Educomp Solutions: Revolutionizing education

Educomp solutions (CMP Rs 382) is India’s largest technology driven K 12 education company serving over a million students. The company provides end to end solutions in the technology driven education segment through licensing of digital content , solutions for bridging the digital divide, professional development and retail sale of education related CD ROMs and other tutorial products. The company’s vision statement reads:

·         To reach out to 10 million     learners through our products and services by 2008.

·         To be among the top 10 K12 learning solution companies worldwide by 2010.

The top management (Shantanu Prakash and Somya Kanti) are IIM alumni and through my past experience companies that have IIM/IIT alumni at the top always manage to create shareholder wealth.

The company employs about 1,200 professionals and has presence in more than 30 cities across the country. In this connection it has already partnered with Intel, Microsoft, Wipro, Worldlinks Azim Premji Foundation,  several state governments, ministry of education & ministry of IT.

Educomp offers one-on-one support to US students on real time basis. Retail customers are serviced directly through www.mentoraide.com. The company has BOOT model contracts with 613 govt. and 91 private schools. The company has contracts to extend this knowledge partnership to over 1000 schools in Q1 FY07.

Educomp has developed 10,000 + content modules in over 10 languages for the Smart Class segment, over 12,000 content modules for Mathguru.com, over 100,000 pages of content for Roots to Wings and Learning Leadership System. Recently the company announced plans to enter the pre-schools market. In Mar 06, 90 schools went live with Educomp’s materials – with an average of 10 classes per school, 45 students per class and Rs90 per student (increasing) per month. The numbers of schools to be covered under this product is likely to touch 700 by March 2008. The Smart class initiative has been extended to foreign countries as well. Cedar Girls School of Singapore has signed up for the product and the company expects more such orders to flow in. This business segment runs at 60 to 60% margins.

Educomp signs 5-year agreements with State Governments to install and run computer classes in public schools on a BOOT basis. State Govt of UP, Karnataka, Orissa, Tripura and Nagaland states have already consented to this arrangement. Over the next 2 years Educomp aims to attract over 20,000 schools In this model the company books revenues at the rate of Rs 22,000 -25,000  per school per month

Educomp has an arrangement with Intel and Microsoft to train a specific number of teachers each year. Revenues flow in at the rate of numbers of teachers trained and deployed. Till date over 300,000 teachers have been trained so far

In 1999 Educomp started an education portal “planetvidya.com “. The content created as part of this initiative is now sold in CD ROMs. Its recent product  Mathguru.com, an innovative 24x7 math-help program attempts to help students solve every single math problem in their curriculum, text books or syllabus on an anytime anywhere basis. The model is hugely scalable and revenues could flow in at exponential levels of growth.

Recommendation: Educomp is a multibagger star in the making. The company could easily achieve a compounded annual growth rate of 70% for the next 3 years and while the stock could look costly from the short term perspective. Educomp is one company which cannot be measured through current year's PE ratio only. The increasing awareness for education coupled with rising consumer income will only create more demand for the company’s products.