Once again, an education stock seems to be getting caught up in corporate mis-governance. Like real estate, it seems this sector is filled with landmines which you can walk around for a while but will eventually end up blowing yourself. I dont mean to generalize but after so many corporate misdemeanours in the education sector, it seems like this one was inevitable.
On the face of it, the company looks like a fantastic buy at this price. It seems to be growing rapidly, taking the right steps by trying to sell off assets like the land and building in Baroda and sweating preschool assets by adding day care services. However, the primary question that needs to be answered is about the integrity of the promoters. If there is no problem with that, at this price, the company is a no-brainer. With all the questions being raised about change of company secretary, change in CFO, change in auditors, receivables, possible fund diversion, incessant pledging for reasons not known yet, it is better to stay out and wait for the dust to settle for clarity to emerge.
The best thing for minority shareholders will be for the promoter to come out and explain the current situation and particularly bring some transparency as to the deployment of the 140 crore capital being used to buy rights to manage K-12 schools. Although, it is the personal right of the promoter to do whatever he wants with the capital that he raised through pledging, I think it will also be very helpful for him to clarify how he has used those funds to answer the question as to why there is so much pledging. Bringing a big 4 auditor will definitely help as well as it will give confidence to investors that the numbers are verified and real.
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