History repeating itself? Learn from SSI’s experience the risk of investing in ventures of `vacillating’ promoters!

 

VERANDA LEARNING OFFER AT A GLANCE
Offer Type	Book Built
Platform	Main Frame
Fresh Issue	Rs 200 Cr (1,45,98,540 equity shares)
Offer for Sale	Nil
Face Value	Rs 10
Price Band	Rs 130–137
Mkt/Bid Lot	100 Nos.
Implied M-Cap	Rs 764 Cr
Implied Equity Cap	Rs 55.77 Cr
Free Float	34.13%
Lead Manager	Systematix Corporate
Registrar	KFin Technologies
Listing At	BSE, NSE

 

INDICATIVE ISSUE SCHEDULE
Opening          : 29-Mar-2022	Closing       : 31-Mar-2022
Allotment        : 5-Apr-2022	Refunding  : 6-Apr-2022
Demat Credit : 6-Apr-2022	Trading       : 7-Apr-2022

 

The Offer

The Chennai-based Veranda Learning Solutions Ltd (VLSL) was incorporated in November 2018 and commenced operations in December2020. The company is yet to post a credible performance but that does not avert the company from going public with a hefty premium issue of Rs 200 Cr. The offer is being made through the book-building route with a price band of Rs 130-137 for Rs 10 paid-up share.

Applicants should bid for a minimum lot of 100 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on April 7, 2022. Systematix Corporate, who was penalized by SEBI not very long ago for violation of listing agreement,  has been roped in as manager to VLSL’s offer and Scam-tainted Karvy’s new avatar KFin Technologies has been appointed as registrar to the issue. The bidding opens on Tuesday, March 29 and closes on Thursday, March 31, 2022.

Of the issue proceeds (Rs 200 Cr), the company proposes to utilize Rs 60 Cr for re-payment of loans, Rs 25.19 Cr for payment of acquisition consideration of Edureka, a subsidiary of the company, Rs 50 Cr for growth initiatives of the VLSL. The balance amount net of issue expenditure is earmarked for general corporate purposes.

 

Lineage

The Red Herring Prospectus (RHP) of VLSL claims that the company’s promoters have a collective experience of over 40 years in the education sector. In fact, the promoters Kalpathi Aghoram (62) and his younger siblings Kalpathi Ganesh (59) and Kalpathi Suresh (57) are not new to the investing public.  Kalpathi brothers started their entrepreneurial journey during the Harshad Mehta scam-boom in 1991 and established SSI (Software Solutions Integrated) for providing software education and IT training in emerging software technologies. SSI Ltd tapped the Indian capital market during the unprecedented primary market boom in 1994. SSI had reportedly established 500 education centers by July 2000, training students in short term computer software courses with a franchise network rolled out across India.

The going was good until 2001. In April 2003, the promoters hived off its education division and merged it with Aptech Ltd which is now under the control of Rakesh Jhunjhunwala. Same year, the promoters also embarked into the entertainment industry by founding a production house in AGS Entertainment Private Ltd. Subsequently, they ventured into film exhibition too and established AGS Cinemas Private Ltd.  Meanwhile in July 2004, SSI’s IT services division was demerged and merged with Scandent Solutions Corporation Ltd.

Under the guidance of the same promoters, SSI also positioned itself as a company engaged in the business of hospitality and property development. The promoters founded a NBFC in the year 2007 under the name of Kalpathi Investments (P) Ltd which invested in various ventures. After the amalgamation of PVP Venture (P) Ltd with SSI, the latter was named as PVP Ventures Ltd. The promoters claim to have no rights over PVP Ventures since 2008. The new `avathaar’ of SSI is currently in the dumps, accumulated deficit exceeding Rs 1,130 Cr. The stock is currently languishing less than a half of its paid up value.

Not only once-a-blue-chip SSI was squandered by the Kalpathis, they also allowed Kalpathi Power and Light (P) Ltd, Bay Leaf Ports (P) Ltd, AGS Hotels & Resorts (P) Ltd, Kalpathi Housing and Development Finance Ltd and AGS Globosports (P) Ltd to be struck off in recent years.

Coming to VLSL, the company was incorporated as Andromeda Edutech (P) Ltd and the original subscribers to the Memorandum of Association were Aditi Dairy and Agro Farms (P) Ltd and Grasslands Agro (P) Ltd, each subscribing to and holding 500 Equity Shares of Rs 10 each. In February 2019 Aggrence Education Management (P) Ltd acquired the 500 shares held by Grasslands Agro and 490 shares held by Aditi Dairy. The remaining 10 shares held by Aditi Dairy were acquired by R. Rangarajan on behalf of Aggrence Education Management. In September 2020, the so called present promoters (Kalpathi brothers) acquired the entire subscribed capital of 1000 shares of Rs 10 each and the name of the company was changed to Veranda Learning Solutions.

In November 2020 VLSL acquired content, brand and education materials from Chennai Race Coaching Institute (P) Ltd through a wholly-owned subsidiary Veranda Race Learning Solutions (P) Ltd. Simultaneously the company launched a mobile app in the name for Veranda Learning comprising integrated courses offered exclusively for its students. In December 2020 the company digitized and launched the content acquired from Chennai Race Coaching Institute through Veranda Race. In March 2021 VLSL engaged SAI IAS Academy to provide content for its subsidiary Veranda IAS Learning Solutions (P) Ltd. In July 2021 the company commercially launched its CA course offered by Veranda CA. In August 2021 the company commercially launched its UPSC course offered by Veranda IAS. In September 2021 VLSL acquired 100% shareholding of Brain4ce Education Solutions (P) Ltd.

 

Key Management

Like their previous public venture, SSI, the youngest sibling Kalpathi Suresh is designated Chairman-cum-Executive Director of VLSL. The eldest brother, Kalpathi Aghoram who was the Finance Director in SSI, is a Non-Executive Director cum Vice-Chairman in VLSL. SSI’s Managing Director, Kalpathi Ganesh, is just a Non-Executive Director in VLSL. Daughter of Kalpathi Aghoram, Kalpathi Archana, is also designated as Non-Executive Director

 

Stakeholders

Of the pre-IPO capital of Rs 41.18 Cr, the three promoters hold nearly 88%. Post-public offer, the core promoters would hold 64.72% at an average cost of Rs 11 per share. As per the Share cum Warrant Subscription Agreement dated September 20, 2021, Bennett, Coleman and Company Ltd (BCCL) – owners of The Times of India, subscribed to 10 equity shares of Rs 10 each of VLSL at Rs 28 a share and 6 warrants of Rs 32,50,000 each aggregating to Rs 1.95 Cr. Strangely, on January 17, 2022, BCCL exercised its option and converted only 2 warrants out of the 6 and the balance four warrants were cancelled. BCCL got 5,00,000 shares at a price of Rs 130 per share through the conversion. IPO investors would hold 26.17% (145.98 lakh shares) at Rs 137 a share (cap price).

 

Business Track

VLSL is engaged in the business of offering diversified and integrated learning solutions in online, offline hybrid and offline blended formats to students, aspirants, and graduates,  professionals and corporate employees enrolled for career-defining competitive exams, professional courses, exam-oriented courses, short term upskilling and reskilling courses.

The company reportedly provides comprehensive long term and short term preparatory courses for Students preparing for UPSC Exams, State Public Service Commission, Staff Selection Commission, Banking, Insurance, Railways and Chartered Accountancy. It also offers customised short term skilling courses, long term courses and other corporate courses. The company delivers these courses to employees of corporates through its B2B offerings.

VLSL offers its services through four Wholly-Owned Subsidiaries namely, Veranda Race Learning Solutions P Ltd (Veranda Race), Veranda XL Learning Solutions P Ltd (Veranda CA), Veranda IAS Learning Solutions P Ltd (Veranda IAS) and Brain4ce Education Solutions P Ltd (Edureka).

During the nine month period ended December 2021, a total of 42,667 students and professionals had enrolled across all the courses, 16,793 being offline and 25,874 online.

At the end of December 2021, the company had overall employed 8 student advisors, 166 mentors, and operated 25 Preferred Delivery Centers (across 25 cities and towns and 2 states.

 

Financial Track

Though asking for an IPO premium of more than Rs 185 Cr, VLSL has no credible performance to speak about.  The company started operations in December 2020 for fiscal 2021 it generated total revenue of only Rs 2.54 Cr on which it incurred a loss of Rs 8.28 Cr. In FY22-Q1 it posted Rs 4.87 Cr revenue which resulted a loss of Rs 5.14 Cr. During the first half of FY22 on Rs 15.46 Cr revenue loss has mounted up to Rs 18.27 Cr. For a company which is aiming a net worth of more than Rs 600 Cr post public offer, the operational performance is too low to service the capital.

 

Veranda Learning Consolidated Financials (in Cr)
Period Ended	Sep-21	Jun-21	Mar-21	Mar-20
Months	6	3	12	12
Revenue	15.46	4.87	2.54	0
Operating Profit	-15.25	-4.57	-7.63	-0.2
OPM%	-98.6	-94	-300.5	0
Other Income	0.2	0	0.01	0
EBIDTA	-15.05	-4.57	-7.63	-0.2
EBIDTA %	-96.1	-93.9	-299.7	0
Interest	1.37	0.03	0.03	0
Depreciation	2.06	0.55	0.63	0
Net Profit	-18.27	-5.14	-8.28	-0.2
Accumulated Loss	26.84	13.71	8.57	0.29
Equity (Implied)	55.78	55.78	55.78	0.001
Reserves (Implied)	626.61	626.61	626.61	0
Borrowings	165.2	10.85	6.16	0.12
Fixed Assets	91.80	5.90	5.90	0

 

Valuation

Presently loss-making VLSL has kept a price band of Rs 130-137 for Rs 10 paid-up share whereas the cost of holding for the promoters works out to only Rs 11 a share. To justify the price they say that the promoters had a proven track record and the company has a track record of successful acquisition and expansion. Nevertheless, if the asset stripping from SSI Ltd before the promoters quit that company in 2008 is any indication one cannot rate the promoters high. Also, in this country, promoters associated with the film industry have a poor record of rewarding the investing public on a consistent basis.

 

Concern

• The intellectual property developed by VLSL has not been registered under the patent or copyright laws of India.
• A significant portion of the operating revenue is derived from exam oriented courses which depend substantially on the Mentors and the company’s ability to attract and retain them.
• Also, the business of providing exam oriented courses in an extremely competitive market has low barriers of entry and new competitors may easily enter and compete in this market.