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Online education: Price to book value is low? Should we invest in these stocks

, August 19, 2013, 0 Comments

Online education in India is picking up faster than before. This shows interest amongst the population to adapt to new changes primarily to shorten their distance to success. According to ICEF Monitor is a dedicated market intelligence resource for the international education industry, India ranks second behind USA, in terms of popularity and growth in online education. Is the condition same with schools in India. Online education system introduced in schools do not show same growth trajectory path. We look at three Indian stocks in this area and explore insights of the firm through financial data. Price to Book value remains too low for these firms. Should you invest in them ?

Career Point Limited offers courses to prepare for examinations. The company prepares students who intend to study engineering and medicine.
Everonn Education Limited offers education and training services. The company sets up computer labs in
schools and colleges and delivers information technology instructions.
Core Education & Technologies Limited develops and markets education management software. The company offers educational management, case studies, financial data management, operations management, safety, registration, consulting, communications and curriculum software.

Career Point Limited
Market capitalization of 1.18 billion Indian Rs, return on equity in the year 2012 stands at 10.16%. Operating margin had been impressive in 2012, however, sales data suggest a decline in growth for the year 2013 to the tune of -­‐2.46%. Market per share value has declined from Rs.173 to Rs. 65 in last eight months. Although the company has zero debt only 2012, increased capital expenditures will make debt cheaper source of funds than equity.

The company will not pay any dividends as retention rate stands at 100% as per company policy. Investors looking for dividend income should stay away from investing in this company. Cash flow from operations has been negative since March 2012, a key measure to understand the origination of profitability. Projected cash flow from operations would return in the positive range by the year 2014-­‐2015.

Due to lower debt , Free Cash Flow per Equity is the best choice to value the company. FCFE has been negative since March 2010. This metric is generally true for startup companies, where no return is available to investors and all money is put back into the business. Non-­Operating losses in the company further snubs Career Point Limited from the list. Price to Book multiple stands at 0.36 and projected to be 0.30 by tear 2015. Price to Equity multiplier is less than 4, the lowest amongst its peer group.

Everonn Education Limited
Market capitalization of 834.33 million Indian Rs, return on equity has been -­‐16.20%. Sales growth had been negative since 2012 and currently stated at -­‐65.81% from year earlier. EBIDTA (Earnings before interest , depreciation, tax and amortization) has been negative since 2012 dropping by approximately 10%.

Cash flow from operations switched to negative territory and dropped by approximately 69%. Needless to clarify free cash flow to firm (FCF) has been negative since last 5 years. Return of equity is projected to be -­‐77% by March 2014, making Everonn least attractive amongst the list being discussed. Price to Book value multiple will remain depressed and projected to be 0.26 by March 2014.

Core Education & Technologies Limited
Market capitalization of 2.11 billion Indian Rs, return on equity 13.8% makes it a better choice than other two firms discussed. EBIDTA margin, cash flow from operations is positive and sales growth is projected to rise by 23.34% in year 2014. Free cash flow to the firm is negative but decreasing any projected to reduce by 90% by year 2014. The company is highly leveraged with debt being 45.93% compared to equity. Although firm looks sound from financial data perspective, comparison of Core Education with Career Point and Everonn requires care and diligence.

This firm operates in many other areas related to technology other than learning and teaching. 33.71% of revenue for the firm comes from Software Development in India, 20.07% from Consulting, teaching and learning contributing mere 9.91% and 0.31% respectively. Operating income from teaching and learning is 0.57% and -­‐0.06% respectively, making it worst choice amongst three if only this segment is compared.

The market share price of the firm crashed from 295 INR to 60 INR in 5 days Feb 22 to Feb 27 2013. Chief Financial Officer explaining no reason for the stock to crash, seems IFCI and Cresta Fund selling 65.11 lac shares combined during that period.On the other side, firm may have a competitive advantage over others should policies in India change in favor of increasing usage of online education in schools.

Conclusion
Online education system in India may look like dis‐stressed sector and provide opportunity for growth however this still remains a sub set of India’s education system as a whole. Online media is picking up well amongst working professionals, distance education discipline, higher education like business management, to enter into schools this is not going to be onus of firms alone.

Government policies to support economical computers, education quality disparity reduction between rural and urban areas, increased awareness of technology in daily chores does not looks easy to achieve within next five years. Faith of firms operating in this sector will be heavily dependent on all these factors. Making a small city or even one state technologically connected might be a good start but stopping with only handful actually questions the mere existence of technology.

One good metric I can think of is to observe number of people paying their LIC premiums online. If rural parts of India equals urban cities on usage of online services, one can confidently opine technology has reached and solution applied to education system will reach evenly to masses. Massively open online courses or MOOC as they are popularly known will then have true potential to change the face of education. With current analysis and research none of the above firms discussed pass the litmus test to invest.






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Independent Analysts (IA) who provides cutting-edge, actionable analysis, generated in periodic formats on various industry specific issues & challenges. IA have in depth knowledge and experience in these areas - Financial Analysis, Variance Analysis, Price Analysis, Cash Flow Projections, Comparative Analysis, Competitive Analysis, Market Analysis, Forecasting, Budgeting, Modeling, Training, Cost Control, Waste Prevention, Strategic Development. ...more