Shares of education services companies Career Point Ltd, Educomp Solutions Ltd and Everonn Education Ltd are pale shadows of their former selves. While the Career Point stock halved, the latter gave up three-fourths of their value in the past one year.

Unbridled expansion in their heyday and a sudden change in the business environment have hit the companies hard. Educomp Solutions and Everonn Education are losing money. Profits at Career Point fell sharply, as its bread-and-butter tutorial business was hit by changes in the engineering entrance examinations.

Still, the stocks continue to see lots of action. All three breached their upper circuit limits at least once in the past week and rallied over 10% each. The spurt in the share prices is perplexing as fundamentally no significant development happened during the week.

That said, the companies are moving in the right direction to set their houses in order. Beleaguered Everonn Education has received the approval of the Madras high court to restructure its business. In line with its new promoters’ core expertise in school management, the company has decided to focus on K12 schools (kindergarten to Class 12) and technology-based education services. To reduce losses, Everonn will slowly exit the higher education and capital intensive businesses, the company’s managing director A. Srinivasan told The Times of India. With debt restructuring in process, interest costs are coming down.

Educomp Solutions has also applied for debt restructuring. The company is curbing capital intensive businesses, optimizing the existing school capacities, increasing the focus on collections and it has outsourced the logistical and hardware responsibilities to another firm. Career Point, on the other hand, is ramping up the formal education business, which is more stable in nature. The company expects the contribution of the formal education business to overall revenue to reach 50% in four years, from less than a quarter now.

Investor interest continues to remain poor in most of the education stocks. The sharp fall in share prices has battered investor confidence. As Daljeet S. Kohli, head of research at IndiaNivesh Securities Pvt. Ltd, points out, for investor interest to revive two things have to happen. One is consistency. The operational performance of education companies has been volatile. Enrolments, schools and classroom additions are prone to sudden spikes and slumps. Innovative and intelligent planning of courses can reduce the impact of seasonality on revenues.

The second requirement is pruning debt. Despite being in restructuring mode for some time, companies (except Career Point) are not able to bring debt levels to sustainable levels. Sure, they are refocusing and taking steps to improve profitability. But with no signs of stability emerging, investors would do well to remain cautious about the stocks despite their low valuations.

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