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NIIT vs. Educomp: The winner? - Views on News from Equitymaster

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NIIT vs. Educomp: The winner?

Apr 7, 2011

In the first article of the series, we have compared the business models of NIIT Ltd and Educomp Ltd. In the next article we talked about important numbers related to their financial performance. In this final article, we are going to compare NIIT and Educomp on the basis of their balance sheet strength as well as their valuations.

Capital StructureDebt to Equity ratio, an important measure of balance sheet strength, has been high for Educomp historically. However, in the fiscal year ended March-2010, the company was able to bring down its debt-to-equity ratio. Debt equity ratio for Educomp is 0.6 for the financial year ended 2010, while the same is 0.8 for NIIT. The interesting part here is that Educomp brought down the ratio not through the repayment of debt. On the other hand, it diluted its equity through a Qualified Institutional Placement or a QIP.

Data Source: Company's Annual Reports

The QIP was made in July-2009 for raising funds for investment in the school business. For promotion of Educomp's higher Education Initiatives. For making Investment in its Vocational Education business, and for other general corporate purpose.

Return on Equity

Return on Equity (ROE) has always been higher for Educomp as compared to NIIT. Average ROE for Educomp has been around 15.2% (from FY05 to FY10), while the same has been 8.6% for NIIT. Educomp has been able to translate its stellar performance at profit levels into higher ROE as well. This shows that Educomp could utilize the raised capital in an efficient way to generate the profit at net level.

Data Source: Company's Annual Reports

Valuations

To compare the valuations of both the stocks, we have used the popular price to earnings (PE) ratio. The stock of Educomp has always traded at a higher PE multiple as compared to NIIT. Educomp appears to be commanding a premium thanks to its stellar performance in terms of the financial numbers.

Data Source: Company's Annual Reports, CMIE Prowess
* PE has been computed on the basis of consolidated EPS

Conclusion

Both the companies are in similar line of business which is providing learning solutions. And both of them have got large untapped potential market in the education sector.

However, Educomp has fared better than NIIT in the past. Educomp has shown tremendous growth in its both topline as well as the bottomline. The company has created wealth for its shareholders through higher returns on equity. As a result, it has always commanded a higher multiple as compared to NIIT. But will that trend continue in the future? Only time can answer this question.

NIIT vs. Educomp Series - Previous | All Articles


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3 Responses to "NIIT vs. Educomp: The winner?"

ANANT SINGH

Apr 16, 2011

INFORMATIVE,ANALYTICAL,COMPOSITE,ENLIGHTINING ARTICLE

Like 

kv

Apr 9, 2011

Interesting comparison.
However it would help if the colour coding across all the graphs is kept consistent.
In the first two graphs, the NIIT line is in dark blue and Educomp is in red; but in the third graph the colours are reversed !
I was a bit puzzled at the visuals, and then realised this difference in the third graph.

Like 

Lalit Taneja

Apr 8, 2011

Very good and informatic article... This is a real comparision among both.. But it is seen that their are lot many other players in this industy... Waiting for comparision with them too.

Like 
  
Equitymaster requests your view! Post a comment on "NIIT vs. Educomp: The winner?". Click here!

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