Veranda Learning Solutions Limited

About the company:

Issue Details

Dates: 29 March 2022 to 31 March 2022

Price Band: Rs. 130 to Rs. 137 per share

Minimum Lot: 100 shares

Minimum Application Amount: Rs. 13,000 to Rs. 13,700

Total Issue Size: Up to Rs. 200 crores

Objects of the offer

The object of the offer is to repay certain part of borrowings taken in consideration of acquisition of Edureka & rest of the proceeds for the company’s growth initiatives.

Corporate Profile & Business overview

Veranda Learning Solutions Limited was incorporated on Nov 20, 2018, but the company started their operations in Dec 2020. The company is incorporated in Chennai, Tamil Nadu. The promoter group stake will fall to around 65.87% after the IPO from 89.22% and the company is offering 1.46 crore shares in the IPO.

The company is in the business of providing diversified and integrated learning solutions to students, aspirants, graduates, professionals, and corporate employees enrolled in their courses through a variety of career-defining competitive exams, professional courses, exam-oriented courses, and short-term upskilling and reskilling courses in online, offline hybrid, and offline blended formats. A total of 42,667 students and professionals enrolled in their courses for the nine-month period ending December 31, 2021, with 16,793 in offline models & 25,874 in their online models.

Veranda learning solution has 4 subsidiaries namely

Veranda Race Learning Solutions Private Limited: The company purchased the content, brand, and educational resources from Chennai Race Coaching Institute Private Limited in December 2020 through their wholly owned subsidiary, Veranda Race. The company offers exam-oriented courses to students who appear for competitive exams, such as State Public Service Commission, Staff Selection Commission, Railway Recruitment Board, Banking & Insurance Exam. The online video courses are available in English, Hindi & other regional languages. The company is expanding its geographical presence in Hyderabad & Bengaluru. The fee structure for the course lies in the range of Rs 9,000-15,500. The number of students enrolled in this category is 24,000+.

Veranda XL Learning Solutions Private Limited (Veranda CA): Veranda CA offers exam-oriented learning programs for CA Foundation, CA Intermediate & CA Final. The organisation has hired 18 chartered accountants on a contract basis with extensive experience in auditing and teaching to video record the learning units. Trans Learning LLP and Veranda CA have signed a Chartered Accountancy Training Services Agreement dated December 31, 2020. Trans LLP supplies the company with necessary services and digital content for CA modules within the terms of the agreement. The company uses an online format to provide services to its students, and it now has over 400 students registered. The fee structure for the course ranges from Rs 10,000-39,500.

Veranda IAS Learning Solutions Private Limited (Veranda IAS): Veranda IAS offers coaching services to aspirants appearing for UPSC prelims and mains & State Public Service Commission Group-I exams. Veranda IAS has entered into a UPSC training, and Miscellaneous Service Agreement with SAI IAS Academy dated 5^th March 2021.  Pursuant to the arrangement, Veranda IAS is in process of creating digital content and related study materials for UPSC course comprising 850 hours of video content & slides of Power Point Presentation content. The fee structure for the course ranges from Rs 30,000-75,000.

Brain4ce Education Solutions Private Limited (Edureka): The company purchased a 100% stake in Edureka according to a Share Purchase Agreement dated August 30, 2021. The company has grown its footprint in software education and in global markets, particularly in the United States, with the acquisition of Edureka. Edureka offers academic learning in trending courses such as Cloud Computing, Devops, ML/AI, Data Science, Big Data, Block Chain, Cyber Security, Robotic Process Automation, and many other fields through live online classes.

The courses offered by Edureka can be divided into three categories i.e. (i) 137 Short Term Courses, (ii) 6 Long Term Courses, and (iii) Corporate Learning Programme for IT companies. Eureka’s Corporate Learning Program served more than 149 tech organisations in Fiscal 2021. The company has collaborated with various leading and premier higher education technology institutions to offer PG Diploma Certificate Short Term Courses. The number of students enrolled with Edureka is more than 17,000+ students. The fee structure varies from Rs 5,000- 275,500.

Financials

The company is a loss-making company with a net debt of Rs 173.15 crore and a Debt/ Equity ratio of 7.62x which is on a very high side. The revenue from operations for 6M of FY22 were Rs 15.46 crore with a negative EBITDA of Rs 15.25 crore. Company reported net loss of Rs 18.27 crore in 6MFY22. Since the company began its operations in December 2020 itself, the company does not have a proven financial track record. Further, considering the operational performance of ^M of FY22, the company has delivered a 80% negative return on its equity.

Strengths

Result oriented method of teaching with 360-degree approach: Veranda has an in-house and outsourced team of Mentors that are continually monitoring the students' progress, identifying their particular needs, and assisting them in achieving their objectives. The company believes that by focusing on a result-oriented manner of teaching, they are able to transfer knowledge to students, assisting them in achieving success in the relevant courses.

Diversified course offerings and delivery channels: Through company’s online, offline hybrid, offline blended, campus in campus & online live instructor led learning model in various languages, Veranda provides a wide range of learning solutions to students and professionals, including competitive exams courses, professional courses, short term upskilling and reskilling courses, and thus company’s services give them a competitive edge over other player who are more course specific.

Extensive experience in the education business and professionally qualified human capital: The company is led by a group of seasoned professionals. Each Subsidiary is led by and staffed by individuals with extensive operational and business experience in the courses offered by the Subsidiaries.

Strong Brand Presence: Veranda has a good presence in competitive exam-oriented courses such as Banking, SPSC, Insurance, RRB, and SSC. The company has entered the market to deliver instructor-led learning in the specialist information technology domain with the acquisition of Edureka.

Risks

Absence of IP Rights: The intellectual property developed by the company has not been registered under the patent or copyright laws of India. The company may not be able to appropriately safeguard their intellectual property rights in the case of a copyright dispute in any of their products or content.

Legal proceedings against the Promoters: The Promoters, Directors, and Group Companies are all involved in ongoing legal disputes. These cases are now pending in various courts at various stages of adjudication.

Risks associated with the Non-Convertible Debenture issue: The Company recently issued 7,378,585 fully paid-up, secured, redeemable, non-convertible debentures with a face value of 100 and a coupon rate of 4% per annum ("NCD") to certain of Edureka's then Shareholders & Promoters. The promoters of Edureka utilised a part of the consideration received from the Company for acquisition of shares of Edureka, towards subscription to NCDs. If the company is unable to meet its payment obligations for the redemption of the NCD and interest thereon, the NCD holder may enforce the pledge on Edureka shares and transfer those shares.

Risk of Cyber-Security breach: The company is bound by data privacy laws, rules, and regulations that govern how they use consumer information. Compliance with these laws, rules, and regulations may limit their business activities, necessitate additional expenses, and compel them to commit significant time to compliance efforts.

Valuations & Conclusion

The company has no listed peers in India and hence a comparison on the valuation is not possible. The Price to Sales (P/S) ratio for the company considering annualised sales for FY22 stood at over 24.5x which seems expensive for a loss-making company with merely 1.5 years of financial history.

The company being relatively young, does not have a proven financial track record and for 6M ended FY22, the financial results are not very impressive. Further, the company is highly leveraged with a pledge on promoter’s shares which increase the risk. Even though the ed-tech space in India is fast growing, the weak financials of the company along a with steep valuation do not provide confidence for investment purpose. Considering the above factors, we advise the investors to ‘AVOID’ subscribing to this IPO for the time being.