DSP Merrill Lynch has raised their FY08 and FY09 EPS earnings estimates by 4% and 8% post strong Q4 and almost 90% jump in order book in Q4. DSP ML is bullish on  and has recommended buy rating on the stock with a target of Rs 1600.

DSP Merrill Lynch report on Educomp Solutions:

Raising Estimates & PO

We raise our FY08 and FY09 EPS earnings estimates by 4% and 8% post strong 4Q and almost 90% jump in order book in 4Q. We raise our PO to Rs1600 (from Rs1270) on our higher estimates and increased FY09E PE target of 25x (vs 22x earlier) given strong EPS CAGR of 96% (FY07-09E) and potential upside from the recently launched consultancy product for schools, pre school initiative and online/ offline tutoring.

Leader in nascent, but highly scaleable education industry

We believe Educomp is at an inflexion point where it is seeing accelerating acceptance of its product, as reflected in its Smart_Class order flows and accelerated sign ups in government schools. It now intends to leverage its IP to be a mainstream player in the Kindergarten to class 12 segments through its pre school initiative, online content and school management systems.

Strong 4Q results; impressive outlook in ICT

4Q revenue and profit grew 97% yoy, beating MLe by 18% driven by out performance in its Smart_Class segment. While government school signups in 4Q (~1200) surpassed our expectations, management guidance of additional 4000 schools in FY08 is higher than our expectations of 2600 schools.

Retain Buy on secular growth story; Q1 seasonally weak.

We believe Educomp is a play on growing adoption of computer aided learning solution by schools in India. It is a leader and pioneer in this nascent and highly scaleable sector. It also stands out amongst our coverage as being insulated from the US macro and Rupee appreciation risks. However, we note that Q1 is a seasonally weak quarter and school sign ups are likely to be low.