlights

Sector Computer - Education
Sector TTM P/E 78.4
No. of shares fresh issue (in lakh) 35.71 - 40.00
Price band (Rs) 125 - 140
Post-issue equity (Rs crore) 13.85 - 14.28
Post-issue promoter stake (%) 30.20 - 31.13
Issue open / close 05-07-2007/11-07-2007
Listing BSE/NSE
Rating: 45/100

 

Everonn Systems India: Restated Standalone Financials

Particulars 0303 (12) 0403 (12) 0503 (12) 0603 (12) 0703 (12)
Operating income 16.02 16.16 19.43 30.93 43.04
OPM (%) 45.7 50.6 51.3 46.5 41.0
OP 7.33 8.17 9.96 14.37 17.63
Other income 0.00 0.00 0.00 0.00 0.00
PBIDT 7.33 8.17 9.96 14.37 17.63
Interest 1.72 1.80 1.44 1.55 2.34
PBDT 5.61 6.37 8.52 12.82 15.29
Depreciation 4.89 5.27 5.88 4.56 8.21
PBT before EO 0.71 1.10 2.65 8.26 7.08
Tax 0.31 0.49 1.13 3.35 2.23
Net profit 0.41 0.61 1.51 4.91 4.86
EPS (Rs.)* 0.3 0.4 1.1 3.5 3.5
EPS (Rs.)# 0.3 0.4 1.1 3.4 3.4
* Annualised on post-issue equity of Rs 13.85 crore (at higher band)
# Annualised on post-issue equity of Rs 14.28 crore (at lower band)
Face Value: Rs 10
Figures in Rs crore
Source: Capitaline Corporate Database

 

Everonn Systems India: Objects of the issue

Particulars Amount (Rs in crore)
Institutional Education and IT Infrastructure Service 30.00
Virtual & Tech Enabled Learning Solutions including content development setting up 3 new studios in India, 1 in studio in Singapore and 2 overseas offices in Dubai and Singapore 17.25
Working Capital 5.00
Mergers & Acquisitions 8.00
Investment in Subsidiary 1.00
Bland Building 1.00
Issue Expenses 3.81
Total 66.06