Selling Education

Education sector in India, its possibilities and those companies expected to benefit the most.

Out of every six people in this world one is an Indian. Most of them are young. Society puts a premium on quality intellectual pursuit here. Making India one of the largest education markets, estimated at $60 billion per annum.

The dominant player has been the government, but some private players have managed to wedge themselves in too as state-sponsored schemes spend money inefficiently. With the system reduced to a sorry state, government is looking to lift restrictions preventing private participation.

The sector is likely to see long-term secular growth and early movers will reap rewards the most. Here, we run through the performances of five major companies and their business models.

Educomp Solutions

Established in 1994, it went public in 2006. Since then, the stock generated 10x gains. It is India’s largest technology-driven education company, using digital content for teaching and learning. It operates through four business segments: smart-class, instructional & computing technologies (ICT), professional development and retail (PDR).

Smart Class is dedicated to private schools. The company offers animated content for K-12 i.e. Kindergarten to Class 12. Government schools are targeted under the ICT segment where computer literacy programmes are offered. The programme is run on the build, own, operate and transfer (BOOT) model — it’s setting up computer labs in schools and running the project. In the PDR segment it concentrates on cognitive learning workshop for teachers, students and parents. Under retail, it markets CD ROMs, education aid contents and new initiatives like mathguru portal.

Everonn Education

Set up in 1987, it is India’s second-largest education services provider. It operates in two broad verticals: ICT — mainly catering to computer education needs in public schools under the BOOT model; it develops and provides software educational content and technology services to private schools, colleges and corporate entities through satellite linkages in the virtual and technology-enabled learning systems (ViTELs). Although the company is strengthening its ICT position, it is the ViTELs’ business that has gained significant scale — its contribution to overall revenues is 68 per cent in FY09, as against 32 per cent in FY07.

There are many smaller businesses as well, where Everonn has interests like coaching classes for IIT-JEE examinations, school management services and testing partnerships with institutions like Education Testing Services (ETS) that administers the TOEFL test worldwide.

NIIT

This leading IT company started in 1981 and grabbed the popular imagination. It is into developing, marketing and implementing technical know-how packages for education/training. It is also keen on consultancy and data processing.

The NIIT model spans three business segments. The first one is in individual learning, where the company has been a market leader for years. The second one is in training, where it caters to 7,800 schools and the third one is corporate learning.

Since 2008 the business model has been altered to invest and move the business from the current IT-centric services model, which is linear, to a non-linear model. NIIT believes that the linear business model is where growth and revenue can best be generated. However, it calls for a huge employee base. As to specifics, then NIIT is re-platforming the solutions acquired through Room Solutions and making it a Service Oriented Architecture, which is more current, modern and acceptable in the market.

Aptech

Aptech started its IT education and training business in 1986. It is into content creation, with subject matter experts and instructional designers creating content from scratch for synchronous and asynchronous instructional programmes.

Aptech has two business sets — retail education and corporate. Retail spans IT and animation education & training (Aptech Computer Education and ArenaAnimation), and aviation (Avalon Aviation Academy). Corporate business comprises offshore learning content development (Aptech Learning Services), then there is e-Learning (Onlinevarsity.com), training and assessments solution for corporates and institutions (Aptech Training Solutions and ATTEST) and developer training & consultancy (Synergetics).

Aptech has over 18 years of instructional design experience in delivering learner-centric content and instructional kits across diverse demographic and psychographic audience profiles. Aptech’s cost- effective, innovative, and business- aligned learning solutions focus on productivity and learning enhancements, besides minimising recurring costs of courseware maintenance. The project management practices are guided by a partnership approach. Client-driven capacity and process scale-up is enabled by continuous flow of skilled resources through Aptech’s education and training arm

Edserv Softsyst

Edserv Softsyst (ESL), formerly known as Lambent Softsystems, was incorporated in 2001 with a view to provide placement consulting, integrated learning & placement solutions and customised software solutions.

Its clients are from various verticals like retail, auto, manufacturing, healthcare, financial services and IT. ESL has three revenue segments: ELMAQ, IT training arm; Lambent, software services arm and Edserv, the training and placement arm (HEADS). ELMAQ, the IT training arm, started its business in 2004. It provides web-based learning in niche technologies.

Lambent is the software services division of ESL providing staffing, ERP solutions and database maintenance services. Edserv, the training and placement arm — Humanware Education and Deployment System (HEADS). ESL derives its major revenue from the HEADS model in which a student, looking for a job, can register with Edserv and look for opportunities that will become available on its HEADS platform. Once the profile is accepted, he can choose the courses to enroll for. For this the student pays a fee — approximately 50 per cent of the expected one month salary from the same job. If the candidate is picked up by a company after a series of tests then it too will be charged one month’s salary as fee.

The company currently, has 35 centres, which are franchised at a fee of Rs 3-4 lakh for three years. So, the company has to share the revenue with franchisees at the rate of 85 per cent of registration fee and 50 per cent course fee. Thus, it earns 15 per cent of student registration fee, 50 per cent of course fee and 100 per cent of client fee (company). The cost to the company is typically course content development expense, which is one-time, advertising and staff.

Everonn Education

Everonn Education (EEL), formerly Everonn Systems India, started off in 1987 as an IT education provider. It now offers services spanning educational and training content, design & execution of learning initiatives, and setting up infrastructure. It has four subsidiaries, Everonn Education Resources Solutions, Toppers Tutorials Pvt, Everonn Infrastructure and the recently acquired AEG Skill Update.

Profits rose from Rs 4 crore in FY2007 to Rs 23 crore, more than a four-fold rise at end FY2009. Though it is growing at a scorching pace it managed to keep debt under control — its debt:equity ratio fell from 0.59 to 0.23.

In Q2FY2010, consolidated revenues grew 70 per cent YoY to Rs 73.13 crore (standalone 72.5%), while its profits were up 81 per cent to Rs 11.78 crore (standalone 147%). EEL is withholding dividends on the back of massive investments to fund expansions.

Institutional interest in the stock has consistently increased, rising from 22.53 per cent in March, 2009 to 34.79 per cent in September, 2009. Way back in 2008, P/E funds like Blackstone had shown interest in the company. Funds response to EEL has been lukewarm compared to other small-caps. Till October, 2009 only 15 funds have bet on it.

The stock is trading at 21.71 times its trailing EPS of Rs 18.28. It gained 74.76 per cent this year (till November 27). Its historic value is 35.51x its EPS. At current valuation it’s still 38.86 per cent below that level. That makes for a credible stock case.


source: valueresearch