Educomp Solutions at Rs 570 (FV Rs 2)…Educate yourself on Educomp before you conclude that the best solution is to or not to play it !

On January 22,2009 I had blogged on Educomp Solutions after it had plummetted from Rs 2100 levels to below Rs 1400 on a  FV Rs 10 share on ‘Daily Pioneer’ expose

Educomp’s Share Price Slumps as Bears orchestrate a Mauling

From October 27,2009,the Share Quotes are on a FV of Rs 2 after a split from FV Rs 10 to FV Rs 2 was announced in August 2009

Despite the adverse media bashing and a host of controversies that surrounded Educomp Solutions,the Share Price shot up inside Nine months by nearly 300%  in 2009 to over Rs 5000 in the first week of October 2009….it closed cum split on October 26,2009 at Rs 4705 and opened at Rs 950 the next day ex split….since then it has been downhill dropping to Rs 450 levels in the last week of May 2010…currently it quotes at Rs 570…this would read as Rs 2850 cum split,yet twice the level from where it had collapsed in January 2009 on controversies

The reason I blog on this is that I’ve just received a very adverse blog response on this Company…I have not approved it for viewing on the blog as it directly accuses and casts aspersions on the Company’s Promoter and Top Management without any real evidence or proof….levelling charges of fudging and faking accounts,widescale bribing,laundering and fooling schools and education societies….moreover the person does not have the courage to put his name 

However,if you do indulge in Trading in Educomp Solutions,do understand the Risks associated with doing so…The Share Price has shown abnormal volatility in the past two years as detailed above…while this presents dramatic opportunities for insiders,it can be tragic for those caught on the wrong side of the road 

If Corporate Governance Issues continue to crop up,sooner or later Educomp will have a lot to answer to

In FY 10 it earned Rs 218 crs…that’s an EPS of @ Rs 25 on an Equity of Rs 19 crs (FV Rs 2)….yet it declared an interim dividend of Rs 1 (50%) and Final Dividend of Rs 1.75(87.50%)…that’s Rs 2.75 Dividend…that’s a payout of barely above 10% of what it earned !….This is curious that it rewards shareholders who own the company with just Rs 23 crs,while other stakeholders like Lenders are rewarded with Rs 32 crs as Interest and the Government with Rs 153 crs in Taxes !….Q1 FY 11 it has netted Rs 44 crs…so this year too an EPS of over Rs 20 is on the cards…at Rs 570,this is quoted under 30 earnings multiple read more

Need to be Educated on Educomp !…What’s Brewing !?

I had blogged on Educomp a few days ago and now twice today.

What is Brewing ! ? Obviously something we don’t know but the worrying and critical and significant difference between the Lower Futures and the Higher Spot flags up

On the NSE the Feb 26,2009 Futures with the Market Lot Size of 75 shares closed at Rs 1416 with a volume of 17411 contracts traded and the March 26,2009 Futures with the new Market Lot Size of 150 Shares,closed at Rs 1332 with a Volume of 172 contracts traded.The underlying is Rs 1657…That’s a clear 20% or Rs 325 differential on the March Contract

Those who hold the Stock,should clearly not sit tight…They can pick from two options

  • If truly worried,with this Significant Differential between Lower Futures and Higher Spot,they should exit from this Stock.Protected Put Option at a Strike of Rs 1710 has a high Premium of over Rs 300 and moreover is not a very liquid counter…so it is not possible to adopt this alternative.Also a Covered Call Strategy may involve getting the premium by selling a Call Option at an ‘At the Money’ Strike Price near underlying Value and thus immediately reducing the holding cost …but the premium does not cover the full differential betwenn underlying and Futures
  • If they yet hold the conviction,like a lot of FIIs do ,in this Company,they should take this opportunity to reduce their holding cost by this Differential by selling in Spot and covering immediately in Futures   

Something is clearly Brewing…Something not so Good

Sell Educomp at Rs 1725 in Spot if you hold shares and cover immediately at Rs 1375 in Futures…great opportunity to reduce holding cost ! Those worried should simply exit the stock !

Something Bad is indicated in Educomp…The Futures show it now under Rs 1400 while the Spot Market prices it at Rs 1725….Those who hold the share should quickly sellin Spot and buy back in the Futures to reduce their holding cost by over Rs 300

Ofcourse,those who hold the shares and are really worried should sell off immediately in Spot as the difference between Spot and Futures indicates something unfavourable brewing that some know well before the rest of us do !