PICK OF THE WEEK:

Aptech Ltd

CMP: Rs.153.85 (and also reco at Rs.142-143)

EPS: Rs.18.24

P/E: 8.43

Industry P/E: 22.89

Market Cap: Rs.716.18

52-week High/Low: Rs.296/Rs.115.15

All Time High– 449.70

All Time Low – 23.00

Equity Capital: Rs.46.54 Cr

Introduction: Aptech Ltd is a global learning solutions company that provides education and training serv

ices to retail and non-retail customers across the world. The company is playing a key role in helping individuals, organizations and nations adapt to changing requirements of a knowledge-driven world. The company headquartered in Mumbai, India, has a network of over 1000 centres spread across 5 continents in 40+ countries. The company commenced its IT training business in 1986. Over the years, Aptech Limited has trained over 5 million students.

Aptech prepares students for global careers in IT, multimedia & animation, hardware & networking, aviation, hospitality and travel & tourism. Corporate solutions include corporate training, assessment solutions for corporates & universities/ academic institutions and custom content development for overseas & domestic customers.

In 1993, Aptech Ltd became the first IT training organization in Asia to receive the ISO 9001 quality certification for ‘Education Support Services’.

Shareholding Pattern: The promoters hold 37.52% while the general public holds 62.45%. Among the general category, FIIs hold 14.08%, while DIIs hold 0.13%. Moreover, non-institutions hold 48.24%, while corporate bodies hold 13.66% of the shares of the company.

Shareholding belonging to the category "Public" and holding more than 1% of the Total No.of Shares
Sl. No.	Name of the Shareholder	No. of Shares	Shares as % of Total No. of Shares
1	Daivi Ventures	975,000	2.09
2	Macquarie Bank Ltd	1,839,820	3.95
3	Alok Agarwal	1,129,600	2.43
4	Neeraj Batra	599,128	1.29
5	Morgan Stanley Mauritius Company Ltd	1,310,900	2.82
6	Morgan Stanley Mauritius Company Ltd	968,900	2.08
	Total	6,823,348	14.66

BUSINESS SEGMENTS:

Retail Businesses:

(i) Aptech Computer Education - IT training & education

Aptech Computer Education is the 22-year-old IT training brand of Aptech Limited. It is a provider of quality IT education to engineers, engineering students & 12th pass students and working people.

(ii) Arena Animation - Animation & multimedia training (Maya-acquisition)

Arena Animation is India’s leader in animation & multimedia education with the widest network of centres across the country.

Arena offers basic & advanced courses in animation for those who have completed 10+2/ Class-XII. The Professional Certificate in Web Designing (PCWD) is a one-year course that opens career options in graphics & web designing.

(iii) Avalon Academy - Aviation, Hospitality & Tourism education

Avalon Academy is the Aviation, Hospitality and Travel & Tourism education brand of Aptech Limited.

(iv) N-Power - Hardware & networking

N-Power offers courses in Hardware & Networking created by top global leaders like Microsoft, Cisco & Red Hat. Besides, N-Power also has an alliance with CompTIA, the leading industry association.

(v) English Express - English language training - Cambridge Curriculum

English Express is the English learning academy of Aptech Limited. In 2009, First English Education Institutes Limited was taken over by Aptech. English Express has centres across Bangalore & is looking to further expand its footprint in the near future.

Corporate Businesses:

(i) Aptech Training Solutions - Corporate training & training outsourcing

Aptech Training Solutions addresses training needs of organizations. Its forte is end-to-end training for businesses in competitive industries, which need to get the best out of their large workforce. Its offerings include customer interface skills, product/ process training, managerial development training & other soft skills, e.g. sales training, communication skills, customer sensitivity. Current customers include leading corporates in the automotive, retail, telecom, hospitality, BFSI, government & academic sectors.

(ii) Attest - Assessment solutions for universities & corporates

Attest is the assessment solutions arm of Aptech Limited. Attest conducts proctored (invigilated), online & paper-pencil testing for universities & corporates. These tests could be entrance exams or semester-end tests for distance learning & regular universities or for recruitment or promotion in corporates. Tests are delivered through a network of testing centres in India & abroad. Examinations under video surveillance, mobile testing centres, backup power & backup Internet connectivity are offered.

(iii) Learning Services - Customised content development

Aptech Learning Services is the offshore content development arm of Aptech Limited. Aptech Learning Services develops custom content for corporate training programs worldwide.

Triggers:

· The business model is based on franchisee. More than 90% of the centers are operating in Franchisee style –providing education as services. Aptech Ltd provides the content, material, processes, exams, placements, corporate level marketing, etc. Franchisee has to pay one time enrolment/registration fee/Setup fee in the range of 2-25lakhs. Subsequently, he has to pay royalty, which is approximately 20-25% of the fee collection from students. The revenues also stream in form of Examination fees, Material cost, Placement fees, etc.

· The company is not interested in the domestic PPP projects of education as the attempts in this area have not been fruitful. Aptech Ltd would participate only to the extent of training, incase it were to participate in the domestic educational projects initiated by the governments.

· Typically, April- September is a good period for the company, as far as revenue streams are concerned and hence the recommended to buy the scrip at this time.

· The company has a stake of approximately 22.5% in China JV. There was a restructuring of the JV, after which the company is now holding the above mentioned stake in the parent company of the JV partner.

· The company is targeting a CAGR of 30% over 3years, EBITDA of ~45%, and PAT to improve proportionately.

· The company expects, the loss making subsidiaries to turn around in this calendar year. The company has started hedging its risk of foreign currency fluctuations relating to receivables of highly probable forecast transactions pertaining to franchise income by entering into Exchange Traded Futures (ETF's). On squaring off the complete position of such ETF as on 31st March, 2010, profit of Rs.1, 021,722 for the period ended 31st March 2010 was obtained.

· The company will invest in existing businesses, launch new retail brands, expand international business, defocus from government business, and divest high end corporate IT training business. The company hopes that there is immense potential for profitable growth through newer brands, domestic scaling and international expansion.

· It is now the largest Animation education player in Asia. It has started international expansion of MAAC.

· It has top-up arrangement with universities. It has leadership or number one position in China, Vietnam, Russia and Nigeria. It has translated contents in Portuguese and Russia. Moreover it is present in all but two BRIC & N-11 emerging economies.

· It is the only Indian educational company with multiple vocational brands and 1000 franchisee centres.

· It is a focused player with strong pedigree in high growth sector. It has unmatched global reach and has the capacity to penetrate new and emerging markets. It has presence across multiple industry sectors and has de-risked, predictable, leveraged and asset-light business model.

· It has restructured the operations in China, in March, 2009. It has 31% market share in China, with more than 500 educational institutions subscribing to IT education content. In the franchises model it has over 27 centres in 23 provinces.

Revenue pie breakup: (i) Aptech Computer Education – 35%; Arena – 34% (next thrust of growth is expected to come from Arena which would be at least equal to ACE if not more in terms of share in revenue pie), (ii) India – 73%; Rest – 27%.

· Maya Acquisition: Aptech Ltd acquired the education business of the film and animation studio company, Maya Entertainment for Rs.76 Cr. The IT education services firm Aptech paid by cash Rs.17.5 Cr and 2.2 million equity shares to shareholders of Maya Entertainment, besides undertaking a debt of Rs.11.5 Cr. The company had presence in two areas, studio and education. Its studio business has a production studio for animation, visual effects and gaming content while in the education sector it is involved in training in animation and visual effects in India and abroad. It runs under the name Maya Academy of Advanced Cinematics (MAAC) in the education sector. Aptech acquired only the animation education business. MAAC has got approximately 70 centres across India. Arena has close to 150 centres. MAAC a profitable business. With this acquisition, Aptech has moved further in its strategy of becoming a global education powerhouse. MAAC, with its team of committed employees and franchisees, is a strong brand in the animation education space. The company intends to further strengthen the brand and its centres. It is also a clear reflection of its strong belief in the bright future of the animation industry in India and abroad. Through this integration, MAAC & Aptech will be able to harness all the benefits of a large company in a growing market and keep competition at bay. Through this, both the brands are expected to capitalize on each other’s strengths - particularly in the area of branding and product development. The company is confident that this deal will enable both the brands to reach greater heights.

Chart-check and conclusion: From the daily charts it has been found that the scrip has formed a beautiful pattern, and have formed a strong bottom around Rs.135. The stock has currently given out a break-out and if the market remains buoyant, the next short term target could be Rs.175-180. In the medium term the scrip could touch Rs.224-240.

However, the stock is slightly in the overbought zone and Bollinger bands are not giving clear buy signal at this moment for the short term play. The medium and long term investors can buy the scrip for good appreciation in the next 12-18 months time frame--having said that, some short term movements, depending on the movements of indices, cannot be ruled out. At the current price of Rs.153.85, the scrip looks cheap considering the future prospects of the company. If the scrip gets a modest P/E of around 15, considering the Industry P/E as 22.89, then it could easily touch Rs.270-273. If you are playing for the short term please keep a stop loss of Rs.142.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.

Note: The scrip was recommended to the Paid Groups on 19th July, 2010, in the Sunday Report sent to the Paid Groups at Rs.153.85. The scrip was again recommended when it fell to Rs.142-143, some days later. The stock gave good returns to the Paid Members.