Follow
FEATURES/Real Issue | Apr 8, 2013 | 63823 views

The Rise and Fall of Educomp

His company Educomp set out to prove that there was money in school education. But in the last five years, he's burnt his fingers badly
The Rise and Fall of Educomp
Image: Amit Verma
Surely there are some lessons that Educomp and its founder Shantanu Prakash have learnt during the rollercoaster ride of the last five years?

A

nkur Rudra, a stock analyst at Ambit Capital, knows how to call it like it is. In January 2011, the then 29-year-old stuck his neck out by putting a ‘sell’ rating on Infosys, a company that had been the blue-eyed baby of the Indian stock market for nearly two decades.

It would take nearly a year-and-a-half for the rest of the analyst and investor community to come round to Rudra’s point of view, that Infosys was being valued too highly in the context of its growth potential. Of course, by then its stock had shed nearly a third of its value, so everyone had the benefit of hindsight as well.

In February last year, Rudra stopped tracking Educomp Solutions, the largest education services firm in the country. “I’d been pessimistic about the company since 2009, but by 2012 there just wasn’t enough trading in the stock for it to be of commercial interest to any stock broking firm,” says Rudra.

Sangeeta Gulati too had been bearish on the stock. Of the 35 transactions she undertook in Educomp between 2007 and 2012, nearly two-thirds were sales, and in almost all cases undertaken within a fortnight of acquiring the shares.


But Gulati wasn’t a star fund manager. She was the chief financial officer (CFO) of Educomp. Most of the stock she sold was allotted to her through Educomp’s ESOP (employee stock ownership plan). In April 2012, Gulati resigned, a week after making her two final share sales.

Related stories


Today, Gulati’s pessimism on Educomp’s stock makes perfect sense. For a company that almost single-handedly created the hype around money-making opportunities in school education, its stock is down 67 percent over the previous year; 84 percent over two years; 91 percent over three years. Its market capitalisation has fallen from Rs 7,000 crore in November 2009 when Forbes India did a profile on the company to just Rs 771 crore as of March 23.

Things have been bleak internally as well during the last two years, with even employee salaries being held up at both Educomp and IndiaCan, its joint venture with Pearson Plc.

Of the $150 million in new funding it raised in July 2012 from three foreign investors, two-thirds would go to pay back a five-year-old foreign currency loan it couldn’t repay on its own, given the debt and liabilities on its stressed balance sheet.

Surely there are some lessons that Educomp and its founder Shantanu Prakash have learnt during the rollercoaster ride of the last five years?

“It is not right to say that anything went wrong with Educomp,” Prakash avers. “From 2006 when we went public to 2012, our revenue has grown from Rs 51 crore to Rs 1,500 crore; profits from around Rs 6 crore to Rs 180 crore; school customers from 75 to 15,000. Plus we have 250 preschools, 47 schools with 22,000 students and 350 vocational training centres. This is ‘Wow!’ This is fantastic growth! How companies fare in the capital markets doesn’t tell the full story of how they’re doing in terms of their social impact.”

mg_69559_educomp_280x210.jpg

What Prakash doesn’t talk about is that Educomp’s net profit margin has fallen 61 percent during the last four years; the net cash generated by its operations has been falling significantly for the last three years; the time taken to collect its money from customers almost doubled in the last four years; and most importantly, its overall liabilities in 2012 were over twice its revenues.

Prakash is also cool about some high-profile exits from his company.

Four months after CFO Gulati’s resignation in 2012, Mohit Maheshwari, Educomp’s company secretary and the person who led its compliance and corporate governance functions, resigned too.

Meanwhile, that very year, four consecutive company secretaries would resign in Edusmart, a three-year-old company whose sole purpose was to convert nearly two-thirds of Educomp’s annuity revenue from schools into large chunks of discounted loans from banks.

An uninformed, lay investor would think there was a pattern. “There is no pattern and no inference from these resignations. They are 500 percent irrelevant. Edusmart is a really small company and Educomp has had several management changes over the years,” Prakash says.

A good place to see how the Educomp story developed chinks would be at the Sanskaar School in Hubli, Karnataka.

EDUCATION’S SUB-PRIME CRISIS
Flanked by acres of red earth-topped bare fields and demarcated plots on all four sides, the six-year-old Sanskaar English Medium School sits a few hundred metres off the Gulbarga-Bijapur highway in Hubli.

The 19 classrooms from Montessori to Class 10 brim with the chatter of nearly 800 students. Each of the classrooms is fitted with an interactive digital ‘board’ that teachers use to mix multimedia content with their regular teaching.

In early 2011, Educomp inked a deal with Sanskaar to equip all its classrooms with its Smart Class range of digital classroom aids that allowed teachers to use interactive multimedia content to supplement the standard textbook-and-blackboard approach. Instead of paying roughly Rs 37 lakh to Educomp for the hardware and content, the school would pay it a monthly fee per class over a contract period of five years. In turn, the school would pass on the cost as a monthly fee increase of Rs 150 to Rs 200 per student.

Given India’s population, paucity of good schools and love for all things technology-enabled, the potential market for such a service was seen as a few hundred thousand schools. Smart Class itself grew like weed, from less than 100 schools in 2006 to over 6,550 schools by 2011.

Next Article in Real Issue
Like this article? Subscribe to Forbes India
Just give us your mobile number and we will get in touch with you
Post Your Comment
Name
Required
Email Address
Required, will not be published
Comment
All comments are moderated
 
Comments (30)
Bhagavatheeswaran Sep 6, 2014
Just now, I sent a query without my mobile no. My mobile no. is 09819547740. Thanks.

Bhagavatheeswaran
Bhagavatheeswaran Sep 6, 2014
In good faith, I bought 300 shares of Educomp 2 years back @ Rs.152/-. The Current Market Price is about Rs.33/-. The total notional damage is Rs.35,000/-, too high a loss to book for a senior citizen (I am now 76 years old) like me, without considering the inflationary aspect. My DP suggests to accept the reality and exit.
Please advise me. Thanks.

Bhagavatheeswaran
Abhinav Bansod Dec 26, 2013
Educomp is a big time blunder, trust me I have experienced it personally, it has the most worst and unprofessional management who I don't know how but managing schools and they are more than worst when it comes to payments no matter how good you are in giving them services they wont pay you single penny unless you beg them not less than a beggar. even municipality schools are better than educomp Schools. It is nothing but simply a show-off to the students and there parents.
Abhinav Bansod Dec 26, 2013
Educomp is a big time blunder, trust me I have experienced it personally, it has the most worst and unprofessional management who I don't know how but managing schools and they are more than worst when it comes to payments no matter how good you are in giving them services they wont pay you single penny unless you beg them not less than a beggar. even municipality schools are better than educomp Schools. It is nothing but simply a show-off to the students and there parents.
Ramesh Shah May 21, 2013
Had read a report by Anavaran Investment in mid 2011 highlighting bearish points on Educomp with following rationale which have been found to be true now.


Operating margin of more than 50% looks supernormal and will be surely come down to around 30% in coming 4-6 quarters. We can see signs of business being commoditised which will pressurize margins.

More so with relatively low investment and technology barrier that the business model entails making it easy to replicate for others.

A single digit PE might have lured but with anticipated decline in margins, price to sales of 3 looks bit expensive.

A major chunk comes from products sold to school.This is a segment most likely to fall prey to lower prices. The company's business from higher level education centres is on declined

Debt is on rise.

Big gap between cashflow from operations and net income hints for problems with credit cycle, or worse accounting manipulation.

Not happy with Management quality, have done some preliminary reading on them . Its pure luck that they are in business. Left to themselves, Shantanu Prakash would most probably be in Event Management.

Perhaps not a big issue but the president sold all his shares on 22 July. Not a morale bosster for investors.
Vishal May 14, 2013
Finally Educomp is going to cutoff the employee that is clear from the manager side that they got the mail from HO and as per the mail that inform the employee about to search the new jobs because after one month company will not pay and fire the employee it clearly means that resign from the job for employee....very bad
Response to Vishal:
Raj May 16, 2013
Educomp will not provide any SCC to any new school with reference to new Decision of Borad and old SCC will be remove very soon...
Krishna May 13, 2013
Educom is a disaster., Look at Greatlakes , a business school, it acquired paying fancy price. They scaled up the school throughput without , teaching infrastructure, and necessary approvals from AICTE.
They had approval for 180 students, but took on board over 360 students. There was visible tension with students, and at the end of the year over 70 students were not placed.

Bad word spreads faster, and the input of students this year is less than 360. Dr. Bala Balachandran who was the original promoter has moved away from active involvement.

The branch-co-branded school they opened in Gurgan , near Delhi is a bigger disaster.

More than anything else, complete disregard for the AICTE approvals , and admitting double the number of permitted students , speaks volumes about the absence of corporate governance.

When the regulator (IF AND WHEN) wakes up the school will be in for a large surprise, or will end up like the Everron story of dealing with the IT dept.
Nagrik Apr 19, 2013
Educomp was seriously overvalued, it is true. But to do it is considered an art now-a-days. We also heard there were income tax raids on educomp last year. Nothing about that nor the outcomes was mentioned in the article. Why arnt more details about employee exits mentioned? Exodus of employees is one of the key idicators of bad management and what is going on inside. Journalists should cover this part in detail.
I dont consider Educomp to be a clean company however i also dont consider Forbes to be doing good clean journalism. The taste and the heading of this article were biased.
Similarly Forbes wrote about top influencers in Education a few months back and portrayed Suneet Tuli of Datawind as a messiah with a great vision in Education.Again Datawind had an exodus of employees, it couldnt meet govt deadlines for 2 years continously, the consumer forum cried out loud about substandard products of Datawind but the journalist just ignored all of that. Is Forbes and its journalists a brand image creating/breaking company?
Where is real journalism heading towards?
Damini Bansal Apr 16, 2013
Gone are those days when journalism was about balanced, well researched articles. The 21st century it seems is about raking in the moolah with as much sensationalism as possible. I was reading an article few days back where the International Finance Corporation had put its weight behind the future of the company in question, based on certain facts of course. And here, this is an article that seems prejudiced towards making a claim that is purely sensational in nature, and not based on facts . And with Mohandas Pai of all people, who incidentally happens to be the director of a rival firm, jumping in to score brownie points, the credibility of what we read and trust is just thrown out of the window.
Priyanka Tomer Apr 15, 2013
Gulati's portrayal as some sort of pseudo-Nostradamus predicting the company's doom seems nothing more than sensationalism. I highly doubt the impartiality of this write-up. The only place where it sounded credible is where the writer harps on the feeble performance of a small part of the company.

This piece could have been better researched and impartially written!
Gitanjali Apr 12, 2013
Its not abnormal to go through periods of rise and fall and Educomp is no exception. But it seems the author has gotten all pumped up in his educomp-bashing exercise! It almost seems there is bias against Educomp in this article.
Response to Gitanjali:
Krishna May 13, 2013
It is not Educom bashing.
Please visit Greatlakes, and you will realise that the school in 2012-13 had taken in 360 students as against approved 180. , and collected 15 lacs from each. Outg of this 70 remain unemployed on the date of the convocation.
Where is the moral standard of the promoters.
Such institutions should be banned immediately.

AICTE , like the railway board is part of the story.
Sharat Kumar Apr 12, 2013
Its really sad to see such an Institution going down the drain so fast. As an individual and as a parent with interest in the education sector, what I knew was that Govt of India is quite serious and keen to support this sector. I only hope that Educomp gets back it lost glory and serves the Country as it used to.
Raja T Apr 11, 2013
Management promotors are not trust worthy says ex Global Scholors CEO to me personally ,who sold for 140 million USD,what else we need .
Hardeep Apr 9, 2013
I wish the company should come on track with new ideas
Dr. Sriraghavan S M Apr 9, 2013
Any technology is redundant in 6 months. that is the reason why the technology developers sustain their business and innovate continuously. I wonder how educomp or tata or HP or any other company is missing to see this point.
Children get bored of things too soon. so basing a business on quick boredom is the biggest risk any of these guys are taking by investing on the tech. All said and done, technology is actually not the way..... wake up people, good and prompt service always stands long.
Devashish Pandey Apr 9, 2013
There is still a huge untapped market for Education in India - at the bottom of the pyramid. Rural and under-priviledged population would benefit edu-tech companies a lot more even with basic technology and software investments. Providing jazzy boards and graphics to the gang already equipped with iPads and likes is akin to feeding a stomach that's already bloated. Educomp's core competency is 'enabling', they got it all wrong the moment they decided to get into 'funding'.
Suvarna S Apr 8, 2013
We use SMART Class's every day in our class's,being into service industry and Children Education - Companies cannot do this....becouse the final suffering is to our chidren
Sankaran Apr 8, 2013
One company who got away smartly out of this over valuation for education business is Tutor Vista. Pearson will have hard time explaining the acquisition of Tutur Vista for Rs.500 crores.
Udhay Apr 8, 2013
hi , i feel very sorry to read this article...,

what is the furture of this product and moreover the fate of the employees and the schools who are the customers with educomp>>

will they get support from the company further???

udhay.C.
N.balasubramanyan Apr 8, 2013
I feel it's disaster to see the economic condition of the Educomp.I am really worried about children
Response to N.balasubramanyan:
Naveen Nam Apr 8, 2013
No worries, TATA has a good solution called CLASS EDGE compared with the competitors in the industry. The major focus will be on critical thinking and creative thinking
Response to Naveen Nam:
Dhruva Nikam Apr 10, 2013
Tata Class Edge is one of the worst solution ever possible, as they have been providing scanned content instead of digital content, there are 100 of dissatisfied schools who have opted for this solution just on tata brand name. School must try out Next Education "Teachnext"
Response to Dhruva Nikam:
Mohammad Khalid Apr 10, 2013
Yes...Next Education is one of the best emerging education company in India...Its TEACHNEXT is superb product, easy to use, affordable and content is purely aligned as per the boards.
Response to Mohammad Khalid:
Gokul Apr 11, 2013
pls do not use such forum to cheap publicise and market your company,Dhruvu -you where with Educomp,when did you join Next Education....Khalid is also from Teach next...very sad....
Response to Dhruva Nikam:
Harman Apr 14, 2013
Check your sources brother. Tata ClassEdge won the best multimedia awards in eMaharashtra awards last year and just for your knowledge multimedia can not be scanned. EduComp purchases it's solution from foreign vendors hence most people can not even understand what the media says, i tried both the solutions and smartclass is not smart a bit, rather it is a chunk of long duration multimedia with absolutely no connection to what children in India need.
Response to Gokul:
Harman Apr 14, 2013
Gokul that justifies them praising Teac next , otherwise considering their content it's hard tk gulp down what my friends here said. I am teaching since 5 years now and i've seen quite a few wanabes. Wait till HCL comes in to say something about it's hardware selling skills..oopsie..i mean it's content.
Response to Harman:
Anshuman May 1, 2013
Dear Harman in India majority of schools already used foreign languages like french Spanish etc etc why u say people cant understand the accent of smart class I think you are wrong
Response to Anshuman:
Harman May 2, 2013
Dear Anshuman, brother what you're calling as majority probably is less than 1% of the total universe. Learning foreign languages is a privilege most of the students do not get. Moreover in a time when the world is shifting to neutral accent why follow someone else's accent!
Most Popular
Insta-Subscribe to
Forbes India Magazine
For hassle free instant subscription, just give your number and email id and our customer care agent will get in touch with you
OR
click here to Subscribe Online