Educomp Solutions held a conference call to clarify on press reports. Mr Shantanu Prakash, Chairman & Managing Director, addressed the call.
Highlights of the call
- None of the shares of the Company are pledged.
- The Company to announce a large ICT deal in next few days.
- The Company would be calling for presentation from Big 4 Audit firms to select its new auditors.
- International business was 8% of FY08 revenues and would be 6% of FY09 revenues.
- The content cost amortization was Rs 4 crore for H1FY09.
- The margins in ICT segment would be higher I the contracts are more of buy-out of assets rather than BOOT.
Clarification against Claims in media and malicious emails about Educomp being circulated
Re: Claim on assets versus sales – The Company has raised higher funds as compared to sales and sales include sales of traded goods like books, CDs and Toys and have fixed assets additions of Rs 184.84 crore.
Clarification: Of the totals revenues, 50% comes from computers, plasma monitors and Digiboards etc and 30% from set up of IT labs. The Company follows BOOT model wherein it owns the assets and transfers the assets at the end of 5 years. The Company charges Rs 150 per student per month. ICT and SmartClass are both high capex (capital expenditure) businesses.
Re: Claims on Bogus Debtors – The constant average age of the Debtors is from 7-8 months approx.
Clarification: The debtor days for the company are 159 days for FY08 down from 176 days in FY06. The billing for services on a quarterly basis (i.e. after 90 days) and payment is received within the next 30 days i.e. 120 days. For government it is generally 150-160 days in ICT segment. Also company receives cheques from over 650 schools so the high cheques in hand of Rs 50.85 crore. In the education business, schools tend to invest less at the beginning of the financial year, and more towards the end. The Company typically books about 10% – 12% of revenues in Q1, about 18% to 20% in Q2, about 25% to 30% in Q3 and the rest (about 38% to 47%) in Q4. Hence, due to the large billing in Q4, debtor days appear to be high on balance sheet date and must be interpreted in this context.
Re: Claims on the purchase of assets – The Company adds huge amounts of fixed assets every year. Another allegation that intangible assets are purchased from subsidiaries.
Clarification: the Company follows a BOOT model for Smart Class and ICT. The addition for FY08 was for infrastructure implementation in 602 schools under Smart Class segment. The company purchases content form many companies including subsidiary Educomp Learning Pvt. Ltd.
Re: Claims on Subsidiaries and advances to subsidiaries – The Company is diverting the funds through the subsidiaries and channelizing the funds in the capital market.
Clarification: The Company has made many high-profile acquisitions over the years of leading Companies like Learning.com, Ask n Learn etc. These add to the capabilities of the Company and expand geographical reach. Regarding advances to subsidiary mainly Educomp Infrastructure and School Management Services Limited. The company is currently running 11 schools. The vast majority of the advance is spent on the capital-intensive activity of building schools.
Re: Claim on number of employees and manipulation of employee cost.
Clarification: The Company had about 3955 employees. The Company has resource coordinators for Smart Class segment for 1267 schools: 321 (end FY07), 396 (end Q1FY08), 488 (end Q2FY08), 644 (end Q3FY08) and 892 (end Q4FY08) with salary of Rs 7000-8000 per month. The total salary bill was Rs 4.48 crore. The Company has marketing staff of 55 (end Q1FY08), 70 (end Q2FY08), 120 (end Q3FY08) and 165 (end Q4FY08). The total salary bill was Rs 3.62 crore. The Company has 2550 lab assistants for ICT segment for 9970 government schools with average salary Rs 3500-4500 per month. The total salary bill was Rs 11.34 crore. The Company has 55 employees in corporate level with salary bill of Rs 6.6 crore, 180 employees for professional segment with salary bill of Rs 4.92 crore and for content development about 93 employees for salary bill of Rs 2.79 crore. Content development is also outsourced.
Re: Price manipulation in Capital Market and sale of shares by promoters.
Clarification: The share price is determined by informed investors in the capital markets and their view of the company’s growth and prospects. The promoters and management of Educomp have no role to play in the share price either going up or going down. The promoter group has so far sold only 5.07% of their holdings in the company on a fully diluted basis, from IPO till date. Only 846643 shares have been sold and all of it has been disclosed to the Exchanges and statutory authorities. As on January 20, 2009, the promoter group still holds a 55.03% stake in the company.
Re: Claims on utilization of funds – FCCB funds utilized in subsidiaries and fixed deposit
Clarification: The FCCB rules set by the Reserve Bank of India require companies that raise capital through this route to keep such amounts raised via FCCB compulsorily outside the country. These can only be transferred to India when Capex is incurred for the uses for which the capital has been raised – in our case, ICT and SmartClass capital expenditures or for meeting the other pre-stated objectives of the FCCB. Till such time, the funds have to, by law, be parked outside India. The necessary statements on the utilization of the funds raised through FCCB are regularly filed with RBI. The Company is utilizing funds for ICT and Smart Class and for acquisitions. FCCBs outstanding as of December 2008 were US$ 78 million.
Re: Claim regarding auditors: Appointment of small proprietary audit firm concern to complete statuary audit to manipulate the accounts
Clarification: the Company believes its auditor is a reputed Indian firm with reputed clients and any allegations against them is absolutely baseless and false. Educomp has always set standards for disclosure of information – our Quarter 2 FY09 – investor update is an example. The Company will release its corporate governance roadmap in the earnings call.