Educomp Solutions: A Disappointing Report Card For Q1FY14

Educational service provider Educomp Solutions has posted a poor set of results in the first quarter of the current fiscal, where its consolidated topline fell dramatically by 29% to Rs 230 crore on a yearly basis.

Other than the online supplement courses, all its other segments have shown a negative performance on the revenue front in the quarter. The strongest drop was seen in its school learning solution segment. The revenues of its other two segments, viz. K-12 school and higher learning solutions, declined by 25% and 77% respectively. The company has also reported that it has sold its 50% stake in Educomp Higher Initiatives and exited from the vocational course segment for consideration of Rs 65.22 crore during the June quarter.

On the other hand, Educomp’s efforts to cut down its overall operating expenses in this quarter have paid off, and this declined to Rs 209 crore from that of Rs 255 crore in Q1FY13. Due to the decline in new purchase of stock in trade, its purchase expenses reduced by 18% to Rs 68 crore. The employee expenses and other expenses also shrank by 10% to Rs 74 crore and by 4% to Rs 57 crore respectively. Expenses arising from forex fluctuations also went down by almost 50% to Rs 8 crore.

As a result of the decline in income from its major revenue driver segment, i.e. school learning solutions, the company's operating profit tanked by 70% to Rs 21 crore. Further, the impact of good growth in other income has been reversed due to the higher finance expenses. All this has translated into a huge decline in the bottomline of company, which posted a loss of Rs 24 crore in the June quarter, as against a profit of Rs 5 crore in the corresponding period last year. We recommend that investors avoid this counter at the current levels.