Thursday, June 21, 2012

Educomp Sold by Janus, Added by Ashoka Flowering Tree

Shantanu Prakash,
Chairman & Managing Director,
Educomp Solutions Ltd.

By Staff Reporter:

Educomp Solutions Ltd (BSE: 532696, NSE: EDUCOMP) counter in NSE on Wednesday saw a significant sell by Janus Capital Management and an even bigger buy by Ashoka Flowering Tree Mauritius.

The deals were disclosed at National Stock Exchange after trading hours on Wednesday.

Janus Investment Fund, an FII sub-account coming under Janus Capital Management LLC sold off 6.91 lakh shares at Rs. 146 a share, making the total sell worth Rs. 10.08 crore. Janus Capital Management is a part of Janus Capital Group, one of USA’s largest listed investments and mutual funds company.

Janus Capital Management has been the second-largest non-promoter shareholder in Educomp after Citigroup. Its identified stake was 4.64%, held through Janus Worldwide Fund and Janus Aspen Series Worldwide Portfolio.

However, Wednesday’s seller from the Janus family of funds has not been an identified holder of Educomp, holding more than 1% shares as of Q4 end. Wednesday’s sell amounted to 0.72% stake in the digital classroom solutions company.

Wednesday’s buyer, Ashoka Flowering Tree Mauritius, is an FII sub-account registered under IIFL Inc. It too has been a major holder in Educomp, with a 1.59% stake as of Q4 end. On Wednesday, Ashoka Flowering Tree bought 7.85 lakh shares at Rs. 146.20 a share, making the buy worth Rs. 11.48 crore.

Ashoka’s buy amounted to a 0.82% stake, and if it has not transacted in the counter since Q4 end, it now holds an enlarged stake of 2.41% in Educomp.

The significant exchange of hands in Educomp shares came on a day, which was otherwise also very important for the leading education solutions provider. 

On Wednesday, before trading hours, Educomp had announced that it has tied up $155 million in fresh funds to pay off FCCB repayments worth $111 million within its due date itself. The company had foreign currency convertible bonds for $78.5 million, and the rest of the $111 million accounts for FCCB redemption premium.

The maturing FCCB repayment has been one of the overhangs on Educomp stock, which has been on a free-fall in the year-to-date, tumbling from a 52-Week High of Rs. 465.50 in last July to a 52-Week Low of Rs. 128.05 recently, which is a loss of almost 73% within less than a year.

In fact, the year-to-date performance of Educomp Solutions has been part of a longer pattern in which the share has been continually losing ground since October 2009, falling from now unbelievable highs of nearly Rs. 1000.

On the fundamental side, in the latest Q4 numbers, a sequential positive turnaround in performance is visible, even though a full year-on-year turnaround is still pending.

The refinancing package presented by Educomp on Wednesday is impressive, with participations like $30 million ECB by World Bank arm IFC and $40 million ECB by Proparco, a French development finance institution. The ECBs come with a comfortable 8.5 year term. 

IFC will be lending another $10 million through FCCB at a premium of 40% to the floor price. Also, preferential allotment of new shares is planned at Rs. 149.16 to IFC, Proparco, & private investment firm Mount Kellett, while promoters would be subscribing to new shares and warrants at Rs. 193.74 a share.

The overall plan will have a surplus of $44 million which the company aims to use for its capex and for bettering its balance sheet.  

However, even with the turnaround in Q4 and this refinancing plan, it is interesting that a large investor like Janus has preferred to partly exit the counter. While one cue for this has been the rapid run-up in the stock during the recent sessions, the larger cue might be a series of disturbing corporate governance allegations leveled at Educomp and its US affiliates like Edusmart by the influential European investment and research firm, Espirito Santo Financial Group.

Educomp Solutions stock has already run up by 19% from its recent 52-Week Low, of which over 11% was on Wednesday alone.

Though the fresh fund tie-up has been approved by the Board, it is still not concluded, and as per Educomp, that will happen simultaneously with the FCCB due date in July. Investors would be looking at the kind of dilution entailed by the new allotments, as a low equity base of around Rs. 19 crore has been one of the strengths of the stock.

Apart from Citigroup, Janus Capital, & Ashoka Flowering Tree, the largest investors in the counter are Copthall, Macquarie Bank, Platinum Investment Management, & Emerging India Focus Funds.

For now the stock seems to have arrested its downside, and whether it takes an immediate breather or not from the rally, is likely to move higher in the short-term. Fresh triggers to look out will be successful conclusion of the fund tie-up and Q1 numbers, both expected in July. 

Educomp Solutions closed trade in NSE at Rs. 152.40 on Wednesday.