EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD.OBJECTIVES OF THE STUDY PRIMARY OBJECTIVE: To do equity analysis of Educomp Solutions ltd. SUB-OBJECTIVES: • • • • • • • • To justify the current investment in the chosen securities. To understand the movement and performance of stocks. To recommend increase/decrease of investment in a particular security. To do Fundamental analysis. To do the technical analysis. To do the swot analysis. To study the IT & Education sector and find its future prospects. To analyse the balance sheet and income statement in order to know the position of the company. • To apply theoretical knowledge into practical. Page 1 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CHAPTER 1 INTRODUCTION TO BROKERAGE HOUSES AND COMPANY Page 2 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. STOCK BROKERAGE HOUSES Stock brokerage firms have been an established feature in the financial industry for nearly one thousand years. Dealing in debt securities, brokers employ a variety of systems to aid investors with the purchase and sales of stocks and bonds in a variety of markets. The firms have changed over the years, growing to massive organizations that can affect the entire financial sector positively or negatively with their performance. Changing with the times, the early twenty-first century saw a rise of online trading that enabled the average investor to take part in the stock market for the first time. HISTORY During the 11th century, the French began regulating and trading agricultural debts on behalf of the banking community, creating the first brokerage system. In the 1300s, houses began to be set up in major cities like Flanders and Amsterdam in which commodity traders would hold meetings. Soon, Venetian brokers began to trade in government securities, expanding the importance of the firms. In 1602, the Dutch East India Company became the first publicly traded company in which shareholders could own a portion of the business. The stocks improved the size of companies and became the standard bearer for the modern financial system. The earliest brokerage firms were established in London coffee houses, enabling individuals to purchase stocks from a variety of organizations. They formally founded the London Stock Exchange in 1801 and created regulations and memberships. The system was copied by brokerage firms across the world, most notably on Chestnut Street in Philadelphia. Soon, the US exchange was moved to New York City and various firms like Morgan Stanley and Merrill Lynch were created to assist in the brokering of stocks and securities. The firms limited themselves to researching and trading stocks for investment groups and individuals. During the 1900s, stock brokerage firms began to move in a direction of market makers. They adopted the policy of quoting both the buying and selling price of a security. This allows a firm to make a profit from establishing the immediate sale and purchase price to an investor. The conflict with brokerage firms setting prices creates the concern that insider trading can result from the sharing of information. Regulators have enforced a system called Chinese Walls to prevent communication between different departments within the brokerage Page 3 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. company. This has resulted in increased profits and greater interconnection within the financial industry. EFFECTS The creation of high valued brokerage firms like Goldman Sachs and Bear Sterns created a system of consolidation. Working with hundreds of billions of dollars, the larger firms began to merge and take over smaller firms in the last half of the 20th century. Firms like Smith Barney were acquired by Citigroup and other investment banks, creating massive financial institutions that valued, held, sold, insured and invested in securities. This conglomeration of the financial sector created an environment of volatility that caused a chain reaction when other firms like Bear Sterns and Lehman Brothers filed for bankruptcy. Trillions of dollars of assets were tied together in different companies and resulted in a large economic collapse in late 2008. FEATURES A large share of the brokerage firms have moved to an online format. The added convenience and personal attention paid to the small investor has resulted in a large influx of activity. In addition, the fact that the online resources offer up-to-the-minute pricing and immediate trades makes their format appealing to the modern user. Discounted commissions have lessened the price of trades, giving access to a wider swath of people and adding liquidity to the market. The role of the stock brokerage firm is ever-changing and proves to be a boon for the future of the financial industry. BROKERAGE HOUSES IN INDIA Indian stock market is semi-efficient by nature and, is considered as one of the most respected stock markets, where information is quickly and widely disseminated, thereby allowing each security’s price to adjust rapidly in an unbiased manner to new information so that, it reflects the nearest investment value. And mainly after the introduction of electronic trading system, the information flow has become much faster. But sometimes, in developing countries like India, sentiments play major role in price movements, or say, fluctuations, where investors find it difficult to predict the future with certainty. Some of the events affect economy as a whole, while some events are sector specific. Even in one particular sector, Page 4 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. some companies or major market player are more sensitive to the event. So, the new investors taking exposure in the market should be well aware about the maximum potential loss, i.e. Value at risk. INDIABULLS Indiabulls Group is one of the top business houses in the country with business interests in Real Estate, Infrastructure, Financial Services, Retail, Multiplex and Power sectors. Indiabulls Group companies are listed in Indian and overseas financial markets. The Networth of the Group exceeds USD 2 billion. Indiabulls has been conferred the status of a “Business Superbrand” by The Brand Council, Superbrands India. Indiabulls Financial Services is an integrated financial services powerhouse providing Consumer Finance, Housing Finance, Commercial Loans, Life Insurance, Asset Management and Advisory services. Indiabulls Financial Services Ltd is amongst 68 companies constituting MSCI - Morgan Stanley India Index. Indiabulls Financial is also part of CLSA’s model portfolio of 30 Best Companies in Asia. Indiabulls Financial Services signed a joint venture agreement with Sogecap, the insurance arm of Societé Generale (SocGen) for its upcoming life insurance venture. Indiabulls Financial Services in partnership with MMTC Limited, the largest commodity trading company in India, is setting up India’s 4th MultiCommodities Exchange. Indiabulls Securities Limited is India’s leading capital markets company with All-India Presence and an extensive client base. Indiabulls Securities possesses state of the art trading platform, best broking practices and is the pioneer in trading product innovations. Power Indiabulls, in-house trading platform, is one of the fastest and most efficient trading platforms in the country. Indiabulls Securities Limited is the first and only brokerage house to be assigned the highest rating BQ – 1 by CRISIL. RELIGARE SECURITIES LIMITED (RSL) A 100% subsidiary of Religare Enterprises Limited is a leading equity and securities firm in India. The company currently handles sizeable volumes traded on NSE and in the realm of online trading and investments; it currently holds a reasonable share of the market. The major activities and offerings of the company today are Equity Broking, Depository Participant Services, Portfolio Management Services, International Advisory Fund Management Page 5 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Services, Institutional Broking and Research Services. To broaden the gamut of services offered to its investors, the company offers an online investment portal armed with a host of revolutionary features. RSL is a member of the National Stock Exchange of India, Bombay Stock Exchange of India, Depository Participant with National Securities Depository Limited and Central Depository Services (I) Limited, and is a SEBI approved Portfolio Manager. Religare has been constantly innovating in terms of product and services and to offer such incisive services to specific user segments it has also started the NRI, FII, HNI and Corporate Servicing groups. These groups take all the portfolio investment decisions depending upon a client’s risk / return parameter. Religare has a very credible Research and Analysis division, which not only caters to the need of our Institutional clientele, but also gives their valuable inputs to investment dealers. INDIA INFOLINE GROUP The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking. India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.com. The company has a network of 976 business locations (branches and sub-brokers) spread across 365 cities and towns. It has more than 800,000 customers. Page 6 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INTRODUCTION TO COMPANY SMC LTD. SMC Group, a leading Financial services provider in India is a vertically integrated investment solutions company, with a pan-india presence. Over the Years, SMC has expanded its domestic & international operations. Existing network includes regional offices at Mumbai, Kolkata, Chennai, Bangalore, Cochin, Ahmedabad, Jaipur, Hyderabad and 1350+ offices across over 350 cities in India. SMC has plans to grow its network to 2,000 offices across 500+ cities in the next 3 years. The company has expanded Internationally, and has established office in Dubai Gold and Commodities Exchange(DGCX).Its products and Services include Institutional and retail brokerage of equity, commodity, currency,derivatives,online trading , investment banking, depository services, clearing services, IPOs and mutual funds distribution, Protfolio management, wealth advisory,insurance broking,equity and commodity research. SMC is one of the most active trading organization in India, averaging over 3,50,000 trades per day. Currently, SMC has a highly efficient workforce of over 3,000 employees & one of the largest retail network in India currently serving the financial needs of more than 5,50,000 satisfied investors.SMC clocked a turnover of over US $ 250 Billion in 3rd quarter of FY 0809. Sanlam Group,One of the largest listed financial services group in South Africa has entered into 50:50 joint venture with SMC for setting up wealth Management and Asset Management business in India,managing over US $ 60 Billion of client assets and operating in over US $ 60 Billion of client assets and operating in over 30 countries globally including UK, USA, Switzerland, Luxembourg, Dublin, Australia etc. Vision To be a global major in providing complete investment solutions, with relentless focus on investor care, through superior efficiency and complete transparency. Page 7 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CORE VALUES Page 8 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. COMPANY’S APPROACH:- VALUE FOR INVESTOR’S TRUST: SMC values the trust reposed in by the clients and is committed to uphold it at all cost. INTEGRITY AND HONESTY: Integrity, honesty and transparency are the underlying principles in all our dealings. PERSONALISZED ATTENTION:The most valued asset is our relationship with the clients, which has been built over years by giving personalized attention. NETWORK WHICH WORKS:SMC has a vast network extending to 350+ cities/towns ensuring easy accessibility, convenience and hassle free trading experience. RESEARCH BASED ADVISORY SERVICES: SMC offers proactive and timely world class research based advice and guidance to its clients to enable them to take informed decisions. COMPANY’S SERVICES BROKING Equities, Derivatives, Currency, Commodities, Online Trading, Commodities trading in international market through DGCX. INVESTMENT BANKING IPOs, Follow on offers, M&A, Private equity, Debt syndication, ESOP, valuation,etc. DISTRIBUTION OF FINANCIAL PRODUCTS Insurance broking for life and Non-Life products, Distribution of IPOs and Mutual Funds (with web based capabilities) Mobilization of company fixed deposits and non convertible debentures, Distribution of bond products- Capital gain/tax saving bonds, Govt. of India 8% taxable bonds,etc. DEPOSITORY AND CLEARING SERVICES Page 9 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Depository Services for shares and commodities, Clearing Services in NSE (F&O, Currency), BSE (F&O, Currency) MCX (Commodities, Currency) and DGCX. WEALTH MANAGEMENT Wealth Advisory & Arbitrage Management for HNIs and Corporate. NRI AND INSTITUTIONAL DESK Dedicated team for NRI and Institutional desk. RESEARCH:- SMC is having a high tech in-house research wing equipped with highly experienced personnel & latest technical tools to give right advice at the right time to its clients. The research based advisory support is forwarded to the clients in the following reports. • Research Magazine- Wise Money (Weekly) & Wise Fund Focus (Monthly) distributed to clients. • • • • Research Based SMS support to clients for both equities and commodities. Live interactive chat rooms with the market experts during trading hours. Fundamental Research reports sent to clients. Daily market update reports sent through E-mails twice daily (morning mantra and evening buzzer). • Investor awareness seminars conducted across the country on a regular basis. Page 10 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. THE GROWTH STORY Page 11 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CHAPTER 2: REVIEW OF LITERATURE Page 12 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. LITERATURE REVIEW Similar work that is related to Equity Research and Stock Analysis has been undertaken by several authors. Some of the thoughts I am briefing out here : In this article author reports the results of a questionnaire survey conducted in February 1995 on the use by foreign exchange dealers in Hong Kong of fundamental and technical analyses to form their forecasts of exchange rate movements. Our findings reveal that>85% of respondents rely on both fundamental and technical analyses for predicting future rate movements at different time horizons. At shorter horizons, there exists a skew towards reliance on technical analysis as opposed to fundamental analysis, but the skew becomes steadily reversed as the length of horizon considered is extended. Technical analysis is considered slightly more useful in forecasting trends than fundamental analysis, but significantly more useful in predicting turning points. Interest rate-related news is found to be a relatively important fundamental factor in exchange rate forecasting, while moving average and/or other trend-following systems are the most useful technical technique. (Yu-Hon Lui and David Mole) In this another study the author documents the behaviour of earnings, abnormal stock returns, analysts' earnings forecasts, and accounting accruals following years in which companies report negative annual earnings. Changes in accounting accruals (earnings minus operating cash flows) frequently are used as proxies for managerial manipulation of earnings numbers. Our evidence indicates that earnings typically increase sharply in the year following a loss. The earnings increases are due to improved operating cash flows, not to accounting “window dressing.” However, financial analysts expect even better earnings performance than the rebounding firms are able to provide. Investors also appear not to understand the post-loss behaviour of annual earnings. Therefore, the market commonly is disappointed by the earnings increases, and the result, on average, is negative excess stock returns. The excess returns are correlated with analysts' earnings forecast errors, which proxy for the market's failure to understand post-loss earnings behaviour. (Michael Ettredge Richard Toolson Steve Hall Chongkil Na, Oct 2002) Page 13 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Organizational theorists have advanced models of individuals' determination of equitable payment for work. Current demands by minority and women's groups stress equitable treatment by formal organizations. This article reviews primary areas in which the concept of equitable treatment has centered, notes findings, and discusses significant theoretical/methodological issues. The relationship of the equity concept and behavioral models is discussed, and frameworks for future research are presented. (Equity Theory: The Recent Literature, Methodological Considerations, and New Directions, by Michael R. Carrell and John E. Dittrich) Equity theory proposes that individuals who perceive themselves as either underrewarded or overrewarded will experience distress, and that this distress leads to efforts to restore equity. This paper describes a new construct, equity sensitivity, and proposes that reactions to equity/inequity are a function of an individual's preferences for different outcome/input ratios. The construct is delineated through a series of propositions, and implications for equity research in organizations are discussed. (A New Perspective on Equity Theory: The Equity Sensitivity Construct, by Richard C. Huseman, John D. Hatfield and Edward W. Miles ) This paper reviews the existing literature on venture capital and private equity. The paper emphasises the importance of examining venture capital in the light of recent developments in corporate finance and its distinctiveness from other forms of finance. In order to understand current developments, the paper adopts a framework which combines industry/market and firm levels of analysis. Existing literature is reviewed using this framework. Industry level issues relate to rivalry between firms, the power of suppliers and customers, and the threats from new entrants and substitutes. Firm level issues concern deal generation, initial and second screening, valuation and due diligence, deal approval and structuring, post-contractual monitoring, investment realisation, and entrepreneurs' exit and recontracting with venture capitalists. This is followed by a review of the evidence on the performance of venture capital firms. The paper suggests potentially fruitful areas for further research including the extension of analysis to cover all stages of venture capital investment, examination of the inter-linkages between industry and firm level issues and between stages in the venture capital process, as well as further analysis of deal structuring issues and investment realisation and recontracting. (Mike Wright, Centre for Management Buy-out Research, University of Nottingham, Nottingham, UK.) Page 14 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Equity theory was applied to retail exchange situations to test hypotheses about subjects' perceptions of inequity and behaviors they would perform. Subjects in Group 1 made evaluative ratings of 16 hypothetical situations in which two sources of inequity, high price and poor service, were introduced, along with varying levels of shopping frequency and item cost. Subjects perceived high price inequity situations as less fair than low ones, and high service inequity situations as less fair than low ones when price inequity was low. When price inequity was high, subjects perceived high shopping frequency situations less fair than low ones. Subjects in Group 2 chose the behavior they would be most likely to perform in each situation. When inequity was present, most subjects chose leaving the store, although several chose complaining about price or service when shopping frequency was also high.( An Application of Equity Theory to Buyer-Seller Exchange Situations, by John W. Huppertz, Sidney J. Arenson and Richard H. Evans ) The rapid growth of research on organizational citizenship behaviors (OCBs) has resulted in some conceptual confusion about the nature of the construct, and made it difficult for all but the most avid readers to keep up with developments in this domain. This paper critically examines the literature on organizational citizenship behavior and other, related constructs. More specifically, it: (a) explores the conceptual similarities and differences between the various forms of "citizenship" behavior constructs identified in the literature; (b) summarizes the empirical findings of both the antecedents and consequences of OCBs; and (c) identifies several interesting directions for future research. (Journal of Management, Vol. 26, No. 3, 513-563 (2000)) This literature review examines equity status in vocational education and the impact of federal legislation. The theory base for gender equity research is analyzed, including females in nontraditional occupations, preparation for family-work interaction, access to opportunities, and assessment of equity intervention programs.( Vocational Education Gender-Equity Research Priorities for the 1990s.Authors: Burge, Penny L.) Page 15 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CHAPTER 3: RESEARCH METHODOLOGY Page 16 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. RESEARCH METHODOLOGY & DESIGN TYPE OF STUDY The research has been based on secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of stocks. The knowledge thus gained from this preliminary study forms the basis for the further detailed Descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually identified and important ones short listed. SECURITIES ANALYSIS An analysis of securities and the organization and operation of their markets. The determination of the risk reward structure of equity and debt securities and their valuation. Special emphasis on common stocks. Other topics include options, mutual fluids and technical analysis. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. Page 17 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Main differences between the two types of analysis: Fundamental analysis Technical analysis Focuses on what ought to happen in a Focuses on what actually happens in a market Factors involved in price analysis: 1. Supply and demand cycles market Charts are based on market action involving: 1.Price 2.Volume 3. Open interest (futures only) 2.Seasonal 3.Weather 4. Government policy Page 18 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. TECHNICAL ANALYSIS Technical analysis can be conditionally divided into some main parts such as: • • • Types of charts Graphical methods Analytical methods Technical analysis is concerned with predicting future price trends from historical price and volume data. The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates. A technical analysis is based on three axioms: • • • Movement of the market considers everything Movement of prices is purposeful History repeats itself SUPPORT AND RESISTANCE Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower. Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent them from rising higher. The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expectations. Page 19 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Support levels indicate the price where the most of investors believe that prices will move higher. Resistance levels indicate the price at which the most of investors feel prices will move lower. Role Reversal When a resistance level is successfully broken through, that level becomes a support level. Similarly, when a support level is successfully broken through, that level becomes a resistance level. Three Movements Markets fluctuate in more than one time frame at the same time: Nothing is more certain than that the market has three well defined movements which fit into each other. • The first is the daily variation due to local causes and the balance of buying and selling at that particular time. Page 20 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • The secondary movement covers a period ranging from ten days to sixty days, averaging probably between thirty and forty days. • The third move is the great swing covering from four to six years. • Bull markets are broad upward movements of the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend. • Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement. • Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements. Various cycles have subsequently been identified within these broad categories. Primary Movements have Three Phases The general conditions in the market: Bull markets • • • Bull markets commence with reviving confidence as business conditions improve. Prices rise as the market responds to improved earnings Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results. Bear markets • Bear markets start with abandonment of the hopes and expectations that sustained inflated prices. • Prices decline in response to disappointing earnings. Page 21 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value. Trends Bull Trends A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline, between rallies, ends above the lowest point of the previous decline. Successive higher highs and higher lows. The start of an up trend is signaled when price makes a higher low (trough), followed by a rally Start = above higher the Low + previous break above high previous (peak): High. The end is signaled by a lower high (peak), followed by a decline below the previous low (trough): End = lower High + break below previous Low. A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend. Page 22 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. MOVING AVERAGES Moving averages are one of the oldest and most popular technical analysis tools. A moving average is the average price of a financial instrument over a given time. The moving average represents the consensus of investor’s expectations over the indicated period of time. The classic interpretation of a moving average is to use it in observing changes in prices. Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average. Page 23 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. FUNDAMENTAL ANALYSIS Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. I. ECONOMIC ANALYSIS: POLITICO-ECONOMIC ANALYSIS: No industry or company can exist in isolation. It may have splendid managers and a tremendous product. However, its sales and its costs are affected by factors, some of which are beyond its control - the world economy, price inflation, taxes and a host of others. It is important, therefore, to have an appreciation of the politico-economic factors that affect an industry and a company. II. INDUSTRY ANALYSIS The importance of industry analysis is now dawning on the Indian investor as never before. 1. BARRIER TO ENTRY New entrants increase the capacity in an industry and the inflow of funds. The question that arises is how easy is it to enter an industry? There are some barriers to entry: a) Economies of scale b) Product differentiation c) Capital requirement d) Government policy 2. THE THREAT OF SUBSTITUTION New inventions are always taking place and new and better products replace existing ones. An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in. An industry where this occurs constantly is the Page 24 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. packaging industry -bottles replaced by cans, cans replaced by plastic bottles, and the like. To ward off the threat of substitution, companies often have to spend large sums of money in advertising and promotion. 3. BARGAINING POWER OF THE BUYERS In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly forcing prices down, demanding better services or higher quality and this often erodes profitability. 4. BARGAINING POWER FOR THE SUPPLIERS An industry unduly controlled by its suppliers is also under threat. 5. RIVALRY AMONG COMPETITORS Rivalry among competitors can cause an industry great harm. This occurs mainly by price cuts, heavy advertising, additional high cost services or offers, and the like. III. COMPANY ANALYSIS: At the final stage of fundamental analysis, the investor analyzes the company. This analysis has two thrusts: How has the company performed vis-à-vis other similar companies and company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an extent a reflection of the economy, the political situation and the industry. What does one look at when analyzing a company? The different issues regarding a company that should be examined are: • • • The Management The Company The Annual Report How has the Page 25 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. RATIOS 1. Earnings per Share – EPS 2. Price to Earnings Ratio – P/E 3. Projected Earning Growth – PEG 4. Price to Sales – P/S 5. Price to Book – P/B 6. Dividend Payout Ratio 7. Dividend Yield 8. Book Value 9. Return on Equity No single number from this list is a magic bullet that will give a buy or sell recommendation by itself, however as one begin developing a picture of what he want in a stock, these numbers will become benchmarks to measure the worth of potential investments. Earnings per Share One of the challenges of evaluating stocks is establishing an “apples to apples” comparison. What I mean by this is setting up a comparison that is meaningful so that the results help you make an investment decision. Comparing the price of two stocks is meaningless as I point out in this analysis “Why PerShare Price is Not Important.” Similarly, comparing the earnings of one company to another really doesn’t make any sense, if think about it. Using the raw numbers ignores the fact that the two companies undoubtedly have a different number of outstanding shares. For example, companies A and B both earn $100, but company A has 10 shares outstanding, while company B has 50 shares outstanding. Which company’s stock do you want to own? It makes more sense to look at earnings per share (EPS) for use as a comparison tool. You calculate earnings per share by taking the net earnings and divide by the outstanding shares. EPS = Net Earnings / Outstanding Shares Page 26 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Using example above, Company A had earnings of $100 and 10 shares outstanding, which equals an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50 shares outstanding, which equals an EPS of 2 ($100 / 50 = 2). So, one should go buy Company A with an EPS of 10, right? Maybe, but not just on the basis of its EPS. The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn’t tell whether it’s a good stock to buy or what the market thinks of it. For that information, we need to look at some ratios. Before move on, it should note that there are three types of EPS numbers: • • • Trailing EPS – last year’s numbers and the only actual EPS Current EPS – this year’s numbers, which are still projections Forward EPS – future numbers, which are obviously projections Price to Earnings Ratio If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E). The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.) The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one should consider. P/E by taking the share price and dividing it by the company’s EPS. P/E = Stock Price / EPS For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5). The P/E gives an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some Page 27 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price. Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth. What is the “right” P/E? There is no correct answer to this question, because part of the answer depends on willingness to pay for earnings. The more are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the “right” P/E is for that particular stock in decision-making process. Another investor may not see the same value and think your “right” P/E is all wrong. PEG Ratio In my analysis on Price to Earnings Ratio or P/E , I noted that this number gave you an idea of what value the market place on a company’s earnings. The P/E is the most popular way to compare the relative value of stocks based on earnings because you calculate it by taking the current price of the stock and divide it by the Earnings per Share (EPS). This tells you whether a stock’s price is high or low relative to its earnings. Some investors may consider a company with a high P/E overpriced and they may be correct. A high P/E may be a signal that traders have pushed a stock’s price beyond the point where any reasonable near term growth is probable. However, a high P/E may also be a strong vote of confidence that the company still has strong growth prospects in the future, which should mean an even higher stock price. Because the market is usually more concerned about the future than the present, it is always looking for some way to project out. Another ratio you can use will help you look at future earnings growth is called the PEG ratio. The PEG factors in projected earnings growth rates to the P/E for another number to remember. calculate the PEG by taking the P/E and dividing it by the projected growth in earnings. Page 28 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. PEG = P/E / (projected growth in earnings) For example, a stock with a P/E of 30 and projected earning growth next year of 15% would have a PEG of 2 (30 / 15 = 2). What does the “2” mean? Like all ratios, it simply shows you a relationship. In this case, the lower the number the less you pay for each unit of future earnings growth. So even a stock with a high P/E, but high projected earning growth may be a good value. Looking at the opposite situation; a low P/E stock with low or no projected earnings growth, see that what looks like a value may not work out that way. For example, a stock with a P/E of 8 and flat earnings growth equals a PEG of 8. This could prove to be an expensive investment. A few important things to remember about PEG: • • It is about year-to-year earnings growth It relies on projections, which may not always be accurate Price to Sales Ratio One have a number of tools available to you when it comes to evaluating companies with earnings. The first three articles listed at the bottom of this article, in particular deal with earnings directly. You can add the two others on dividends and the one on return on equity to the list as specific to companies that are or have made money in the past. Does that mean companies that don’t have any earnings are bad investments? Not necessarily, but you should approach companies with no history of actually making money with caution. The Internet boom of the late 1990s was a classic example of hundreds of companies coming to the market with no history of earning – some of them didn’t even have products yet. Fortunately, that’s behind us. However, we still have the problem of needing some measure of young companies with no earnings, yet worthy of consideration. After all, Microsoft had no earnings at one point in its corporate life. Page 29 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. One ratio you can use is Price to Sales or P/S ratio. This metric looks at the current stock price relative to the total sales per share. You calculate the P/S by dividing the market cap of the stock by the total revenues of the company. calculate the P/S by dividing the current stock price by the sales per share. P/S = Market Cap / Revenues Or P/S = Stock Price / Sales Price per Share Much like P/E, the P/S number reflects the value placed on sales by the market. The lower the P/S, the better the value, at least that’s the conventional wisdom. However, this is definitely not a number you want to use in isolation. When dealing with a young company, there are many questions to answer and the P/S supplies just one answer. Price to Book Ratio Investors looking for hot stocks aren’t the only ones trolling the markets. A quiet group of folks called value investors go about their business looking for companies that the market has passed by. Some of these investors become quite wealthy finding sleepers, holding on to them for the long term as the companies go about their business without much attention from the market, until one day they pop up on the screen, and some analyst “discovers” them and bids up the stock. Meanwhile, the value investor pockets a hefty profit. Value investors look for some other indicators besides earnings growth and so on. One of the metrics they look for is the Price to Book ratio or P/B. This measurement looks at the value the market places on the book value of the company. calculate the P/B by taking the current price per share and dividing by the book value per share. P/B = Share Price / Book Value per Share Like the P/E, the lower the P/B, the better the value. Value investors would use a low P/B is stock screens, for instance, to identify potential candidates. Page 30 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Dividend Payout Ratio There are some metrics used in fundamental analysis that fall into what I call the “ho-hum” category. The Dividend Payout Ratio (DPR) is one of those numbers. It almost seems like a measurement invented because it looked like it was important, but nobody can really agree on why. The DPR (it usually doesn’t even warrant a capitalized abbreviation) measures what a company’s pays out to investors in the form of dividends. Calculate the DPR by dividing the annual dividends per share by the Earnings Per Share. DPR = Dividends Per Share / EPS For example, if a company paid out $1 per share in annual dividends and had $3 in EPS, the DPR would be 33%. ($1 / $3 = 33%) The real question is whether 33% is good or bad and that is subject to interpretation. Growing companies will typically retain more profits to fund growth and pay lower or no dividends. Companies that pay higher dividends may be in mature industries where there is little room for growth and paying higher dividends is the best use of profits (utilities used to fall into this group, although in recent years many of them have been diversifying). Either way, you must view the whole DPR issue in the context of the company and its industry. By itself, it tells you very little. Dividend Yield Not all of the tools of fundamental analysis work for every investor on every stock. If you are looking for high growth technology stocks, they are unlikely to turn up in any stock screens you run looking for dividend paying characteristics. However, if you are a value investor or looking for dividend income then there are a couple of measurements that are specific to you. For dividend investors, one of the telling metrics is Dividend Yield. Page 31 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. This measurement tells you what percentage return a company pays out to shareholders in the form of dividends. Older, well-established companies tend to payout a higher percentage then do younger companies and their dividend history can be more consistent. You calculate the Dividend Yield by taking the annual dividend per share and divide by the stock’s price. Dividend Yield = annual dividend per share / stock's price per share For example, if a company’s annual dividend is $1.50 and the stock trades at $25, the Dividend Yield is 6%. ($1.50 / $25 = 0.06) Book Value How much is a company worth and is that value reflected in the stock price? There are several ways to define a company’s worth or value. One of the ways you define value is market cap or how much money would you need to buy every single share of stock at the current price. Another way to determine a company’s value is to go to the balance statement and look at the Book Value. The Book Value is simply the company’s assets minus its liabilities. Book Value = Assets - Liabilities In other words, if you wanted to close the doors, how much would be left after you settled all the outstanding obligations and sold off all the assets. A company that is a viable growing business will always be worth more than its book value for its ability to generate earnings and growth. Book value appeals more to value investors who look at the relationship to the stock's price by using the Price to Book ratio. To compare companies, you should convert to book value per share, which is simply the book value divided by outstanding shares. Page 32 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Return on Equity If you give some management teams a couple of boards, some glue, and a ball of string, they can build a profitable growing business, while other teams can’t make a profit with several billion dollars worth of assets. Return on Equity (ROE) is one measure of how efficiently a company uses its assets to produce earnings. You calculate ROE by dividing Net Income by Book Value. A healthy company may produce an ROE in the 13% to 15% range. Like all metrics, compare companies in the same industry to get a better picture. While ROE is a useful measure, it does have some flaws that can give you a false picture, so never rely on it alone. For example, if a company carries a large debt and raises funds through borrowing rather than issuing stock it will reduce its book value. A lower book value means you’re dividing by a smaller number so the ROE is artificially higher. There are other situations such as taking write-downs, stock buy backs, or any other accounting slight of hand that reduces book value, which will produce a higher ROE without improving profits. It may also be more meaningful to look at the ROE over a period of the past five years, rather than one year to average out any abnormal numbers. Given that you must look at the total picture, ROE is a useful tool in identifying companies with a competitive advantage. All other things roughly equal, the company that can consistently squeeze out more profits with their assets, will be a better investment in the long run. The common mistake many people tend to make is to associate this with only buying low price-to-earnings ratio stocks. While this approach has certainly generated above-average returns over long-periods of time, it is not the ideal situation. Understanding Intrinsic Value and Why Different Businesses Deserve Different Valuations At its core, the basic definition for the intrinsic value of every asset in the world is simple: It is all of the cash flows that will be generated by that asset discounted back to the present moment at an appropriate rate those factors in opportunity cost (typically measured against the risk-free U.S. Treasury) and inflation. Figuring out how to apply that to individual stocks Page 33 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. can be extremely difficult depending upon the nature and economics of the particular business. As Benjamin Graham, the father of the security analysis industry, entreated his disciples, however, one need not know the exact weight of a man to know that he is fat or the exact age of a woman to know she is old. By focusing only on those opportunities that are clearly and squarely in your circle of competence and you know to be better than average, you have a much higher likelihood of experiences good, if not great, results over long periods of time. All businesses are not created equal. An advertising firm that requires nothing more than pencils and desks is inherently a better business than a steel mill that, just to begin operating, requires tens of millions of dollar or more in startup capital investment. All else being equal, an advertising firm rightfully deserves a higher price to earnings multiple because in an inflationary environment, the owners (shareholders) aren’t going to have to keep shelling out cash for capital expenditures to maintain the property, plant, and equipment. This is also why intelligent investors must distinguish between the reported net income figure and true, “economic” profit, or “owner” earnings as Warren Buffett has called it. These figures represent the amount of cash that the owner could take out of the business and reinvest elsewhere or spend on diamonds, houses, planes, charitable donations, or gold-plated fine china. In other words, it doesn’t matter what the reported net income is, but rather, how many hamburgers the owner can buy relative to his investment in the business. That’s why capitalintensive enterprises are typically anathema to long-term investors as they realize very little of their reported income will translate into tangible, liquid wealth because of a very, very important basic truth: Over the long-term, the rise in an investor’s net worth is limited to the return on equity generated by the underlying company. Anything else, such as relying on a bull market or that the next person in line will pay more for the company than you (the appropriately dubbed “greater fool” theory) is inherently speculative. I don’t know about you, but I don’t want to be in doubt about my ability to retire comfortably. The result of this fundamental viewpoint is that two businesses might have identical earnings of $10 million, yet Company ABC may generate only $5 million and the other, Company XYZ, $20 million in “owner earnings”. Therefore, Company XYZ could have a price-toearnings ratio four times higher than its competitor ABC yet still be trading at the same value. Page 34 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CHAPTER 4: ANALYSIS OF EDUCOMP SOLUTIONS LTD. Page 35 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. ECONOMIC ANALYSIS India's economy is booming after China and as of 30th May 2008, the Indian economy is now worth $1 thrillion. Examining some of India's economic indicators will provide a glimpse of what's in store for foreign exchange investors. The Reserve Bank of India, the Securities and Exchange Board of India (SEBI), the Center for Monitoring the Indian Economy (CMIE) and other key organizations publish statistics on different aspects of the Indian economy on a monthly, quarterly, and yearly basis. Indian economy statistics paint a telling and accurate picture of the ins and outs of a large and dynamic economy on the move. Thanks to a steady trend of growth observed in recent years, supported by a flourishing real estate and service sector, the Indian economy continues to grow at an incredible rate. Originally, the catalyst for this recent growth was a boom in the IT industry, which has had sustained growth for a number of years. Industrial production has also increased at a considerable rate. With exports growing in both the manufacturing and services sectors, foreign exchange reserves have grown year-on-year. Some of the primary economic indicators for India are as follows: Economic Indicators 03-07 avg. 2008 2009 GDP (% growth, real) 8.9 7.4 4.9 Inflation (%, year-end) 4.9 8.2 5.4 Fiscal Balance (% of -3.8 GDP) Exports (% growth) 24.3 -6.0 7.0 20.1 -8.0 Page 36 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Imports (% growth) 30.7 33.1 -8.5 Current Account (% of -0.3 GDP) Reserves imports) External Debt (% of 16.0 GDP) Debt Service ratio 10.5 (month of 9.9 -3.6 -4.0 7.6 7.7 14.0 14.6 6.2 7.1 Source: EIU, EDC Economics Page 37 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INFLATION: INTRODUCTION:Inflation is a concept that comes into account at the times of boom period. Inflation is related to boom phase and deflation is related to depression phase. Every countries and economies of the world tries to reduce down the inflation to a level where it will better for the development of the economy. DEFINITION:There are various types of definition on the term inflation. Some of the definitions are given below. In economics it is defined as “Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.” In other words “Inflation is an increase in the prices of basket of goods and services that is presentative of the economy as a whole.” In other way inflation is basically the surplus money chasing the available goods and services. It is also a fact that the rate of change in inflation is also affected by the continuing increase in population. REASON FOR THE INFLATION:1-increase in demand and fall in supply 2-lack of competition and advanced technology 3-defective monetary policy 4-hoarding and black marketing 5-weak public distribution system Page 38 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. TYPES OF INFLATION:There are basically two types of inflation. They are--Demand pull inflation Cost push inflation About demand pull inflation:--Demand pull inflation takes place when the total demand for goods and services surpasses that of the total supply. It is also characterized by an increase in the GDP and reduction in the unemployment problem. About cost push inflation:---Cost push inflation happens when there is a decrease in the aggregate supply. The reason for the decrease in aggregate supply is due to--1-Increase in wage rate. 2-Increase in the prices of raw materials. VARIOUS METHODS OF MEASURING INFLATION:There are various methods of measuring inflation. Some of the important methods which are used all over the world are---Consumer Price Index Wholesale Price Index Commodity Price Index Core price index Cost of Living Index Page 39 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Producer Price Index Capital Goods Price Index Corporate goods price index SOME IMPORTANT CONCEPTS REGARDING INFLATION:There are some of the important concepts regarding the term inflation which are very important for any economy. So we must focus on some of those terms. They are----- I-STAGFLATION: It is a concept that is related to inflation which can be a problem for any economy. Stagflation is a concept which is a combination of both inflation and unemployment. If situations like this arise for any country in the world this will be considered as the phase for that country. Like we can give the present example of the country Zimbabwe where there is this problem of stagflation arise and due to which the entire country is in problem. II-DISINFLATION: It is just a phase which shows the declining in the rate of inflation. But disinflation is the slowing down in the rate of inflation but it must be above the 0% level. It must not be negative; otherwise it will be considered as deflation which is related to the depression phase. Page 40 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. DATAS OF INFLATION IN VARIOUS REGIONS AROUND THE WORLD:REGIONS 1975 1985 3 1995 8 2000 3 2005 6 EAST ASIA AND ---PACIFIC EUROPEAND CENTRAL ASIA LATINAMERICA ANDCARIBBEAN MIDDLEEAST ANDNORTH AFRICA SOUTH ASIA SUBSAHARAN AFRICA 24 11 5 15 ---- ---- 56 13 7 16 12 7 6 4 8 7 6 7 10 9 10 4 6 6 8 (NOTE: - 9% IN ALL DEVELOPING REGIONS) ANALYSIS: - The data’s of the inflation region wise from 1975 to 2005 with a gap of 5 years. In all developed region the inflation rate revolves around 7%-8% in all through this years. So this can be related to growth process and growth aspects in all these regions because moderate inflation is always beneficial for the economy and it also denominates the continuance of boom phase. Page 41 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. ASIAN COUNTRIES' INFLATION RATE (% PER YEAR) Country 2002 2003 2004 2005 2006 2007 2008 Cambodia China Hong Kong India Indonesia Korea Laos Malaysia Philippines Singapore Thailand Vietnam Source : RBI 3.3 -0.8 -3.0 3.4 11.9 2.8 10.7 1.8 3.0 -0.4 0.6 3.8 1.2 1.2 -2.6 5.4 6.8 3.4 15.5 1.1 3.5 0.5 1.8 3.1 3.9 3.9 -0.4 6.4 6.1 3.6 10.5 1.4 6.0 1.7 2.8 7.8 5.8 1.8 1.0 4.4 10.5 2.8 7.2 3.0 7.6 0.5 4.5 8.3 4.7 1.5 2.0 5.5 13.1 2.2 6.8 3.6 6.2 1.0 4.6 7.5 4.2 1.8 1.6 5.0 6.2 2.4 5.0 2.7 4.8 1.6 2.5 6.8 3.5 2.2 2.3 5.0 6.1 2.6 5.2 2.7 5.0 1.0 2.5 6.3 Analysis: - The above figures in table are showing the inflation rate prevailing in the various Asian countries from the year 2002 to 2008. It can very clearly stated that from the year 2007 up to 2008 the inflation rate in the Asian countries are between 1% to 8% which is a little bit stable I comparison to the previous years. The highest inflation is achieved by the Asian country LAOS in the year 2003.Where as the highest deflation was shown by china in the year 2002. But by comparison among the inflation in different countries form 2002-2008, it can be observed that the rate was under control after 2005. Page 42 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Graphical presentation of the inflation rate in the Asian country’s (% per year) ASIAN COUNTRIES' INFLATION RATE (% PER YEAR) 20 15 Years Inflation rates 10 5 0 C ou n C am try bo di a H Ch on in g a K on g In In do dia ne si a Ko re a La M os a P lays hi lip i a pi ne S in ga s po Th re ai la nd Vi et na m -5 Countrie s ANALYSIS: - From the above graph that is showing the inflation rate of different Asian countries from the year 2002 to 2008. It is easy to pick this fact that inflation rate is under control with a moderate rate in the year 2007. The rate was below 5% through out the year. The year 2005 and 2006 also showing the moderate amount of inflation which was under control for all the Asian countries. This is the reason for which the growth rate for the Asian countries was good in the years 2005, 2006 and 2007. In the year 2003 there is the largest variation in the rate inflation which is shown in the graph. The highest inflation was achieved by the country Laos in the year 2003 which stood over 15%. The lowest rate was achieved by the country Hong Kong i.e. the deflation. The deflation rate of the country stood at -0.25% in the year 2002. Page 43 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. ANALYSIS ABOUT INFLATION IN INDIA:In case of in inflation in India I have taken data in weekly basis for the year 2007 and 2008.The inflation rate in these two periods for India is given below in tabular form as well as in graphical form. The analysis part of these graphs is also given for each of the year. INFLATION RATE FOR THE YEAR 2007(WEEKLY) DATE 6/1/2007 13/01/2007 20/01/2007 27/01/2007 3/2/2007 10/2/2007 17/02/2007 24/02/2007 3/3/2007 10/3/2007 17/03/2007 24/03/2007 31/03/2007 7/4/2007 INFLATION RATE 6.371049949 6.154628688 6.31043257 6.687085248 6.581632653 6.523955148 6.049822064 6.199186992 6.513994911 6.510681587 6.558210473 6.54158215 5.941591138 6.441872169 Page 44 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 14/04/2007 21/04/2007 28/04/2007 5/5/2007 12/5/2007 19/05/2007 26/05/2007 2/6/2007 9/6/2007 16/06/2007 23/06/2007 30/06/2007 7/7/2007 14/07/2007 21/07/2007 28/07/2007 4/8/2007 11/8/2007 18/08/2007 25/08/2007 1/9/2007 8/9/2007 6.338028169 6.068204614 6.012024048 5.735660848 5.619094978 5.30490828 5.151064884 5.09396637 4.283604136 4.127764128 4.322200393 4.41609421 4.610102992 4.757233938 4.652301665 4.6989721 4.39453125 4.243902439 3.99026764 3.935860058 3.718010623 3.464870067 Page 45 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 15/09/2007 22/09/2007 29/09/2007 6/10/2007 13/10/2007 20/10/2007 27/10/2007 3/11/2007 10/11/2007 17/11/2007 24/11/2007 1/12/2007 8/12/2007 15/12/2007 22/12/2007 3.514684641 3.511303511 3.360537686 3.216514642 3.068072867 3.11302682 3.11153662 3.347680536 3.204208513 3.349282297 3.108560497 3.890489914 3.840614498 3.838771593 3.739213806 Source : self generated on the basis of WPI given on RBI site Page 46 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. WEEKLY INFLATION RATE OF INDIA IN 2007(WEEKLY) 7 6 5 4 3 2 1 0 INFLATION RATE Series1 ANALYSIS: - In the year 2007 the inflation rate is almost stable. The rate varies between 3%-6% which is very stable for the economy. Due to this type of control inflation in the year 2007 India has achieved a GDP growth rate of around 8%. A moderate inflation is good for the economy. In this year the country is able to maintain a low inflation rate which is the important reason for the growth achieved by the country in this period. 1 7 /2 /2 /0 0 0 2 1 3 /2 7 /0 0 2 6 4 /2 0 7 /0 0 3 0 5 /2 0 7 /0 0 0 6/ 7 4/ 2 0 0 8/ 7 8/ 2 00 1 3 9 /2 7 / 1 00 1 7 0 /2 7 /1 0 2 2 1 /2 0 7 /1 0 0 2/ 7 20 07 DATE 10 Page 47 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INFLATION RATE FOR THE YEAR 2008(WEEKLY) DATE 5/1/2008 12/1/2008 19/01/2008 26/01/2008 2/2/2008 9/2/2008 16/02/2008 23/02/2008 1/3/2008 8/3/2008 15/03/2008 22/03/2008 29/03/2008 5/4/2008 12/4/2008 19/04/2008 26/04/2008 3/5/2008 10/5/2008 INFLATION RATE 4.26449449 4.360325827 4.451890857 4.784688995 4.739109622 4.976076555 5.656759348 5.693779904 6.211180124 7.784145177 8.015267176 7.853403141 7.747148289 7.706855792 7.947019868 8.226950355 8.270321361 8.726415094 8.56873823 Page 48 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 17/05/2008 24/05/2008 31/05/2008 7/6/2008 14/06/2008 21/06/2008 28/06/2008 5/7/2008 12/7/2008 S19/07/2008 26/07/2008 2/8/2008 9/8/2008 16/08/2008 23/08/2008 30/08/2008 6/9/2008 13/09/2008 20/09/2008 27/09/2008 4/10/2008 11/10/2008 8.662900188 8.902496467 9.317647059 11.66194523 11.79801793 11.91148776 12.03007519 12.18940459 12.12546816 12.54094525 12.52921926 12.90926099 12.82171268 12.82171268 12.76297335 12.38361266 12.41860465 12.41860465 12.12825279 12.07617278 11.48837209 11.30232558 Page 49 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 18/10/2008 25/10/2008 1/11/2008 8/11/2008 15/11/2008 22/11/2008 29/11/2008 6/12/2008 13/12/2008 20/12/2008 10.82210869 10.72423398 8.699676076 8.711770158 8.657407407 8.256029685 7.859454461 6.56495608 6.23844732 5.914972274 Source : self generated on basis of WPI Given on rbi web site Page 50 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INFLATION RATE IN 2008 FOR INDIA(WEEKLY) 14 12 INFLATION RATE 10 8 6 4 2 0 1/ 2 9 / 00 15 2/2 8 /0 0 0 1 9 3 /2 8 /0 008 4 2 4 /2 0 /0 08 2 8 5 /2 /0 008 6/ 2 2/ 008 8/ 2 6 / 00 8 11 9/2 /1 0 0 1 5 0 /2 8 /1 008 2 0 1 /2 /1 008 2/ 20 08 INFLATION RATE 5/ DATE ANALYSIS: - Here in the year 2008 the inflation rate varies greatly in weekly basis. The rate of inflation varies from a lower rate of 4% to as high as 12%. This is definitely not good for any economy because the variation in the inflation rate is very large. This is also one of the reasons for the lower in the growth rate of India in 2008 in comparison to the year 2007. The inflation rate is definitely little bit volatile through out this year which is not a good sign for the economy. In most of the cases the inflation rate for our country in the year remains above the 8.5% which is a figure above the ideal and moderate inflation which is considered as good for the economy and country. The inflation rate was under control till the end of the first quarter of the year. After that the rate has increased in the next coming quarters all through the years. The reason behind this is the global financial crisis. Page 51 INDIA FOR THE YEAR 2008 QUATERLY GRAPHICAL PRESENATATION OF INFLATION RATE OF (3) (2) (1) 10 12 14 8 INFLATION RATE 0 1 2 3 4 5 6 7 8 9 DATE INFLATION RATE 0 2 4 6 5/4/2008 12/4/2008 19/04/2008 26/04/2008 3/5/2008 10/5/2008 Source : self generated 2ND QUARTER OF 2008(WEEKLY) IST QUARTER OF 2008(WEEKLY) EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. DATE 17/05/2008 24/05/2008 31/05/2008 7/6/2008 14/06/2008 21/06/2008 28/06/2008 5/ 1/ 12 200 /1 8 19 /20 /0 08 1 26 /20 /0 08 1/ 2 2/ 008 2/ 2 9/ 008 2/ 16 20 /0 08 2 23 /20 /0 08 2/ 20 1/ 08 3/ 2 8/ 008 3/ 15 20 /0 08 3 22 /20 /0 08 3 29 /20 /0 08 3/ 20 08 Series1 Series1 Page 52 (4) INFLATION RATE INFALTION RATE 12 14 10 11.6 11.8 12.2 12.4 12.6 12.8 12 13 0 2 4 6 8 3RD QUARTER 2008 (WEEKLY) DATE DATE 4/ 10 11 /20 /1 08 0 18 /20 /1 08 0 25 /20 /1 08 0/ 2 1/ 00 11 8 /2 8/ 00 11 8 15 /20 /1 08 1 22 /20 /1 08 1 29 /20 /1 08 1/ 2 6/ 00 12 8 13 /20 /1 08 2 20 /20 /1 08 2/ 20 08 5/ 7/ 20 08 19 /0 7/ 20 08 2/ 8/ 20 08 16 /0 8/ 20 08 30 /0 8/ 20 08 13 /0 9/ 20 08 27 /0 9/ 20 08 4TH QUARTER OF 2008(WEEKLY) EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source : self generated Series1 Source : self generated Series1 Page 53 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. ANALYSIS OF THE GRAPHS (QUARTERLY RESULTS FOR 2008) GIVEN ABOVE: If compare all the graphs of each quarter of 2008 then we will find that the there is a less volatility in the rate of inflation in the first and second quarter. But in the last two quarter the volatility in the interest is a little bit volatile in comparison to the first and second quarter. In the 1st quarter in most of the time the inflation rate was just below the 8% level which is a moderate inflation rate for a developing country like India which is just above the normal level where as in the 2nd quarter the inflation rate mostly revolves around the 9% level which is a bit more inflation rate for a developing country like India. But in the last phase of the 2nd quarter the inflation rate gone above the 10% level which is not a good sign for the economy. It almost crosses the 12% level in the last phase of 2nd quarter. 3rd quarter is the one which is showing the maximum volatility in the change of inflation level. In the last quarter (4th) the inflation rate is showing a declining rate. It decreases from a level of 12% to below 8% towards the last phase of the last quarter. If compare the result of all this quarter then we will find that the highest inflation was achieved in the 3rd quarter which was around 12.9%. The lowest inflation rate was achieved in the initial phase of the 1st quarter which is around 4.5% level. So on an average the inflation rate was around the 8% level thorough out the year 2008 which is regarded as a moderate inflation for the development for any country or any economy. For a developing country like India a moderate inflation of around 8% is always good to achieve a good growth rate. Page 54 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INFLATION RATE IN INDIA FOR THE YEAR 2009(WEEKLY) DATE 3/1/2009 10/1/2009 17/01/2009 24/01/2009 31/01/2009 7/2/2009 14/02/2009 21/02/2009 28/02/2009 7/3/2009 14/03/2009 21/03/2009 INFLATION RATE 5.33088 5.46373 4.94959 4.7032 4.38757 3.91978 3.35753 3.03305 2.42915 0.44307 0.26502 0.30891 Source : self generated on the basis of WPI given on RBI site Page 55 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. FIRST QUARTER INFLATION RATE(2009) 6 INFLATION RATE 5 4 3 2 1 0 3/ 1/ 20 09 17 /0 1/ 20 09 31 /0 1/ 20 09 14 /0 2/ 20 09 28 /0 2/ 20 09 14 /0 3/ 20 09 INFLATION RATE DATE Source : self generated ANALYSIS: - From the above graph which is showing the inflation rate for the first quarter of 2009 it can be very easily mark that the inflation rate is on a declining stage. The rate of inflation is continuously decreasing over the first quarter. At the end of last quarter means towards the end of the month March the rate is at 0.35%. On an average the rate of inflation varies mainly between 0% to 1% in the month of February and March for the year 2009. The main cause behind the continuous decline in the inflation rate not only India but also all over the world is due to the fact of global economic slowdown and the global financial crisis. It can be said that the inflation rate is much below the fundamental level which known as the moderate inflation which is beneficial for the developing countries like India. In the present situation the inflation has gone below the 1% level. So if it falls below 0% level then the economy can go into the phase of deflation which is associated with the depression phase for any economy. CONCLUSION: - Inflation rate is one of the economic indicators for any of the economy of the world. It shows the economic soundness of any country. The lower the inflation rate the better it is for the countries but a moderate level of inflation is always good for any economy and for any country. It can be concluded from the above analysis made in the report that the reason behind the stable growth rate of India in the recent years is the fact that it is able to keep a very a good moderate inflation rate. Page 56 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Inflation And Stock Market Inflation is a state in the economy of a country, when there is a price rise of goods as well as services. To meet the required price rise, individuals have to shell out more than is presumed. With increase in inflation, every sector of the economy is affected. Ranging from unemployment, interest rates, exchange rates, investment, stock markets, there is an aftermath of inflation in every sector. Inflation is bound to impact all sectors, either directly or indirectly. Inflation and stock market have a very close association. If there is inflation, stock markets are the worst affected. Prices of stocks are determined by the net earnings of a company. It depends on how much profit, the company is likely to make in the long run or the near future. If it is reckoned that a company is likely to do well in the years to come, the stock prices of the company will escalate. On the other hand, if it is observed from trends that the company may not do well in the long run, the stock prices will not be high. In other words, the price of stocks are directly proportional to the performance of the company. In the event when inflation increases, the company earnings (worth) will also subside. This will adversely affect the stock prices and eventually the returns. Effect of inflation on stock market is also evident from the fact that it increases the rates if interest. If the inflation rate is high, the interest rate is also high. In the wake of both (inflation and interest rates) being high, the creditor will have a tendency to compensate for the rise in interest rates. Therefore, the debtor has to avail of a loan at a higher rate. This plays a significant role in prohibiting funds from being invested in stock markets. When the government has enough fund to circulate in the market, the cost of goods, services usually go up. This leads to the decrease in the purchasing power of individuals. The value of money also decreases. In a nut shell, for the economy to flourish, inflation and stock market ought to be more conforming and predictable. Page 57 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. UNEMPLOYMENT RATE: 2003 2004 2005 2006 2007 2008 8.80% 9.50% 9.20% 8.90% 7.80% 7.20% India is doing a good job at keeping unemployment rate down. The actual unemployment rate is lower because its labor force is outgrowing its employment rate (2.5% compared to 2.3% per annum). Page 58 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. FOREIGN INSTITUTIONAL INVESTORS ACTIVITY IN INDIA With the economic outlook improving globally, global majors are finding a way to buck the downtrend by investing in India. In 2009 alone, India has received about US$ 5.5 billion of foreign institutional investors (FII) money out of a total of US$ 23 billion that has flowed into emerging markets. India has received close to 25 per cent of the portfolio funds coming into markets in Asia, Africa and Latin America. Until 2007, India received less than 15 per cent of the funds flowing into these markets. India has become the most attractive destination for retail investment for the fourth time in five years. India has been ranked as the most attractive nation for retail investment among 30 emerging markets by US-based global management consulting firm A T Kearney. According to the entity's Global Retail Development Index (GRDI), India was placed at the second spot last year. As per data released by the Securities Exchange Board of India (SEBI), during the first quarter of the current fiscal, FIIs bought shares worth US$ 37.66 billion, while they sold equities valued at US$ 31.36 billion, resulting in a net inflow of US$ 6.32 billion. In the month of May alone, the market saw an inflow of US$ 4.17 billion, accounting for 66 per cent of the total investment in the June quarter. In April 2009, foreign institution investors (FIIs) poured US$ 1.3 billion into Indian equities. They poured another US$ 1.87 billion in the first half of May 2009. Foreign institutional investors (FIIs) pumped in almost US$ 4.17 billion into the equity market in the month of May 2009—the highest in 19 months. Total FII investments in domestic equities have crossed the US$ 60-billion mark—the first time since June 2008. The net investment position of FIIs has increased from US$ 53.3 billion on March 9, 2009 to over US$ 60.3 billion till June 10. This data pertains to all FII activities in India, including trade in secondary and primary (IPO) markets and in right/bonus issues, private placement and M&As. The number of registered FIIs is 1,660 and that of registered sub-accounts is above the 5,000 mark. Besides buying equities from the market, FIIs have participated in Qualified Institutional Placements (QIPs), directly from the promoters requiring huge capital. FII inflows of US$ 7 billion since March 2009 have helped the rupee climb about 10.5 per cent to 47.24/25 per dollar from its low of 52.2 recorded therein. Page 59 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. In the January-March 2009 quarter, FII interest in major cement manufacturers has also increased over the previous quarter even as they removed some of their holdings in smaller players. Government Initiatives India’s foreign investment policies allow foreign direct investment up to 26 per cent and foreign institutional investments of (an additional) 23 per cent in stock exchanges. Under the regulation, FIIs have been allowed to acquire shares of unlisted stock exchanges through transactions outside a recognised stock exchange provided it is not an initial allotment of shares. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have jointly unveiled norms enabling exchange-traded interest rate futures (IRF). Foreign portfolio investors have been allowed to trade in IRFs, but limits have been put in place to keep their influence under check. In order to reduce the additional regulatory and cost burden to the issuer of Indian Depository Receipts (IDR), the market regulator Securities and Exchange Board of India (SEBI) has drafted a simplified listing agreement for the IDR. Investment Scenario • Canadian investment firm Urbana Corporation is likely to buy a 5 per cent stake in the National Stock Exchange, India’s largest bourse. • Overseas fund Norwest Venture Partners has signed an agreement to acquire 2.11 per cent state in NSE for US$ 52.6 million, valuing the exchange at over US$ 2.53 billion. • The US-based private equity fund major, Fire Capital has earmarked US$ 500 million equity investment to be spent over a period of five years on various realty projects, particularly on integrated townships, across the country. • Shinsei Mutual Fund, an arm of Japan-based Shinsei Bank, will launch three fund offers in India by July-end this year, marking its foray into the country's asset management space. Page 60 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Investors, such as ATE Enterprises, Denmark-based Best Seller, Sequoia Capital, the Netherlands-based Cordaid etc., from the US and European countries are keen to invest around US$ 420.84 million to promote and equip small and medium enterprises engaged in green business, according to New Ventures India (NVI). The Road Ahead Venture capitalists are expected to increase their investments in India over the next three years, according to Deloitte's 2009 Global Venture Capital survey released recently. About 43 per cent of the 725 respondents to the survey said they expect to increase their investments in India over the next three years. India is well placed to attract FII flows over the long term. According to Sandip Sabharwal, CEO, Prabhudas Lilladher Markets, “As economic growth accelerates and tax compliance improves over the next few years, fiscal deficit will come under control. FII flows into India will continue to be strong.” India may also get its fair share of inflows by way of increased allocations made to BRIC (Brazil, Russia, India and China) countries as “the group will continue to hold the interest of long-term investors”, says Andrew Holland, CEO-Equities, Ambit Capital. Corroborating this, the dedicated BRICs Equity Funds, as tracked by EPFR Global, are improving investment inflows. Page 61 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. TABLE : NET INVESTMENTS BY FIIs IN THE INDIAN CAPITAL MARKET (Rupees crore) Year / Month 1 199293 199394 199495 199596 199697 199798 199899 199900 200001 200102 1694.76 1030.83 808.64 773.45 270.00 -228.91 604.98 161.64 278.54 370.47 2024.04 484.23 8272.90 2438.06 172.17 -985.51 -1569.19 1626.01 -454.20 76.32 1090.11 -461.78 3971.58 1574.14 2204.80 9682.52 814.61 1523.52 504.27 1508.49 -11.70 -877.84 -734.90 1196.83 1571.33 184.31 2726.58 1359.63 9765.13 169.17 -557.45 624.74 889.14 1472.59 1036.27 1041.7 9 1403.8 8 -896.30 104.68 -390.82 111.09 -552.46 47.37 307.46 370.38 354.11 203.67 -729.11 1002.80 493.66 598.59 641.59 -289.87 -182.38 -374.97 629.05 472.22 5908.45 874.45 148.38 364.66 365.81 402.64 422.23 339.74 424.08 493.56 7386.20 186.58 203.03 360.58 647.88 548.19 409.87 320.87 191.05 412.30 737.98 1613.39 1089.18 6720.90 525.39 882.00 816.37 328.23 424.65 442.94 544.30 61.88 26.16 232.32 293.10 199.26 4776.60 4.71 41.39 95.95 148.54 298.67 166.76 195.27 1087.27 565.30 1233.60 787.13 820.01 5444.60 2 3 4 5 6 7 8 9 10 11 0.56 12 0.29 13 3.42 14 4.27 Apr. May Jun Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Total Page 62 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 200203 200304 200405 200506 200607 200708 200809 P 1475.95 -3382.91 4752.88 3242.17 722.07 -8930.32 -946.29 -586.82 5699.4 0 1781.8 7 7210.0 2 10429. 39 P : Provisional. Note : FIIs were allowed to invest in the Indian capital market securities from September 1992. However, investments by them were first made in January 1993. The data relate to investment in equities only. Source : Reserve Bank of India. -1653.81 19515.29 6476.32 19823.40 16375.64 3052.11 1073.16 3998.05 4624.13 5805.01 7028.59 1869.49 5054.92 -13000.98 7784.26 1354.39 62583.56 3184.86 4279.07 2057.05 23754.05 7390.55 4084.87 3258.00 -3808.31 4559.07 9615.32 5177.18 7859.26 6347.74 48650.04 4207.86 -3151.29 572.38 1232.95 2592.9 5 511.00 1292.83 2850.25 2815.61 3952.04 6344.57 5890.00 1324.24 7493.76 7885.58 41416.45 2495.89 2058.07 4047.69 6939.72 3282.39 6290.59 2492.86 3182.74 8811.80 44000.03 -82.11 -153.89 -182.90 305.19 192.29 421.67 -443.53 342.34 457.12 1087.63 432.55 292.54 2668.90 Page 63 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. FORIEGN DIRECT INVESTMENT: Foreign direct investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has – in a lot of ways – enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country. India has continually sought to attract FDI from the world’s major investors. In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage FDI and present a favorable scenario for investors. FDI investments are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining industries. A number of projects have been announced in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors. The Indian national government also provided permission to FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5m. Currently, FDI is allowed in financial services, including the growing credit card business. These services include the non-banking financial services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condition that stipulates that these banks must be multilateral financial organizations. Up to 45% of the shares of companies in the global mobile personal communication by satellite services (GMPCSS) sector can also be purchased. By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less than 10% of the $60.6 billion that flowed into China. Why does India, with a stable democracy and a smoother approval process, lag so far behind China in FDI amounts? Although the Chinese approval process is complex, it includes both national and regional approval in the same process. Page 64 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Federal democracy is perversely an impediment for India. Local authorities are not part of the approvals process and have their own rights, and this often leads to projects getting bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the federal government approves. SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial year-wise): Page 65 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CURRENCY EXCHANGE RATE : Rupee weakened against the dollar in Oct 2008 along with it's stock market crash while bond yield dropped to seven month lows, despite RBI's intervention. However, India is not alone in this as there is an apparent sign of the world economy slowing down, led by the U.S. India's substantial forex reserve does not seem to be working its charm this time around although the RBI's intervention in its managed float currency policy is common practice. In 2003, the Indian government with its $73 billion forex reserve was praised by the IMF citing that India does not need IMF's assistance. Date 08-12-2008 09-12-2008 10-12-2008 11-12-2008 12-12-2008 15-12-2008 16-12-2008 17-12-2008 18-12-2008 19-12-2008 22-12-2008 23-12-2008 24-12-2008 25-12-2008 26-12-2008 29-12-2008 30-12-2008 31-12-2008 02-01-2009 05-01-2009 06-01-2009 07-01-2009 08-01-2009 09-01-2009 Doller 49.44 49.28 48.7 48.19 48.2 47.62 47.81 47.5 46.74 47.05 47.71 48.66 47.76 47.76 48.42 48.25 48.05 48.58 48.4098 48.5149 48.6251 48.815 48.4152 48.1847 9,406.47 9,328.92 9,533.52 9,716.16 9,647.31 9,958.22 10,275.60 10,335.93 9,586.88 9,654.90 9,645.46 9,690.07 9,832.39 9,976.98 9,715.29 10,076.43 10,099.91 9,928.35 9,686.75 9,568.72 Sensex 9,162.62 Page 66 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 12-01-2009 13-01-2009 14-01-2009 15-01-2009 16-01-2009 19-01-2009 20-01-2009 21-01-2009 22-01-2009 23-01-2009 26-01-2009 27-01-2009 28-01-2009 29-01-2009 30-01-2009 02-02-2009 03-02-2009 04-02-2009 05-02-2009 06-02-2009 09-02-2009 10-02-2009 11-02-2009 12-02-2009 13-02-2009 16-02-2009 17-02-2009 18-02-2009 19-02-2009 20-02-2009 23-02-2009 24-02-2009 25-02-2009 26-02-2009 27-02-2009 48.845 48.9247 48.6047 48.7803 48.5298 48.6201 49.14 49.2099 48.9248 49.1598 48.5697 48.7749 48.9253 48.7202 48.6899 48.6403 48.3999 48.57 48.6601 48.5253 48.6001 48.6651 48.6598 48.5904 48.4247 48.6197 49.4349 49.6801 49.685 49.6251 49.825 49.9177 49.8398 50.3951 51.0701 9,004.08 9,257.47 9,236.28 9,424.24 9,066.70 9,149.30 9,201.85 9,090.88 9,300.86 9,583.89 9,647.47 9,618.54 9,465.83 9,634.74 9,305.45 9,035.00 9,015.18 9,042.63 8,843.21 8,822.06 8,902.56 8,954.86 8,891.61 8,607.08 9,110.05 9,071.36 9,370.49 9,046.74 9,323.59 9,329.57 9,100.55 8,779.17 8,813.84 8,674.35 Page 67 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 02-03-2009 03-03-2009 04-03-2009 05-03-2009 06-03-2009 09-03-2009 10-03-2009 11-03-2009 12-03-2009 13-03-2009 16-03-2009 17-03-2009 18-03-2009 19-03-2009 20-03-2009 23-03-2009 24-03-2009 25-03-2009 26-03-2009 27-03-2009 30-03-2009 31-03-2009 01-04-2009 02-04-2009 03-04-2009 06-04-2009 07-04-2009 08-04-2009 09-04-2009 13-04-2009 14-04-2009 15-04-2009 16-04-2009 17-04-2009 20-04-2009 51.8847 51.9699 51.5348 51.7698 51.6954 51.8703 51.56 51.1599 51.8902 51.4948 51.4001 51.4101 51.2902 50.3101 50.5698 50.3791 50.7204 50.6699 50.1551 50.6454 51.5152 50.6402 50.57 50.3502 50.0797 50 50.0204 50.1897 49.9849 49.7839 49.5752 49.6751 49.7575 49.8599 50.1797 8,756.61 8,943.54 8,863.82 8,976.68 9,001.75 8,966.68 9,424.02 9,471.04 9,667.90 10,003.10 10,048.49 9,568.14 9,708.50 9,901.99 10,348.83 10,348.83 10,534.87 10,534.87 10,742.34 10,803.86 10,803.86 10,967.22 11,284.73 10,947.40 11,023.09 10,979.50 10,898.11 8,427.29 8,446.49 8,197.92 8,325.82 8,160.40 8,343.75 Page 68 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 21-04-2009 22-04-2009 23-04-2009 24-04-2009 27-04-2009 28-04-2009 29-04-2009 30-04-2009 01-05-2009 04-05-2009 05-05-2009 06-05-2009 07-05-2009 08-05-2009 11-05-2009 12-05-2009 13-05-2009 14-05-2009 15-05-2009 18-05-2009 19-05-2009 20-05-2009 21-05-2009 22-05-2009 25-05-2009 26-05-2009 50.4725 50.3298 49.9349 49.7748 50.2476 50.5172 50.0347 49.9149 49.6736 49.91 49.3002 49.5902 49.0998 49.2827 49.5101 49.3174 49.71 49.7102 49.3927 47.8902 47.785 47.42 47.28 47.1099 47.3048 47.8602 10,817.54 11,134.99 11,329.05 11,371.85 11,001.75 11,403.25 11,403.25 11,403.25 12,134.75 12,131.08 11,952.75 12,116.94 11,876.43 11,682.99 12,158.03 12,019.65 11,872.91 12,173.42 14,284.21 14,302.03 14,060.66 13,736.54 13,887.15 13,913.22 13,589.23 14,109.00 Source : RBI Site Page 69 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INDEX OF INDUSTRIAL PRODUCTION India's index of Industrial Production (IIP), publishes monthly composite of the value of industrial production in various sectors of industrial sectors of the economy. Currently, the IIP includes the mining, manufacturing and electricity industry. The mining and utility industries in India are especially worth noting. Although only a fragment of India's economic indicators are highlighted here, it is enough to see that its economy hold a lot of promise and will continue to prosper under good policies. While developed countries will be likely to experience recession, India will be better off by seeing less growth in the coming quarters. The Quick Estimates of Index of Industrial Production (IIP) with base 1993-94 for the month of March 2009 have been released by the Central Statistical Organisation of the Ministry of Statistics and Programme Implementation. The General Index stands at 297.9, which is 2.3% lower as compared to the level in the month of March 2008. The cumulative growth for the period April-March 2008-09 stands at 2.4% over the corresponding period of the pervious year. The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of March 2009 stand at 206.7, 317.2, and 241.3 respectively, with the corresponding growth rates of 0.4%, (-)3.3% and 6.3% as compared to March 2008. The cumulative growth during April-March, 2008-09 over the corresponding period of 2007-08 in the three sectors have been 2.3%, 2.3% and 2.8% respectively, which moved the overall growth in the General Index to 2.4%. In terms of industries, as many as five (5) out of the seventeen (17) industry groups (as per 2digit NIC-1987) have shown positive growth during the month of March 2009 as compared to the corresponding month of the previous year. The industry group ‘Beverages, Tobacco and Related Products’ have shown the highest growth of 15.1%, followed by 8.3% in ‘Basic Chemicals & Chemical Products (except products of Petroleum & Coal)’ and 7.0% in ‘Transport Equipment and Parts’. On the other hand, the industry group ‘Food Products’ have shown a negative growth of 35.8% followed by 25.1% in ‘Wood and Wood Products; Furniture and Fixtures‘ and 19.7% in ‘Other Manufacturing Industries’. Page 70 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. As per Use-based classification, the Sectoral growth rates in March 2009 over March 2008 are 1.4% in Basic goods, (-)8.2% in Capital goods and (-)4.4% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 8.3% and (-) 3.6% respectively, with the overall growth in Consumer goods being (-)0.8%. Alongwith the Quick Estimates of IIP for March 2009, the indices for February 2009 have undergone the first revision and those for December 2008 have undergone the second (final) revision in the light of the updated data received from the source agencies. (It may be noted that revised indices (first revision) in respect of January 2009 have already been released in April 2009 and these indices shall undergo final (second) revision in June 2009). Statements giving Quick Estimates of the Index of Industrial Production at Sectoral, 2-digit level of National Industrial Classification (NIC)-1987 and by Use-based classification for the month of March 2009, along with the growth rates over the corresponding month of previous year, including the cumulative indices and growth rates, are enclosed. SOURCE: BLOOMBERG Page 71 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INDEX OF INDUSTRIAL PRODUCTION – SECTORAL (Base : 1993-94=100) Source: RBI press releases and http://www.rbi.org.in/scripts/publications.aspx?publication Month General 2007-2008 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar* 250.7 263.1 255.3 255 260.3 260.5 262.6 261 284.7 281.9 276.2 304.9 2008-2009 266.3 274.6 269.2 271.3 264.7 276.2 262.9 267.6 284 283 274.2 297.9 INDEX OF INDUSTRIAL PRODUCTION - ANNUAL AVERAGES (Base: 1993-94=100) Industr y Genera l Index Weigh 1999 t 1000 -00 154. 9 2000 -01 162. 6 2001 -02 167 2002 -03 176. 6 2003 -04 189 2004 -05 204. 8 2005 -06 221. 5 2006 -07 247. 1 2007 -08 268 2008 -09 274. 3 Page 72 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. GROSS DOMESTIC PRODUCT (GDP) The Indian Gross Domestic Product (GDP) has come a long way since its balance of payment downturn in the 80's. This can be largely attributed to its open policies under prime minister Atal Bihari Vajpayee in 2003, attracting high influx of foreign investors. India's BPO sector and service industry has also benefited from its rapid growth of information technology, further strengthening its impressive growth and thus providing promising outlook for future growth. The most recent GDP records are as follows: • • • • • • • • GDP growth in 2002 - 3.8% GDP growth in 2003 - 8.5% GDP growth in 2004 - 7.5% GDP growth in 2005 - 9.0% GDP growth in 2006 - 9.4% GDP growth in 2007 - 9.0% GDP growth in 2008 - 8.5% (Projected) GDP growth in 2009 - 8.81% (Projected) According to the CIA, India's GDP composition by sector can be broken down into 17.8% for agriculture, 29.4% for industries and a massive 52.8% for services as of 2007. The growth rate of Gross Domestic Product (GDP) was 9% in 2006, whereas the corresponding figure was 7.4% in 2007. The rate of GDP growth for 2008 is projected to be 8.7 %. The growth rate of the Indian IT and ITES sector was around 20% in 2007. Real GDP growth in Q1-09 surprised on the upside growing 5.8%, while Q4-08 growth was also revised up to 5.8% from 5.3%. Growth had slowed to 7.4% for 2008 and is expected to remain below trend over the next few quarters. First quarter expansion came on the back of high government pre-election spending and a stronger performance in the agricultural sector. Industrial production climbed 1.4% in April on the back of resilient domestic demand following two months of contraction of 2.38% y/y in March and February’s 0.65% y/y slump. Page 73 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Yet this remains a far cry from the double-digit growth rates seen in the second half of 2006 and first half of 2007. TABLE: MACROECONOMIC AGGRREGATES (At Current Prices) (Rupees crore) New Series (Base : 1999-2000) Year Population GDP at NDP at GDP at NDP at Net Factor Cost Market Prices Market Prices Factor Personal Disposable @(million) Factor Cost Income Income # from Abroad 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 359 365 372 379 386 393 401 409 418 426 434 444 454 464 9719 10262 10120 11019 10351 10518 12556 12837 14360 15083 16512 17424 18631 21293 9193 9670 9486 10372 9674 10037 12011 12215 13674 14318 15665 16479 17585 20244 10085 10721 10522 11452 10834 11030 13140 13536 15086 15895 17407 18445 19826 22774 9559 10130 9888 10805 10157 10548 12594 12914 14401 15130 16560 17501 18780 21725 -41 -35 -25 -19 -29 -10 -17 -20 -35 -57 -72 -98 -108 -112 8858 9298 9237 10125 9392 9794 11692 11933 13362 13971 14983 15719 16698 19077 Page 74 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 474 485 495 506 518 529 541 554 567 580 593 607 620 634 648 664 679 692 708 723 739 755 24876 26047 29647 34840 36741 40405 42981 45731 50304 61649 72566 77071 82845 94552 101619 110887 132520 155158 173337 202750 227694 254427 23670 24643 27995 32944 34807 38188 40419 42811 46956 57591 67289 70991 76291 87321 93419 100874 120784 141073 157032 184217 206297 229132 26563 28016 31711 37133 39324 43298 46249 49523 54591 66428 78426 84221 90751 102796 111371 122155 145370 170805 191059 222485 249268 281330 25358 26612 30058 35237 37390 41081 43687 46603 51243 62370 73149 78141 84196 95565 103171 112142 133634 156720 174754 203952 227870 256035 -145 -164 -230 -258 -255 -271 -284 -291 -302 -325 -291 -255 -233 -233 -156 153 345 40 -634 -944 -1424 -1429 22515 23569 26957 31931 33692 36797 38898 41151 45523 55923 64968 69233 73824 85267 91507 99632 123067 142181 157291 185749 207491 229527 Page 75 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 P 2006-07 QE 2007-08 RE 771 788 805 822 839 856 872 892 910 928 946 964 983 1001 1019 1040 1056 1072 1089 1106 1122 1138 283681 321589 383790 442134 515032 594168 681517 792150 925239 254746 288611 345156 396568 463954 532197 609389 711268 831417 314816 357861 424531 487684 569624 654729 752591 865805 285881 324883 385897 442117 518546 592759 680462 784923 -1805 -2619 -4496 -5731 -7545 -10077 -11645 -12080 -13083 256413 291585 345011 395239 465097 531515 618587 716964 842261 959733 1145206 1263982 1474404 1617964 1773251 1954838 2069144 2296323 2500193 2805199 3217237 . 1015764 921942 1083289 972163 1191813 1080686 -13484 1260710 1132320 1378617 1250226 -13082 1401934 1258185 1527158 1383409 -13205 1616082 1453881 1751199 1588997 -14968 1786525 1605103 1952035 1770613 -15431 1925017 1723200 2102314 1900497 -22733 2097726 1869428 2278952 2050654 -20068 2261415 2010938 2454561 2204084 -16690 2538171 2258189 2754621 2474639 -18250 2877706 2548783 3149412 2820489 -22375 3275670 2896866 3580344 3201540 -26116 3790063 3355595 4145810 3711342 -29778 4303654 3811341 4713148 4220835 -21859 Page 76 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. TABLE : MACROECONOMIC AGGRREGATES (At Current Prices) (Contd.) (Rupees crore) Year GNP at NNP at GNP at NNP at GDP Factor Cost Factor Cost Market Prices Market Prices of Public Sector 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 9678 10227 10095 11000 10322 10508 12539 12817 14325 15026 16440 17326 18523 21181 24731 25883 9152 9635 9461 10353 9645 10027 11994 12195 13639 14261 15593 16381 17477 20132 23525 24479 10044 10686 10497 11433 10805 11020 13123 13516 15051 15838 17335 18347 19718 22662 26418 27852 9518 10095 9863 10786 10128 10538 12577 12894 14366 15073 16488 17403 18672 21613 25213 26448 . . . . . . . . . . 1638 1846 2128 2458 2768 3175 NDP of Public Sector . . . . . . . . . . 1352 1520 1758 2038 2271 2586 Per GNP Factor Cost(Rupees) 270 280 271 290 267 267 313 313 343 353 379 390 408 456 522 534 Capita at Page 77 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 29417 34582 36486 40134 42697 45440 50002 61324 72275 76816 82612 94319 101463 111040 132865 155198 172703 201806 226270 252998 281876 318970 27765 32686 34552 37917 40135 42520 46654 57266 66998 70736 76058 87088 93263 101027 121129 141113 156398 183273 204873 227703 252941 285992 31481 36875 39069 43027 45965 49232 54289 66103 78135 83966 90518 102563 111215 122308 145715 170845 190425 221541 247844 279901 313011 355242 29828 34979 37135 40810 43403 46312 50941 62045 72858 77886 83963 95332 103015 112295 133979 156760 174120 203008 226446 254606 284076 322264 3583 4068 4610 5252 5907 6599 7300 8613 11105 13170 15363 16975 18869 21730 25409 31413 38412 45173 51719 60561 71469 82773 2882 3268 3859 4397 4909 5458 5979 6995 9027 10735 12661 13930 15408 17491 20472 25436 31315 36976 42119 49013 58154 67571 594 683 704 759 789 820 882 1057 1219 1265 1332 1488 1566 1672 1957 2243 2439 2791 3062 3351 3656 4048 Page 78 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 P 2006-07 QE 2007-08 RE 379294 436403 507487 584091 669872 780070 912156 340660 390837 456409 522120 597744 699188 818334 420035 481953 562079 644652 740946 853725 381401 436386 511001 582682 668817 772843 98454 80550 4712 5309 114637 93380 130202 105835 6049 155420 125983 6823 177302 143386 7682 201758 164453 8745 234913 191718 10024 1002681 908859 1069805 958679 1178329 1067202 276342 226628 11528 1247628 1119238 1365535 1237144 302074 245414 13188 1388729 1244980 1513953 1370204 354856 292533 14406 1601114 1438913 1736231 1574029 405955 337584 16288 1771094 1589672 1936604 1755182 457006 383305 17693 1902284 1700467 2079581 1877764 480952 403526 18668 2077658 1849360 2258884 2030586 523781 439414 19977 2244725 1994248 2437871 2187394 576210 486584 21257 2519921 2239939 2736371 2456389 613897 517139 23507 2855331 2526408 3127037 2798114 669335 560533 26220 3249554 2870750 3554228 3175424 712447 592346 29381 3760285 3325817 4116032 3681564 812315 681371 33514 4281795 3789482 4691289 4198976 . . 37457 Source: RBI press releases and http://www.rbi.org.in/scripts/publications.aspx?publication Page 79 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Fiscal Situation Both tax and non-tax collections for the current year are below the Budget estimates (BE) as compared to last years BE. On the other hand, the expenditure have overshot their BE. The fiscal deficit is expected to rise to 5.9% of GDP, as against the target of 2.5% of GDP due to additional budget expenditure and lower revenues. However, as per the PMs economic advisory committee, the consolidated fiscal deficit (including supplementary demand for grants, oil and fertilizer bonds) is expected to be at 8% of GDP for FY09. Monetary policy: The current mid-term monetary and credit policy review maintains a status-quo on the policy rates. RBI has demonstrated its intentions by taking policy action as and when required. The outlook continues to remain uncertain and the lead indicators are not pointing to any meaningful recovery in the near term. RBI has reiterated the fact that a period of painful adjustment is definitely ahead of us. Recent policy language hints at further rate and CRR cuts to happen only if the money market rates are significantly above the policy LAF corridor. Since the last policy, RBI has cut repo rate by 250bps, CRR by 150bps and reverse repo rate by 200bps, along with a slew of other measures to improve liquidity. RBIs policy stance is firm on providing comfortable liquidity conditions for meeting economic growth and responding swiftly and decisively with all available policy actions as the external or domestic conditions warrant. With well anchored inflation expectation, price stability and orderly financial markets. Overall we believe that the policy review announcements had more to do with eiterating its stance and actions already taken. Neutral for the banking sector. Impact on markets: neutral Bankex and Sensex declined by 2.2% and 1.3%, respectively post RBI’s announcement. However, both the indices closed higher by 3.8% and 2.9% respectively led by the rally in global markets. Bond yield (10-year) moved up to 4.9% up 5bps post the announcement. Rupee declined by 8paise post-policy and closed the day at 48.93 depreciating by 33paise. Page 80 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. General Political Environment: The Indian National Congress (Congress) and its allies in the United Progressive Alliance (UPA) have ruled since 2004 and recently was re-elected to a second five-year term in May 2009. The UPA coalition’s victory wasn’t overly surprising; however, the margin of its victory was astonishing. The UPA secured 261 of the 543 seats available in the lower house of parliament. The opposition coalition led by the Bharatiya Janata Party (BJP) finished a distant second with 158 seats. The biggest surprise of the election was not the success of Congress, but more the stumbling of several of the more prominent regional parties that contested the polls. In the lead-up to the elections, there were plenty of predictions that the virtually uncontested reign of the national parties (i.e. Congress and BJP) had come to an end and that the country’s political future lay with the plethora of regional parties, if not as kings then at least as king-makers. While certain of these did succeed in increasing their parliamentary seat-count, the majority of seats that changed hands went to Congress, a party which has experienced increased success in each of the last three parliamentary elections. The rise in prominence of regional parties (i.e. parties with a political presence in fewer than four states) in Indian national politics has been one of the most significant political developments to occur in contemporary India, with over 30 political parties represented in Parliament. While this phenomenon will continue in India, thereby requiring coalitions of parties to form governments, the 2009 election results reflect the continued prominence of national parties, namely Congress, on the political scene. Investment Environment: Despite India’s foreign investment policy allowing 100% FDI in most sectors, India has thus far failed to reach its full potential as a destination for FDI. The government’s attempts at increasing FDI inflows have been hampered by the several impediments including pervasive corruption, an unwieldy bureaucracy, and a significant deficit in critical infrastructure. India is known for diverse operating environments with regulations varying from state to state. Significant reform in investment-related matters, particularly regarding foreign investment, was delayed over the past few years largely due to the UPA’s reliance on India’s communist parties for support in parliament. The ending of this support in 2008 enabled limited reforms Page 81 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. to be passed. For example, in February, the government initiated changes that further openedup certain sectors such as insurance, telecom and retail, to FDI. The government’s move didn’t alter the FDI caps in place in these sectors but instead permitted foreign equity investments beyond the limit to occur indirectly. One expectation is that the re-elected UPA government, that no longer relies on India’s main leftist parties for support, will now be in a position to push through further economic and investment reforms, many of which will provide opportunities for foreign investors. The reform agenda is likely to be moved forward but probably at a gradual pace, particularly given the present state of the global economy as well as the diversity of views on these issues, even within the Congress party itself. Political Violence: Several terrorist attacks in 2007-2008, including bombings in Delhi, Ahmedabad, Bangalore, Jaipur and Hyderabad have highlighted the threat posed by Islamist terror groups within India. The latest and most devastating of these attacks occurred in Mumbai in November. Over a period of three days, a dozen gunmen struck several targets, including two luxury hotels and a rail terminus, killing over 180 people. Although the majority of the known victims were Indian nationals, the attackers singled out foreigners during the hotel sieges, particularly UK and US nationals. Tensions with Pakistan have threatened regional stability since 1947. Several years of peace talks on the Kashmir issue have resulted in little progress and the area witnessed considerable unrest in mid- 2008 as anti-government demonstrations were met with force by security forces. The Mumbai attacks led to deterioration in Indo-Pakistani relations as many of the attackers were Pakistani with the Indian government claiming that Pakistani government agencies may have also been involved. Elections held in April/May 2009 provided the Congress-led UPA coalition with a strengthened mandate, which should ensure its interrupted rule over the next five years. Its situation is much stronger than its previous term when it required significant support from outside the coalition. Although political violence is a fairly common occurrence in India, the Mumbai attacks of November 2008 were shocking due to the level of sophistication and the selection of targets, including the focus on foreigners. The Mumbai attacks underscore the ongoing risk of terrorist attacks throughout the country, and also set Indo-Pakistani relations back several years. Although outright war is unlikely, bilateral relations will be tense for the foreseeable future. Page 82 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INDUSTRY ANALYSIS INTRODUCTION TO IT SECTOR Information Technology in India accounts for a substantial part of the country's GDP and export earnings while providing employment to a significant number of its tertiary sector workforce. Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could absorb. India's growing stature in the information age enabled it to form close ties with both the United States of America and the European Union. Out of 400, 000 engineers produced per year in the country, 100, 000 possessed both technical competency and English language skills. India developed a number of outsourcing companies specializing in customer support via Internet or telephone connections. By 2008, India also has a total of 49,750,000 telephone lines in use, a total of 233,620,000 mobile phone connections, a total of 60,000,000 Internet users—comprising 6.0% of the country's population, and 4,010,000 people in the country have access to broadband Internet— making it the 18th largest country in the world in terms of broadband Internet users. Total fixed-line and wireless subscribers reached 325.78 million as of June, 2008. (till 1991) The Indian Government acquired the EVS EM computers from the Soviet Union, which were used in large companies and research laboratories.Tata Consultancy Services—established in 1968 by the Tata Group—were the country's largest software producers during the 1960s. As an outcome of the various policies of Jawaharlal Nehru (office: 15 August 1947 – 27 May 1964) the economically beleaguered country was able to build a large scientific workforce, second in numbers only to that of the United States of America and the Soviet Union. On 18 August 1951 the minister of education Maulana Abul Kalam Azad, inaugurated the Indian Institute of Technology at Kharagpur in West Bengal. Possibly modeled after the Massachusetts Institute of Technology these institutions were conceived by a 22 member committee of scholars and entrepreneurs under the chairmanship of N. R. Sarkar. Relaxed immigration laws in the United States of America (1965) attracted a number of skilled Indian professionals aiming for research. By 1960 as many as 10,000 Indians were estimated to have settled in the US. The reason for this immigration was rooted in India Page 83 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. producing more engineers through its education system—expanded during the 1950s—than its industry was able to absorb. By the 1980s a number of engineers from India were seeking employment in other countries. In response, the Indian companies realigned wages to retain their experienced staff. In the Encyclopedia of India, Kamdar (2006) reports on the role of Indian immigrants (1980 - early 1990s) in promoting technology-driven growth: The United States’ technological lead was driven in no small part by the brain power of brilliant immigrants, many of whom came from India. The inestimable contributions of thousands of highly trained Indian migrants in every area of American scientific and technological achievement culminated with the information technology revolution most associated with California’s Silicon Valley in the 1980s and 1990s. The National Informatics Centre was established in March 1975. The inception of The Computer Maintenance Company (CMC) followed in October 1976. Between 1977-1980 the country's Information Technology companies Tata Infotech, Patni Computer Systems, and Wipro, had become visible. The 'microchip revolution' of the 1980s had convinced both Indira Gandhi and her successor Rajiv Gandhi that electronics and telecommunications were vital to India's growth and development.MTNL underwent technological improvements. Between 1986-1987, the Indian government embarked upon the creation of three wide-area computer networking schemes: INDONET (intended to serve the IBM mainframes in India), NICNET (the network for India's National Informatics Centre), and the academic research oriented Education and Research Network (ERNET). 1991–2001 The policies of N. Chandrababu Naidu—the chief minister of Andhra Pradesh (1995 2004)—helped transform Hyderabad into one of the Information Technology hubs of India. Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to relax regulations on linking in 1991. In 1991 the Department of Electronics broke this impasse, creating a corporation called Software Technology Parks of India (STPI) that, being owned by the government, could provide VSAT communications without breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellite links to be used by firms; Page 84 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicated links, which allowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in the clients’ office. Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in 1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible scale in 1992. Election results were displayed via National Informatics Centre's NICNET. The Indian economy underwent economic reforms in 1991, leading to a new era of globalization and international economic integration. Economic growth of over 6% annually was seen between 1993-2002. The economic reforms were driven in part by significant the internet usage in the country. The new administration under Atal Bihari Vajpayee—which placed the development of Information Technology among its top five priorities— formed the Indian National Task Force on Information Technology and Software Development. Wolcott & Goodman (2003) report on the role of the Indian National Task Force on Information Technology and Software Development. Within 90 days of its establishment, the Task Force produced an extensive background report on the state of technology in India and an IT Action Plan with 108 recommendations. The Task Force could act quickly because it built upon the experience and frustrations of state governments, central government agencies, universities, and the software industry. Much of what it proposed was also consistent with the thinking and recommendations of international bodies like the World Trade Organization (WTO), International Telecommunications Union (ITU), and World Bank. In addition, the Task Force incorporated the experiences of Singapore and other nations, which implemented similar programs. It was less a task of invention than of sparking action on a consensus that had already evolved within the networking community and government. The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's telecommunications sector. The Information Technology Act 2000 created legal procedures for electronic transactions and e-commerce. Throughout the 1990s, another wave of Indian professionals entered the United States. The number of Indian Americans reached 1.7 million by 2000. This immigration consisted largely of highly educated technologically proficient workers. Within the United States, Indians fared Page 85 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. well in science, engineering, and management. Graduates from the Indian Institutes of Technology (IIT) became known for their technical skills. The success of Information Technology in India not only had economic repercussions but also had far-reaching political consequences. India's reputation both as a source and a destination for skilled workforce helped it improve its relations with a number of world economies. The relationship between economy and technology—valued in the western world—facilitated the growth of an entrepreneurial class of immigrant Indians, which further helped aid in promoting technology-driven growth. 2001–2007 IT Park in Hyderabad. Infosys Media Centre in Bangalore. Tidel Park—one of the largest software parks in Asia—was set up on the July 4, 2000 to aid the growth of Information Technology in Tamil Nadu. The economic effect of the technologically inclined services sector in India—accounting for 40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25% of its workforce—is summarized by Sharma (2006). The share of IT (mainly software) in total exports increased from 1 percent in 1990 to 18 percent in 2001. IT-enabled services such as backoffice operations, remote maintenance, accounting, public call centers, medical transcription, insurance claims, and other bulk processing are rapidly expanding. The city of Hyderabad is now known as Cyberabad, and Indian companies such as TCS, Wipro, and Infosys may yet become household names around the world. INFORMATION TECHNOLOGY: CURRENT SCENARIO The Indian information technology industry has played a key role in putting India on the global map. Thanks to the success of the IT industry, India is now a power to reckon with. According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09. India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Page 86 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services. The government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 per cent per annum, from the earlier few million dollars worth exports in early 1990s. As per NASSCOM's latest findings: • Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion. • IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09. Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per cent. Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and Wipro—have seen revenue growth from all important sources of income: from the North American and European regions, in the financial services vertical and from application maintenance and development (ADM) offerings between fiscal years 2008 and 2009. Outsourcing A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the year 2008. India's most prized resource is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the US. It is estimated that India has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which train more than 67,785 computer software professionals every year. The enormous base of skilled manpower is a major draw for global customers. According to NASSCOM software and services exports (including exports of IT services, BPO, engineering services and R&D and software products) reached US$ 47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion. Page 87 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Domestic Markets India's domestic market has also become a force to reckon with, as the existing IT infrastructure evolves both in terms of technology and depth of penetration. According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent. India Inc's demand for IT services and products has bolstered growth in the domestic sector with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for grabs. Such growth in the software and services sector has been achieved because of spectacular growths in some segments. According to research firm Gartner, India's personal computer (PC) market is likely to grow by 13.7 per cent to 11.1 million units in 2009, aided by a surge in demand for laptops. The laptop market is expected to grow by 37 per cent in 2009 to 3.69 million units and constitute a third of the total PC market. Rural Penetration According to a report of the Internet and Mobile Association of India (IAMAI) rural India has 3.3 million active internet users. Since rural India was mapped for the first time, the yearon-year growth of internet users in rural India could not be estimated. The research also notes there are 5.5 million people who claim to have used Internet at some point in time. GOVERNMENT INITIATIVES • The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country. • Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions. Page 88 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • The government-led National e-Governance Programme, has played an important role in increasing internet penetration in rural India. Road Ahead The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise. According to a report prepared by McKinsey for NASSCOM, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities emerge in areas such as public sector and healthcare, and as geographies including BRIC and Japan opt for greater outsourcing Page 89 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. SWOT ANALYSIS OF IT SECTOR Strengths • • • • Highly skilled human resource Low wage structure Quality of work Initiatives taken by the Government (setting up Hi-Tech Parks and implementation of e-governance projects) • etc. • • • • • Following Quality Standards such as ISO 9000, SEI CMM etc. English-speaking professionals Cost competitiveness Quality telecommunications infrastructure Indian time zone (24 x 7 services to the global customers). Time difference between Many global players have set-up operations in India like Microsoft, Oracle, Adobe, India and America is approximately 12 hours, which is beneficial for outsourcing of work. Weaknesses • Absence of practical knowledge • Dearth of suitable candidates • Less Research and Development • Contribution of IT sector to India 's GDP is still rather small. • Employee salaries in IT sector are increasing tremendously. Low wages benefit will soon come to an end. Page 90 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Opportunities • • • • High quality IT education market Increasing number of working age people India 's well developed soft infrastructure Upcoming International Players in the market Threats • • Lack of data security systems Countries like China and Philippines with qualified workforce making efforts to overcome the English language barrier • IT development concentrated in a few cities only Page 91 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INTRODUCTION TO EDUCATION SECTOR The Indian economy has been growing at an accelerated rate over the past few years. During FY08, real gross domestic product (GDP) witnessed a growth of 8.7%. The Govt has targeted to achieve a sustainable high growth of 10% by the end of the Eleventh Five Year Plan (i.e. 2007-12) and is taking steps in this direction. Realizing the failure of public initiatives to achieve universal educational coverage, as around 142mn children continue to remain deprived of school education, the Govt of India has been stepping up its expenditure on education, focusing on building more schools, hiring more Teachers and training existing teachers. This year, the Union Budget's allocation for School education went up 20% to Rs 344bn ($8.6) and the allocation for Sarva Shiksha Abhiyan (SSA) increased by 30.5% from Rs 100.41bn ($2.5bn) to Rs 131.0bn ($3.3bn). The Govt. has allocated Rs 5bn for ICT and state governments across the country are increasingly looking at upgrading existing infrastructure in schools. Education cess has remained stable at 3% and is expected to contribute Rs 129.98bn per annum to the education budget. In view of the urgent need for greater clarity of regulation, which would reduce the need for current complicated structures of ownership and encourage greater public-private participation (PPP) in the education sector, the Govt has shown favour towards greater private participation and more Foreign Direct Investment (FDI) in the education sector. The private sector has also spotted this opportunity and several new schools are being built across the country. An increasing number of these schools are deploying new teaching methodologies. Also, the huge shortage of teachers in the country has triggered these private entrepreneurs into imparting training to teachers and thereby adding to their revenue streams. Implementation of technological tools of learning the increasing accessibility of the Internet, advent of high performance technologies and widespread acknowledgment that technology should play an important role in education has made schools implement the latest technological methods of teaching and learning. Private schools are now differentiating themselves from each other in order to attract maximum number of students by adopting state-of-the-art technological learning tools to impart education. Page 92 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Defining the opportunity Your Company addresses the key markets of Private Schools, Government Schools and Teacher Training and avails of the opportunities arising in these markets. Domestic Market - Huge potential with Govt. Support K-12 market, the country's core education market is estimated to be worth around $20bn, comprising $15bn of unaided schools and $5bn of aided schools. In India, out of 361mn children, only 219mn have been enrolled for education, while the remaining 142mn are deprived of school education. Further analysis reveals that the out of these 142mn children, 78mn, 39mn, 25mn are deprived of higher secondary (Grade 9-12), middle (Grade 5-8) and primary education (Grade 1-4), respectively. Budget allocation for the education sector has been increasing over the last three years, which in turn has also given a boost to technology deployment in schools. The government has created a flagship program called the Sarva Shiksha Abhiyan (SSA) to ensure primary education for all, for which it is mobilising more resources through the education cess. Government Schools: There are over 950,000 public schools in the country with 129mn students, translating into an average of 136 students per school. Out of the total public schools, around 84% are in villages. In the latest Budget 2008-09, apart from increasing the allocation for the education sector by 20% to Rs 344 bn, the Govt. Also announced a model school program, which would aim to establish 6,000 high quality model schools. This has created another opportunity for your Company. Teacher Training: There are about 5mn teachers in the country with around 90%- 95% of them in need of re-skilling. Recognising this imperative, the government has increased its emphasis on a budget for teacher training. Private Schools: There are over 75,000 private schools in the country with around 90mn students, indicating an average of 1,200 students per school and a market size of approx. $20 bn. Out of the total private schools, 30,660 schools are aided private schools and the remaining 44,400 unaided (15,000 unaided premium and 29,400 unaided standard) by Govt of India. This market could be sliced in many ways. Your Company's market share in this business is around 1% leaving a lot of headroom for growth. Page 93 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Indian Education Opportunity India, with 361mn children that should be enrolled for education, is one of the largest Kindergarten-to-Grade 12 (K-12) markets in the world. There are currently 75,000 private schools and 950,000 government schools. According to estimates by the Central Board of Secondary Education (CBSE), India is short of 200,000 schools. The Supplemental Education Services market: The highly competitive nature of exams in the country and high expectations from parents require students to put in long hours of study after school, creating another big opportunity in the after-school help market. It is estimated that atleast 20mn students are taking some form of tuition outside the classroom compared with 90mn students enrolled in private schools. Though it is largely an urban phenomenon, the estimated size of the market is about Rs 5.3bn. This is a price inelastic, highly fragmented market, which presents a great opportunity. The Pre-School Segment: This market is highly fragmented, with the largest chain comprising just 550 schools, less than 4% of the total market consisting of 15,000 pre-schools in India. We believe this to be yet another untapped opportunity and estimate it to be a market worth Rs 98bn. Online Tutoring: There are currently 2.6mn broadband connections in India. The Govt's Broadband and Wireless Policy has called for 20mn and 25mn broadband subscribers by 2010 and 2012, respectively. With the rolling out of these connections, the online tutoring market in India will open up, creating opportunities for your Company. Global Opportunities The latest edition of the Electronic Publishing Services (EPS), in its Education and Training Market Monitor research predicts that the Global Education and Training Content Market is expected to reach over $50bn by 2010. Research further reveals that revenues for content providers to North America and European will grow at a CAGR of 6% during the period 2005 to 2010. Research has shown that the demand for comprehensive solutions will ultimately drive new rounds of formal and/or informal consolidation within the marketplace. Page 94 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. “Over-regulated and under-governed” best describes the largest sector in India – Education (IES). In a failed public education system, aspirations are meeting affluence and taking private IES through a phase of Price Discovery. Ironically, the gargantuan potential (estimated private spend of US$50bn; $80bn by 2012) is trapped! The ‘not-forprofit’ nature of the $40bn formal IES has deterred for-profit private participation while inability to transform education into a ‘process-driven’ model curtails scalability in nonformal IES ($10bn). Our investment thesis in IES rests on 4Cs – players with Credibility (management intent & ability), Capital (built to last), Creativity (to ‘manage’ the overregulated environment) and Content (to differentiate and build annuity). We see limited value creation potential in the space, mainly due to scale issues. However, Educomp Solutions and Manipal Universal Learning (unlisted) exhibit the 4KSFs with strong pricing power as indeed ability to create an annuity pool and are our bets in the sector. IES – the ‘Largest’…inefficiencies the ‘Highest’: IES is by far the largest capitalized space in India with $30bn of government spend (3.7% of GDP; at global average), and a large network of ~1m schools and 18,000 higher education institutes. Yet, the public education system is ‘insufficient’ and ‘inefficient’, leading education-hungry and affluent Indians to spend $50bn on private education (14% CAGR over FY08-12E). Investability Quotient – the ‘Lowest’: The ‘not-for-profit’ diktat, a poor regulatory framework and low risk-appetite have discouraged for-profit participation in the lucrative private formal IES. With no structural change in sight (rampant corruption and low political will), IES has attracted limited capital. Meanwhile, non-formal IES – while non-regulated and fastergrowing – fails the scalability test (barring a few pockets). Betting on mavericks: Though a few smaller players have attracted some capital, we see limited value creation potential in IES due to regulatory and scalability issues. Armed with creativity, certain for-profit players are using innovative two-tier structures to unlock the ‘surplus’ generated and, more importantly, plough it into scalable (as also transparent) business models. Exhibiting the 4Cs, we like Educomp Solutions and Manipal Universal Learning (unlisted) -- players with scaledup and annuity businesses as also strong pricing power. Page 95 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. INTRODUCTION TO COMPANY INTRODUCTION TO EDUCOMP SOLUTION Educomp Solutions Limited (Educomp) is a provider of technology-based education products and services for kindergarten to twelfth grade (K-12) education. The Company’s principal business areas include Business-to-Business (B2B) initiatives and Direct Initiatives. Educomp provides technology enabled products and services to both public and private schools, including Smart_Class, instructional and computing technology solutions (ICT solutions) and teacher training programmes (Professional Development). The Company sells educational aid, compact disk-read only memory (CD-ROM) and learning content through its online initiatives (including Mathguru and Learning Hour) and its offering initiatives (including establishing pre-schools, K-12 schools and higher education institutions). In May 2008, the Company acquired a 51% stake in Learning.com. In October 2008, the Company acquired a 51% stake in Takshila Management Services Pvt. Ltd. Educomp Solutions Limited, founded in 1994 is a globally diversified education solutions provider and the largest education company in India. Educomp Group reaches out to over 21,000 schools and 10.99 million learners and educators across the world. Educomp Solutions Limited have 27 offices worldwide including an office in Canada, 20 in India, two in Singapore, one in Sri Lanka, and three in the United States. In addition, the Company operates through its various subsidiaries including authorGEN, Threebrix eServices, Learning.com, USA, AsknLearn Pte Ltd, Singapore and via its associates such as Savvica in Canada. Educomp Solutions Limited is now India’s number one K-12 education company. For many years, Educomp Solutions Limited has been at the forefront of various pioneering initiatives in the e-education space. Educomp Solutions Limited’s mission is to reach 10 million learners through their products, services and solutions and be amongst the top five K-12 companies worldwide by the year 2010. Page 96 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Educomp Solutions Limited’s Partners Educomp has built strong partner relationships with major companies in India and abroad, each bringing in their special expertise and contribution. Educomp Solutions Limited utilizes these partnerships to keep their processes and knowledge at the highest level across all paradigms. Educomp Solutions Limited work with leading companies and trusts, such as Intel, Microsoft, Raffles. Gaja Capital Partners Gaja Capital Partners is an India focused mid-market private equity firm. Gaja invests in emerging sector leaders that leverage domestic demand in India. Learning Leadership Foundation (LLF) The Learning Leadership Foundation (LLF), a non profit organisation with a mission to provide access to quality education and also to re-skill/train teachers to be better and more effective. Microsoft-XBOX The Entertainment and Devices Division of Microsoft® has entered into a partnership with Educomp to encourage interactive learning amongst students on the Xbox 360 platformTM. Xbox 360TM delivers the most powerful console, the next generation of Xbox Live®, and an amazing digital entertainment experience. Intel Classmate PC Pilots - One on one computing The World Ahead Program from Intel Corporation aims to enhance lives by accelerating access to uncompromised technology for everyone, anywhere in the world. Intel-powered classmate PCs are designed to improve education and provide economic opportunities. They are cheap and rugged, and can bring one-on-one computing to the average classroom. Raffles Exchange Programs The Raffles Institution is one of the top schools in Singapore. Established in 1823, it is an independent secondary school for boys. Siboney Page 97 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Siboney Corporation was incorporated in the State of Maryland in 1955. Its principal business is the publishing of educational software products in core academic areas, primarily for schools. Since the mid-1950s, Siboney has developed educational materials for teachers and schools through its Gamco subsidiary. Greycells18 Media Pvt Ltd. Greycells18 Media Pvt Ltd. has been set up in association with Network18 and Educomp. Greycells18 is a pioneer in the world of education, and has created comprehensive interactive learning services that will help students understand subjects better, and enable them to excel in their exams. These curriculum-based educational systems will use modern technological innovations in the ICT space, such as Interactive TV, e-learning and mobile learning, to create an interactive ecosystem where students can thrive. Interactive video content of the Topper Learning System is available on Channel 570 on Tata Sky and Channel 097 on Dish TV. FTK Partnership FTK is based out of Shoham, Israel and develops Software products and online solutions particularly tailored to the Indian market unique needs. Important Agreements Made by the Educomp Solution Pvt.Ltd. • The first seven “Millennium Schools” (as defined below) are launched, with Edu Manage (as defined below) acting as vendor of the Company’s products and services. • The Company, via Edu Infra (as defined below) enters collaborative agreements to ensure sufficient land is available for development of new schools in accordance with its K-12 initiative. • Edumatics signs a joint development agreement with U.S. based company, Learning.com, to provide educators with innovative, web-delivered curriculum solutions that support student learning. • The Company enters into a partnership with Microsoft to make its multimedia content curriculum available for use on the Xbox 360 platform, which currently has over 50,000 users worldwide. The official launch of the product is expected during FY 2009. Page 98 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Edumatics enters into a strategic alliance and joint development agreement with Siboney Learning Group, Inc. to create a new online test preparation programme, leveraging IP, a software development programme, manpower and the expertise of both parties. In May, the Company acquires a 51% strategic stake (on a fully diluted basis) in Learning.com. Source: annual Report Educomp SHARE DATA Market Cap Price BSE Sensex BSE Code NSE Code Face Value 52-Week High/Low Index Group Listed on BSE/NSE Rs.3647.25 Crs Rs.1898.00 9459.34 532696 INE216H01019 Rs.10 Rs.4219/1331 BSE 100 ,BSE Mid Cap A 13th January 2006 COMPANY MANAGEMENT BOARD OF DIRECTORS (As on 2nd June, 2008) Shantanu Prakash Chairman & Managing Director Page 99 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Jagdish Prakash Gopal Jain Sankalp Srivastava Shonu Chandra COMMITTEES OF THE BOARD AUDIT COMMITTEE Whole-Time Director Director Director Director Sankalp Srivastava Shonu Chandra Gopal Jain Shantanu Prakash SHAREHOLDERS’ INVESTOR GRIEVANCE COMMITTEE Chairman, Independent & Non-Executive Member, Independent & Non-Executive Member, Independent & Non-Executive Member, Promoter & Executive Director Sankalp Srivastava Shonu Chandra Gopal Jain Jagdish Prakash Chairman, Independent & Non-Executive Member, Independent & Non-Executive Member, Independent & Non-Executive Member, Non Independent & Executive Director REMUNERATION COMMITTEE Sankalp Srivastava Shonu Chandra Gopal Jain Chairman, Independent & Non-Executive Member, Independent & Non-Executive Member, Independent & Non-Executive REGISTERED OFFICE CORPORATE OFFICE 1211, Padma Tower I, 5, Rajendra Place, Educomp Towers, 514, Udyog Vihar Phase New Delhi -110 008. BRANCH OFFICES AT : Bangalore Mumbai : : 16, 80 Feet Road, 4th Block, Koramanagala Bangalore-560 034. 2nd Floor, Valech Chambers, Plot No, B-6, New Link Road, Andheri (W), Mumbai-400 053. Noida : Plot No 85, Special Economic Zone, Phase II, Sector 82, Noida. Page 100 III,Gurgaon - 122 001. EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Kolkata Kolkata Chennai Lucknow Guwahati : : : : : Suite no 6C, 2nd Floor, 36B Shakespeare Sarani, Kolkata-700 017. 5, Satyen Dutta Road, Kolkata-700 029. New No. 98, 7th Avenue, Ashok Nagar, Chennai – 600 083. C-26, Sector –C, Chetan Vihar, Aliganj Scheme, Lucknow- 226 024. Krishna Market, SRCB Road, Fancy Bazaar, Guwahati- 781 001. Flat No. 14, 3rd Floor, Modern Complex, Behind Mantralaya, Moti Bagh Chowk, Raipur, Chattisgarh. Orissa : D/206, Baishnav Vihar Apartment,Near Durga Puja Mandap, Bomikhlal, Bhubaneshwar – 751006, Orissa. Gandhi Nagar : Secunderabad : Plot No. 1662/1, 1st floor, Sector 5C, Gandhinagar, Gujarat-382 005. Plot No. 28 & 30, Jupiter Colony, Road No. 3, Near Sikh Village, Bowenpalli, Secunderabad-500 009. Tripura : Above MK Azad Computer Institute, Joynagar Middle Road, Agartala-799 001. Chandigarh : SCF No. 63, Phase XI, Sector 65, S.A.S. Nagar, Mohali, Punjab-160059. OVERSEAS OFFICE : Educomp Solutions Limited, 88/6, 1/1 Somadevi Place, Colombo-05, Sri Lanka AUDITORS : Anupam Bansal & Co, Chartered Accountants BANKERS : State Bank of Patiala, Commercial Branch, Chandralok Building, New Delhi-1 State Bank of Bikaner & Jaipur,Industrial Finance Branch,27 Barakhamba Road,New Delhi-1 ICICI Bank Ltd, Kailash Building, K.G.Marg, New Delhi-1. Standard Chartered Bank, Connaught Place, New Delhi-1. Chhattisgarh : SUBSIDIARIES Direct Subsidiaries Educomp Learning Private Limited Wheitstone Productions Private Limited Educomp Infrastructure Private Limited Educomp School Management Limited Page 101 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Educomp Professional Education Limited Educomp Software Limited Threebrix E-Services Private Limited Authorgen Technologies Private Limited Edumatics Corporation Inc. Educomp Asia Pacific Pte. Limited Indirect Subsidiaries Ask N Learn Pte ltd, Singapore (Subsidiary of Educomp Asia Pacific Pte. Ltd) Singapore Learning.com Pte. Ltd, Singapore (Subsidiary of Ask n Learn Pte. Ltd) Pave Education Pte Ltd, Singapore (Subsidiary of Ask n Learn Pte. Ltd) Wiz Learn Pte Ltd, Singapore (Subsidiary of Ask n Learn Pte. Ltd) Learning.com, U.S.A (Subsidiary of Educomp Asia Pacific Pte. Ltd) Shikhya Solutions Inc.,U.S.A (Subsidiary of Authorgen Technologies Private Limited) Educomp Infrastructure Services Private Limited (Subsidiary of Educomp Infrastructure Private Limited) SHARE TRANSFER AGENT : Intime Spectrum Registry Limited, A-40, 2nd Floor, Naraina Industrial Area, Phase-II, New Delhi-28 LISTED AT : National Limited, Limited Stock Exchange Stock of India Bombay Exchange COMPANY SECRETARY : Source: annual Report Educomp Mohit Maheshwari Name of Company Edumatics Inc. -U.S.A. 1655 Educomp Learning Private Limited –India Ownership Interest 100% 51% Page 102 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Educomp Professional Private Limited –India Sikhya Solutions LLC-U.S.A. Learning.com, U.S.A. 100% 100% 51% The Company has seventeen subsidiaries, one associate and two planned joint ventures. The subsidiaries focus mainly on providing services and products directly to the individual consumer as part of the Company’s Direct initiatives. In Fiscal 2008, Direct Initiatives contributes 14.09% of the total consolidated revenues of Educomp. Shareholding pattern(%) Promoters FII's Public and Others 55.03% 6.97% 38.00% Source : educomp annual report 2008 Source: self generated HIGHLIGHTS(2007-08) Particulars Figure INR(Millions) Page 103 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Revenue - Operational Year-on-Year Revenue Increase EBITDA Year-on-Year EBITDA Increase PBT Year-on-Year PBT Increase Net Profit Year-on-Year PAT Increase EPS –Basic* EPS –Diluted** NPR Rs. 2,620.95 millions 145.93% Rs. 1,246.92 millions 149.15% Rs. 1,029.96 millions 129.37% Rs. 700.61 millions 145.11% Rs. 41.38 Rs. 35.13 26.73% Total Assets Rs. 7,332.78 millions Note: US $/ INR Conversion rate considered at Rs. 39.97 as on 31st March, 2008. * Basic EPS calculated on a capital base of 16,931,280 No. of Equity Shares as per AS-20. ** Diluted EPS calculated on a capital base of 18,511,016 No. of Equity Shares as per AS-20 Source: annual Report Educomp Page 104 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. FUNDAMENTAL ANALYSIS ANALYSIS OF RATIOS: Company’s Debt Equity Ratio has increased significantly from 0.11 in 2006 to 1.22 in 2008. Company has already made financial closure of secured debt for capital expenditure requirement for K-12 business up to the year 2011. Company’ Interest coverage ratio remains comfortable as most of the debt of the company is in the form of FCCB maturing in 2012. Company had high inventory turnover ratio as company has built up inventory of installing computers for its SmartClass and ICT business. RATIO ANALYSIS 3 YEARS COMPARATIVE Particulars Financial Year 2007-08 a) Leverage Debt/Equity Total Asset/Net worth (AV) Debt service coverage ** Debt service coverage (3 Years Average)** Note:- The above ratios are calculated in time term 1.22 3.65 18.58 16.58 1.02 2.62 13.29 11.66 0.03 2.06 14.81 10.02 2006-07 2005-06 b) Profitability EBDITA/Net Sales Net Profit Ratio Return on net worth(Profit available 47.58 26.73 for 32.39 46.96 26.82 24.13 49.39 26.58 19.67 distribution/ Average Net Worth) PAT/ Average Net worth Fixed Assets/Turnover (operational) Note:- The above all ratios are calculated in % term 34.91 80.64 27.9 67.37 24.47 32 c) Liquidity Page 105 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Net working capital to total Current assets Average collection period (in days) Current Ratio 0.48 159 5.64 0.48 169 5.23 0.59 176 4.05 d) Growth Growth in total revenue in (%) * Debt includes FCCB raised during the year. ** Calculated on Long-term debt basis. 146.86 108.6 67.46 Interpretation: debt equity ratio shows that interest expenses is increasing , thus , the profitability of the company may decrease. The Net worth ratio shows that the financing of Assets is being done by debt . this might be due to the fact that the company has cheaper source of finance from debt than equity. The debt service ratio and debt service ratio (Three Year Average) shows that company is at a very good position to pay out its cost of debt. The company Net profit Ratio shows that it is consistent in generating profit. This is a sign of sound management policies. Return on net worth is one of the most important ratio from owners point of view. The higher the ratio the better it is. Because it exhibit the return which has been generated on the owners capital and the reserve and surpluses of the company. Fixed Assets of the company has been optimally utilised to generate maximum sales. Net Working Capital to total Current Assets shows that the company is maintaining a good level of its Net Working Capital so that it does not face short term liquidity is maintain. Decreasing Average collection Period shows that the debtor is converting into cash at much higher rate than before. Page 106 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. The current ratio shows that the company is not maintaing the ideal ratio i.e 2:1 , this might be due to the fact that since it is a service base company much current assets would be blocked in the form of cash and /or debtors. FINANCIAL PERFORMANCE - 3 YEARS SNAPSHOT Sl. No. 1 REVENUE Income from Operations Other Income Total EBDITA EBDITA % Interest Expenses Depreciation PAT PAT % Taxes Equity Dividend % Dividend payout ** Equity Share Capital Reserve & Surplus Average Net worth Gross Fixed Assets Net Fixed Assets Market Capitalization *** 2,620.95 148.08 2,769.03 1,246.92 47.58 41.89 322.95 700.61 26.73 167.56* 25% 50.54 172.47 2,613.01 2,007.10 2,645.27 2,113.52 65,830.13 1,065.74 55.98 1,121.72 500.47 46.96 13.29 93.93 285.84 26.82 116.93* 20% 38.71 159.85 987.12 1,024.36 936.19 717.95 15,255.06 523.05 14.68 537.73 258.34 49.39 5.04 53.05 139.03 26.58 75.97* 15% 27.3 159.6 743.5 568.14 350.81 167.39 6,137.33 Particulars Financial Year 2007-08 2006-07 2005-06 2 Other Information: No. of Employees No. of Shareholders **** 3955 15584 1422 5979 1190 5374 ** Dividend pay-out is inclusive of dividend tax. Page 107 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. *** **** Calculated on the basis of closing share price as on 31st March, 2008 at BSE. As per NSDL, CSDL and Registrars records dated 31st March, 2008. Source: annual Report Educomp Analysis of Financial Statements : Company Debtor days are high, as both ICTan d Smart class segment revenue collection starts post 90 days. It is around 120 days for Smart Class and more than 150 days for ICT. These will take time to reduce as K-12 and retail business are just beginning to pick up. Post FY15, we expect debtor days to come to around 100 days from 150 days presently. For Q4 FY09 Debtor days are at 175 – 180 days up from 170 days in the sequential quarter. Company’s debt equity ratio for FY09 stands at around 1.7, higher than 1.3 last year. Going forward Debt Equity ratio will decrease to around 1.2 as debt of USD 80 will get converted in to Equity which will also help company in raising cheaper debt in future. On consolidated basis, Cash & Cash Equivalents at the end of the quarter of Rs 186.5 Crore and debt of Rs 907.4 Crore. Debtor days are at 175 – 180 days up from 170 days in the sequential quarter. The Company plans to sell both content and hardware together. The Company plans to approach financial institutions for securitization of receivables and finally outsource resource coordinators and logistics. The model would reduce the cash burden on the Company and lighten its working capital needs. Growth Outlook Company is likely to post very high growth rate for a long time. Revenue figures are expected to show a CAGR of 70% for the period 2009-2011, 35% for the period 2011- 2014 and 20% for the period 2014-2016. It forecast strong 50% CAGR in Net Profits over FY09FY11E and see limited risks to the estimates given. Company has forward P/E of for FY2011 on constant prices while growth rate is expected to be upwards of 30% for year FY11FY14. Company will continue to shine even in downturn as spending on Education and price levels are highly resilient to economic downturns. Page 108 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Another positive for this company is its short payback period on its investment as significant business comes from long term contracts of 5 years. Company understands its strengths and challenges ahead to deal with these challenges. Company has recognized four areas of opportunities/ strengths as under: 1. Large market opportunity(scale) 2. Create barriers of entry for other players through strong IP and product differentiation. 3. High operating margins (50%+) 4. Experience and ability to execute 3 – YEARS COMPARATIVE SNAPSHOT AS A STANDALONE BASIS Source: self created Note: Total revenue depicts income from operation and other income. Interpretation: as it is clear from above chart company,s revenue is increasing year on year. In financial year 2006 company’s revenue was 537.73 and it increased to 2769.03 million in financial year 2008. So it can be concluded that company is performing well. Page 109 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source : self generated Interpretation: company’s earning before tax are also going increasing per year. Company’s PBT has increased by 500% from 2006 to 2008. It is a good signal for future growth of company. Source : self generated Interpretation: it is good signal for company as well as investor, as the PAT has increased over the year on an increasing rate. So it can be concluded that company’s performance is going good. Page 110 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source : self generated Interpretation: with the increase in earning of company, the wealth of the shareholder is also increasing. This shows that is concerned for giving out returns to its shareholders. Source : self generated Interpretation: the numerator side i.e. price is incresing so book value is also at incresing level. It is a good signal for buyer. Page 111 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source : self generated Note: Debt depicts long term debts secured/ unsecured. Equity depicts Equity share capital + Reserve & surplus – Misc. expenditure. Debt Equity Ratio = Debt/Equity Interpretation: Debt equity ratio shows that interest expenses is increasing , thus , the profitability of the company may decrease. That means company is having more debt or assets are financing from debt. Page 112 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Note: Return on Capital Employed = Profit before interest but after tax/ Average Capital Employed. Average Capital Employed depicts (opening capitalemployed + closing capital employed)/2. Interpretation: company’s debt has increased over the year but the revenue has not increased with respect to debt so that denominator side has increased more than numerator side. It results in less return on capital employed. Source : self generated Note: Total Assets depicts Net fixed assets + Investments + Current assets loans & advances + Misc. assets. Average Net worth depicts (opening net worth + closing net worth)/2. Total Assets to Net worth = Total Assets / Average Net worth. Interpretation: it indicates that total assets are more increased with respect to net worth. Company’s fixed assets are more increased than current assets. It is good indicator because company is expanding its current existing assets. Page 113 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 3 – YEARS COMPARATIVE SNAPSHOT a) Revenue breakup Source : self generated Interpretation: above chart is showing that the company’s main source of revenue is smart class programme and instructional & computing technology, which are showing incresing in revenue. And other programme that is professional development and retail & consulting programme has shown little bit decrasing trend in revenues. Source : self generated Page 114 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Interpretation: Educomp solution is US based company, and from its total revenue revenue from outside is around 90%. From India it earns only 10% of revenue but as we can consider it as a huge percentage. And in India company is growing well as its revenue has increased over the year. b) Profitability Source : self generated Note: Net Profit considered Profit after tax and prior period items. Net Sales depicts Sales & Service Income. Net Profit % to Net Sales = NP / Net Sales* 100 Interpretation: this ratio shows the efficiency of the company to generate constant profit throughout the three years. It shows that the investors are sure about the profitability of company as its management is good enough to maintain a good return on sales, which finally goes in interest of investors. c) Expenditure Page 115 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source : self generated INTERPRETATION: Here COGS of company is increasing that shows the cost of service being provided by company is increasing relatively to profit. That cause into decrement of Cost of Good sol d of company. Increment in personnel expenses shows that the company is spending more money in hiring more human resources and other expenses of personnel’s are relatively high. Admin.& other expenses are relatively less than the previous year so it is showing good efficiency of management in carrying the services. Page 116 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. SWOT ANALYSIS OF EDUCOMP Strengths: • • • • Global R&D facility. Retention of the man-power is the best in the industry. Impressive list of clientele. Relatively lower receivable compared to the industry average. Weaknesses: • • Low operating margin of the other group companies. Free floating stock is very less. Opportunities: • • • In the branded product category. In the consultancy area. In the emerging technology areas like Blue Tooth, WAP etc. Threats: • • • • Increasing cost of human capital. Slowdown in the US economy. Appreciation of Indian Currency Will face fierce competition in the areas of e-business and ASP services. Page 117 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. TECHNICAL ANALYSIS SHARE PRICES FOR EDUCOMP SOLUTION SINCE LISTED ON BSE Educomp Date 13-Jan-06 20-Jan-06 27-Jan-06 03-Feb-06 10-Feb-06 17-Feb-06 24-Feb-06 03-Mar-06 10-Mar-06 17-Mar-06 24-Mar-06 31-Mar-06 07-Apr-06 13-Apr-06 21-Apr-06 28-Apr-06 05-May-06 12-May-06 High 314.9 337.9 311 296.8 292 311.9 299.75 408.8 442 466.9 426.9 413.5 411 390.4 381.5 393.8 417 419.2 Low 185.3 272.4 290 254.05 255.55 275 276.75 271 375 398.1 390.25 382 370.05 345.1 348 329 369 401.5 Close 285.35 307.1 293 262.15 281.1 289.8 279.35 384.8 425.15 401.5 392.25 384.55 377.45 348.35 358.75 381.4 400.25 407 Sensex close price 9,374.19 9,520.96 9,870.79 9,742.58 10,110.97 9,981.11 10,200.76 10,595.43 10,765.16 10,860.04 10,950.30 11,279.96 11,589.44 11,237.23 12,030.30 11,851.93 12,359.70 12,285.11 Page 118 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 19-May-06 26-May-06 02-Jun-06 09-Jun-06 16-Jun-06 23-Jun-06 30-Jun-06 07-Jul-06 14-Jul-06 21-Jul-06 28-Jul-06 04-Aug-06 11-Aug-06 18-Aug-06 25-Aug-06 01-Sep-06 08-Sep-06 15-Sep-06 22-Sep-06 29-Sep-06 06-Oct-06 13-Oct-06 409.9 380 424 387 377.9 407.5 395.1 414.3 432 408 390 390.9 388.95 475 613 543.8 532.9 532.8 686.9 828.15 737.7 673 326 325 355 291 300.3 351 361 382.1 390 342 328.5 365.5 370 380 464 503.2 510 476 526.1 692.1 672.75 625.3 384 365 379.5 326.6 360.2 382.1 386.5 393.05 404.8 356 370.1 370.2 377.75 463.1 540.55 514.4 516.85 524 686.9 751.25 675.4 643.3 10,938.61 10,809.35 10,451.33 9,810.46 9,884.51 10,401.30 10,609.25 10,509.53 10,678.22 10,085.91 10,680.23 10,866.51 11,192.46 11,465.72 11,572.20 11,778.02 11,918.65 12,009.59 12,236.78 12,454.42 12,372.81 12,736.42 Page 119 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 20-Oct-06 27-Oct-06 03-Nov-06 10-Nov-06 17-Nov-06 24-Nov-06 01-Dec-06 08-Dec-06 15-Dec-06 22-Dec-06 29-Dec-06 05-Jan-07 12-Jan-07 19-Jan-07 25-Jan-07 02-Feb-07 09-Feb-07 15-Feb-07 23-Feb-07 02-Mar-07 09-Mar-07 16-Mar-07 686.8 660 687 678.75 682 674.9 664.75 663 730.55 939.5 956 1,079.70 1,059.00 1,018.80 1,015.00 1,019.95 986 950 954 980 952 938 645.2 625 621 633.1 628 612 628 625.1 561 736.7 836 975 942.3 943.5 945 924.7 892 873 891.2 833 850.8 890 645.2 626 644.35 635.85 640.7 637.8 648.25 625.1 725.45 921.35 956 1,032.45 1,013.65 955.55 967.65 967.05 917.35 925.75 912.25 945.3 921.75 920 12,709.40 12,906.81 13,130.79 13,282.91 13,429.48 13,703.33 13,844.78 13,799.49 13,614.52 13,471.74 13,786.91 13,860.52 14,056.53 14,182.71 14,282.72 14,403.77 14,538.90 14,355.55 13,632.53 12,886.13 12,884.99 12,430.40 Page 120 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 23-Mar-07 30-Mar-07 05-Apr-07 13-Apr-07 20-Apr-07 27-Apr-07 04-May-07 11-May-07 18-May-07 25-May-07 01-Jun-07 08-Jun-07 15-Jun-07 22-Jun-07 29-Jun-07 06-Jul-07 13-Jul-07 20-Jul-07 27-Jul-07 03-Aug-07 10-Aug-07 17-Aug-07 1,022.20 1,015.00 1,089.85 1,340.10 1,454.45 1,420.00 1,380.00 1,511.30 1,885.00 1,999.00 1,958.00 1,893.00 1,919.00 2,375.00 2,389.65 2,304.90 2,325.00 2,279.00 2,489.50 2,630.00 2,650.00 2,726.80 920 938 930 1,125.20 1,306.50 1,251.35 1,285.00 1,281.00 1,521.00 1,550.00 1,758.00 1,765.00 1,706.00 1,861.30 2,180.00 2,124.00 2,141.00 2,131.00 2,121.00 2,300.00 2,265.10 2,310.00 1,003.00 950 1,089.85 1,340.10 1,399.65 1,317.05 1,306.75 1,511.30 1,586.70 1,898.55 1,875.80 1,815.30 1,896.65 2,312.60 2,213.25 2,140.35 2,240.95 2,154.70 2,321.10 2,406.15 2,617.40 2,361.20 13,285.93 13,072.10 12,856.08 13,384.08 13,897.41 13,908.58 13,934.27 13,796.16 14,303.41 14,338.45 14,570.75 14,063.81 14,162.71 14,467.36 14,650.51 14,964.12 15,272.72 15,565.55 15,234.57 15,138.40 14,868.25 14,141.52 Page 121 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 24-Aug-07 31-Aug-07 07-Sep-07 14-Sep-07 21-Sep-07 28-Sep-07 05-Oct-07 12-Oct-07 19-Oct-07 26-Oct-07 02-Nov-07 08-Nov-07 16-Nov-07 23-Nov-07 30-Nov-07 07-Dec-07 14-Dec-07 20-Dec-07 28-Dec-07 04-Jan-08 11-Jan-08 18-Jan-08 2,599.00 2,989.00 2,954.00 2,975.00 3,079.00 3,040.00 3,000.00 3,074.00 3,715.00 3,600.00 3,600.00 3,350.00 3,400.00 3,450.00 3,598.00 4,300.00 4,200.00 4,200.00 4,820.00 4,942.00 4,638.00 5,650.00 2,260.00 2,510.00 2,810.00 2,835.00 2,843.10 2,225.00 2,790.00 2,665.00 2,967.00 2,850.00 3,200.00 3,099.00 3,060.00 2,880.00 3,200.00 3,565.00 3,885.80 3,750.00 3,875.00 4,440.20 4,325.00 4,501.00 2,554.25 2,856.80 2,872.00 2,873.85 3,002.55 2,800.85 2,899.80 2,981.00 3,045.75 3,413.25 3,290.35 3,190.00 3,275.95 3,292.70 3,559.15 4,013.05 4,159.15 3,830.75 4,688.05 4,465.75 4,529.80 4,810.00 14,424.87 15,318.60 15,590.42 15,603.80 16,564.23 17,291.10 17,773.36 18,419.04 17,559.98 19,243.17 19,976.23 18,907.60 19,698.36 18,852.87 19,363.19 19,966.00 20,030.83 19,162.57 20,206.95 20,686.89 20,827.45 19,013.70 Page 122 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 25-Jan-08 01-Feb-08 08-Feb-08 15-Feb-08 22-Feb-08 29-Feb-08 07-Mar-08 14-Mar-08 19-Mar-08 28-Mar-08 04-Apr-08 11-Apr-08 17-Apr-08 25-Apr-08 02-May-08 09-May-08 16-May-08 23-May-08 30-May-08 06-Jun-08 13-Jun-08 20-Jun-08 4,799.70 4,274.40 4,484.40 4,198.00 4,400.00 4,562.00 4,309.00 3,769.00 3,650.00 3,980.00 3,960.00 3,930.00 3,979.00 4,210.00 4,219.00 4,140.00 4,139.90 4,185.00 4,180.00 4,065.00 3,525.90 3,750.00 3,200.00 3,350.00 3,765.00 3,525.20 3,951.00 4,020.00 3,300.00 2,901.00 3,232.00 3,121.00 3,380.00 3,546.00 3,720.00 3,900.00 3,987.00 3,825.05 3,651.00 3,999.00 3,920.55 3,445.10 3,275.00 3,300.05 4,149.80 3,757.75 3,870.15 4,163.95 4,043.10 4,250.85 3,383.70 3,627.85 3,309.70 3,937.10 3,579.15 3,871.30 3,861.60 4,120.10 4,006.45 3,842.90 4,085.00 4,014.30 3,960.90 3,497.10 3,450.90 3,311.90 18,361.66 18,242.58 17,464.89 18,115.25 17,349.07 17,578.72 15,975.52 15,760.52 14,994.83 16,371.29 15,343.12 15,807.64 16,481.20 17,125.98 17,600.12 16,737.07 17,434.94 16,649.64 16,415.57 15,572.18 15,189.62 14,571.29 Page 123 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 27-Jun-08 04-Jul-08 11-Jul-08 18-Jul-08 25-Jul-08 01-Aug-08 08-Aug-08 14-Aug-08 22-Aug-08 29-Aug-08 05-Sep-08 12-Sep-08 19-Sep-08 26-Sep-08 03-Oct-08 10-Oct-08 17-Oct-08 24-Oct-08 31-Oct-08 07-Nov-08 14-Nov-08 21-Nov-08 3,390.00 2,869.00 2,889.00 2,875.10 3,589.00 3,279.00 3,445.00 3,619.70 3,450.00 3,841.00 4,020.00 3,848.00 3,880.00 3,810.00 3,449.00 3,080.00 2,489.00 2,160.00 2,400.10 2,825.00 2,749.00 2,469.00 2,401.00 2,320.00 2,575.00 2,576.00 2,756.00 2,840.10 3,160.00 3,290.00 3,130.00 3,228.00 3,683.00 3,500.00 2,985.00 3,240.00 3,100.00 2,000.00 1,600.00 1,525.10 1,515.00 2,280.00 2,390.00 1,627.00 2,840.95 2,784.60 2,738.40 2,851.55 2,992.85 3,213.05 3,423.15 3,423.10 3,195.25 3,773.55 3,700.25 3,604.85 3,628.10 3,313.30 3,131.95 2,052.35 1,628.50 1,778.55 2,225.70 2,556.60 2,428.70 1,785.40 13,802.22 13,454.00 13,469.85 13,635.40 14,274.94 14,656.69 15,167.82 14,724.18 14,401.49 14,564.53 14,483.83 14,000.81 14,042.32 13,102.18 12,526.32 10,527.85 9,975.35 8,701.07 9,788.06 9,964.29 9,385.42 8,915.21 Page 124 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 28-Nov-08 05-Dec-08 12-Dec-08 19-Dec-08 26-Dec-08 02-Jan-09 09-Jan-09 16-Jan-09 23-Jan-09 30-Jan-09 06-Feb-09 13-Feb-09 20-Feb-09 27-Feb-09 06-Mar-09 13-Mar-09 20-Mar-09 27-Mar-09 02-Apr-09 09-Apr-09 17-Apr-09 24-Apr-09 2,370.00 2,361.00 2,294.00 2,774.00 2,865.00 2,609.90 2,722.00 2,140.00 2,170.00 1,825.00 1,825.00 2,145.00 2,177.00 1,725.00 1,643.00 1,793.00 2,039.90 2,255.00 2,385.00 2,444.00 2,349.00 2,692.20 1,685.00 1,982.10 2,050.00 2,099.90 2,383.00 2,360.00 1,980.00 1,755.00 1,375.00 1,652.55 1,331.00 1,402.00 1,711.10 1,480.00 1,473.60 1,495.15 1,780.00 1,940.00 2,031.00 2,085.00 1,970.00 2,192.00 2,261.45 2,104.80 2,088.15 2,732.40 2,409.35 2,546.75 2,127.90 2,088.20 1,747.35 1,792.55 1,401.40 2,097.20 1,771.85 1,643.95 1,560.25 1,762.90 1,898.00 2,199.35 2,341.40 2,178.95 2,184.75 2,557.85 9,092.72 8,965.20 9,690.07 10,099.91 9,328.92 9,958.22 9,406.47 9,323.59 8,674.35 9,424.24 9,300.86 9,634.74 8,843.21 8,891.61 8,325.82 8,756.61 8,966.68 10,048.49 10,348.83 10,803.86 11,023.09 11,329.05 Page 125 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 30-Apr-09 08-May-09 15-May-09 22-May-09 2,625.00 2,640.00 2,520.00 2,950.00 2,341.10 2,238.00 2,330.00 2,500.00 2,474.25 2,310.70 2,377.50 2,723.85 11,403.25 11,876.43 12,173.42 13,887.15 Source: http://www.google.com/finance/historical Source: self generated Interpretation: The share prices of Educomp solution is very fluctuating over the time. As it can be observe from the above chart, Educomp solution since listing showing a highly volatility in market prices. This share was listed on BSE index on 13th jan 2006. At that point of time this company launched its shares at face value of rs. 10. It is listed under the IT sector in BSE. The Educomp solution closed at 285.35 on 13 jan 2006. Afterward it has shown increasing trend over the years. And now it is fluctuating 3500 to 4200. Beta of this share is around 1.2 that means with the little bit movement in sensex it shows a high fluctuation. That’s why it is a highly risky share. Page 126 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source: self generated Interpretation: As the company was listed on BSE in 2006, it was the most important year for the company in the sense of market prices. Share performed very well on that year, as we can see the incremental growth in the share prices over the year. The linear trend is showing upward trend. The Company raises U.S.$25 million through the issue of foreign currency convertible bonds. Source: self generated Page 127 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Interpretation: In this year due to following Information Company’s share performed well throughout the year. Acquires a 76% equity interest in ThreeBrix for a consideration of around U.S.$0.51 million, stake of 70.05% (on a fully diluted basis) in Savicca, 51% (on a fully diluted basis) in AuthorGen and a 100% equity interest in ASKnLearn™ for a consideration of S$1.05 million. – The Company raises U.S.$80 million through the issue of foreign currency convertible bonds. – The Company enters the pre-school market, opening three pre-schools under its Roots to Wings™ initiative. Source: self generated Interpretation: The year 2008 was not so good for the company as the global turmoil results in the downward trend in share prices. But still the share performed the good results and keep their investors faith in the market. In this year company make following decisions: The first seven “Millennium Schools” (as defined below) are launched, with Edu Manage (as defined below) acting as vendor of the Company’s products and services. Page 128 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. – The Company, via Edu Infra (as defined below) enters collaborative agreements to ensure sufficient land is available for development of new schools in accordance with its K-12 initiative. – Edumatics signs a joint development agreement with U.S. based company, Learning.com, to provide educators with innovative, web-delivered curriculum solutions that support student learning. – The Company enters into a partnership with Microsoft to make its multimedia content curriculum available for use on the Xbox 360 platform, which currently has over 50,000 users worldwide. The official launch of the product is expected during FY 2009. – Edumatics enters into a strategic alliance and joint development agreement with Siboney Learning Group, Inc. to create a new online test preparation programme, leveraging IP, a software development programme, manpower and the expertise of both parties. – In May, the Company acquires a 51% strategic stake (on a fully diluted basis) in Learning.com. – On 27 May, the Company announces the plan to form two 50:50 joint ventures with Raffles Education Corp, the largest education group in the APAC region, the first in India in respect of higher and professional education programs and courses, the second in China to expand the geographical scope of the Company’s K-12 online initiatives. From the above years figure it can be easily determine that share price is in the continuous increase and the recommendation for the share is to buy. This requirement is necessary to be evolved as in the stock market there is a requirement of those shares which are healthy in nature. Due to the boom in the market during year 2007-008, there was an increase of around 5000 in the share price of educomp solution and touch all time high in March 2008. But when there was economic crisis in 2008, it has not shown any kind of decrease but as such it has made an increase of around 570- 750. Page 129 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. In year 2009, share prices shows a good response after the elections results was cameout. In early january share moved to downside and it recovered in month of march and after march it has shown a positive sentiments in investors. Source: self generated Interpretation: the year 2009 is very important for educomp solutions as this year bring a lots of opportunity to invest in this share. The share is showing upward trend. This year educomp bags lots of new projects and orders from Gujrat govt on 18th May. And budget is more reliable to this company as budget brings lots of relaxation for this sector. Page 130 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 JUNE TO AUGUST high low close Source: self generated Interpretation: For the duration of June 2008 to August 2008 reported less volatility in this script. Support level was 2500 and resistant level was 3500 and each time this share had broken the upside or downside level immediately it was moved by another 40-50 points. 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 01-Sep-08 SEPTEMBER TO DECEMBER 08 high low close 01-Oct-08 01-Nov-08 01-Dec-08 Linear (close) Source: self generated Interpretation: Page 131 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. For the duration of September 2008 to December 2008 high volatility has observed in this script because of international market instability in international market. Support level was 1800 points and resistance level was 2650, and each time it had broken any of these level another 30-40 points of changes was reported. 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 JAN.09 TO MARCH 09 HIGH LOW CLOSE Linear (CLOSE) Source: self generated Interpretation: Uncertainty in the share market continues and this share made another support and resistance level for this particular duration. New support level is 1600 points and resistance level is 2050. 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 HIGH LOW CLOSE Linear (CLOSE) APRIL TO MAY 09 Source: self generated Page 132 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Interpretation: because of some good news for Educomp solution, stock shows a good response to them. Educomp bags Rs. 83.82 cr contract from Guj govt Business Standard (14-May-2009) Educomp to establish second design training centre in Bengaluru (30-Apr-2009) 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 HIGH LOW CLOSE Linear (CLOSE) JANUARY 09 Source: self generated Interpretation: The stock has been a downtrend for past few months, I have taken Share High Low and closing price into consideration in order to determine the difference between Day high and day low which is significantly. During January the resistance level was 1750, and the support level was 2105, and each time it has broken the resistance or support we have reported a move of 30-40 point downside or upside. Page 133 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 2,500.00 2,000.00 1,500.00 FEB. 09 HIGH 1,000.00 500.00 0.00 LOW CLOSE Linear (LOW) Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Feb-09 Source: self generated Interpretation: For the month of February, the stock declined due to some of the rumours in the market about the company accounting fudging case, but was resolved very well by the Management . It has been able to break the previous month support level. So it has attained new its 52 week low price level. Support level was 1456 and the resistance level was 2050. Even the market sentiments are not going with the stock. 2,500.00 2,000.00 1,500.00 MARCH 09 HIGH 1,000.00 500.00 0.00 Feb-09 LOW CLOSE Linear (LOW) Source: self generated Interpretation: Page 134 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. March month remained positive for the market as a result this script continues to achieve new high in this time frame. The gap between Low and High was significantly low and closing price was closer to the highest price on all the trading day. Support level was 1680 points and resistant level was 1900 points. Looking at this data we have come to the conclusion that Educomp Solution followed market trend and investors were optimistic and Profit booking was reasonably low. 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 APRIL 09 HIGH LOW CLOSE Linear (CLOSE) Source: self generated Interpretation: In this month company has announced its results which are: The results for the Quarter ended March 31, 2009 The Company has posted a net profit of Rs 545.171 million for the quarter ended March 31, 2009 as compared to Rs 314.677 million for the quarter ended March 31, 2008. Total Revenue has increased from Rs 1195.322 million for the quarter ended March 31, 2008 to Rs 1843.860 million for the quarter ended March 31, 2009. The results for the Year ended March 31, 2009 The Company has posted a net profit of Rs 1282.268 million for the year ended March 31, 2009 as compared to Rs 700.613 million for the year ended March 31, 2008. Total Revenue has increased from Rs 2745.757 million for the year ended March 31, 2008 to Rs 5070.929 million for the year ended March 31, 2009. Page 135 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Company has announced these results on 30 th April so effect of it can be seen on 29th and 30th of april and after in may. 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 HIGH LOW CLOSE Linear (CLOSE) MAY 09 Source: self generated Interpretation: As the results has came out, it showed the good speculation among the investors to buy the stock. The following announcements were made in this month such as: Educomp Solutions Ltd has informed BSE that Remuneration Committee of the Company on April 30, 2009 has allotted 3,190 Equity Shares of the Company to the respective employees who have exercised their conversion option under ESOP Scheme 2006 & ESOP Scheme 2007. The most important news for Educomp is got the order of gujrat govt. Educomp Solutions Ltd has informed BSE regarding a Press Release titled "Educomp bags Rs 83.82 crores contract from Gujarat Government; Expands reach to over 5000 Government schools in Gujarat and close to 14000 schools across India.". These news shows upward movement in share prices. Page 136 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 1,700.00 1,650.00 1,600.00 1,550.00 1,500.00 1,450.00 1,400.00 1,350.00 first week of march 09 high low close Linear (close) Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Mar-09 Source: self generated Interpretation: This week is relatively constant. • • • • • HIGH LOW 1605 1513 2-MAR-2009 9-MAR-2009 Fall of Rs. 92 within a week Resistance Level: Rs.1600 Support Level: Rs.1550 2,500.00 2,000.00 1,500.00 high 1,000.00 500.00 0.00 low close Linear (close) second week of march 09 13-Mar-09 14-Mar-09 15-Mar-09 16-Mar-09 17-Mar-09 18-Mar-09 19-Mar-09 20-Mar-09 21-Mar-09 22-Mar-09 Source: self generated 23-Mar-09 Mar-09 Page 137 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Interpretation: • • • • • HIGH LOW 2015 1762 23-MAR-2009 09-MAR-2009 Rise of Rs.253 within a week Resistance Level: Rs.2050 Support Level: Rs.1650 2,300.00 2,250.00 2,200.00 2,150.00 2,100.00 2,050.00 2,000.00 1,950.00 1,900.00 1,850.00 1,800.00 third week of march 09 high low close Source: self generated Interpretation: • • • • • HIGH LOW 2199 2044 27-MAR-2009 25-MAR-2009 Rise of Rs.155 within a week Resistance Level: Rs.2250 Support Level: Rs.1950 Page 138 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 2,500.00 2,400.00 2,300.00 2,200.00 2,100.00 2,000.00 1,900.00 1,800.00 first week of april 09 high low close Linear (close) Source: self generated Interpretation: • • • • • HIGH LOW 2393 2207 06-APR-2009 01-APR-2009 Rise of Rs.186 within a week Resistance Level: Rs.2450 Support Level: Rs.2200 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 high low close Linear (close) second week of april 09 10-Apr-09 11-Apr-09 12-Apr-09 13-Apr-09 14-Apr-09 15-Apr-09 16-Apr-09 17-Apr-09 18-Apr-09 19-Apr-09 Source: self generated 20-Apr-09 Page 139 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Interpretation: • • • • • HIGH LOW 2374 2043 20-APR-2009 13-MAR-2009 Rise of Rs.331 within a week Resistance Level: Rs.2400 Support Level: Rs.2000 2,800.00 2,700.00 2,600.00 2,500.00 2,400.00 2,300.00 2,200.00 2,100.00 2,000.00 last week of april 09 high low close Linear (close) 21-Apr-09 22-Apr-09 23-Apr-09 24-Apr-09 25-Apr-09 26-Apr-09 27-Apr-09 28-Apr-09 29-Apr-09 Source: self generated Interpretation: • • • • • HIGH LOW 2594 2388 23-APR-2009 28-APR-2009 Rise of Rs.206 within a week Resistance Level: Rs.2700 Support Level: Rs.2300 30-Apr-09 Page 140 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 2,700.00 2,600.00 2,500.00 2,400.00 2,300.00 2,200.00 2,100.00 2,000.00 first week of may 09 high low close Linear (close) 01-May-09 02-May-09 03-May-09 04-May-09 05-May-09 06-May-09 07-May-09 08-May-09 09-May-09 10-May-09 Source: self generated Interpretation: • • • • • HIGH LOW 2402 2261 11 -MAY-2009 07-MAY-2009 Rise of Rs.141 within a week Resistance Level: Rs.2450 Support Level: Rs.2150 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 second week of may 09 high low close Linear (close) 11-May-09 Page 141 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Interpretation: • • • • • HIGH LOW 2671 2377 19-MAY-2009 15-MAY-2009 Rise of Rs.294 within a week Resistance Level: Rs.2720 Support Level: Rs.2310 3,000.00 2,900.00 2,800.00 2,700.00 2,600.00 2,500.00 2,400.00 2,300.00 last week of may 09 high low close Linear (close) Source: self generated Interpretation: • • • • • HIGH LOW 2881 2638 25-MAY-2009 21-MAY-2009 Rise of Rs.243 within a week Resistance Level: Rs.2940 Support Level: Rs.2500 Page 142 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Bollinger Bands Overview Bollinger Bands are similar to moving average envelopes. The difference between Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage above and below a moving average, whereas Bollinger Bands are plotted at standard deviation levels above and below a moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting: widening during volatile markets and contracting during calmer periods. Bollinger Bands were created by John Bollinger. Interpretation Bollinger Bands are usually displayed on top of security prices, but they can be displayed on an indicator. These comments refer to bands displayed on prices. As with moving average envelopes, the basic interpretation of Bollinger Bands is that prices tend to stay within the upper- and lower-band. The distinctive characteristic of Bollinger Bands is that the spacing between the bands varies based on the volatility of the prices. During periods of extreme price changes (i.e., high volatility), the bands widen to become more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands narrow to contain prices. Mr. Bollinger notes the following characteristics of Bollinger Bands. * Sharp price changes tend to occur after the bands tighten, as volatility lessens. * When prices move outside the bands, a continuation of the current trend is implied. * Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend. A move that originates at one band tends to go all the way to the other band. observation is useful when projecting price targets. This Page 143 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Source : www.icharts.in Buy Buy Short sell Analysis: In my analysis Educomp share is very volatile in nature. Bollinger band shows volatility in stock, where the upper band and lower band get tighten, and share price shows a sharper movement either upward or downward. As it can be clearly understand by prices in sep. 08, where I have written buy option. On that point investor should buy that share. And where I have written short sell one should short sell it and cover it on the price where lower band of Bollinger band touch this price, one should cover it. Moving Average Overview A Moving Average is an indicator that shows the average value of a security's price over a period of time. When calculating a moving average, a mathematical analysis of the security's average value over a predetermined time period is made. As the security's price changes, its average price moves up or down. Page 144 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. There are several popular ways to calcuate a moving average. MetaStock for Java calculates a "simple" moving average--meaning that equal weight is given to each price over the calculation period. Interpretation The most popular method of interpreting a moving average is to compare the relationship between a moving averages of the security's price with the security's price itself. A buy signal is generated when the security's price rises above its moving average and a sell signal is generated when the security's price falls below its moving average. This type of moving average trading system is not intended to get you in at the exact bottom nor out at the exact top. Rather, it is designed to keep you in line with the security's price trend by buying shortly after the security's price bottoms and selling shortly after it tops. The critical element in a moving average is the number of time periods used in calculating the average. When using hindsight, you can always find a moving average that would have been profitable. The key is to find a moving average that will be consistently profitable. The most popular moving average is the 39-week (or 200-day) moving average. This moving average has an excellent track record in timing the major (long-term) market cycles. Buy buy sell Source : www.icharts.in Page 145 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Analysis: Moving average is very commonly used indicator for analysis. According to it, a buy signal is generated when the security's price rises above its moving average and a sell signal is generated when the security's price falls below its moving average. In above chart share shows a buy signal as well as sell signal frequently. (shown in figure) MACD Overview The MACD ("Moving Average Convergence/Divergence") is a trend following momentum indicator that shows the relationship between two moving averages of prices. The MACD was developed by Gerald Appel, publisher of Systems and Forecasts. The MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average, called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities. (Appel specifies exponential moving averages as percentages as explained on page 170. Thus, he refers to these three moving averages as 7.5%, 15%, and 20% respectively.) Interpretation The MACD proves most effective in wide-swinging trading markets. There are three popular ways to use the MACD: crossovers, overbought/oversold, and divergences. Crossovers. The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero. Page 146 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Overbought/Oversold Conditions. The MACD is also useful as an overbought/oversold indicator. When the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels. MACD overbought and oversold conditions exist vary from security to security. Divergences. A indication that an end to the current trend may be near occurs when the MACD diverges from the security (page 32). A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels. Source : www.icharts.in = Buy = sell Page 147 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Analysis: Through MACD it can be concluded that the Educomp share shows a better opportunity to get a high return with a high risk because this share is highly volatile. As in future it may better to buy, as it can be observe from past trend that after more selling pressure there will be increment in no. of buyers, so price will go higher. RSI (RELATIVE STRENGTH INDEX): Overview The Relative Strength Index ("RSI") is a popular oscillator. It was first introduced by Welles Wilder in an article in Commodities (now known as Futures) Magazine in June, 1978. The name "Relative Strength Index" is slightly misleading as the Relative Strength Index does not compare the relative strength of two securities, but rather the internal strength of a single security. A more appropriate name might be "Internal Strength Index." Interpretation When Wilder introduced the Relative Strength Index, he recommended using a 14-day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength Indexs have also gained popularity. The fewer days used to calculate the Relative Strength Index, the more volatile the indicator. The Relative Strength Index is a price-following oscillator that ranges between 0 and 100. A popular method of analyzing the Relative Strength Index is to look for a divergence in which the security is making a new high, but the Relative Strength Index is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the Relative Strength Index then turns down and falls below its most recent trough, it is said to have completed a "failure swing." impending reversal. In Mr. Wilder's book, he discusses five uses of the Relative Strength Index: Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart. The failure swing is considered a confirmation of the Page 148 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Chart Formations. The Relative Strength Index often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart. Failure Swings (also known as support or resistance penetrations or breakouts). This is where the Relative Strength Index surpasses a previous high (peak) or falls below a recent low (trough). Support and Resistance. The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance. Divergences. As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the Relative Strength Index. Source : www.icharts.in Interpretation: Educomp share prices for last 5 month did not show any where overbought and oversold condition, as it can be observe from above chart. In months of April and May it touches the points of overbought conditions. So investor should sell the share that point of Page 149 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. time and should purchase when prices come down. And this graph is also showing the movement of RSI towards 30 mark so investors should ready to buy it. CCI (COMMODITY CHANNEL INDEX) : Overview The Commodity Channel Index (CCI) is calculated by first determining the difference between the mean price of a commodity and the average of the means over the time period chosen. This difference is then compared to the average difference over the time period (this factors in the commodity's own inherent volatility). The result is then multiplied by a constant that is designed to adjust the CCI so that it fits into a "normal" trading range of +/-100. Interpretation While the CCI was originally designed for commodities, the indicator also works very well with stocks and mutual funds. There are two methods of interpreting the CCI: Looking for divergences A popular method of analyzing the CCI is to look for divergences in which the underlying security is making new highs (lows) while the CCI is failing to surpass its previous highs (lows). This classic divergence is usually followed by a correction in the security's price. As an overbought/oversold indicator The CCI usually oscillates between +/-100. Readings above +100 imply an overbought condition and the liklihood of a downward move has increased. Readings below -100 imply an oversold condition and the liklihood of an upward move has increased. Page 150 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. RED Points showing overbought conditions BLUE Points showing oversold conditions Source : www.icharts.in Interpretation: the CCI chart is also showing the buying pressure in months of April and May 2009. So investors should sell their stock and as it going towards the the -100 points so investors should wait for fewer days to buy the stock again because share prices may be go higher in upcoming days as Educomp has bag a big project from Gujrat govt. Page 151 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. TECHNICAL OUTLOOK EDUCOMP Source:IRIS Educomp is in a long term bullish trend .However the stock is in a short term correction & may touch 2800-2600 levels .this price should be used as a buying opportunity in the stock for a price Target of 3800-4000 in next 5-6 months. Page 152 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CHAPTER 5 CONCLUSION Page 153 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CONCLUSION & FINDINGS The growing influence of global developments on the Indian economy was manifest in the surge in capital inflows in 2007-08, a phenomenon observed earlier in other emerging market economies. This is a natural concomitant of the robust macroeconomic fundamentals like high growth, relative stability in prices, healthy financial sector and high returns on investment. Sometimes, it also reflects the rigidities in the economy, particularly the interest differentials. The strength, resilience and stability of the country’s external sector are reflected by various indicators. These include a steady accretion to reserves, moderate levels of current account deficit, changing composition of capital inflows, flexibility in exchange rates, sustainable external debt levels with elongated maturity profile and an increase in capital inflows. Educomp solution ltd has shown a very positive response to market since it is listed on BSE exchange. Company’s policies and agendas are good enough to attract investors to invest in this security. Company has shown continuous growth throughout 3 years on market. Although company take long to time to get listed on BSE exchange, as it started in 1994 but it shows a highly good return to investors. In my view Educomp solution share is highly volatile as it shows a average fluctuation of 150 points up and down in intraday trading. So it might be risky to invest in short term but in long term perspective it is good sign for investor. The beta of company is 1.2 which shows that it is highly sensitive to sensex. As sensex goes up or down, this share will show more fluctuations than sensex. For the Educomp solutions Company is likely to post very high growth rate for a long time. Revenue figures are expected to show a CAGR of 70% for the period 2009-2011, 35% for the period 2011-2014 and 20% for the period 2014-2016. It is forecast strong 65% CAGR in Net Profits over FY09-FY11E and see limited risks to estimates given. EBITDA margins are likely to improve as revenue share of high margin retail and online business is likely to improve considerably. ROE is expected to double and settle in the range between 30-35%. I suggest investor to buy the stock now because it is trading at around 2700 at this time and it may go to 3500 to 4000 point in the future 3-4 months as I clear it from my analysis part. Page 154 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. So with this it is found that market sentiments and the announcements effects the share prices of the companies. And equity research helps to find out the support and resistance level of the share prices and help us to predict the future prices of the stocks. As well it helps to understand the mindset of the investor. Page 155 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. SUGGESTION As I have done my project in SMC Global Ltd. I have observed lots of things which are learning for me. It was a great experience to be associate with SMC global ltd. Every where there is scope of improvement, so I would like to suggest some important points which can improve the efficiency of company to analyse the stocks. Management Control System is very important for every organisation. So SMC should improve their MCS. As they should put cameras in trading room and in calling room. Because sometimes employee feel themselves free to do anything, rather than doing calling they prefer to do gossiping. Equity managers and research team should have proper communication. Educomp solution stock is highly volatile so it should be trade very carefully. This stock can give a high return as well as high loss. Our stock market is correlated with Asian and other markets such as Dow Jones, Hang sang, NASDAQ etc. so the effect of these markets should be keep in consideration, when analysing a security. The technical analysis which include charts like Bollinger Band, Relative Strength Index etc are not so perfect predictor for such kind of share. So, I suggest the company to not making interpretation on the basis of only a few indicators. The company should start an awareness programme to encourage investors to invest more in security market. As only 3% people invest in stock market and a major part of investment comes from FIIs. So exchange need to be independent from the effect of volatility of other markets. Questionnaire programme should be implemented to know the requirements and likes of the investors and according to response company should make their policies to grow with the taste of investors. As lots of competitors are there in brokerage business, to keep company in Competition Company should try and launch innovative products and services to its customers. Page 156 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. LIMITATIONS Like everyone, I also faced some limitations and restrictions during my project. Some of them are as follows: One major limitation was the data collection. Some data which should be kept in consideration, while doing analysis part, is not available. So assumptions have to be made. Time was the another constraint. Analysis takes long time to come at any decision, as it includes the lots of historical data and valuation of security, which can not be performed in a limited time period. Due to human error their might be some misinterpretation in analysis part. Response from mentor was good but he was more focused on business, like he gave me a target to sell policies. And due to their own business targets, other staff could not gave much time to help me in doing the objectives. Page 157 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. BIBLIOGRAPHY The books referred for the project work are: Books: • • • • • • • Agarwal J.D., “securities analysis & portfolio management” Agarwal J.D., “Advance Financials risk analysis” Agarwal, J.D., “Readings for Financial Management”; IIF Publication. Brigham & Erhardt’s “Corporate Finance”., Thomosn Publishers Khan & Jain’s “Corporate Finance”., Tata Mc.GrawHill Publisher Pandey I.M- “Financial Management”., Vikas Publication Damodar Gujarati “Basics of Econometrics” Financial Reports of Educomp Solution: • • • • • Financial Year: 2003-04. Financial Year: 2004-05. Financial Year: 2005-06. Financial Year: 2006-07. Financial Year: 2007-08. Research Report Presented by • • • Midcap India Bulls HSBC Page 158 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • • Karvy Motilal Oswal Company Website: • www.educompsolution.com Search Engine: • • • • • • • • • • • • • • • • • www.google.com www.moneycontrol.com www.bseindia.com www.nseindia.com www.economictimes.com www.rediff.com www.smcindiaonline.com www.indiainfoline.com www.myiris.com www.rbi.gov.in www.sebi.gov.in www.googlefinance.com www.bloomberg.com www.wikipedia.com www.indiaenews.com www.equitymaster.com/research-it/ http://planningcommission.nic.in Page 159 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • • • www.cidc.in/News_Letter/ www.lntecc.com www.thehindubusinessline.com Others: • Agarwal, J.D, “Security Analysis& Portfolio Management: A Review” , Finance India, Vol. III No. 1 March 1989. • Aggarwal, .J.D (2003), “Challenges for Construction Industries in Developing Countries,” • • 1983. • Archibald, R.Ross, “Stock Market Reaction to the Depreciation Switch Back”, The Agarwal, Manju, “Tax Incentives and Investment Behavior”, IIF Publication, 1988. Fisher and Jordon, “Security Analysis and Portfolio Management”, Prentice Hall, Accounting Review, January 1972. Bailey,J.J, “Formal Criteria for Investment Decision” Journal of Political Economy, October,1959. • Ball, Ray, etc, “ Share market and Portfolio Theory” University of Queensland Press, st. lucia, Queensland, 1980. • • Beja, Auraham, “On Systematic nad Unsystematic Components of Financial Risk”. Bhalla, V.K, “ Investment management and Security Analysis”. S.Chand & Co. New Delhi, 1983. • Biston, R.J, “The Stock Exchange and Investment Analysis”. George Allen and Unwin, London, 1971. • Farrar, D.E, “ The Investment Decision Under Uncertainty”., Prentice Hall, Englewood Cliffs, N.J, 1965. • Durley, Anthony J. and Robert M. Bear, “ Investment Analysis and Management” , Harper and Row, 1979. Page 160 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Brigham Eugene F. & Ethardt Michael C.- Corporate Finance – Thomson Publishers- 11th Edition • Brealey, Myers, Marcus- Fundamentals of Corporate Finance- McGraw Hill Publishers – 3rd Edition • • • • • Brown Reilly – Investment Analysis and Portfolio Management – 7th Edition CFA- Analysis of Equity Investments: Valuation Damodaran Aswath - Investment valuation – Tata McGraw Hill - 2nd Edition Pandey I. M- Financial Management- Vikas Publishing House – 10th Edition Lusty, David. “Civil Forfeiture of Proceeds of Crime in Australia,” Journal of Money Laundering Control, Vol. 5, No. 4: pp. 345-359. • Lintner, Bertil. "Washing up: Dirty money takes a tortuous path", Far Eastern Economic Review, Nov. 6, 1997. • Levi, M. (Ed.), Fraud, Organization, Motivation, and Control. Aldershot, England ; Brookfield, Vt., Ashgate, 1999. • Merton, Robert C. (1993) “Operation and Regulation in Financial Intermediation: A Functional Perspective,” in Operation and Regulation of Financial Markets, pp.17-67, P. Englund (ed.), Economic Council, Stockholm, Sweden. • Morsman, E. (1993) Commercial Loan Portfolio Management, Robert Morris Associates, Philadelphia. • Magliveras, Konstantinos D. "Fighting International Transgression: The UN Convention on Transnational Organized Crime" [2001] 17 International Enforcement Law Reporter: 392-396. • Magliveras, Konstantinos D. "The European Community's Combat Against Money Laundering: Analysis and Evaluation" [1998] 5 Nova Southeastern University ILSA Journal of International & Comparative Law: 91-120. Page 161 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Moscarino, G. J. and M. R. Shumaker. "Beating the Shell Game: Bank Secrecy Laws and Their Impact on Civil Recovery in International Fraud Actions", Journal of Money Laundering Control Vol.1, June 1997. • Mitchell, A, Taylor S.M. E., Talbot, K.V. Mitchell, Taylor & Talbot on Confiscation and the Proceeds of Crime (2nd ed.) Sweet & Maxwell, London, 1997. • • Masciandaro, Donato, ed. Global Financial Crime: Terrorism, Money Musalem, Errico, Luca & Alberto. Offshore Banking: An Analysis of Micro-and Macro-Prudential Issues. IMF, Washington, D.C., 1999. • Magliveras, Konstantinos D. "The Efforts of the European Community to Supervise the Community's Financial Services Sector" in Caiger and Floudas (editors), 1996 Onwards: Lowering the Barriers Further, John Wiley & Sons, Chichester, 1996: 81-104. • Nardo, Massimo. "Crime, Illegality and Social Structure: The Road Towards an Integrated Strategy", Journal of Money Laundering Control Vol.2, No.1 Summer 1998 • Oldfield, George S. (1991) “Markets for Unusual and Unconventional Assets,” Quantitative Research PaineWebber, Inc. • • Phillipe Jorion, “Value at Risk”, Value at Risk, Risk metrics Predicting financial distress of companies by revisiting Z-score and Zeta models by Edward Altman published in Journal of Finance. • PricewaterhouseCoopers Global Technology Centre. Anti-Money Laundering: New Rules, New Challenges, New Solutions. PricewaterhouseCoopers LLP, October 2002 • Priess, Richard T. "The Consequences of Anonymous Access to the Financial Payments System", Journal of Money Laundering Control. Institute of Advanced Legal Studies. Vol.2, No.1, Summer 1998. • • PricewaterhouseCoopers Global, 2002 Rawnsley, J. (1995) Total Risk: Nick Leeson and the Fall of Barings Bank, Harper, New York. Page 162 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Reuter, P. The Mismeasurement of the Illegal Drug Markets: The Implications of its Irrelevance. Exploring the Underground Economy, 1996: 63-80. • • Rider, B. A. K. Corruption: The Enemy Within. Kluwer Law International, 1997. Rose-Ackerman S. Corruption and Government: Causes, Consequences and Reform, Cambridge University Press, 1999. • Robinson, Jeffrey. The Sink : Crime, Terror and Dirty Money in the Offshore World. Toronto : McClelland & Stewart, 2003. • • RBI guidance notes on Credit Risk Management. Ramasastry, A. "The Geographic Targeting Order: A Useful Tactic for Combating Money Laundering by Non-Bank Entities in the USA", Journal of Money Laundering Control Vol.1, No.3, January 1998. • Rossbacher, H. H. and T. W. Young. "The Foreign Corruption Practices Act within the American Response to Domestic Corruption", Journal of Money Laundering Control Vol.1, No.2, October 1997 • RBI’s Master Circular No. DBOD. BP. BC. 20/ 21.01.002/ 2002- 2003 dated September 03, 2003 on Prudential Norms on Capital Adequacy • RBI’s Master Circular DBOD. No. Dir .BC. 17/13.03.00/2003-04 dated August 22, 2003 on Exposure Norms • RBI’s Master Circular DBOD. No. BP.520/21.04.03/2002-203 dated October 12, 2002 on Credit Risk and Market Risk. • RBI’s Master Circular BP BC.8/21.04.98/99 dated February 10, 1999 on Asset Liability Management System. • Santomero, A.M. (1991) “The Bank Capital Issue,” in Financial Regulation and Monetary Arrangements after 1992, M. Fratianni, C. Wihlborg, T. D.Willett (eds.), Contributions to Economic Analysis 204:61-77, North Holland Press. • Saunders, Anthony (1997) Financial Institutions Management: A Modern Perspective Second Edition, Richard D. Irwin, Inc., Burr Ridge, IL. Page 163 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Smithson, C., C. Smith, Jr., and D. Wilford, (1995) Managing Financial Risk: A Guide to Derivative Products, Financial Engineering, and Value Maximization, Irwin Publishing, Burr Ridge, IL. • Stulz, R., (1984) “Optimal Hedging Policies,” Journal of Financial and Quantitative Analysis 19(2): 127-40, June. • Steiner, R. "Colombia's Income from the Drug Trade", World Development, 1013- 1031 Vol. 26:6, 1998. • Sinuraya, T. "Integration of Criminal Capital from Russia into Western European Markets: An Assessment of Threat", Journal of Money Laundering Control Vol.1, June 1997. • Sanderson, Thomas M. "Transnational Terror and Organized Crime: Blurring the Lines," SAIS Review vol. 24, no. 1, Winter 2004, pp. 49-61. • FAMA, Eugene F., 1970. Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance, 25(2), 383–417. • FAMA, Eugene F., 1976. Foundations of Finance: Portfolio Decisions and Securities Prices, New York: Basic Books. • FAMA, Eugene F., 1991. Efficient Capital Markets: II, Journal of Finance, 46(5), 1575–1617. • FAMA, Eugene F., 1998. Market efficiency, long-term returns, and behavioral finance, Journal of Financial Economics 49 (1998) 283–306. • FAMA, Eugene F., et al., 1969. The Adjustment of Stock Prices to New Information, International Economic Review, 10(1), 1–21. • FAMA, Eugene F., and Kenneth R. FRENCH, 1988. Permanent and Temporary Components of Stock Prices, The Journal of Political Economy, 96(2), 246–273. [Cited by 571] (32.36/year) • FAMA, Eugene F., and Marshall E. BLUME, 1966. Filter Rules and Stock-Market Trading, The Journal of Business, 39(1), 226–241. • FAMA, Eugene, Reply Page 164 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • FARMER, J. D., 1998. Market force, ecology, and evolution, Santa Fe Institute Working Paper. • FARMER, J. Doyne and Andrew W. LO, 1999. Frontiers of finance: Evolution and Efficient Markets, Proceedings of the National Academy of Sciences of the United States of America, 96(18), 9991–9992. • • FRANCE, Virginia Grace Market Efficiency FRENCH, Kenneth R., and Richard ROLL, 1986. Stock return variances: The arrival of information and the reaction of traders, Journal of Financial Economics, 17(1), 5–26. • FRIEDERICH, Sylvain, et al., Stock Price Patterns around Directors? Trades on the London Stock Exchange, 2000. • Press. • GEN Y, Ramazan, et al., Real-Time Trading Models and the Statistical Properties of FRIEDMAN, Milton, 1953. "The Case for Flexible Exchange Rates". In: Milton Friedman, Essays in Positive Economics, pages 157–203. Chicago: University of Chicago Foreign Exchange Rates. • GIBSON, George, 1889. The Stock Markets of London, Paris and New York. New York: G.P. Putnam's Sons. • GOUREE, J. K., and HOMMES, C. H. (2000). Heterogeneous beliefs and the nonlinear cobweb model, Journal of Economic Dynamics and Control, 24, 761–798. • Givoly. D. And J. Lakonishok, 1984, The Quality of Analysts' Forecasts of Earnings, Financial Analysts Journal, v40, 40-47. • Glautier MWF, “Towards a Reformulation of the Theory o Working Capital”, Journal of Business Finance, Spring 1971. • Godfrey, S. and R. Espinosa, 1996, A Practical Approach to Calculating the Cost of Equity for Investments in Emerging Markets, Journal of Applied Corporate Finance, v9(3), 80-81. • Gopal K. “Inventory Management “, The Management Accountant, Vol.24 No.10, October 1989. Page 165 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Gopalkrishnan, Pad and M Sandilya, “Inventory Management: Text and Cases”, Mcmillan, New Delhi, 1978. • Gordon, M., 1962, The Investment, Financing and Valuation of the Corporation, Irwin & Co. • Graham, J.R., Proxies for the Corporate Marginal Tax Rate, Journal of Financial Economics, v42 (2), 187-221. • Gultekin, M.N. and B.N. Gultekin, 1983, Stock Market Seasonality: International Evidence, Journal of Financial Economics, • • Gupta, L C (ed), “Banking and Working Capital Finance”, Delhi, McMillian 1978. Hadley, C and TM Whitin, “Analysis of Inventory Systems Englewood cliffs”, NJ Prentice- Hall, 1963. • Halloran, John A, and Horward P Lanser, “ The Credit Policy Decision in an Inflationary Environment”, Financial Management, Vol.10, Winter 1981, pp.31-38. • Hamada, R.S., The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stocks, Journal of Finance, v27, 435-452. • Harry, RV, “Preparation and Presentation of fund flow statements” Accountancy, April 1969. • Harvey, C.R., 1988, The Real Term Structure and Consumption Growth, Journal of Financial Economics, v22, pp 305-333. • Haugen, R., 1997, Modern Investment Theory, Prentice Hall, New Jersey. Jacobs, B.I. and K.N. Levy, 1988a, Disentangling Equity Return Irregularities: New Insights and Investment Opportunities, Financial Analysts Journal, Vol 44, 18-44. • Hawkins, E.H., S.C. Chamberlin and W.E. Daniel, 1984, Earnings Expectations and Security Prices, Financial Analysts Journal, v40, 24-27, 30-38, 74. • Healy, P.M., K.G. Palepu and R.S. Ruback, 1992, Does Corporate Performance improve after Mergers?, Journal of Financial Economics, v31, 135-176. Page 166 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Hempel, G.H., 1971, The Postwar Quality of State and Local Debt, National Bureau of Economic Research. • • Hicks, J.R., 1946, The Value of Capital, Oxford University Press. Hill, Ned C and Kenneth D Riener, “ Determining the cash discount in the firms’s credit policy”, Financial Management, Vol.8. Spring 1979, pp. 68-73. • Ho, T.S.Y. and S.B.Lee, 1989, Pricing of the Call and Sinking Fund Provisions on Corporate Bonds under Interest Rate Risk: Empirical Evidence, International Journal of Finance, v2, 1-17. • Hong, Hai, Robert S. Kaplan and Gershon Mandelker. Pooling Vs. Purchase: The Effects Of Accounting For Mergers On Stock Prices, The Accounting Review, 1978, v53(1), 3147. • Horngren, CT, “The Funds Statement and its use by analysis”, Journal of Accountancy, Vol.101, January 1956, pp. 55-90. • Howard, Leslie R., “Working Capital:Its Management and Control”, Macdonald and Even Ltd., London, 1971. • • Hull, J.C., 1999, Options, Futures and Derivative Securities, Prentice Hall. Hutson, Thomas Guynon and John Butterworth, “Management of Trade Credit”, Gower Press, London, 1971. • Lusty, David. “Civil Forfeiture of Proceeds of Crime in Australia,” Journal of Money Laundering Control, Vol. 5, No. 4: pp. 345-359. • Lintner, Bertil. "Washing up: Dirty money takes a tortuous path", Far Eastern Economic Review, Nov. 6, 1997. • Levi, M. (Ed.), Fraud, Organization, Motivation, and Control. Aldershot, England ; Brookfield, Vt., Ashgate, 1999. • Merton, Robert C. (1993) “Operation and Regulation in Financial Intermediation: A Functional Perspective,” in Operation and Regulation of Financial Markets, pp.17-67, P. Englund (ed.), Economic Council, Stockholm, Sweden. Page 167 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Merton, Robert C. and Zvi Bodie (1995) “Financial Infrastructure and Public Policy: A Functional Perspective,” in The Global Financial System: A Functional Perspective, Crane et al.(ed.), Harvard Business School Press, Boston. • Morsman, E. (1993) Commercial Loan Portfolio Management, Robert Morris Associates, Philadelphia. • Magliveras, Konstantinos D. "Fighting International Transgression: The UN Convention on Transnational Organized Crime" [2001] 17 International Enforcement Law Reporter: 392-396. Studies. Vol.2, No.1, Summer 1998. • • PricewaterhouseCoopers Global, 2002 Rawnsley, J. (1995) Total Risk: Nick Leeson and the Fall of Barings Bank, Harper, New York. • Reuter, P. The Mismeasurement of the Illegal Drug Markets: The Implications of its Irrelevance. Exploring the Underground Economy, 1996: 63-80. • • Rider, B. A. K. Corruption: The Enemy Within. Kluwer Law International, 1997. Rose-Ackerman S. Corruption and Government: Causes, Consequences and Reform, Cambridge University Press, 1999. • Robinson, Jeffrey. The Sink : Crime, Terror and Dirty Money in the Offshore World. Toronto : McClelland & Stewart, 2003. • • RBI guidance notes on Credit Risk Management. Ramasastry, A. "The Geographic Targeting Order: A Useful Tactic for Combating Money Laundering by Non-Bank Entities in the USA", Journal of Money Laundering Control Vol.1, No.3, January 1998. • Rossbacher, H. H. and T. W. Young. "The Foreign Corruption Practices Act within the American Response to Domestic Corruption", Journal of Money Laundering Control Vol.1, No.2, October 1997 Page 168 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • RBI’s Master Circular No. DBOD. BP. BC. 20/ 21.01.002/ 2002- 2003 dated September 03, 2003 on Prudential Norms on Capital Adequacy • RBI’s Master Circular DBOD. No. Dir .BC. 17/13.03.00/2003-04 dated August 22, 2003 on Exposure Norms • RBI’s Master Circular DBOD. No. BP.520/21.04.03/2002-203 dated October 12, 2002 on Credit Risk and Market Risk. • RBI’s Master Circular BP BC.8/21.04.98/99 dated February 10, 1999 on Asset Liability Management System. • • • Robinson, Jeffrey. The Laundrymen. Simon & Schuster Ltd., London, 1994. Richards, James R. Transnational Criminal Organizations, Cybercrime, Salomon Brothers (1993) “Bankers Trust New York Corporation - Risk Management,” United States Stock price analysis of different sectors, February. • Santomero, A.M. and D. Babbel (1996) Financial Markets, Instruments and Institutions, Richard D. Irwin, Inc., Burr Ridge, IL. • Santomero, A.M., and J. Trester (1997) “Financial Innovation and Bank Risk Taking,”Journal of Economic Behavior and Organizations forthcoming 1997. • Saunders, Anthony (1997) Financial Institutions Management: A Modern Perspective Second Edition, Richard D. Irwin, Inc., Burr Ridge, IL. • Stulz, R., (1984) “Optimal Hedging Policies,” Journal of Financial and Quantitative Analysis 19(2): 127-40, June. • Steiner, R. "Colombia's Income from the Drug Trade", World Development, 1013- 1031 Vol. 26:6, 1998. • Sinuraya, T. "Integration of Criminal Capital from Russia into Western European Markets: An Assessment of Threat", Journal of Money Laundering Control Vol.1, June 1997. • Sanderson, Thomas M. "Transnational Terror and Organized Crime: Blurring the Lines," SAIS Review vol. 24, no. 1, Winter 2004, pp. 49-61. Page 169 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. • Treynor, Jack L., (1966) “How to Rate Management Investment Funds.” Harvard Business Review 43. • Thoumi, Francisco. U.S., Colombia struggle over drugs, dirty money. Forum for Applied Research and Public Policy; Spring 1997 • United States General Accounting Office. Money Laundering: A Framework for Understanding U.S. Efforts Overseas. Washington, DC: May 1995. • 2003 • Vick, Karl. 2002. “Taliban Emptied Country’s Banks – Millions Gone, With Little V Vuckson, William V.Z., Organized Crime & Money Laundering. G.7 Report Inc, Accounting,” The Washington Post, Monday, January 8: p. A01. ANNEXURE Page 170 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. BALANCE SHEET Balance Sheet as at 31st March, 2008 (Rupees in millions) 31st Sources of funds Shareholders' funds Share capital Employee stock option outstanding (refer note 1 (x) & 2(iv) schedule 18) Reserves and surplus Loan funds Secured loans Unsecured loans Deferred tax liability (Net) (refer note 1(xiii) & 2 (x), schedule 18) 6,753.32 Application of funds Fixed assets Gross Block Less: Accumulated depreciation Net block Capital work in progress 5 2,645.27 531.75 2,113.52 200.76 936.19 218.24 717.95 75.91 2,450.82 3 4 523.01 3,149.42 212.69 175.47 1,071.39 56.99 2 2,613.01 987.12 1 172.47 82.72 159.85 Schedule 2008 March, 31st March, 2007 Page 171 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. 2,314.28 Investments Current assets, loans and advances Inventories Sundry debtors Cash and bank balances Loans and advances Other current assets 6 7 14.1 1,144.55 2,790.31 301.15 58.25 4,308.36 Less : Current liabilities and provisions Liabilities Provisions 8 483.43 96.03 579.46 Net current assets Miscellaneous Expenditure 9 3,728.90 0.39 176.69 51.52 228.21 1,375.28 0.58 32.54 493.52 949.59 111.35 16.49 1,603.49 709.75 793.86 281.1 6,753.32 2,450.82 Page 172 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. PROFIT AND LOSS ACCOUNT Profit and Loss Account for the year ended 31st March, 2008 (Rupees in millions) 31st Schedule Income Sales & Service income Other income 10 11 2,620.95 148.08 2,769.03 Expenditure Cost of goods sold Personnel expenses Administration and other expenses Finance charges Depreciation Miscellaneous Expenditure written off 12 13 14 15 797.29 338.54 238.23 41.89 322.95 0.2 1,739.10 Profit before tax Provision for income tax (refer note 2 (v), schedule 18) - Current tax - Deferred tax 167.56 156 116.93 43.15 1,029.93 304.21 105.13 155.26 13.29 93.93 0.2 672.02 449.7 1,065.74 55.98 1,121.72 2008 March, 31st 2007 March, Page 173 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. - Fringe benefit tax Profit after tax and before prior period items Prior period Items Profit after tax & prior period items Add: Balance brought forward from 454.57 1,155.18 228.87 514.71 16 5.79 700.58 -0.03 700.61 3.11 286.51 0.67 285.84 previous year Amount available for appropriations Appropriations Proposed dividend Tax on proposed dividend General Reserve Balance carried to Reserve & surplus Earning per share (Rs.) Basic Diluted 17 43.2 7.34 70.06 1,034.58 33.08 5.62 21.44 454.57 41.38 35.13 17.9 15.87 Page 174 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. CASH FLOW Cash Flows Statement for the year ended 31st March, 2008 (Rupees in millions) 31st March, 31st March, Particulars Cash flows from operating activities Net profit before taxation and after prior period as per Profit and Loss Account Adjusted for: Misc Expenses written off Net prior period adjustments Provision for doubtful debts/ advances Depreciation Unrealised Foreign exchange effects Dividend income Interest / other income Interest expense ESOP Amortisation cost Loss / (Profit) on Sale of Fixed Assets Operating profit before working capital changes Adjusted for: Trade & other receivables Inventory Loans & Advances -648.26 18.44 -231.56 -244.25 -15.16 -75.94 0.2 -0.03 322.95 13.47 -35 -79.94 41.89 82.72 0.07 1,376.29 0.2 0.67 0.11 93.93 35.88 -1.79 -33.14 13.21 0.02 558.12 1,029.96 449.03 2008 2007 Page 175 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Trade & Other Payables Cash generated from operations Net prior period adjustments Taxes Paid Net cash from operating activities Cash flows from investing activities Purchase of fixed assets (including capital work-in-progress) Proceeds from Sale of fixed assets Investment in subsidiaries Redemption of 5% cumulative preference shares Purchase of Investments (Un-quoted, Non trade) Sale of Investments (Un-quoted, Non trade) Dividend income Interest income Net cash used in investing activities Cash flows from financing activities Proceeds from issue of Foreign Currency Convertible Bonds (FCCB) FCCB issue expenses Proceeds/ (Repayment) of long-term borrowings Financing against stocks/book debts ( working capital) Temporary Overdraft facility against fixed deposits 3,109.45 -68.26 241.64 105.91 1,094.18 -39.25 73.16 3.14 -1,848.54 5.08 -429.28 0.64 35 79.94 -2,157.16 -654.04 0.15 -272.21 6.25 -250.03 250.37 1.79 33.14 -884.58 313.11 828.02 0.03 -147.07 680.98 127.7 350.47 -0.67 -169.38 180.42 Page 176 EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD. Payment of dividend (including dividend tax ) Interest on borrowings Net cash from financing activities Net increase in cash and cash equivalents Opening cash and cash equivalents Exchange difference on translation of foreign currency cash and cash equivalents Closing cash and cash equivalents 10.33 2,790.31 -33.59 949.59 -40.28 -41.89 3,306.57 1,830.39 949.59 -27.27 -13.21 1,090.75 386.59 596.59 Page 177
Report "Equity Reasearch Report on Educomp Solutions"