Everonn Apr11

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Event:Everonn Education (Everonn) has entered into a JV with the Union governments National Skill Development

Corporation (NSDC). The JV is mandated to train 15m people in various technical streams over the next 10 years, which

translates into potential revenues of US$3bn over the period for the venture.

Details of the JV: NSDC was set up as part of a national skill development mission to fulfill Indias growing need for skilled manpower

across sectors and narrow the existing gap between the demand and supply of skills. The finance minister

announced the formation of the National Skill Development Corporation (NSDC) in his Budget speech of 2008-09.

The NSDC is a public-private partnership, 49% owned by the finance ministry and the remaining 51% held by

various industry bodies like the CII, NASSCOM, FICCI, Assocham, etc. The Government of India has set itself a

target to impart skills to 500m over the next 10 years. NSDC was set up with the objective of achieving 30% of this

target, or 150m people, by 2022.

Everonn has a 100% subsidiary called Everonn Skill Development. As a part of the agreement, NSDC will take a

27% equity stake in the company and the balance 73% stake will be retained by Everonn.

The JV, Everonn Skill, is looking to address 10% of NSDCs training requirement, or 15m people, by 2022. The JV

will provide training in nine technical skills including Retail, Hospitality, etc.

Merits of the deal for Everonn: Everonn is looking to set up 271 training centers across the country, with each equipped to teach three skills.

Currently, Everonn Skill has 9 centers operational and is looking to expand capacity to 71 centers in the next three

months. Further, to ensure quality teachers for the courses, Everonn is looking to set up Master Resource Centers

(MRCs) in each state to train teachers.

The course fee for the technical courses will range from Rs3,000 to Rs24,000. On an average Everonn expects to

earn a yield of Rs9,000 per course. These will be short-term courses ranging from 3-6 months. All the courses will

be certified, and Everonn has entered into agreements with various institutions like IGNOU for the same.

Given the target of training 15m people in 10 years, the average fee of Rs9,000 translates into a revenue potential

of US$3bn for the JV over the 10-year period. Everonn expects to garner steady state EBITDA margins of 23-25% in

this venture.

Everonn would need to incur a capital expenditure of Rs3bn over the next three years for setting the infrastructure.

Of this, NSDC would provide Rs1.15bn to Everonn in the form of debt at a subsidized interest of 6%. The remaining

Rs1.85bn will be funded by Everonn through internal accruals and external debt funding.

Everonn EducationNew growth avenues!

INSTITUTIONAL SECURITIES

Nikhil [email protected] 2567

For Private Circulation only.Important disclosures appear at the back of this report

SEBI Registration Nos.: INB23 12914 37, INF23 12914 37, INB01 12914 33, INF01 12914 33.

Swati [email protected] 2576

OUTPERFORMER

Rs682

Mkt Cap: Rs12.9bn; US$288m

INDIA RESEARCH EDUCATION EVENT UPDATE BSE SENSEX: 19091 APRIL 18, 2011


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2|APRIL 2011 IDFC SECURITIES

What does NSDC bring to the table? In addition to financing, NSDC brings credibility to the venture. Two members of NSDC will be present on the Board

of Everonn Skill Development. With NSDC being a quasi-government organization, partnership with NSDC will help

Everonn attract a larger audience.

Private ownership of NSDC (51% owned by various industrial organizations) provides a platform for Everonn to tieup with various industries for placements. This, we believe, is critical as it will allow Everonn to train people for

industries as per requirements.

Our view:We view Everonns partnership with NSDC as a crucial development, imparting immense growth potential to the

company. A government partner and an inherent shortage of skilled labor in the country are positive arguments in favor

of Everonn. While we see strong opportunity from this JV, we believe execution will be the key monitorable. The scale

and investments in the venture are of a higher order to what Everonn has been exposed to in the past. With respect to

FY12, Everonn is looking to train 0.2m people. Taking into account execution challenges, we have factored training of

~ 100,000 people by Everonn in FY12. This translates into incremental revenues of Rs657m and operational profits of

Rs130m (as Everonns share of 73%) in FY12. Consequently, we have upgraded our EPS estimates for FY12 by 9% to

Rs47 from Rs44 earlier. With the stock trading at 14x FY12E earnings, we maintain Outperformer.

Key valuation metrics

Rs mn Net sales yoy (%) Net prof it yoy chg (%) EPS (Rs) yoy chg (%) EV/E (x) PER (x)

FY08 916 113 138 240 10.0 152 28.5 68.4

FY09 1,447 58 221 60 14.6 46 20.3 46.8

FY10 2,935 103 454 106 30.1 106 10.6 22.7

FY11E 4,033 37 628 38 33.0 10 8.6 20.7

FY12E 5,536 37 900 43 47.3 43 6.1 14.4

Source: IDFC securities research


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Explanation of Ratings:1. Outperformer: More than 5% upside to Index

2. Neutral: Within 0-5% to Index (upside or downside)

3. Underperformer: More than 5% downside to Index

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Analyst Sector/Industry/Coverage E-mail Tel. + 91-22-6622 2600Pathik Gandotra Head of Research; Financials, Strategy pathik.gandotra@idfc .com 91-22-662 22525Shirish Rane Construction, Power, Cement [email protected] 91-22-662 22575

Nikhil Vora FMCG, Media, Mid Caps, Education, Exchanges [email protected] 91-22-662 22567Nitin Agarwal Pharmaceuticals, Real Estate [email protected] 91-22-662 22568Chirag Shah Metals & Mining,Telecom, Pipes, Textiles [email protected] 91-22-662 22564Bhoomika Nair Logistics, Engineering bhoomika.nair@idfc .com 91-22-662 22561Hitesh Shah, CFA IT Services [email protected] 91-22-662 22565Bhushan Gajaria Automobiles, Auto ancillaries, Retailing [email protected] 91-22-662 22562Salil Desai Construction, Power, Cement [email protected] 91-22-662 22573

Ashish Shah Construction, Power, Cement [email protected] 91-22-662 22560Probal Sen Oil & Gas [email protected] 91-22-662 22569Chinmaya Garg Financials [email protected] 91-22-662 22563

Abhishek Gupta Telecom, Metals & Mining abhishek.gupta@idfc .com 91-22-662 22661Saumil Mehta Metals, Pipes [email protected] 91-22-662 22578Vineet Chandak Real Estate [email protected] 91-22-662 22579Kavita Kejriwal Strategy, Financials [email protected] 91-22-662 22558Anamika Sharma IT Services [email protected] 91-22-662 22680Varun Kejriwal FMCG, Mid Caps [email protected] 91-22-662 22685Swati Nangalia Media, Education, Exchanges, Midcaps [email protected] 91-22-662 22576Nikhil Salvi Construction, Power, Cement [email protected] 91-22-662 22566Kavitha Rajan Strategy, Midcaps [email protected] 91-22-662 22697Dharmendra Sahu Database Analyst [email protected] 91-22-662 22580Rupesh Sonawale Database Analyst [email protected] 91-22-662 22572

Dharmesh R Bhatt, CMT Technical Analyst dharmesh.bhatt@idfc .com 91-22-662 22534

Equity Sales/Dealing Designation E-mail Tel. + 91-22-6622 2500Naishadh Paleja MD, CEO [email protected] 91-22-6622 2522

Paresh Shah MD, Dealing [email protected] 91-22-6622 2508

Vishal Purohit MD, Sales [email protected] 91-22-6622 2533

Nikhil Gholani MD, Sales [email protected] 91-22-6622 2529

Sanjay Panicker Director, Sales [email protected] 91-22-6622 2530

Rajesh Makharia Director, Sales [email protected] 91-22-6622 2528

Nirbhay Singh SVP, Sales [email protected] 91-22-6622 2595

Suchit Sehgal AVP, Sales suchit.sehgal@idfc .com 91-22-6622 2532

Pawan Sharma MD, Derivatives [email protected] 91-22-6622 2539

Dipesh Shah Director, Derivatives [email protected] 91-22-6622 2693

Jignesh Shah AVP, Derivatives [email protected] 91-22-6622 2536

Suniil Pandit Director, Sales trading [email protected] 91-22-6622 2524

Mukesh Chaturvedi SVP, Sales trading [email protected] 91-22-6622 2512

Viren Sompura SVP, Sales trading [email protected] 91-22-6622 2527

Rajashekhar Hiremath VP, Sales trading [email protected] 91-22-6622 2516


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Everonn Apr11

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