Is Educomp a bubble?
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Fundamental
Forum Discription: Discuss the operations and finances of any of your companies.Make the other participants aware on the investment opportunities available in a stock on PE free cash flow etc
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=683
Printed Date: 04/May/2025 at 11:37pm
Topic: Is Educomp a bubble?
Posted By: basant
Subject: Is Educomp a bubble?
Date Posted: 03/Jan/2007 at 12:37pm
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I have been very bullish on http://www.theequitydesk.com/forum/forum_posts.asp?TID=142 - This is what Wayne Tsou of Carlyle Asia Venture said on http://www.theequitydesk.com/forum/forum_posts.asp?TID=142 - “ The company dramatically underperformed. We felt the entrepreneur or promoter wasn't someone we could work with professionally. The toughest job for a VC is where to spend your time. For ones in the loser category, we liquidate. We took a haircut [by selling the stake back to the company]. You need to make sure they want your oversight on corporate governance” http://www.vccircle.com/blog/_archives/2005/11/9/1362257.html - http://www.vccircle.com/blog/_archives/2005/11/9/1362257.html Generally these things do not bother me – companies deal with plenty of people each day and there are several opinions because at the end of the day it is these opinions that make up a market. I therefore did some prospecting and what I found is interesting. Please note that I am not saying that all this illegal because all that the company has done is well within the rules of the land but as a far as general accounting practices go things could have been handled (presented) in a better way Now the problem is that the company had changed the method of charging depreciation to straight line method from the written down method. This was before it came out with an IPO and is very well documented in the IPO document. I am also told that Educomp writes off its fixed assets (computers, printers, UPS, monitors etc) at 18%. Earlier they used to write them off at 23%.Now all of us know that these things should be depreciated at more then 30%. I am not sure at what rate Infosys depreciates its equipment but it would be more then that.This practice of under depreciating the asset will make the company’s profits only optical in nature and each year it would have to raise capital.. All this leads me into the following observations: 1) Carlyle is a well known VC. Their bitter experience should call for some thinking. 2) The company had a good well known auditor BSR & Co, Why did it change it into an unknown name. Anupam Bansal & CO. Something that gives me comfort is when the auditor is one of the Big 5. But with some unknown name the curiosity increases. 3) The rate of depreciation should be far higher and at 18% the company would be left with over valued assets after a period of 3-4 years. Now why did I overlook all this earlier? I looked at it earlier (not in such depth) but had ignored it since valuations were in favor. But now at 33 times Fy 08 we are certainly looking at an overvalued stock compared to 9 times Fy 08 when it was at Rs 260. This stock could still go up and up and up but we need to do our homework each day.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Replies:
Posted By: investor
Date Posted: 03/Jan/2007 at 12:56pm
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hmm...very interesting. Looks like they withdrew sometime around or before nov2005 and look at the stock price now. But management quality should always be the first thing to look at, so they made the right decision. But all this news somehow dosent seem to be stopping the stock price though. |
Posted By: nikhil090
Date Posted: 03/Jan/2007 at 1:46pm
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Basantjee,
How much do you anticipate is the impact on the profits because of this under depreciation of computers? Also, can you highlight a couple of pointers which should be viewed more closely to (from the balance sheet) understand management intentions. I know that already a list of this is available elsewhere on the site, but anything beyond that would be useful. |
Posted By: basant
Date Posted: 03/Jan/2007 at 2:03pm
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Not much but what I am trying to say is that at 33 times Fy 08 with promoters not in good books of the better known VC funds, the downside risk is not capped. I tried adjusting that and instead of PE at 33 Fy 08 it would be only 38 or 39 times only but that is not the pont. I hope you get it. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: nikhil090
Date Posted: 03/Jan/2007 at 2:49pm
| I get your point.At this moment there is no Margin of safety. Not from the valuations and not from corp governance perspective. However just for discussion sake, if tommorrow managment changes the depreciation policy in line with industry norms, will the governance concern go away? In any case, by charging less depreciation, the management is doing a disservice to the company as they have to pay higher tax, unless they are maintaining 2 separate books. Normally companies try to charge more depreciation(reliance did it very well until MAT was introduced). |
Posted By: basant
Date Posted: 03/Jan/2007 at 3:05pm
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Absolutely you are bang on. I also thought so but in India there are two seperate depreciation rates one for the companies act and another for the IT act. Not sure why. See either the company has to be cheap or the management extraordinarily open up and receptive.In case we get both then there is a bonanza but if we start having neither then there is a cause for concern. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: omshivaya
Date Posted: 03/Jan/2007 at 4:24pm
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Basant sir, have you laid down all these things in front of the Educomp management in e-mail or tele conversations? If yes, what was the answer like. I think at least talking once to these guys shall give an impression on what's on their mind?
Sir? Can you please try the above. Thanks very much. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: omshivaya
Date Posted: 03/Jan/2007 at 4:42pm
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Well, let's talk about this after current quarter results are out and let's see how Educomp performs and let's also do a post-portem of their quarterly earnings' P/L account! Maybe we shall get some perspective. The idea I had for educomp's moving up was the "FDI in Education" buzz. Let's see what the heck is going on. For me, management credibility is very very important. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: kulman
Date Posted: 03/Jan/2007 at 7:03am
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Very interesting...... pro-active indepth study can really help in raising alarm bells.
Having said that, before jumping to conclusions, I would prefer following what is written on engineering drawings: "If in doubt, ask"
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: smartcat
Date Posted: 12/Jun/2007 at 12:26pm
Basant - My CA takes 60% depreciation for computers and laptops, but only 10% for furniture, fax machine, printers and UPS. Doesn't ICAI have any rules on how to depreciate office assets?
Am I right in assuming that Educomp earns most of its revenues in USD and only a small part in Indian Rupees? If Educomp is asked to re-state its previous years results because of depreciation errors, even then I'm assuming there would not be much difference in the PAT.
Educomp is probably not paying tax on USD revenues, so depreciation does not really matter much. The depreciation re-statement would effect only its Indian income.
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Posted By: basant
Date Posted: 12/Jun/2007 at 12:47pm
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Edecomp earns a significant part of its income from indian operations but 60% is what it should be. Also ICAI rules are very different for example if you do not charge depreciation as per their rules you can get away from just a note in the balance sheet.
Also I can classify a plasma Tv as a furniture and also as a computer accessory. I do not know what these people are classifying it as.
60% is the norm and good companies would do that but companies that come out to charge lower depreciation do make one time adjustments after 3-4 years and by then the party is over.
You know when you want to invest in a company you always look from the point of view whether this company could take 100% of your portfolio and leave you calm!
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: smartcat
Date Posted: 12/Jun/2007 at 1:12pm
When this happens, will they get a big cheque from the income tax department? All these years, they have been showing lower depreciation, lower expenses and hence paying higher tax. So will tax authorities refund some of the money with interest?
I think I am missing something here - I was never good at accounting!
While Carlyle is a well respected professionally managed VC, we shouldn't side with them all the time. I am not sure what Wayne means when he says 'the company dramatically underperformed'.
f the promoter and VC have different styles of running a business, there will obviously be friction between the two.
In such cases, if VC holding is larger, they kick out the promoter. In the case of Educomp, since the promoter holding was larger, they probably asked Carlyle to get out.
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Posted By: deveshkayal
Date Posted: 14/Jun/2007 at 9:34pm
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Shantanu has its eyes on his company's stock price...
Meanwhile,Reliance Growth Fund does not hold Educomp anymore...Alarm bells are ringing.. ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: basant
Date Posted: 14/Jun/2007 at 12:07pm
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Is he playing hide nd seek with the stock I hope investors do not get lost with this one. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: MuKeShHaRlAlKa
Date Posted: 06/Apr/2008 at 10:45pm
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i would like to have a thread called "Accounting Gimmicks - How to spot them" but i m not able to do it. we can share our opinions in this thread on how to spot if someone is cooking the books so that we dont end up buying an Enron or Worldcom. i dont think there is any other thread like this right now. if there is any plz tell me. i have read a few good articles on it which i can post.
------------- In Cricket & Stock Markets, everyone seems to be an expert but only a few really are. |
Posted By: shivkumar
Date Posted: 20/Jan/2009 at 10:04am
| A questionnaire on these lines should be prepared for other corporates as well. I can think of one - Punj Lloyd since I have exposure to this stock. |
Posted By: shivkumar
Date Posted: 20/Jan/2009 at 11:24am
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Assuming that the Rs 4000 per average employee mentioned by Prakash was the cost to company, the 'salary' could have been split into say Rs 2000 basic pay and another Rs 1500 as expenses. About Rs 400 could be the PF deduction (both employee and employer) per month. For so many employees PF deduction should not be less than Rs 1.77 crore. If the company has been hiring most of the employees as temporary hands on a fixed pay contract without benefits for what is really a permanent job then it could be violating labour laws. |
Posted By: PKB2000
Date Posted: 20/Jan/2009 at 11:50am
I am studying a salary structure of a private company of Pune running in industires in 2006 for a junior excutive level company
His salry gross was 42950 and his PF is 2340. There were two letters of salary distribution Basic was 15000. Dearness Allownce is 4500, HRA is 7500 Education allownce is 350 Washing allownce is 500 City allownce is 3200, Coneveyance Reimbursement is 11500 total 42950 and PF deduction is 2340.
I was trying to draw some calculation and distributed the salary in 6000 as below
This gives PF is 246.6 and for 75% of 4000 people PF comes to 739800
ANYWAY I HAVE SOLD EDUCOMP AT THE MOMENT WITH THE PRINCIPLE THAT :"IF IN DOUBT STAY OUT"
------------- I am always doing that which I cannot do, in order that I may learn how to do it. ~Pablo Picasso |
Posted By: investor
Date Posted: 21/Jan/2009 at 12:03pm
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Suprisingly, the stock is holding out ok, just down around 5%. I would've thought with the recent Satyam developments, just the newsflow wouldve been enough to make people dump and run. I guess some people never learn. ------------- The market is a place where people with money meet people with experience. The people with experience get the money while people with money get experience! |
Posted By: basant
Date Posted: 21/Jan/2009 at 12:33pm
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Its their money and they have a right to blow it don't they? ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kumardiwesh
Date Posted: 21/Jan/2009 at 12:35pm
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It should get a hammering.
Let's wait and watch. ------------- "History does not tell you the probability of future financial things happening" - Warren Buffett |
Posted By: stockaddict
Date Posted: 21/Jan/2009 at 1:51pm
| Many people have what is called 'risk addiction'(as shown in basic instinct 2)Like satyam people were holding out/buying @ 160 , 45 etc they get some pleasure out of living on the edge. Perhaps they ignore the risk-reward equation altogether. |
Posted By: Circuit
Date Posted: 21/Jan/2009 at 2:37pm
Your wish comes true.... Stock down 25% today
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Posted By: investor
Date Posted: 21/Jan/2009 at 2:49pm
------------- The market is a place where people with money meet people with experience. The people with experience get the money while people with money get experience! |
Posted By: kulman
Date Posted: 21/Jan/2009 at 3:39pm
Good observation! ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: vijay pathi
Date Posted: 21/Jan/2009 at 3:46pm
------------- vijji |
Posted By: stockaddict
Date Posted: 21/Jan/2009 at 3:57pm
| I agree,it's just a new age fad and it will go away with time. Paying skyhigh valuations would be risking doing a 'dotcom' like investment decision. These days there are a lot of 'smart schools' opening and it is made to appear that it is the end all of good education. Being tech savy school is not the preequisite for a good education. |
Posted By: kumardiwesh
Date Posted: 21/Jan/2009 at 4:45pm
I think there's more in the offing. These days one blow is not enough. ------------- "History does not tell you the probability of future financial things happening" - Warren Buffett |
Posted By: basant
Date Posted: 05/Feb/2009 at 7:37pm
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Thisis what Shankar Sharma'S fIRST gLOBAL says about this "great" company:
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Hitesh Shah
Date Posted: 05/Feb/2009 at 8:02pm
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Today, one could have bought one share of Educomp or HDFC for the same price!
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Posted By: Circuit
Date Posted: 05/Feb/2009 at 8:16pm
Not a bad idea to wash away one's sin... switch loyalty from Prakash (Shantanu) to Deepak (Parikh)
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Posted By: prashantmohta
Date Posted: 05/Feb/2009 at 8:17pm
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THIS IS A REPORT BY FIRST GLOBAL (GREAT ANALYST). SHANKAR SHARMA ON MAY 07. http://www.theequitydesk.com/forum/forum_posts.asp?TID=142&PN=42 - http://www.theequitydesk.com/forum/forum_posts.asp?TID=142&PN=42
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Posted By: deveshkayal
Date Posted: 05/Feb/2009 at 8:21pm
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Lets see who is proved right one year down the line. Shankar Sharma or analysts from CLSA, ML, SSKI-IDFC, I-Sec, Noble and my brother who all are bullish !! ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: Hitesh Shah
Date Posted: 05/Feb/2009 at 8:24pm
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Posted By: Circuit
Date Posted: 05/Feb/2009 at 8:34pm
If CLSA & ML were bullish, Why did they sell after publishing BUY call on Educomp.
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Posted By: basant
Date Posted: 06/Feb/2009 at 4:50pm
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The biggest bear of this bear run says that Educomp could slide down to the lowest possible 3 digit number or maybe to two digits also.
Surely there is a bear cartel at play and there were bears shorting ACC in 1992 and HFCL in 2000 so nothing wrong with that.
This has been derived from the market grapvine so for the moment just look at it as a market talk.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: experteye
Date Posted: 08/Feb/2009 at 4:12pm
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Basant ji, Beelkool yehi baat ho rahi hai. ------------- more risk,more profit but have a vision before taking risk,itis all about investment in equities market. |
Posted By: basant
Date Posted: 26/Feb/2009 at 2:53pm
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I do not know why Shantanu Prakash keeps cribbing over the alleged "bear hammering" his job is to run the company and show results. I saw him on NDTV Profit arguing how tye bears have hit his stock and how it should be taken off the futures list!!! If you are reading this Mr. Shantanu just stop looking at the ticker and run the company well. Everything else will be taken care of by itself. Also if you spend so much time with the media how would you be able to take out time for general corporate matters!
This arguments goes to DLF and ICICI also. See AXIS Bank is also down some 75% and so are a host of other companies but no one is complaining because at the end of the day it is the earnings that matter and nothing else.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: furkanalam
Date Posted: 26/Feb/2009 at 3:01pm
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I think that the management should speak out and clarify doubts raised on his company....
Shantanu is reacting only after there were certain rumours about his company....there is nothing wrong in that.....
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Posted By: India_Bull
Date Posted: 26/Feb/2009 at 4:17pm
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Bought some Educomp today. The business model is as solid as before , only truth should come out asap about the mgmt etc... but it's the risk worth taking . ------------- India_Bull forever Bull ! www.kapilcomedynights.com |
Posted By: FutureBull
Date Posted: 26/Feb/2009 at 11:56pm
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Pls don't talk about Shankar Sharma...he gave price in single digits to Satyam..and it is hovering at Rs. 50.0 ...i have never seen bigger egoist than him who seems to giving terrifying calls most of the time... ------------- ‘The market always does what it’s supposed to — BUT NEVER WHEN’. |
Posted By: investor
Date Posted: 26/Feb/2009 at 8:19am
FIR against Educomp; co calls it maliciousEducomp Solutions, the Gurgaon-based education firm, said on Thursday it is aware a first information report (FIR) complaint accusing the company of fudging its balance sheets to manipulate its stock prices was filed on February 13 by two investors named Gajendra and Rajendra Kumar.The company denied all allegations and has sought an enquiry into the FIR. "The latest malicious attack on Educomp is another attempt by vested groups to use unethical and frivolous means to sully the image of the organisation. This FIR has unfortunately been lodged without authentication/verification. That it is motivated is clear to the unbiased eye, our legal departmetn is taking requisite and necessary action on the matter," said Shantanu Prakash, the managing director of Educomp. The FIR, a copy of which is with DNA Money, was filed at the Sihani Gate police station in Ghaziabad. It has accused the Educomp management of manipulation of results, tax evasion and wrong valuation of one of its subsidiaries etc. Sebi is already probing Educomp Solutions for market manipulation of its shares.------------- The market is a place where people with money meet people with experience. The people with experience get the money while people with money get experience! |
Posted By: deveshkayal
Date Posted: 01/Mar/2009 at 2:49pm
Shantanu's first job was in Delhi Stock Exchange. Read Rashmi Bansal's "Stay Hungry, Stay Foolish" book.
------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: Hitesh Shah
Date Posted: 01/Mar/2009 at 5:59pm
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Without commenting on the fundamentals of Educomp, it seems to be a fancied stock for intraday traders who don't have weak hearts. ------------- |
Posted By: experteye
Date Posted: 07/Apr/2009 at 10:21pm
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Devesh ji, agree with you, educomp ko abhi bahut badaa honaa hai. ------------- more risk,more profit but have a vision before taking risk,itis all about investment in equities market. |
Posted By: conservativeinv
Date Posted: 12/Sep/2011 at 1:50am
Basantji, if a company does not charge depreciation at all, it cannot get away with a note in the balance sheet unless the depreciation amount is insignificant. If the company does not charge depreciation at all, the auditor would need to qualify his auditor's report for two reasons:
- the Companies Act provides the minimum depreciation rates
- ICAI Accounting Standards provide general guidenlines which require management to estimate useful life of an asset and require depreciation to be charged considering the asset's useful life. ICAI does not provide specific depreciation rates. This Accounting Standard is more or less similar to IFRS and US GAAP, so not very different than what is followed internationally.
An auditor would also need to qualify his auditor's report for a company which charges depreciation that is not in line with ICAI Accounting Standards, unless the difference is insignificant.
If you have a specific example of a company not charging depreciation as per ICAI Accounting Standards and getting away with a note in the balance sheet, can you provide the name of the company (and year if available), because it would be a classic case.
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Posted By: basant
Date Posted: 12/Sep/2011 at 7:42am
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Though I have lost track of this company the issue was of probably under provisioning for depreciation as I had indicated "as per their rules" in my post. I think they changed the method of depreciation sometime back to show higher profits. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: conservativeinv
Date Posted: 13/Sep/2011 at 7:11pm
| Basantji, changing the depreciation method is allowed by ICAI. But I understand your meaning. That is something that several companies used to do earlier - the practice is frowned upon now, so we see that fewer companies do it now. However, I think we haven't seen the end of it as yet - let companies start scoring lower profits and we will see this practice re-emerge. |
Posted By: basant
Date Posted: 13/Sep/2011 at 7:20pm
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Check this:
http://www.theequitydesk.com/forum/forum_posts.asp?TID=683&KW=educomp and http://www.theequitydesk.com/forum/forum_posts.asp?TID=1241 ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Ravenrage
Date Posted: 13/Sep/2011 at 7:43pm
 Terrific ! ------------- Risk does not reside in price changes, but in miscalculations of intrinsic value . |