Birla Shloka Edutech Ltd FPO Snapshot HDFCSec Indian Stock Markets money.umakant.info

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					Birla Shloka Edutech Ltd (BSEL)
FPO Snapshot
Issue Snapshot:
Issue period: January 11 – January 13, 2010 Price Band: Rs. 45 – Rs. 50 Issue Size: Rs. 34.78 contribution of Rs.5 cr) cr (incl promoter’s

January 11, 2010 Highlights of the issue:
Birla Shloka Edutech Ltd. is one of the education companies in India, which is engaged in sales and services of varied products to education institutions. It is also engaged in providing IT infrastructure and imparting IT and IT enabled education in schools of various boards. It sets up computer labs, Digital classroom solutions and Audio Visual solutions in schools along with its software product “XL@School” which is a curriculum based interactive multimedia software for mathematics and science subjects. It has entered into a joint venture agreement with Vision India Software Exports Pvt Ltd., on 30th April 2009, to bid and execute various tender projects (“the Projects”) of Central Government of India and various State Governments in the field of Computer Education, Education through computers, and facilitate the supply of various hardware and equipments and provide hardware solutions, teacher training and various allied services of similar nature on BOO/BOOT basis. It has following Strategic Business Units:

Issue Size: * equity shares (depending on final price) QIB 50% Retail 35% Non-Institutional 15% Face Value: Rs 10 Book value: Rs 13.02 (September 30, 2009) Bid size: 120 equity shares and in multiples thereof 100% Book built Issue

• IT / Multimedia based education and ICT Solution in private schools. • ICT Solution in government schools through Public Private Partnership. • Sales of Educational and Software products.

Capital Structure:
Pre Issue Equity: Post issue Equity: Rs. 6.00 cr Rs. 12.96 – 13.73 cr

Objects of Issue:
The objects of the Issue are:
• Capital expenditure for Turnkey Projects executed by the company under the

Already listed at: BSE, CSE, ASE Lead Manager: Ashika Capital Ltd Registrar to issue: Bigshare Services Pvt Ltd

BOOT model
• Capital expenditure on upgradation of infrastructure and content development for

XL@School
• Funding the proposed M&A activities • To meet the Working Capital requirements • Meeting the Public Issue Expenses

Current Shareholding Pattern
Shareholding Pattern Promoters & Promoter Group Public Total Pre-Issue % 56.67 43.33 100.0

Fund Requirement:

CARE FPO grading: This being a Follow on Public Issue of Equity Shares, grading is not required.

Rs. Cr S. No. Expenditure Items Amount Capital expenditure for Turnkey Projects executed by the company under 1 theBOOT model 15.00 Capital expenditure on upgradation of infrastructure and content 2 development for XL@School 9.50 3 M&A activity 4.50 4 Working Capital requirements 2.13 5 Issue Expenses 3.03 6 Contingencies 0.61 Total 34.77
(Source: RHP)

Means of Finance:
S. No. Expenditure Items 1 Public Offer of Securities - Promoters Contribution - Issue to Public Total Amount 5.00 29.77

Rs. Cr Amount 34.77 * * *
(Source: RHP)

For the year ended March 31, 2009, BSEL reported a net profit of Rs 0.31 crore on total income of Rs 104 crore. For the period of 6 months ending September 2009, it posted a net profit of Rs 0.74 crore on a total income of Rs 64 crore. It has a debt of Rs 8.5 crore on its books. Please read important disclosures on the last page

Retail Research

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BSEL has over 9 years of experience in computer aided education, multimedia and ICT services in IT & e-learning industry, In-house expertise in educational content & software development. Strong capability to implement Information and communication technology projects and advantage of low price model as compared to competitors in the market.

Risks & Concerns:
• Any delay in identification of customers, to whom BSEL intends to undertake projects on a BOOT /BOO basis, for which a sum of Rs.

15.00 crore out of the total issue size, constituting 43.13% of the total cost of project is earmarked, could delay the implementation schedule and thereby impacting its revenue and profitability.
• BSEL has not placed orders for any equipment, which amounts to Rs. 14.96.crore and constitutes 100% of the total equipments

proposed to be purchased and funded by the proceeds of this issue. Any delay in procurement of equipment may delay the implementation schedule, which may lead to a rise in prices of these equipments, further affecting its cost, revenue and profitability.
• Business of BSEL’s involves installation of a large number of Computer Systems and other electronic equipments across various

geographies. Such electronic equipments are prone to hardware/software malfunction, virus attacks, hacking and technological obsolescence. If any such events occur, it runs the risk of disruption of its operations. Its multimedia software runs on a Windows XP operating system hence technology obsolescence is not applicable to its software.
• The upfront investment in building up school projects is quite heavy since BSEL is operating under BOOT model. This may lead to a

risk of delay in access to investible funds and infrastructure.
• As per the contractual terms & conditions, the government payments become due on a quarterly basis, but due to bureaucratic

procedures, generally the payments get delayed by one & a half months, thereby increasing the realization cycle from 3 months to four & a half months. Such delays cast an impact on its working capital requirements and adding an additional cost of finance and thus impacting BSEL’s profits as it provides ICT facilities in government Schools.
• BSEL’s products are closely linked to the prevailing education curriculum and systems. The performance of the company depends, to

a large extent, upon the Government policies on education. Any change is government policies or reallocation of the government budget away from education services could impact its business prospects. If there is a change in the education system, its products may need substantial change or may be rendered obsolete.
• Any changes in the tax laws in India, particularly income tax, might lead to increased tax liability of the Company thereby putting

pressures on profitability. There is also a risk of increased hardware costs due to any increase in taxes, duties, levies etc on computer hardware by the Government.

Conclusion:
The stock closed at Rs.54.50 on the BSE on Jan 08, 2010 (52 week high Rs. 90.30 low Rs. 19.05). While the sector is happening and the peers like Educomp, Everonn, Core Projects etc are quoting at large P/E multiples, in the case of BSEL, the size is much smaller, the profitability and return ratios are also smaller compared to its peers. BSEL has large proportion of traded goods and the value-add is limited. Further the large dilution in equity will mean that EPS will take time to reach meaningful levels. The upside from the IPO given the above factors is limited and the risk reward ratio is not favourable, unless the shares are issued at the lower band of rs.45 and the market price does not dip below that level by that time.

RETAIL RESEARCH Tel: (022) 307 53 400 Fax: (022) 30753435 Corporate Office HDFC Securities Limited, I Think Techno Campus, Bulding –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 30753400 Fax: (022) 30753435 Website: www.hdfcsec.com Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail Clients only and not for any other category of clients, including, but not limited to, Institutional Clients Disclaimer: HDFC Bank (a shareholder in HDFC Securities Ltd) is associated with this issue in the capacity of Refund Bankers to the issue and will earn fees for its services. This report is prepared in the normal course, solely upon information generally available to the public. No representation is made that it is accurate or complete. Notwithstanding that HDFC Bank is acting for Birla Shloka Edutech Ltd. this report is not issued with the authority of Birla Shloka Edutech Ltd. Readers of this report are advised to take an informed decision on the issue after independent verification page Please read important disclosures on the last and analysis.

Retail Research

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