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Research
Veranda Learning Solutions - IPO - Banking on Edureka's Offerings
Posted On : 2022-03-30 20:29:54( TIMEZONE : IST )
About the Company
Veranda Learning Solutions (Veranda) offers online and offline coaching services for career-defining courses like UPSE, chartered accountancy, banking, government exams and corporate employees. Moreover, the company also offers personality tests and short-term skilling courses, long-term courses and corporate learning courses. Veranda has acquired a 100% stake in 'Edureka' at Rs2.45bn in Sept'21, which offers services to working professionals in the IT sector through a live instructor-led service model -- academic learning, professional skilling and corporate training services in trending courses related to emerging technologies such as cloud computing, AI/ML, data science, robotic process automation, full stack web development, programming, and big data. All services are offered through its wholly-owned subsidiaries namely Veranda Race Learning Solutions Private Ltd (Veranda Race), Veranda XL Learning Solutions Private Ltd (Veranda CA), Veranda IAS Learning Solutions Private Ltd (Veranda IAS), and Brain4ce Education Solutions Private Ltd (Edureka). The company is coming out with an IPO that has an issue size of Rs2bn, with the market cap at a higher band of ~Rs7.6bn. The issue's price band is Rs130-Rs137 and objectives are to repay the debt, pay for the acquisition of 'Edureka' and growth initiatives.
Strong Management and Team
The management has a collective experience of over 40 years in the education sector. It started the entrepreneurial journey in 1991 with the establishment of SSI and was listed on the Indian stock exchanges. SSI was engaged in training students in short-term computer software courses with a franchise network rolled out across India. In Apr'03, SSI hived off its education division and merged it with Aptech Ltd. Veranda has an in-house content team, third party mentors and instructors and an editorial team with vast experience in their respective domains that curate and prepare content for the study material. It also obtains services of other publishers to provide content for study materials. It has a centralized content development process to ensure quality and error-free content across all courses. Veranda continuously updates and upgrades content so that students and corporates can acquire new skills, sharpen existing ones, perform better and increase productivity. It has a centralized in-house process to train mentors to ensure consistent standards of quality and delivery across courses.
Financials in Brief
Veranda was incorporated in Nov'18 as 'Andromeda Edutech Private Ltd' and started its business operations in Dec'20 by acquiring the content of Chennai RACE. Veranda has been incurring losses since its incorporation. During 9MFY22, a total of 42,667 students and professionals have enrolled across all courses, of which 16,793 enrolled for the offline model and 25,874 for online. Veranda has a limited financial history; during FY21, it reported a revenue of Rs25mn and a net loss of Rs83mn. For 1HFY22, it reported a revenue of Rs155mn and a net loss of Rs183mn. The company has not paid any dividend in the past due to losses.
Our View
On FY22 annualized financials, the IPO is at 25x market cap/sales for a loss-making company with a low track which looks expensive. Though Veranda has a diversified course offerings and delivery channels, a professionally qualified human capital and strong brand presence, its business operations with losses raise concerns. The IPO is aggressively priced and hardly leaves anything meaningful on the table for investors in the medium term perspective. The market is highly competitive but lack of premium educational institutions is a notable factor. Over the past decade, the education sector clocked a CAGR of 14% led by rapid urbanization and increased educational spend. Urban areas offer better job opportunities and higher wages, while providing better access to quality education. Thus, an increased urbanization will also result in higher spending on education. India's growing prosperity and rising disposable income have seen increased spending by households on education. However, all these positives are captured in its valuation and valuation is not favourable for investors.
