Educomp Results Update

Educomp today announced a ~95% jump in net profit in Q3 FY10 (year over year) to over 61 crores. That's a fantastic growth rate. What makes it more fantastic is that in terms of topline (at 260 crores) it has started to challenge the largest training company in India (NIIT Limited). However don't get taken in by the reported growth numbers.

Educomp had changed its accounting policy recently (to securitize its earnings in the smart class segment) in Q2. So it would be interesting to see how much of this growth is due to revenues profits being pulled upfront and therefore what will be the growth rate in the coming year. The grapevine is that Educomp has resorted to slashing prices for its smart class product to keep competition out of the market.

Remember, CLSA had already downgraded the stock after Q2 results due to the same reason.

Will put an update out post analysis...

Accounting Fraud - Scoreboard Vs. the Real Game

Loved this quote from Hamel on Accounting Fraud

In too many companies, senior management has mistaken the scoreboard for the game. Quarterly Earnings are the score; customer pleasing, competitor-slamming innovation is the game. Wildly manipulating the numbers on the scoreboard is no substitute for playing the game.