The CARE Ratings downgrade on some of Everonn Education Ltd’s debt is yet another pointer to increasing financial stress at the company. Management transition at Everonn has not been smooth. Business has been adversely affected as the old guard exited the firm in February 2012.

Income from operations more than halved in the first nine months of the last fiscal as the company scaled down business in some segments post the change in management. With expenses and interest costs remaining high, it hasn’t reported profits for six quarters now.

Endemic delays in payments from government bodies, meanwhile, means that receivables continue to pile up. Receivables rose 87% to 390 crore in 2011-12. Average receivable days jumped from around 180 days in 2010-11 to 348 days by the end of March 2012.

According to CARE Ratings, Everonn has experienced “significant" delays in realization of receivables during the first nine months of the last fiscal. CARE Ratings adds, “This, coupled with significant losses on account of poor operating performance, lead to delays in debt servicing."

The pressure on Everonn’s finances may not ease anytime soon. Apart from intense competition, there is a risk that one-off items may continue to affect the company’s finances. The company is still contesting tax claims and reviewing the value of its investments. In a note to the statement of results released in February, the company said net worth at some of its subsidiaries has been fully or partially eroded and it may have to make further provisions at the end of
2012-13.

Investors are clearly disappointed at the way things are panning out. The stock lost 6% after the CARE downgrade. Since the new management took over, Everonn has shed 81%. The small-cap index on BSE in the same period lost just 15%. While the company is in the process of restructuring its business, some analysts feel the new management could have handled the transition better.

The fall in the stock price may have been contained if the new management had spelt out a revival plan and how it wants to take the company forward. Under the previous management, Everonn’s focus was on providing content through digital classrooms and skill-based training for job seekers. The new promoter, on the other hand, is known for managing schools across the globe. True, the new promoter has been busy cleaning the books and has infused much required funds into the company. While the clean-up process is still on, improvement in receivables and clarity on future plans can help revive investor confidence in the company.

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