From Published Accounts

Ed ucomp Solutions Ltd . (quarter ended 31st December 2015)

From Notes to Consolidated Unaudited Financial Results (extracts)

2. The auditors have qualified their limited review report on the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015, quarter ended September 30, 2015, quarter ended June 30, 2015 and audit report for the year ended March 31, 2015 and limited review report for the quarter ended December 31, 2014 was also qualified in respect of the following matter:

As per the terms of Master Restructuring Agreement and approved Corporate Debt Restructuring Scheme (CDR) of Educomp Infrastructure and School Management Limited (EISML), a subsidiary company, there are certain assets amounting Rs. 32,075.33 lakh (at cost) which have been identified for sale in a time bound manner. The lead bank carried out a valuation of these assets which are indicative in nature. Market valuations have not been carried out by EISML and its step down subsidiaries, as some of these assets are not ready for sale due to pending regulatory approvals/ permissions.

Based on recent firm offers and valuation reports, the Management believes that the market value of these investments is higher than as considered under the indicative valuation reports and differences, if any, are temporary only. Therefore, no adjustment is required to the carrying value of these assets.

3. The auditors have drawn attention in their limited review report on the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015 in respect of the following matters:

a) Due to inadequacy of the profits, managerial remuneration paid/provided, by the Company to one of its whole time director during the quarter ended June 30, 2015 and year ended March 31, 2015 and by one of its subsidiary, Educomp Infrastructure and School Management Limited (EISML) to its wholetime director during the year ended March 31, 2015, is in excess of limits prescribed u/s 197 and section 198 read with Schedule V to the Companies Act, 2013.

Further, due to inadequacy of the profits in the previous financial year, managerial remuneration paid/provided, by the Company to one of its whole time director and by one of its subsidiary EISML to its whole-time director/Managing Directors during financial year ended March 31, 2014, was in excess of limits prescribed under Section 198, Section 269, Section 309 read with Schedule XIII of the Companies Act, 1956.

EISML has submitted an application to the Central Government for waiver/approval of managerial remuneration pertaining to year ended March 31, 2014 and March 31, 2015.

The management of the Company is in the process of making necessary applications to the Central Government to obtain its approval for the waiver/ approval of the remuneration so paid/recorded in year ended March 31, 2014, March 31, 2015 and quarter ended June 30, 2015 in due course.

b) Due to longer than expected gestation period of schools, recoverability of trade receivables amounting Rs.21,255 lakh from Trusts to the subsidiary Company EISML has been slow. The Management of EISML, is regularly monitoring the growth in schools and their future projections, based on which, the Management believes that the trade receivables from the Trusts are fully recoverable.

c) The Group has assessed the business projections of six companies in the Group, namely, Educomp Infrastructure and School Management Limited, Educomp Online Supplemental Service Limited, Educomp Child Care Private Limited, Educomp Professional Education Limited, Vidya Mandir Classes Limited, Educomp Intelliprop Ventures Pte Ltd. (Formerly known as Educomp Intelprop Ventures Pte Ltd.) and its associate Greycells18 Media Limited., for evaluating the recoverability of Group’s share of net assets and has concluded that their businesses are sustainable on a going concern basis. The Company has evaluated the recoverability of its share of net assets held through these Companies, using business valuations performed by independent experts, according to which the decline in the carrying value of net assets is considered to be temporary. The said evaluation is based on the long term business plans of its subsidiaries/associate as on March 31, 2015 and concluded that no adjustments to the carrying value of its share in net assets is required to be recorded in the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015.

d) During earlier years, EISML, a subsidiary of the Company had given capital advances amounting to Rs. 25,329 lakh to various parties for acquisition of fixed assets. The Management of EISML as part of its regular recoverability evaluation process had identified certain portions of capital advances which were doubtful of recovery or did not have recoverable value equivalent to the book value. Accordingly, on a prudent basis, till March 31, 2015 the Management had recorded a total provision of Rs. 20,175.48 lakh in the books of accounts towards such capital advances or portions thereof, which were doubtful of recovery.

The Management is continuously monitoring the settlement of these balances and is regularly following up with respective parties for recovery of the said capital advances. The Management believes that other capital advances, which have not been provided for, although have been long outstanding but are fully recoverable and hence, existing provision recorded in books is sufficient to cover any possible future losses on account of non recovery of such capital advances.

e) The Group’s management has reviewed business plan of its joint venture, Educomp Raffles Higher Education Limited which had advanced loans amounting to Rs. 5,147 lakh to Jai Radha Raman Education Society (Society) and its subsidiary Millennium Infra Developers Limited which had trade receivables of Rs. 6,021 lakh from the same Society under contractual obligations. The Group’s management has also considered the business plan of the Society and estimated market value of its net assets, based on which no adjustment is required in carrying value of its share of net assets in such joint venture. The Group’s holding in the joint venture is 41.82%. The consolidated financial results of Educomp Raffles Higher Education Limited are not available with the Company, hence there is no update available on the above status.

f) The Group had evaluated the recoverability of intangible assets in form of Brand ‘Universal’ in one of its step down subsidiary, by using valuations performed by an independent valuation expert. The said evaluation was based on long term business plans and underlying assumptions used for the purpose of valuation, which in view of the Management were realistic and achievable by the subsidiary. Based on revised business plans which entailed scaling down the operation of ‘Universal’ brand of schools, the management had recorded an impairment of Rs. 4,527 lakh to this asset in the year ended March 31, 2015.

g) Pursuant to implementation of approved CDR scheme, certain lenders have disbursed fresh corporate loans to the Company and corresponding trade receivables were bought from Edu Smart Services Private Limited (ESSPL) together with future business relating to these customers. Due to this restructuring, the remaining receivables in ESSPL may not yield adequate surplus to discharge its liability towards the Company for trade receivables and redemption of Redeemable non-convertible preference shares. However, the approved CDR scheme has mandated merger of ESSPL with the Company and accordingly, the Company has initiated the process and has taken the approval of the Board of Directors in the board meeting held on 13th January 2015. The impact for the amalgamation shall be given/recorded in the books of accounts upon obtaining approvals and implementation of the Scheme.

h) The Company has incurred substantial losses and its net worth has been significantly eroded. Based on Company’s projected cash flows, it shall have sufficient funds to run its operations in foreseeable future. As regards availability of requisite funds to meet its debt related obligations including those falling due in the year 2015-16 as per its CDR package executed with Company’s lenders, the Company intends to monetize its identified investments, receivables and assets to meet the necessary obligations. The Company is also taking several measures to improve operational efficiencies and other avenues of raising funds.

The management is confident that with the above measures and continuous efforts to improve the business, it would be able to generate sustainable cash flow, discharge its short-term and long term liabilities and recover & recoup the erosion in its net worth through profitable operations and continue as a going concern. Accordingly, these consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

i) The Company’s subsidiary, Educomp Infrastructure & School Management Limited has incurred losses and the subsidiary debt related obligation in the form of Funded Interest Term Loan has been converted into 0.1% Cumulative Compulsory Convertible Preference Shares during the earlier quarters. Based on subsidiary company’s projected cash flows, it shall have sufficient funds to run its operations in foreseeable future. As regards availability of requisite funds to meet its debt related obligations including those falling due in the year 2015-16 as per the CDR package executed with subsidiary’s lenders, the subsidiary intends to monetise its assets identified for sale to meet the necessary obligations. The subsidiary is also taking several measures to improve operational efficiencies and other avenues of raising funds.

The management is confident that with the above measures and continuous efforts to improve the business, it would be able to generate sustainable cash flow to discharge its short-term and long term liabilities and recover and recoup the erosion in its net worth through profitable operations and continue as a going concern. Accordingly, these consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

j) The Company’s step down subsidiary, Knowledge Vistas Limited has taken land from Lavasa Corporation Limited on lease vide lease agreement dated June 30, 2009 for a period of 999 years to construct an international residential school. Further, this subsidiary has entered into a sublease agreement with Gyan Kunj Educational Trust (GKET) to sub lease the school building. As per the sub lease agreement, GKET shall be liable to pay lease rental to the subsidiary from the year in which it has cash surplus. GKET has started its operations in the Academic Session 2011-12 but due to certain environmental matters, GKET decided to suspend its operations and is waiting for favourable business opportunities.

On the basis of the valuation reports from an independent valuer, the carrying cost of the said subsidiary’s assets is not less than its net realisable value. Hence, the management doesn’t anticipate any asset impairment. These consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

6. The Group is in the process of determining and identifying significant components of fixed assets as prescribed under Schedule II to the Companies Act 2013 and the resultant impact, if any, will be considered in due course during the financial year 2015-16.

From Auditors’ Limited Review Report (extracts)
4. As per the terms of Master Restructuring Agreement (MRA) dated December 28, 2013 entered into pursuant to approved Corporate Debt Restructuring Scheme to restructure debt of Educomp Infrastructure and School Management Limited (EISML), a subsidiary of the Company, certain tangible fixed assets of EISML and EISML’s subsidiaries have been Identified for sale in a time bound manner. As per the valuation of such tangible fixed assets as evaluated and disclosed in the approved Corporate Debt Restructuring Package, some of these assets are expected to have lower realizable value than their carrying values. Such tangible fixed assets having total carrying value of Rs. 32,075.33 lakh as at December 31, 2015 (as at December 31, 2014 Rs. 32,196.76 lakh) are included in the tangible fixed assets.

The Management has not carried out any evaluation of impairment of these assets at the close of the quarter and no provision for impairment has been recorded, as required by Accounting Standard 28 ‘Impairment of Assets’.

As we are unable to obtain sufficient appropriate audit evidence about the extent of recoverability of carrying value of these assets, we are unable to determine whether any adjustments to these amounts are necessary.

Our audit opinion on the consolidated financial statements for the year ended March 31, 2015 and our limited review reports for the quarters ended September 30, 2015 and December 31, 2014 were also qualified in respect of the aforesaid matter.

5. Based on our review conducted as above, and on consideration of the reports of the other auditors and subject to the possible effects of the matter described in paragraph 4 above, nothing has come to our attention that causes us to believe that the accompanying Statement, prepared in accordance with applicable accounting standards as specified u/s. 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Account) Rules, 2014 and other recognised accounting practices and policies has not disclosed the information required to be disclosed in terms of Regulation 63 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 including the manner in which it is to be disclosed, or that it contains any material misstatement.

6. We draw attention to the following matters in the notes to the Statement:

a) Note 3(a) regarding managerial remuneration paid/ payable to one of the whole time director of the Holding Company for the quarter ended June 30, 2015, year ended March 31, 2015 and year ended March 31, 2014 and whole time director of one of its subsidiary Company, Educomp Infrastructure and School Management Limited during the year ended March 31, 2015 and the year ended March 31, 2014, in non-compliance with the requirements of section 197 and section 198 read with schedule V to the Companies Act, 2013 and section 198, section 269 and section 309 read with Schedule XIII to the Companies Act, 1956 respectively, for which the Central Government’s approval has not been obtained.

b) Note 3(b) wherein a subsidiary company, Educomp Infrastructure and School Management Limited has considered its long outstanding Trade Receivables due from certain Trusts which are due for more than one year, as good and fully recoverable.

c) Note 3(c) with respect to Management’s assessment of recoverability of Group’s share of net assets as regards investment in six companies of the Group, namely, Educomp Infrastructure and School Management Limited, Educomp Online Supplemental Service Limited, Educomp Child Care Private Limited, Educomp Professional Education Limited, Vidya Mandir Classes Limited, Educomp Intelliprop Ventures Pte. Ltd.(formerly known as Educomp Intelprop Ventures Pte. Ltd.) and its associate, Greycells18 Media Limited.

d) Note 3(d) which explains Management’s view on recoverability of certain significant amount of capital advances given by the Group and which have been outstanding for a long period of time.

e) Note 3(e) which explains Management’s view on recoverability of certain loans advanced to Jai Radha Raman Education Society (the society) by Educomp Raffles Higher Education Limited, a joint venture (JV), and trade receivables due to JV’s subsidiary Millennium Infra Developers Limited from the society under contractual obligations.

f) Note 3(f) with respect to Management’s assessment, based on valuation performed by an independent expert, of recoverability of intangible assets in the form of brand ‘Universal’ in one of its step down subsidiary named, Educomp APAC Services Limited. The recoverability of the intangible assets is significantly dependent on the step down subsidiary’s ability to achieve long term futuristic growth plan envisaged in the related assumptions used for the purpose of valuation.

g) Note 3(g) wherein the Holding Company has not considered impairment/diminution of trade receivables from/investment in Edu Smart Services Private Limited (ESSPL) in the intervening period, in view of proposed merger of ESSPL with the Holding Company.

h) Note 3(h) in respect of the Holding Company, in the opinion of the management, despite incurring net losses, including during the quarter ended December 31, 2015 and erosion of net worth as at December 31, 2015, the unaudited consolidated financial results have been prepared on a going concern basis in view of matters more fully explained in the said note.

i) Note 3(i) in respect of one of the Holding Company’s subsidiary, Educomp Infrastructure & School Management Limited, in the opinion of the management, despite incurring losses, including during the quarter ended December 31, 2015 and erosion of net worth as at December 31, 2015, the unaudited consolidated financial results have been prepared on a going concern basis in view of matters more fully explained in the said note.

j) Note 3(j) in respect of one of Holding Company’s step down subsidiary, Knowledge Vistas Limited, which indicates that the company has suspended its operation and is waiting for favourable business opportunities. Despite existence of these conditions, along with other matters more fully explained in the said note, the unaudited consolidated financial results have been prepared on going concern basis.

Our report is not modified in respect of these matters