Prima-facie the numbers announced by Educomp for the Jul-Sept'2014 quarter were slightly on the disappointing side. Total Income of about Rs.151.50 crores up by just 3% Q-o-Q against my expectation of about 10% growth. Operating expenses were very well contained and dropped by over 10% Q-o-Q, but higher Other expenses (including provision for Foreign Exchange fluctuations) pushed Educomp into an EBITDA loss of Rs.9.5 crores. Substantial Interest Cost and another Huge round of Write-offs meant that the reported Net Loss figure this quarter was larger than the Q1 figure.
But here again lots of developments are hidden in the Balance-sheet & Capital Employed numbers and the Notes to Accounts. The write-offs done this quarter are Huge at about Rs.467 crores, which included about Rs.271 crores from Trade Receivables, Rs.110 crores towards an advance given to it's Higher Education subsidiary, Rs.52 crores towards an advance given to it's K-12 business subsidiary and Rs.33 crores towards a loss booked on a property sale.
Now lets come to the good news part, which are hidden in the Capital Employed numbers. During the June'14 quarter, Educomp's Consolidated Capital Employed number had dropped from Rs.2471 crores at the end of Mar'14 to Rs.2124 crores at the end of June'14, i.e. a drop of about Rs.347 crores. Even if we exclude the Write-offs of about Rs.250 crores done during June'14 quarter, the company had a positive Cash Inflow of about Rs.97 crores. The Consolidated Capital Employed number has dropped further (sharply) to Rs.1510 crores at the end of Sept'14 quarter, i.e. a drop of about Rs.614 crores. Excluding the Rs.467 crores in Write-offs done during the quarter, the company had a positive Cash Inflow of about Rs.147 crores. Eventhough these Cash Inflow figures aren't huge, but they are good enough to give us a hint that things are moving in the positive direction as far as the company's overall financials are concerned.
During Q2 Educomp concluded the deal to sell it's GateForum business. The sum realised is Rs.35 crores. This too has helped bring down the Capital Employed number by about 2%. In the coming quarters we will see a few more Land parcels being sold by the company, mainly via it's subsidiaries. Another hint of positive developments in recovery of receivables is in the Total Dues number from various trusts to Educomp's K-12 business subsidiary coming down from Rs.249 crores to Rs.228 crores from Jun'14 to Sept'14. This amount of Rs.21 crores is even higher than Educomp's reported revenue of about Rs.17 crores for Q2 from it's K-12 vertical.
Coming to the Revenues part, I was slightly disappointed with the figure from School Learning vertical where revenues dropped by about 4% Q-o-Q, whereas I was expecting a growth of over 15%. But what I had forgotten is that some of Educomp's old contracts with Govt schools could be coming to an end and hence the some of those recurring revenues could be missing from this quarter onwards. We still don't know the exact reason, but this is one possible reason for the drop. Traditionally the second half of any fiscal has been busier for Educomp and we can expect the same this year. For first half Educomp's consolidated Total Income is about Rs.299 crores, which should rise to atleast about Rs.350-400 crores during the second half. And we can expect most of the Write-offs to be done with during this fiscal itself and going forward the company can be expected to focus more on growth of fresh business, rather than cleaning up the books dirtied in the last 3 years.
I am still positive on the company's possible turn-around & return to growth as well as decent profitability (on EBITDA front) by the end of this fiscal. I think another 1-2 quarters of challenging patience is required for Educomp's shareholders.
But here again lots of developments are hidden in the Balance-sheet & Capital Employed numbers and the Notes to Accounts. The write-offs done this quarter are Huge at about Rs.467 crores, which included about Rs.271 crores from Trade Receivables, Rs.110 crores towards an advance given to it's Higher Education subsidiary, Rs.52 crores towards an advance given to it's K-12 business subsidiary and Rs.33 crores towards a loss booked on a property sale.
Now lets come to the good news part, which are hidden in the Capital Employed numbers. During the June'14 quarter, Educomp's Consolidated Capital Employed number had dropped from Rs.2471 crores at the end of Mar'14 to Rs.2124 crores at the end of June'14, i.e. a drop of about Rs.347 crores. Even if we exclude the Write-offs of about Rs.250 crores done during June'14 quarter, the company had a positive Cash Inflow of about Rs.97 crores. The Consolidated Capital Employed number has dropped further (sharply) to Rs.1510 crores at the end of Sept'14 quarter, i.e. a drop of about Rs.614 crores. Excluding the Rs.467 crores in Write-offs done during the quarter, the company had a positive Cash Inflow of about Rs.147 crores. Eventhough these Cash Inflow figures aren't huge, but they are good enough to give us a hint that things are moving in the positive direction as far as the company's overall financials are concerned.
During Q2 Educomp concluded the deal to sell it's GateForum business. The sum realised is Rs.35 crores. This too has helped bring down the Capital Employed number by about 2%. In the coming quarters we will see a few more Land parcels being sold by the company, mainly via it's subsidiaries. Another hint of positive developments in recovery of receivables is in the Total Dues number from various trusts to Educomp's K-12 business subsidiary coming down from Rs.249 crores to Rs.228 crores from Jun'14 to Sept'14. This amount of Rs.21 crores is even higher than Educomp's reported revenue of about Rs.17 crores for Q2 from it's K-12 vertical.
Coming to the Revenues part, I was slightly disappointed with the figure from School Learning vertical where revenues dropped by about 4% Q-o-Q, whereas I was expecting a growth of over 15%. But what I had forgotten is that some of Educomp's old contracts with Govt schools could be coming to an end and hence the some of those recurring revenues could be missing from this quarter onwards. We still don't know the exact reason, but this is one possible reason for the drop. Traditionally the second half of any fiscal has been busier for Educomp and we can expect the same this year. For first half Educomp's consolidated Total Income is about Rs.299 crores, which should rise to atleast about Rs.350-400 crores during the second half. And we can expect most of the Write-offs to be done with during this fiscal itself and going forward the company can be expected to focus more on growth of fresh business, rather than cleaning up the books dirtied in the last 3 years.
I am still positive on the company's possible turn-around & return to growth as well as decent profitability (on EBITDA front) by the end of this fiscal. I think another 1-2 quarters of challenging patience is required for Educomp's shareholders.
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