Educomp Solutions: A steal at CMP!

I have mentioned about Educomp in my previous posts here and here

A look at some of the brokerages target on Educomp will give a sense that the stock is a bargain at CMP of Rs 1410 (Feb futures closed at Rs 1341 on Friday). Lets start from aggressive ones to conservative.

CLSA – 4400  (Analyst Bhavtosh Vajpayee & his team was voted No.2 Technology/IT Services & Software Analysts by Institutional Investor in 2008. Bhavtosh Vajpayee was also voted as one of India’s best analyst by Business Today. They also helped Nandan Nilekani in his book “Imagining India” to get an investment analyst perspective)

Merrill Lynch – 3400

SSKI-IDFC – 2800

Credit Suisse – 2700

Kotak – 2550

First Global report criticize that the company does not generate free cash flows at the operating level. Someone should tell them that Bharti turned FCF positive this year and has been a multibagger if one had invested in 2003.

I would highly recommend to read a report on Indian Education sector by CLSA analysts to understand the business,  Clarifications and Letter to shareholders and then take a call on investing in the stock.It always pays to do one’s own homework!

If I had to summarise, Recession-proof business, Scalable business model, well funded for growth, available at decent valuations, company taking measures to be among top 10 in India in Corporate Governance and No payment issues as they bag most orders from Govt. (though debtor days are high)

My advice to Educomp management is to get their Corporate Governance standards rated by Crisil and Appoint one of the Big 4 audit firms as their Statutory Auditors. Appointing GT as their internal auditors wouldn’t give much confidence as they ultimately report to the company management even though its a good move.

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