Everonn System – Virtual Education Boosting Bottomline

Everonn’s Q2FY09 standalone revenues jumped 49% YoY felled by its ViTELS segment [Virtual Technology Enabled learning Solutions] where the revenues went up by 178.2% YoY (61% of revenue) to 208.8 mn. The company added 156 schools and 123 colleges in this segment. On the other hand, ICT segment saw a revenue degrowth of 15% YoY (39% of revenues) to 130.8 mn. The company added just 80 schools under ICT in Q2FY09. Company also had LoIs from HP and Maharashtra schools.

The operating margins improved by 290 bps YoY to 35.2% in Q2FY09, due to increasing contribution of high margin ViTELS segment to overall profitability. ViTELS with PBT margin 40.6% contributed 71% of PBT in Q2FY09, while ICT with 26% PBT margin contributed 29% of PBT.

At the CMP of 220, the stock is trading at a P/E of 16.6x and 9.7x on our estimated EPS of Rs13.2 and Rs22.6 for FY09 and FY10 respectively. Everonn to record revenue CAGR of 63.3% and PAT CAGR of 61.5% over FY08 to FY10E, making it the second fastest growing company under our coverage.
FIIs have increased their stake in Educomp Solutions – a company operating in the same area.

Note: Company made a preferential issue at Rs720 per share for 0.36 mn warrants convertible into equity shares. The amount relating to equity shares, only 10% of the warrant money (Rs 23.5 mn) has been received as on date. Due to poor market conditions, converting warrants will be a concern.