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What’s wrong with Educomp Solutions?

Educomp Solution was termed as one of the best stock listed in Education Sector. Once termed as a blue chip has lost 90% of it’s market cap in the last two and a half years!

The stock is currently trading at Rs 35.05 on BSE up 4.94% (upper circuit). 52 Week Price range of the stock is Rs 182.70 – Rs 33.40. The stock had been in lower circuit since quite a few trading sessions and only today it has seen a reversal.

Educomp Solutions

Chart Source – Google Finance

The companies management are from elite business schools and once were termed as gurus of management in India, specially Shantanu Prakash who is the founder & CEO of the company. He has been mentioned in various management/biz books, news papers and journals as well.

Stats from Forbes India:

Even with good management what has gone wrong with Educomp?

Poor performance. In quarterly results the company has reported a consolidated net loss of Rs 148 crore for the quarter ended March 2013 (Q4) against a net profit of Rs 62 crore in the corresponding quarter, a year-ago. It’s consolidated total income too is down by 35% at Rs 336 crore on year-on-year basis.

*One of the major clients for Educomp has been Government of India. Now that’s one major hurdle these companies have to tackle. The receipt of money from various projects get’s delayed as it being GOI. (*Confirmations Awaited)

Business Models – This is one major threat. Quality education is becoming free online check out websites like Khan Academy which are widely used in various parts of the world.  Khan Academy is free to use with quality content.

Though these kind of websites are not a big threat to companies like Educomp now but in future they can be.

SP Tulsian told CNBC-TV18, “Considering the Q4 numbers of Educomp Solutions , which are very disturbing, then you have the concerns on the financials, corporate governance, and business model of the company. And every passing day we see the destruction happening in the stock price. (source)

So should you invest?

No. The stock may reach up-to a level of Rs 50 in short term but it’s not advisable to buy it. It’s a risky bet.

Investing makes sense once company gives out clarity on future growth prospects.

You can find an interesting article on Rise & Fall of Educomp on Forbes (here).

Over to you.. What do you think about this stock? Should you buy or wait? Comment & Share your thoughts. 

{ 9 comments… add one }
  • rahul June 15, 2013, 3:31 am

    Buy educomp..(2 to 3 years) tgt 150+.

    • chirag June 15, 2013, 3:48 am

      What is the rational according to you for such a target?
      The stock has fallen so much the target mentioned by you can be possible. More over the company has a BV of Rs 183/-.

  • jacob mathew June 15, 2013, 3:37 am

    the columnist himself is in a dilema

    this is the impression i get after reading the column with all regards to him

    as for me as an investor though i donot have access to the research analysts do have i have found this SECTOR itself being bogged down not this co only like infra and capital goods

    • chirag June 15, 2013, 3:46 am

      @Jacob Yes I have mentioned about the business model of these companies and all of them have under-performed.

  • Sheetal June 16, 2013, 2:02 pm

    Very good Analysis !!!

    • chirag June 16, 2013, 4:35 pm

      Glad you liked it.

  • Rishabh June 17, 2013, 10:05 am

    Apart from all the outside & market related factors affecting the share price of Educomp, one got to have an insight into the internal circumstances of the company. Educomp has not been paying Salaries and other over-due amounts for last 2 years. Owing to this, even the loyal most employees have lost faith in the company and most of them moved on. Had Educomp respected its most robust human assets, it would have atleast had loyal and hard working employees holding back, even in hard times like these. My comment, although is backed by my own bad experience with the company, but is not entirely because of the same. I recently came across a lot people literally crying about their unpaid money. Even Outstanding Salaries for the time that they loyally worked with Educomp. BTW, I was one of those loyal employees who worked with this company for 3 long years but moved on with the similar sorrows. Still have a lot of dues with them, but nobody even bothers to pick my phone calls. Not even HR. The most astounding part is, the company deducted PF amounts from Salaries for almost 2 years, but never deposited the same with PF department. Its actually a CRIME. But, how does that matter to the so called “IIM graduates” mentioned in the article. For all the investors out here, my advice is, A BIG NO!!

    • chirag June 17, 2013, 10:39 am

      Never read about this earlier. So the situation is similar like KFA.
      Glad you brought this to our notice.

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