CORE Education & Technologies Ltd Q2 FY12 Detailed Reportbreport.myiris.com/firstcall/AKHTEXPO_20111208.pdf · CORE’s offerings over assessment, ICT, content, teacher training,

1

SYNOPSIS

CORE Edu. & Tech. Ltd. provides

exhaustive range of products and

solutions spanning across all stages

of education - K12, higher education

and vocational training courses.

During the quarter ended, the robust

growth of Net Profit is increased by

40.01% to Rs. 749.60 million.

During the quarter, the Company

changed the name from ‘Core Projects

& Technologies Limited to ‘CORE

Education & Technologies Limited’’,

w.e.f. 17 Aug. 2011.

CORE has bagged contract from

Gujarat Govt. to implement Computer

Aided Learning (CAL) in 3236 Primary

Schools for Rs. 124 crores.

Net Sales and PAT of the company

are expected to grow at a CAGR of

24% and 28% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 10912.29 4091.82 2250.11 20.63 13.35

FY 12E 13967.73 5509.72 3030.14 27.78 9.91

FY 13E 16202.57 6384.42 3574.80 32.77 8.40

Stock Data:

Sector: IT

Face Value Rs. 2.00

52 wk. High/Low (Rs.) 350.60/231.55

Volume (2 wk. Avg.) 99710.00

BSE Code 512199

Market Cap (Rs in mn) 30028.40

Share Holding Pattern

1 Year Comparative Graph

CORE Edu. & Tech BSE SENSEX

C.M.P: Rs. 275.25 Target Price: Rs. 311.00 Date: Dec. 8th 2011 BUY

CORE Education & Technologies Ltd Result Update: Q2 FY 12

2

Peer Group Comparison

Name of the company CMP(Rs.) Market Cap (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

CORE Edu. & Tech. Ltd 275.25 30028.40 20.63 13.35 2.54 30.00

Polaris Soft. 128.40 1275.40 19.25 6.67 1.39 90.00

Rolta India 60.20 971.20 29.72 2.03 0.42 35.00

Tata Elxi. 197.10 613.73 10.39 18.97 3.40 70.00

Investment Highlights

Q2 FY12 Results Update

CORE Education & Technologies Ltd. has reported net profit of Rs 749.60 million

for the quarter ended on September 30, 2011 as against Rs. 535.39 million in the

same quarter last year, an increase of 40.01%. It has reported net sales of Rs

3532.22 million for the quarter ended on September 30, 2011 as against

Rs.2791.44 million in the same quarter last year, a rise of 26.54%. Total income

grew by 26.48% to Rs. 3544.91 million from Rs. 2802.82 million in the same

quarter last year. During the quarter, it reported earnings of Rs 6.78 a share.

Quarterly Results - Consolidated (Rs in mn)

As At Sep-11 Sep-10 %change

Net sales 3532.22 2791.44 26.54%

PAT 749.60 535.39 40.01%

Basic EPS 6.78 5.17 31.20%

3

� Net Sales & PAT growth

During the quarter, Net sales rose by 26.54% to Rs. 3532.22 million from Rs.2791.44

in the same the quarter last year and the Total Profit for quarter ended September

2011 was Rs.749.60 million grew by 40.01% from Rs.535.39 million compared to

same quarter last year.

� EPS

Due to increase in equity capital the basic EPS of the company stood at Rs. 6.78 for

the quarter ended September 2011 from Rs. 5.17 for the quarter ended September

2010.

4

� Break up of Expenditure

� Dividend declaration

Declaration of Dividend on Equity Shares @ 30% on the paid Equity Share Capital

i.e. Rs. 0.60 per equity share of Rs.2/- each.

� CORE bagged major contracts

Core has bagged its second large contract from Gujarat Govt. to implement

Computer Aided Learning (CAL) in 3236 Primary Schools for 124 cr. The company

is already present in 645 schools in Gujarat through an earlier Information &

Communication Technology (ICT) contract. The company has also bagged similar

CAL & ICT contracts for 2622 schools in Haryana, 1250 in Punjab, 947 in

Maharashtra, 267 in Meghalaya and 73 schools in Nagaland.

� CORE dons new Avatar- CORE Education

CORE Projects & Technologies Ltd., (CORE) announced a change in its name. The

leading global education solutions provider will now be rechristened as CORE

Education and Technologies Ltd.

5

Company Profile

CORE Education and Technologies Limited founded in 2003, Corporate Headquarters

at Mumbai, India and International Headquarters lies at Atlanta and London.

The company is enabling in the creation of a better future across the globe by

providing transformational and innovative solutions for the entire education

continuum of K-12, Higher education and Vocational education.

CORE’s offerings over assessment, ICT, content, teacher training, vocational training,

examination management system, language skills and has globally impacted more

than 85,000 schools, 31 million students & trained over 105,000 teachers.

Listed on the BSE and NSE, CORE is a CMMi level 3 and ISO 9001:2008 certified

company achieving a CAGR of Rs. 10,912 million($240 million) in FY10-11.

CORE has been ranked No. 1 by the Business World in 3 categories viz. Value Ranking

(Revenues between 260Cr – Rs. 1000 Cr), Five year performance, Sector “Information

Technology”. CORE is included in Forbes 200 Asia’s best under a billion companies

2010.

Global presence

CORE Education and Technologies Limited is India’s largest global education company

that has presence across 12 states in India, 20states in the US, 40 LEA and

institutions in the UK, 9 African and 3 Caribbean Countries.

Key Alliances

� Oxford University

� Indira Gandhi National Open University

� Center for Higher Learning – NASA

� Microsoft Gold Partner

� Gujarat Knowledge Society & DVET

� Nationteacher.org

6

Product & solutions

� Assessment and Intervention

� Compliance and Reporting

� Student Information Systems and Campus Management

� Grants and Financial Management

� Professional Development and Consulting

� Government Consulting and Training

� e-Content Creation and Management

� Education Portals

� Child Tracking System

� Vocational Training

Customer Base

CORE’s education customer base is spread across the USA, UK, Africa, Sri Lanka,

Bahamas, Caribbean and India.

In India CORE has worked for many government bodies and offered solutions for their

specific needs. Recently CORE has bagged a prestigious contract worth Rs. 295 crores

from the Haryana Government aimed at benefiting five million students in 2622

schools of which 5 schools will be developed as "Smart" schools.

Some of our key customers in the US include Los Angeles Unified School District,

Texas Education Agency (TEA), North Carolina Department of Public Instruction,

Michigan Department of Education and many such prestigious departments and

institutions. In UK, we have catered to the needs of Shropshire Local Authority, East

Riding Council, Warwickshire Council and many more.

7

Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs. in mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 8469.81 10912.29 13967.73 16202.57

Other Income 38.35 155.76 62.30 65.42

Total Income 8508.16 11068.05 14030.04 16267.99

Expenditure -5602.29 -6976.23 -8520.32 -9883.57

Operating Profit 2905.87 4091.82 5509.72 6384.42

Interest -417.03 -786.97 -1101.76 -1244.99

Gross Profit 2488.84 3304.85 4407.96 5139.43

Depreciation -412.83 -586.23 -615.54 -670.94

Profit before Tax 2076.01 2718.62 3792.42 4468.49

Tax -353.76 -468.51 -762.28 -893.70

Profit after Tax 1722.25 2250.11 3030.14 3574.80

Minority Interest 0.00 0.00 0.00 0.00

Share of P & L of Asso. 0.00 0.00 0.00 0.00

Net Profit 1722.25 2250.11 3030.14 3574.80

Equity Capital 197.19 218.19 218.19 218.19

Reserves 8519.70 11608.24 14638.38 18213.18

Face Value 2.00 2.00 2.00 2.00

EPS 17.47 20.63 27.78 32.77

8

Quarterly Ended Profit & Loss Account (Consolidated)

Value (Rs. In mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E

Description 3m 3m 3m 3m

Net Sales 2976.62 3255.30 3532.22 3708.83

Other Income 25.92 10.65 12.69 11.17

Total Income 3002.54 3265.95 3544.91 3720.00

Expenditure -1776.6 -2014.83 -2138.27 -2262.39

Operating Profit 1225.94 1251.12 1406.64 1457.61

Interest -195.38 -261.10 -325.47 -358.02

Gross Profit 1030.56 990.02 1081.17 1099.59

Depreciation -180.92 -156.16 -130.56 -133.17

Profit before Tax 849.64 833.86 950.61 966.42

Tax -146.87 -172.12 -201.01 -187.49

Profit after Tax 702.77 661.74 749.60 778.94

Minority Interest 0.00 0.00 0.00 0.00

Share of P & L of Asso. 0.00 0.00 0.00 0.00

Net Profit 702.77 661.74 749.60 778.94

Equity Capital 218.29 221.15 221.15 221.15

Face Value 2.00 2.00 2.00 2.00

EPS 6.44 5.98 6.78 7.04

9

Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 98.60 109.10 109.10 109.095

EBITDA Margin (%) 34.31% 37.50% 39.45% 39.40%

PBT Margin (%) 24.51% 24.91% 27.15% 27.58%

PAT Margin (%) 20.33% 20.62% 21.69% 22.06%

P/E Ratio (x) 15.76 13.35 9.91 8.40

ROE (%) 19.76% 19.03% 20.40% 19.40%

ROCE (%) 26.99% 23.13% 25.88% 25.48%

Debt Equity Ratio 0.41 0.71 0.59 0.50

EV/EBITDA (x) 9.34 7.34 5.45 4.70

Book Value (Rs.) 88.41 108.40 136.18 168.95

P/BV(X) 3.11 2.54 2.02 1.63

Charts:

Net Sales & PAT

10

P/E Ratio(x)

Debt Equity Ratio

11

EV/EBITDA (x)

P/BV(x)

12

Outlook and Conclusion

� At the current market price of Rs.275.25, the stock is trading at 9.91 x FY12E

and 8.40 x FY13E respectively.

� Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.27.78 and Rs.32.77 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 24% and

28% over 2010 to 2013E respectively.

� On the basis of EV/EBITDA, the stock trades at 5.45 x for FY12E and 4.70 x for

FY13E.

� Price to Book Value of the stock is expected to be at 2.02 x and 1.63 x

respectively for FY12E and FY13E.

� We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.311.00 for Medium to Long term investment.

Industry Overview

Over the past few years, the Indian information technology (IT) and IT enabled Services

(ITeS) industry has been on a steady growth trajectory. The IT industry, alone, has

played a pivotal role in placing India on the world map as a major knowledge-based

economy and outsourcing hub. The major sub-segment, that entails Business Process

Outsourcing (BPO), is re-inventing itself and experiencing a paradigm shift from being

a volume-oriented proposition to a value-oriented proposition by expanding its scope

of services and providing substantial high-end solutions in the areas of Data Analytics,

Legal Process Outsourcing, etc.

The number of internet users in India crossed the 100-million mark in September

2011, growing 13 per cent over last year's figure of 87 million, according to the latest

report of the Internet and Mobile Association of India (IAMAI) co-prepared with

research firm IMRB. The study anticipates India's internet population to grow to 121

million by December 2011. Further, the country's broadband subscriber base stood at

13

12.69 million in August 2011, according to data released by the Telecom Regulatory

Authority of India (TRAI).

Competitive Landscape

After personal computers (PCs) and laptops, tablets are mushrooming as a major

competitive avenue wherein vendors are striving hard to launch more affordable

devices for the Indian market. Second quarter of 2011experienced the release of the

iPad2 in India in less than 50 days after its US launch while Samsung is scouting for

40 per cent share of the Indian tablet market in 2011.

In the enterprise software segment, US giant Oracle claims to cater around 7,000

clients across the Indian government and private sectors; recent wins being Punjab

National Bank (PNB) - India's second-largest public sector bank and Hindustan

Petroleum Corporation (HPCL) - another Indian public sector organ. Meanwhile, Indian

IT companies like Wipro, Infosys, TCS, HCL and Mahindra Satyam are developing their

technologies to entail cloud computing applications and solutions for various

segments ranging from financial services and banking to manufacturing.

IT & ITeS - Key Developments and Investments

Between April 2000 and August 2011, the computer software and hardware sector

received cumulative foreign direct investment (FDI) of US$ 10,787 million, according to

the Department of Industrial Policy and Promotion (DIPP).

• Monster India has launched an online campus hiring initiative - 'Monster

College' – wherein it will collaborate with educational institutions across India

and connect them with over 20,000 employers for campus placements.

• Investor Relations Global Rankings (IRGR), a New York-based organization, has

ranked Technology giant Infosys as the country's best company for corporate

governance practices, financial disclosure procedures, IR website and online

annual report. There were more than 80 companies that registered themselves

for the rankings.

• Tower infrastructure company Indus Tower is looking for a partner to provide

end-to-end IT solutions and Indian tech-biggies like Infosys, IBM and Wipro are

14

in discussions with the former for the same. The contract, potentially in the

range of Rs 2,430-2,916 crore (US$ 500-US$ 600 million), would involve areas

such as infrastructure management, application development and other related

managed services and would span for 8-10 years. Indus Tower, a joint venture

firm between Bharti Group, Idea Cellular and Vodafone Essar, owns 110,000

towers and operates 16 out of the 22 telecom circles.

• Google, with its partner web hosting firm HostGator, has announced that it will

offer free web domain names to small and medium businesses (SMBs) in India

in order to boost internet usage in Asia's third largest economy. The company

will maintain the websites for a year without any charges and at the end of the

first year, users will be asked to pay a nominal fee if they wish to renew their

domain name. India is shelter to around 8 million SMBs of which about

400,000 have a website and 100,000 have active online presence, said Google.

Hence, the market poses a great potential for growth.

Cloud Computing – The Emerging Technology

The model of cloud computing has attracted attention of organizations of all sizes as

the technology offers lower operational costs, scalability and mobility at every level.

Indian companies are increasingly adopting 'hybrid cloud' (a mix of private and public

cloud) to address their concerns of data privacy as well.

Indian businesses and government agencies are expected to create huge demand for

guidance in the usage of cloud computing services. There are already more than 50

cloud computing service providers in the Indian market. Meanwhile, Indian internet

services providers (ISPs) and data centre service providers including Bharti Airtel, Sify,

Trimax, and NetMagic are investing applications and bandwidth to support new cloud

service offerings.

NTT Communications Corp plans to invest US$ 1.58 billion in Europe and India over

2011-15 to develop its cloud computing business at a faster pace while AWS, the

world's largest cloud-based service provider, that forms about 2 percent of Amazon's

revenues, is projected to become the online retail giant's next most-profitable business

in India.

15

Soaring e-Commerce

The US$ 10 billion Indian e-commerce market is expanding exponentially (it grew 47

per cent in 2011 to reach the present size) as rising internet penetration is making

customers buy more and more stuff online. Investors are also betting high in the

industry; they poured around US$ 200 million into Indian e-commerce start-ups in

last couple of years.

As a result of such growth, e-retailers, who want to focus on their core functionalities,

are expected to outsource bulky back-end operations (such as customer care, order

processing, invoice processing, finance and accounts et al) and emerge as a

substantial source of revenue to BPOs.

Retail brands are expected to bring a great transformation in online space. Women's

apparel retail brand Biba and tyre brand Bridgestone have become available online

recently. IAMAI expects online advertising to increase by 30-40 per cent in 2011-12 on

back of increased internet usage by retailers.

Government Initiatives

The government of India is leaving no stone unturned to accelerate growth of IT & ITeS

sector in the country. Earlier in 2011, the ministry had revealed its intentions to

launch e-governance initiatives that would facilitate rolling out mobile governance and

electronic service delivery bill.

Sufficient funds have also been earmarked to connect Indian villages and classrooms

across the country with knowledge centres wherein the government aims to provide

broadband connectivity to all the village panchayats by 2012.

Mr. Sachin Pilot, Minister of State for Communications and IT believes that

broadening connectivity in such a manner would improve the way government

interacts with people.

Further, the Ministry of Communications and Information Technology has revealed its

intentions to attract higher investments for IT sector in smaller cities and make

16

software services sector grow more than three times to US$ 300 billion by 2020. The

government also wants to increase the IT exports from US$ 59 billion currently to US$

200 billion by 2020. The projections and focus areas were laid in a draft national

policy which also stated that the government will endorse innovation, research and

development (R&D) in advanced technologies and application development in areas

such as cloud computing, mobile value-added services and social media.

The policy also aimed at employing additional 10 million skilled people in the

information communication technology sector. The sector currently has manpower

strength of 2.5 million skilled people.

IT & ITeS in India - Road Ahead

The Indian market for IT products and services is expected to consolidate its growth

achieved in 2010 and increase from US$ 19.7 billion in 2010 to US$ 41.2 billion by

2015, according to India Information Technology Report for the third quarter of

2011by Business Monitor International (BMI). BMI estimates that the Indian market

for PCs (including notebooks and accessories) will be worth around US$ 8 billion in

2011, higher from US$ 6.8 billion in 2010 while it projects IT services market at

around US$ 7.5 billion in 2011 which would further swell to a size of US$ 16.9 billion

by 2015. The report has estimated a compounded annual growth rate (CAGR) of 18

per cent for Indian software market over the span of 2011-2015.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

Firstcall India Equity Research: Email – [email protected]

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

D. Ashakirankumar Automobile

A. Rajesh Babu FMCG

H.Lavanya Oil & Gas

Dheeraj Bhatia Diversified

Manoj kotian Diversified

Nimesh Gada Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: [email protected]

www.firstcallindiaequity.com