Jul 11, 2013 03:22 PM IST | Source: CNBC-TV18

Biz model shift, asset sale to better FY14 margins: Everonn

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.

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.

Also read: Beep, beep! 9 large cap stocks to sell ahead of April-June quarter earnings

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.


Q: What about this default of Rs 800 crore?

A: We have not defaulted anybody, it is remaining standard. We have just delayed a few payments.

Q: What kind of revenue and margins are you looking at in FY14-15?

A: The top line will be more or less at the same level as last year. But you will definitely see bottom-line improving. It will definitely be EBITDA positive. I cannot tell you what the bottom-line will be, but you will see improvements in margins. We have moved away from the lower margin business to the higher margin business.

We have also started monetizing most of our investments in our subsidiary companies which were basically investments for product development. So, this year we are starting to monetise some of them.

That should add to the bottom-line because the cost in them is mostly borne. So what is left is the HR cost, the rest of it is going to add to the bottom-line.

Q: Can you tell us what exactly this product that you are talking about? What is the additional HR cost that has to be borne? What kind of returns will you harvest?

A: There is no additional HR cost. These are new businesses which we have invested in terms of developing content, platforms, products which we are now coming into the market. We have started off with two products already in this quarter and have got some good response.

It is a slow response. But we are seeing it happening. The full value of it will come in FY14-15. This year it is just going to be getting the monetisation process started.

Q: So you have no plans to go back to the government projects?

A: We will be doing government projects. We are not going to the BOOT model. We are going to concentrate on what is our strength which is capex like technology.

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