BSE-SME COMPANY RESEARCH REPORT

Transcription

1 BSE-SME COMPANY RESEARCH REPORT JOINTECA EDUCATION SOLUTIONS LTD. July 23, 2012

2 F DISCLOSURES AND DISCLAIMER DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by The Stock Exchange Investors' Protection Fund, Bombay Stock Exchange Ltd. DISLCLAIMER This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. This report should not be construed as recommendation from CARE or CARE Research to buy, sell or hold a security or any advice or any solicitation, whatsoever. It is also not a comment on the suitability of the investment to the reader. The subscriber/user assumes the entire risk of any use made of this report or data herein. CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report. CARE specifically states that it or any of its divisions or employees have no financial liabilities whatsoever to the subscribers/users of this report. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research. This report is for personal information only of the authorised recipient in India only and this report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person, especially outside India or published or copied for any purpose. Credit Analysis and Research Limited proposes, subject to receipt of requisite approvals, market conditions and other considerations, to make an initial public offer of its equity shares and has filed a draft red herring prospectus ( DRHP ) with the Securities and Exchange Board of India (the SEBI ). The DRHP is available on the website of SEBI at as well as on the websites of the Book Running Lead Managers at and Investors should note that investment in equity shares involves a high degree of risk and for details relating to the same, see the section titled Risk Factors of the DRHP. [ This press release is not for publication or distribution to persons in the United States, and is not an offer for sale within the United States of any equity shares or any other security of Credit Analysis and Research Limited. Securities of Credit Analysis and Research Limited, including its equity shares, may not be offered or sold in the United States absent registration under U.S. securities laws or unless exempt from registration under such laws. ] Published by Credit Analysis & Research Ltd., 4 th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai Published on behalf of The Stock Exchange Investors' Protection Fund Bombay Stock Exchange Ltd. P J Towers, Dalal Street, Mumbai Tel: /34 Website:

3 Jointeca Education Solutions Ltd. SME, Educational Software July 23, 2012 ISSUE DETAILS Issue price Rs. per share Face value Rs. per share No. of shares offered No. in lakhs Total no. of shares (post issue) No. in lakhs Issue size Rs. crores 5.35 Pre-issue net-worth Rs. crores 9.63 Post-issue net-worth Rs. crores Source: Draft Red Herring Prospectus (DRHP) SHAREHOLDING PATTERN # Inner ring represent pre-issue shareholding pattern, outer ring represents post-issue shareholding pattern. Source: DRHP FINANCIAL SNAPSHOT (Rs. lakhs) 2012 Net operating income EBITDA Adjusted PAT 5.85 Adjusted EPS* (Rs.) 0.25 Dividend, including tax - P/E (times) 60.0 EV/EBIDTA (times) 31.8 Source: DRHP and CARE Research; Valuation ratios are IPO price of Rs.15 per share; Financials for 2012 are for a period from date of incorporation i.e. May 24, 2011to March 31, BACKGROUND AND BUSINESS OVERVIEW Jointeca Education Solutions Ltd (Jointeca) was incorporated on May 24, 2011 as a private limited company. Jointeca acquired the business of the sole proprietorship concern of Mr. Vishal Mishra, M/s. Jointeca Technologies pursuant to a slump-sale agreement dated November 10, On December 13, 2011 the company was converted into a public limited company. Jointeca has presence in both educational software products and portals. Jointeca s flagship product GuruSeva (an educational enterprise resource planning (ERP) solution) is offered both as a desktop application and through the software as a service model (SaaS). Jointeca has total staff strength of around 47 employees and is based in Mathura, Uttar Pradesh and its business is primarily concentrated in the northern region of India. Going ahead, the company plans to offer its product GuruSeva under Build-Own-Operate-Transfer (BOOT) model through cloud computing, expand the education portal Shiklo.in and strengthen the overall marketing and branding efforts. IPO OBJECTIVE Rs. lakhs To expand the product GuruSeva under BOOT model through cloud computing solutions To establish and expand the business-to-business (B2B) educational portal Shiklo.in To meet the promotion and branding expenses and for setting up robust sales network Issue related expenses 69.5 Source: DRHP INDUSTRY OUTLOOK CARE Research expects the Indian Education System to grow from US$66.6 billion during FY11 (refers to period between April 1, 2010 and March 31, 2011) to US$102.1 billion during FY15 at a compounded annual growth rate (CAGR) of 11.2%. The sector growth (in terms of enrolment) is expected to be fuelled by higher penetration in the Preschool and Information and Communication Technology (ICT) segments of education with a projected CAGR of 33.0% and 20.4% respectively during the period FY While the kindergarten to 12 th class (K-12) education segment is expected to grow at a moderate CAGR of around 16.2%, the segment would continue to remain the key segment (with a market size of around US$56.3 billion by FY15) owing to the huge target population. Population in the age group of 4 19 years would account for approximately 34.3% of the total Indian population by FY15. Increased government spend on education, rise in income levels resulting in higher spend on education, increased use of technology and interest of corporates in the education segment would drive the growth in the sector. ANALYTICAL CONTACTS Amod Khanorkar General Manager Jumana Badshah Manager This report has been sponsored by BSE Investors Protection Fund

4 BACKGROUND Jointeca was originally incorporated on May 24, 2011 as a private limited company as Jointeca Software Solutions Pvt. Ltd. Pursuant to shareholders resolution dated August 01, 2011, the name of the company was changed to Jointeca Education Solutions Pvt. Ltd. Jointeca Education Solutions Pvt. Ltd. acquired the business of the sole proprietorship concern of Mr. Vishal Mishra, M/s. Jointeca Technologies pursuant to a slump-sale agreement dated November 10, On December 13, 2011 the company was converted into a public limited company and the name was further changed to Jointeca Education Solutions Ltd. Jointeca has presence in both educational software products and portals. Jointeca s flagship product GuruSeva (an educational ERP solution) is offered both as a desktop application and as a service through the SaaS model. BUSINESS OVERVIEW Jointeca operates in a single segment i.e. education software sales. Within this segment it is present in both product and service. The key business offerings by Jointeca are as follows: Product development (GuruSeva) GuruSeva is an educational ERP Solution which is offered both as a desktop application and as a service through the SaaS model. The target audiences for this product primarily are schools, colleges and universities. Jointeca sells this product through channel partner network model and currently has more than 29 dealers in the network Content management solutions Jointeca plans to develop software content on various subjects. For this the company has put together a team of experienced educationist from schools, colleges and industry who have an understanding of the usage of technology to increase the effectiveness of learning. The content team consists of heads of department, subject heads, assistants, quality check executives and content animator. The company plans to use its existing dealer network that sells its product GuruSeva to deliver the educational content, both to Indian and overseas market. B2B portal ( Jointeca offers online education and home work solution for students through its online educational portal The portal aims to address the students needs from primary and secondary to professional level. The portal provides 24x7 assistance to students on various subjects (which is delivered through a team of empanelled teachers) and career guidance, for choosing the correct educational institute and helping student assess various career options. Customised software development and small business segment Jointeca has a customized software services division, which provides ERP solutions to manufacturing companies, nonbanking financial companies (NBFCs) including insurance companies, post office, and companies in publication and hospitality industries. The company also provides management solutions, human resource (HR) and payroll solutions, as well as database maintenance services. It also offers reverse engineering solutions for database applications on a lowrisk delivery model consisting of both onsite and off-site models. Jointeca operates out of its leased office in Mathura, Uttar Pradesh, India and its business is concentrated mainly in the northern region of India. 2 This report has been sponsored by BSE Investors Protection Fund

5 Jointeca is an ISO 9001:2008 certified company. ISO 9001:2008 is an international standard related to quality management systems and is applicable to all types of organizations. The company has entered into a memorandum of understanding (MoU) with TransNational Computer LLC, Dubai for providing complete education management solutions. Trans National Computer LLC is an authorized channel partner for Gulf and African countries. The company has been involved in selling GuruSeva in the Gulf and Middle East region. MANAGEMENT STRUCTURE As on March 31, 2012, the company had 47 employees, including 40 permanent employees, four employees on probation, two trainees and one contractual employee. Organization structure Managing Director, CEO Whole Time Director Whole Time Director Whole Time Director Vice President Development Company Secretary Senior Manager Customised Solutions - Marketing General Manager Marketing Dealer Support Manager Content Head General Manager - Technical Country Head (Product Sales) Head International Sales Head R&D (Product) Head (Customised Solutions) In-charge Implementation In-charge Sales Source: DRHP 3 This report has been sponsored by BSE Investors Protection Fund

6 CORPORATE GOVERNANCE Jointeca has a nine-member Board. It includes a managing director, three whole-time directors, three independent directors and two non-executive/non-independent directors. Company is in compliance with the Clause 52 of the SME listing agreement as not less than 50% of the Board of directors comprises non-executive directors and at least onethird of the Board consists of independent directors. The Board is chaired by a non-executive and non-promoter, independent director. Jointeca also has three sub-committees under the Board, i.e. audit committee, shareholders grievances committee and remuneration committee. All the three committees are headed by the independent directors, as per the listing guidelines of the exchange. Board of Directors Person Age Qualification Role Mr Ramesh Chand Sharma 70 M.Sc. B.ED. Chairman, Independent Director Mr Vishal Mishra 40 B.Sc. Managing Director, Chief Executive Officer Mr Vivek Mishra 34 MBA (Marketing) Whole-time Director (Business Development) Mr Alok Mittal 41 B.A. Whole-time Director (Operations) Mr Umesh Chand Sharma 40 B.A. Whole-time Director (Technical) Mr Hari Om Prasad Agarwal 46 Intermediate Non-Executive, Non-Independent Director Mr Abhay Gautam 46 B.A. Non-Executive, Non-Independent Director Mr Pradeep Kumar Saxena 37 B.Sc. M.A. Non-Executive, Independent Director Mr Neerav Nimesh Agarwal 35 B.Tech (IIT-Delhi), Non-Executive, Independent Director PGDM (IIMC) Source: DRHP and CARE Research There are no contingent liabilities or litigations against the company, its promoters/promoter group or directors. As per the DRHP, as on March 31, 2012 the company has not paid advance tax of Rs.1.29 lakhs and has not deposited tax deducted at source (TDS) of Rs.0.55 lakhs. 4 This report has been sponsored by BSE Investors Protection Fund

7 IPO DETAILS Size The issue comprises an offer for sale of lakh equity shares of face value of Rs.10 each at a fixed price of Rs.15 per share. This would constitute 35.74% of the post-issue paid-up capital. Terms The offer comprises lakh equity shares of face value of Rs.10 each to be issued at a price of Rs.15 per share, of which 3.6 lakh equity shares are to be subscribed by the market makers to the issue. Remaining lakh equity shares would be available for subscription by public. The net issue would constitute 89.91% of the post-issue equity share capital. The issue is being made through fixed-price process and at least 50% of the net issue to public would be available for allocation on proportionate basis to retail individual applicants. The trading lot for the issue has been fixed at 8,000 equity shares. A total of 39 lakh shares were issued to Mr. Vishal Mishra, one of the promoters of the company for consideration other than cash on November 10, 2011 in lieu of the takeover of the business assets of the sole proprietorship concern, M/s. Jointeca Technologies on slump-sale basis. Objective The main objects of the issue are as follows: Particulars Rs. lakhs To expand the product GuruSeva To establish and expand the B2B educational portal Shiklo.in To meet the promotion and branding expenses and for setting up sales network Issue-related expenses Source: DRHP As per the DRHP, the proposed objects of the issue for which funds are being raised have not been appraised by any bank or financial institution. 5 This report has been sponsored by BSE Investors Protection Fund

8 GROWTH DRIVERS Increase in clientele for the company s flagship product GuruSeva Successful implementation of cloud computing infrastructure Ability to leverage the current dealer network that sells GuruSeva for selling the educational content and development of a repository of relevant and user-friendly educational content. Increased brand recognition and traffic on the education portal Increased in subscriber base for the online education portal Ability to provide end-to-end solution to clients in education and publication sector where the company currently has its focus Expansion of the business to other regions in India and abroad RISK AND CONCERNS Jointeca does not own the trademarks Jointeca, GuruSeva and Shiklo.in. Although, Jointeca has applied for the registration of Jointeca, GuruSeva and Shiklo.in as a brand or trademark under Trademark Act, the approval on the same is currently pending. Jointeca also does not own copyrights for GuruSeva. While, the company has applied for registration of the copyright for GuruSeva with the Government of India (GoI), Ministry of Human Resource Development and Department of Secondary Education & Higher Education Copyright Office, New Delhi, the approval is yet to be received. While, Jointeca plans to offer its flagship product GuruSeva on a cloud computing infrastructure and has earmarked a certain portion of the issue proceeds towards setting up cloud computing infrastructure, the company so far does not have any meaningful experience in setting up cloud computing infrastructure for schools/colleges/universities/institutes. The company is yet to enter into definitive agreements to acquire the machines, software, other peripherals and infrastructural requirements, etc necessary for setting up cloud computing infrastructure. The company is focused primarily on a single sector i.e. education and a substantial portion of the revenue is concentrated from the northern region. Jointeca could face competition from various other larger educational content and software companies. Technology and content up-gradation would remain the key for Jointeca to maintain its revenues in future. FUTURE STRATEGY AND EXPANSION PLANS As per the DRHP, Jointeca plans to: Explore new markets in India and overseas with the help of channel partners in order to increase its revenue. The company expects to create a network of around 2,000 channel partners by Enhance the brand recognition of Jointeca and its portal through various branding programs Increase its revenue by inviting more advertisements on Also, as the portal attracts more students, the company plans to raise its subscription charges in order enhance its revenues. Given that the education sector in India is expected to show healthy growth, Jointeca plans to focus on this industry segment to provide end-to-end solution to this industry. The company plans to develop the ability to deliver solutions across domains and technologies. To increase the offshore component and build flexible frameworks, which will enable the company to deliver cost-effective quality solutions and thereby improve margins. 6 This report has been sponsored by BSE Investors Protection Fund

9 INDUSTRY OUTLOOK Market size of the Indian Education System to cross US$100 billion by FY15 CARE Research expects the Indian Education System to grow from US$66.6 billion during FY11 to US$102.1 billion by FY15 at a CAGR of 11.2%. The sector growth (in terms of enrolment) is expected to be fuelled by higher penetration in the Pre-school and ICT segments of education with projected CAGR of 33.0% and 20.4% respectively over the period FY Indian Education system - Market size Educational Segments FY11* FY15* CAGR% Pre-School K-12 Education ICT Higher Education TOTAL * Amount in US$ billion Source: CARE Research (estimates) Penetration of Pre-school in India to reach 4% by FY15 On the backdrop of growing Indian population in the age group years and the growing presence of the private players including pre-schools operating as chain and at times by corporates, CARE Research expects the penetration of pre-schools in India to grow from 2.5% during FY11 to 4% during FY15. The absence of compliance to / affiliation from any regulatory / educational body and the limited requirement of other infrastructure facilities including land etc is expected to provide a fillip to the rapid expansion of pre-schools in tier-ii & III cities. Correspondingly, the market size of the pre-schools in India is expected to grow from US$0.63 billion during FY11 to US$1.99 billion during FY15 at a CAGR of 33%. Market size of K-12 education in India to nearly double by FY15 CARE Research expects the potential for the Indian K-12 education segment to remain high owing to the huge target population in the age group of 4 19 years; this segment is expected to account for approximately 34.3% of the total Indian population by FY15. Correspondingly, the market size of the Indian K-12 education segment is expected to increase from US$30.9 billion during FY11 to US$56.3 billion during FY15 at a CAGR of 16.2%. Importantly, the share of government-managed K-12 schools is expected to decline from 80.2% during FY11 to 77% of the total K-12 schools by FY15 thereby implying a rise in the proportion of privately-managed institutes. Growing penetration to drive revenues in the ICT education segment The GOI s increased focus on providing computer literacy in schools through various programmes such as ICT@ schools etc coupled with the growing prominence of the use of technology in the private educational institutions is expected to boost the penetration of ICT in the country s schools from 6.1% during FY11 to 9.7% during FY15. CARE Research expects the market size of ICT in schools to grow from US$0.45 billion during FY11 to US$1 billion during FY15 at a CAGR of 20.4%.. Notably, the penetration of ICT in government schools remains lower as compared to the private unaided schools owing to the bureaucratic delays & hurdles in the roll-out of ICT. Enrolment in Higher Education (HE) to grow to 12% by FY15 The growth in the target population of HE in the age group of years is expected to account for approximately 10.8% of the total Indian populace by FY15 coupled with the growing spread of higher education both in the terms of 7 This report has been sponsored by BSE Investors Protection Fund

10 opening of the new HE institutes (the government as well as privately managed) and the variety of courses on offer, which is expected to spur the enrolments in HE. Correspondingly, the enrolments in HE are expected to increase from 10.5% during FY11 to 12% during FY15. Also, the growing acceptance of Distance Education/Online Education for pursuing HE augurs well for the growth of this educational segment. In view of the growing enrolments, the greater number of HE courses on offer and the higher fees associated with HE (especially in case of the private HE institutes), CARE Research expects the market size of the Indian HE to increase from US$34.6 billion during FY11 to US$42.8 billion during FY15 at a CAGR of 5.4%. Growth drivers of education sector Increased government spend on education through various schemes and incentives Rise in income levels of households Rise in private expenditure on education Higher proportion (48.3%) of population in the age group of 0-24 years Introduction of technology in education Growth in the number of private schools operating as chains Entry of corporates in the sector to raise standard of education 8 This report has been sponsored by BSE Investors Protection Fund

11 FINANCIAL ANALYSIS In FY12, Jointeca reported revenue from operations of Rs lakhs. Administrative cost formed the largest portion of cost for Jointeca in FY12. Administrative cost as a percentage of revenue from operations in FY12 was at 42.3%. Employee cost formed around 19.7% of the revenue from operations in FY12. The company reported operating margins and net margins of 22.1% and 4.4% respectively in FY12. The company has no debt on its book as on March 31, The company does not hold any inventory; also the payables are almost negligible. Jointeca has given advances amounting to Rs lakhs to the suppliers of equipments. Jointeca increased its paid-up capital and issued a total of lakh fresh shares (including 39 lakh shares for consideration other than cash), thereby increasing its networth (including goodwill) to Rs lakhs in FY12. The company plans to acquire a property in Agra to construct a new office and development centre for which the company has paid an amount of Rs.60 lakhs as advance for the acquisition of property and Rs.27 lakhs for construction. 9 This report has been sponsored by BSE Investors Protection Fund

12 FINANCIAL STATISTICS Income statement (Rs. lakhs) 2012 Net operating income EBITDA 29.6 Depreciation and amortisation 21.1 EBIT 8.5 Interest - PBT 8.5 Ordinary PAT 5.9 Adjusted PAT 5.9 Adjusted EPS* (Rs.) 0.25 Dividend, including tax - * Calculated based on Ordinary PAT on current face value of Rs.10/- per share Balance sheet (Rs. lakhs) 2012 Networth (excluding goodwill and misc. expenditure) Debt - Deferred tax liabilities 1.1 Total capital employed Net fixed assets (excluding goodwill but including intangibles) Investments - Inventory - Receivables 55.4 Cash and cash equivalents 23.3 Current assets, loans and advances Less: Current liabilities and provisions 13.9 Total assets This report has been sponsored by BSE Investors Protection Fund

13 Ratios analysis Growth in net operating income Growth in EBITDA Growth in PAT Growth in EPS EBITDA margin 22.1% PAT margin 4.4% Return on capital employed (RoCE) 6.8% Return on equity (RoE) 1.3% Net debt-equity (times) - Interest coverage (times) NM Current ratio (times) NM Inventory (days) NM Receivable (days) Price/EPS (P/E) (times) 60 Price/Book value(p/bv) (times) 2.2 Enterprise value (EV)/EBITDA (times) 31.8 Source: DRHP and CARE Research; Valuation ratios are IPO price of Rs.15 per share. Financials for 2012 are for a period from date of incorporation i.e. May 24, 2011to March 31, NA NA NA NA 11 This report has been sponsored by BSE Investors Protection Fund

14 NOTES

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