In an interview to CNBC-TV18, A Srinivasan, MD of Everonn Education spoke about the strategy for the company, going forward. He expects the bottomline to improve as it shifts to higher return yielding models.
We have not defaulted anybody; it is remaining standard. We have just delayed a few payments.
A Srinivasan, MD of Everonn Education expects the company's bottomline to improve in FY14. The shift from the BOOT (build-own-operate-transfer) model to the original model will reflect in the topline going forward, he says. Some assets in its subsidiaries were being monetised, which will also add to its bottomline, he told CNBC-TV18.
The delay in the revenues from capex intensive government projects led to increased financial costs for the company, he says. Currently, a debt of Rs 100 crore has been pared down and expects it to be reduced going forward. Ratings agency, CARE, had recently downgraded the company to ‘default’ as it had debts amounting to Rs 800 crore.
The company is in plans to set up 10-12 K-12 (Kindergarten to Standard XII) schools in FY14.
Below is the edited transcript of his interview to CNBC-TV18.
Q: The sector has come back in focus but quite clearly the fundamentals have taken a big beating for the sector. What really is happening? Was FY13 an aberration? What is the picture looking like for FY14?
A: There has been a shift in the business model. Most of the companies including ourselves are moving away from the BOOT (build-own-operate-transfer) model. One is actually selling a comprehensive package to the government including hardware. It constituted bulk of the revenue but not contribute much to the bottom-line.
All these companies are now realizing that effectively we ended up being big financiers to the government for their hardware purchases. That model is now coming back to the original model, which is selling our core product. It is a process and the technology, which is why you are seeing coming off of the topline. Yes, it was hurting last year. It may hurt a little this year.
But going forward, you will see the bottom-line improving as we are getting out of the pass-through business. We shall now be doing business which we actually do. So that is what is going to help us in the future; not only for our company, but the industry in general.
Q: You all ended up becoming financiers for the government for the hardware. There weren’t any receivables on that count? It was paid-for and was a low margin business. But it was not loss making?
A: No it wasn't. But the timeframe was much longer. When the hardware purchases happen; installing them, getting them operational, takes time. So, effectively when we start a model, we look at three month payment cycle.
But when installation takes three months, the payment cycle goes out of control. That costs you the financial costs which are then borne by the company. To that extent, your financial cost goes out of control.
Q: You had in your previous year made an assessment of your receivables and had provided about Rs 232 crore for doubtful receivables. Did you get any of that money which can go directly to the bottom-line? More importantly, will you have to provide for more in the current year?
A: I don't see much of provisions happening forward. But yes, we are now in the process of talking to the government. In some cases, we might see some returns happening. These things take a long time. You may not see the impact happening this year but next year.
Q: CARE had downgraded your rating because of failure to pay Rs 800 crore of loans to banks. Is the liquidity situation so bad in terms of your cash situation? Would you likely to default further? What is the current cash and debt situation?
A: Currently the debt remains at the same level. We have pared it down marginally by about Rs 100 crore this year. Going forward, yes there is pressure. But we are still maintaining standard status with all the banks loans.
Everonn Edu stock price
On October 01, 2015, Everonn Education closed at Rs 24.70, down Rs 0.25, or 1 percent. The 52-week high of the share was Rs 47.20 and the 52-week low was Rs 19.10.
The latest book value of the company is Rs 55.12 per share. At current value, the price-to-book value of the company was 0.45.
READ MORE ON A Srinivasan, Everonn Education, education, det, capex intensive projects, government prokects, government financers, CARE downgrade, default, loan, asset monetising
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