Everonn close to raising $100 Million from PE?

As reported by BS, Everonn may be close to raising $100 million from private equity players including Carlyle and New York Life capital partners. If true then this would be among the largest PE investments in education sector. At current market price of Rs 298, it has a market cap of about $115 million dollars. However, I would be surprised if Everonn is able to pull it off due to the following reasons

1. Carlyle has burnt its fingers in the past in another Indian education company, which it self has fallen out of favor due to fears on corporate governance. With Everonn's recent problems, including arrest of the former CEO and also deferring of the open offer and poor Q2 results, PE players won't get any where near the company

2. The open offer was to be at Rs 528, almost double the current price. The sharp decline in price would prevent any preferential allotment due to SEBI restrictions on pricing (higher of average of last six months or last two weeks)

Also, NIIT, which is a venerable Indian education training company, is three times the size of Everonn and is available at less than $100 million after adjusting for its 25% stake in NIIT Technologies. And, Educomp, despite concerns on debt is also available at a lower PE of 6.5.

The deferring of the open offer is really worrisome and could see the stock really tanking to lows seen in 2009. 

Everonn Q2 FY12 Results: Revenues slump 26%, PAT in negative territory

Everonn announced its results for the the 2nd quarter (July-Sept 2011)  for FY12.  The effect of the recent turmoil was visible in the results. Revenues dipped 26% YoY to Rs 79.5 Cr from Rs 108 Cr last year. Decline in revenue and  massive increase in depreciation and interest costs pushed Everonn  into a loss with a PAT of negative 3.7 Cr versus 15.5 Cr of profit in the corresponding quarter of FY11.

After Educomp, Everonn is the second education company to disappoint the market this week with poor results. Everonn's share price fell over 5% in today's trade. Educomp's stock has already fallen 25% over the last 3 days. 

JJ Irani Resigns as Chairman of Everonn

JJ Irani, who was roped in by the company to improve its image in terms of corporate governance, has resigned from the Board following allegations of graft against the MD.

Its a huge blow to the company. The stock is stuck today at the 20% lower circuit with no buyers. 

Everonn MD arrested by CBI on graft charges?

NDTV and WSJ reported that MD of Everonn, P Kishore has been arrested by CBI in an alleged case of bribery and tax evasion. This brings into sharp focus the corporate governance practices(or lack of it) at Indian companies at a time when corruption is a hot topic around the country and Investors are likely to jump ship at slightest hint of any malpractice. 

Everonn has been consistently performing well in the recent past in terms of its financial performance and had improved its image with induction of J J Irani as non-executive chairman of the Board. If true, these reports are a huge blow to that effort by the company. 

Everonn- NSDC Deal Analysis

Everonn recently announced a deal with NSDC to train 15 million people over the next 10 years. While one must congratulate them for being ambitious, there are a few things that we note




1. Reading most media reports leaves you thinking that NSDC will pay for the training. Incorrect! NSDC is not going to pay for the training; it is only providing low cost funding, as soft loans (and equity) to create capacity. The 15 million number is based on a 10 year business plan, which is largely an excel exercise at this stage. This is not a 15,000 cr contract with NSDC as reported in the media.

What must be noted that Everonn trained about 2000 people on vocational skills last year and aims to scale this up to 2.5 lacs in FY12 itself. Pretty steep climb in my view. Especially given that not too many people have been able to scale up vocational training, NIIT and Aptech being exceptions. And NIIT, over 30 years has only scaled up to training 5 lac/year.

2. Everonn is targeting an average fee of Rs 9000 per student. Though it sounds low, the propensity to pay (even this low amount) for training in the target population is likely to be a major challenge

3. 15 million means over 10 years implies that in the 10th year, they would be training at least 2-3 million. Given that India makes 30 million babies a year, this is 7-10% of the annual incremental population, implying 10% of population being trained by one company. Given that they are targeting service sector skills only, the implied share of target segment is huge

4. They hope to make profits in the first year despite a steep ramp up. Unlikely, given that initially the sales and marketing costs are going to be very high



That said, the fact that they can call themselves a government (or at least a semi government) organization is a huge positive and would give them credibility in the market. What remains to be seen is whether this advantage, comes with any baggage as well.

Everonn - Appointment of JJ Irani and Nikhil Gandhi as Directors

Everonn, today, announced the appointment of JJ Irani as Director and non executive chairman and Nikhil Gandhi as director on the board of the company. Here are my thoughts on this

1. Nikhil Gandhi's appointment was expected and should have not effect (he has put in 200 cr into the company)
2. JJ's appointment is a positive development and potentially serves two purposes
    a) Gives an important face lift to corporate governance at Everonn. The company could be planning to raise further capital and JJ's presence would be a big confidence boost for potential investors
    b) Helps to counter NG's influence to push Everonn for benefit of SKIL