Everonn Systems | Ever On
Education market is a huge one, above 50 billion $ in India. I’ve been absorbing, assimilating, cogitating and meditating for last few days several of research reports.
The best in depth report by CLSA was published in 2008 on education sector of India. When the craze took off around 2006, Educomp being Numero Uno and undisputed champion commanded streched PE above 50. Everonn was not far, stock market witnessed 130 times over subscription of Everonn stock and commanded an even higher PE ratio than Educomp for initial two years.
Everonn stock kissed 900 market being even at a premium to Educomp and slid to a low of 90 odd levels in 2009 carnage. With loads of new entrants, Sundaram Multi, Edserv Softsystems, Usha Martin education in this sector etc etc, the sentiments have turned sour, parallel to those in telecom industry.
However, Everonn is expected to earn 40Rs+ EPS for year ending March 2011 and expected to grow 50% + CAGR for next three years. ICT and innovation in education sector is here to stay for the long haul. Its an idea whose time has come.
Everonn went to the extent of replacing teachers in schools, a gesture unlikely to win you many friends amongst teachers in schools, and that is what happened. It was given cold shoulder from several institutions. Having learnt from its mistakes, Everonn is now promoting technology that enables and assists teachers, rather than replace them.
The negatives in this sector tend to be long debtor days in Govt. contracts (200 approx.) and Govt. funding reduction in this sector. The latter is unlikely to happen.
Everonn is going to setup new schools and that should lead the way as replacement for ‘old school’ schools, those that bury their head in sand. It is also venturing in establishing business schools, still unproven idea albiet.
There are 1.25 million schools and we have only scratched the surface. Educomp and Everonn being first two entrants have a long way to go and the sector is here to stay forever. Future direction will involve challenging existing schools by partnering with Infra and Capex heavy players by management of schools. That formula is reminiscent of Holiday Inn management of hotels which is capital light.
As the Govt. bidding procedure increasingly returns normal profits and gets commoditised, the existing leaders will evolve into full fledged education providers rather than being enablers. Educomp has about 15 classes per school and Everonn has only two, therefore a big upside exists in having more classes per school. Educomp does not bid for projects that involve less than 10 classes whereas Everonn is happy and makes money with even 2. Walmart vs Kmart ? While Educomp is slowing down, Everonn shows no such signs. Without capital dilution Everonn can easily do north of 35% growth in EPS for the next five years.
When the mania re-ignites, I will be listening. Even without frenzy, decent returns can be expected with just EPS growth and a moderate PE rerating.
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