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Educomp shares tank on news promoters are inflating profits

Educomp shares tank on news promoters are inflating profits
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First Published: Wed, Jan 21 2009. 09 25 PM IST

Updated: Wed, Jan 21 2009. 09 25 PM IST
New Delhi: India’s biggest education software firm by market capital, Educomp Solutions, has been a favourite pick of analysts for some time. But that didn’t prevent a 22% plunge in the company’s stock on Wednesday—the most in three years.
The Gurgaon-based firm says an attempt is under way to make it look like Satyam Computer— whose founder B. Ramalinga Raju is in jail after he said he had been cooking his company’s books for years without anyone getting a whiff of it.
Shares of Educomp began tanking on Tuesday after a report in The Pioneer newspaper said that its profits were inflated and promoters had made big profits by trading their own shares and diverting funds to unlisted subsidiaries. Corporate affairs minister Prem Chand Gupta said he would ask Educomp for an explanation.
Educomp said on Wednesday it had complained to the police about malicious emails. The reports were intended to harm the company’s reputation and drive down its stock, chief executive Shantanu Prakash said. Prakash told Reuters on Wednesday it was the work of “bear cartels” to “manipulate the stock”.
Appearances on television channels and assurances by Prakash that everything was fine have failed to allay the jitters of investors, ready to hammer down any share price at the first hint of scandal following l’affaire Satyam.
Shares of Educomp fell 22% on Wednesday, making it the biggest decliner of the day on the BSE500 index of the Bombay Stock Exchange. They closed Rs441.8 lower at Rs1,526.85.
“Markets are concerned about corporate governance after Satyam, that is why they are not willing to believe what he is saying,” said Harit Shah, research analyst at Angel Broking Ltd on Wednesday. He declined further comment.
The Wall Street Journal, in a report titled “Are Indian education stocks overvalued?”, carried in Mint in May, quoted Shah as saying Educomp’s long-term prospects were “extremely robust”.
Part of the reason analysts like the stock is because Educomp has won several big contracts from state governments to provide online lessons or the hardware to run them in state-run schools.
In a profile of Prakash published in June last year, Mint reported about a Haryana school where Educomp trainers were not on-campus and the course material had not arrived.
Educomp still has its loyalists. Brokerage house CLSA Asia Pacific said on Wednesday it did not agree with reports about accounting malpractices at the firm. Along with Bhavtosh Vajpayee, Nimish Joshi wrote in a March 2008 report: “Educomp is best placed across market segments,” noting that it had delivered investors robust growth in earnings per share.
Reuters and Bloomberg contributed to this story.
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First Published: Wed, Jan 21 2009. 09 25 PM IST