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 http://www.mentoraide.com/ - 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.

The point that whether this company will deliver or not will decide whether shareholders will make many times over their capital or not so in case we wait (as a risk averse investor)  the major money could already have been made because the opportunity is today.The top foreign shareholders in Educomp are Fidelity and Goldman Sachs. It is interesting to note that 96.37% of the Educomp shares are held by people holding more than 100,000 shares. This reflects that the stock has a lot of Institution/HNI /Serious investor interest

I heard that CLSA forecasts Educomp to show more then 70% CAGR till Fy 09.I saw their tutoring website mentoraide.com. They are charging US $ 100 for their services. While presently India may not be ready for such services over the next few years the company should get enoughpeople to make a mark. 

I would not take CLSA to be a major factor. They have gone wrong many times. Their technical analyst "Chris Roberts" was screaming 6000 for the index when we were at 7500. He kept up to his prediction till as late as 9500 -10,000 and then the TV guys have stopped calling him.

Coming to your argument about US $100, it appears stiff when viewed in isolation but look at it this way for a 12 month session it is less then Rs 400 per month. Cheaper then private tuition plus you save time, get personalized attention, save on traveling costs (for going to the tuition center and coming back). In about 2 to 3 years you will get a lot of clients for these services.

And they do not need 300 million to break even. Even if they get about 200,000 it would be a big deal.

Shantanu Prakash the CEO of Educomp was on Tv yesterday highlighting their forays into Govt. schools. The stock seems to have taken a cue from that and is up 8% from there at 517 today.

Reema:I hold Educomp as a long term investment and would not try to sell now to buy back later. I know that valuations have become stiff at 20 times Fy 08 but with these companies you never know when the new kicker could come in. So while it is perfectly possible for Educomp to fall 20% from here it would be very difficult getting in when it falls that much.

But if the PE is high as you say then it will not move up either it will take a price correction or a time correction. For growth shares time correction seems more likely. But I think that will be tough to trade in this share as you can miss good companies by buying and selling. I am a victim of that habit and have left it now.

I was wondering basantjee, what is the addressable market(minimum) for the business educomp is into. Can it keep growing 50% next 10 years, since it is still very very small. I hope the addressable market is big. There is however good chance of competition coming up. What's your view? I alreadr read your educomp page, so was wondering for more details, if yo have any.

Thanks a bunch!

1. On the face of it, this should be a good news meaning company has some more expansion plans. But have they properly utilised all the funds from "share premium" account raised via IPO?
2. Why the company is not approaching local banks for raising money thru Debt?
3. Why have they gone for FCCBs, as now QIP placements locally are allowed by SEBI and seem attractive.
4. From accounting point of view, could you inform us what happens when FCCBs are converted? Is it like equity dilution?
5. And if FCCBs are not converted, is it shown as Debt?

Anyhow, please give your comments on this developments on the company's long-term potential business growth.

The largest foreign brokerage has been rumpured to have been buying heavily into this stock. Valuations are now looking really streched at rs 654. While I would advise holding on - if you can fresh buying is not recomended at these levels.

Mr. Basant your initial analysis was correct as the price bears out.Now it is for the management to jusitify the price as Infosys did as is clear looking back and being wise after the event.

Just saw a flash on NDTV profit that Educomp has bagged an order to provide computer education for 70 schools in UP.

Now in few days people will say that EDUCOMP is BROADBAND BOOM play. Please tell them I was the first one to say this.

http://www.theequitydesk.com/forum/forum_posts.asp?TID=403 - Internet boom yes, their educational websites are doing good business but for a broadband internet play we have better options because I am myself unsure as to what percentage in sales they would derive from their portals. Their total sales would grow at more then 70% for the next couple of years that is what I am confident about.

At these prices the stock has run ahead of the current visibility. But as I keep repeating some more orders and this stock could become cheap again. So I would hold.

_____________________________________________________

When new song is written (only few lines) no one sings it but when song gets completed with tune and good music, people start to sing it in "CHORUS".

I am not pointing out anyone directly but I think we need disclosure norms applicable here on the site as well.

__________________________________________________________

Not sure what this means please specify! Are you talking of personal holdings disclosure?

@ 720, I think there is equal chance of disappointment if not more, singing in CHORUS, I meant to say is everyone is saying good things and finding different reason to be bullish.

I never said you need to disclose your trade and what ever I can make out I dont think you trade in these stocks daily or changes your investment decision on daily price movement, all I am saying was with ours views people should know that we are putting money where our mouth is and I am sorry if you feel bad about it and hurt with this request of mine. It was never intended to you... anyways.

If any of our members have bought/ hold this stock and the vision is for less then 12 - 18 months it would make sense to get out of this stock into something else.

Educomp has had a straight run from Rs 377 to Rs 804 in about 4-5 weeks. At this price it trades at a PE of 26 times Fy 08.

If any of our members have bought/ hold this stock and the vision is for less then 12 - 18 months it would make sense to get out of this stock into something else. Educomp has had a straight run from Rs 377 to Rs 804 in about 4-5 weeks. At this price it trades at a PE of 26 times Fy 08.

I bought Educomp @ less than 300 just after last BUDGET by studying the prospect of Educomp on tax point of view (TAX advantage from PYT.com) 50 Shares. I can not recollect the exact price. Because the HDFC security I need to search a lot at my then purchase price but it can be done!

When new song is written (only few lines) no one sings it but when song gets completed with tune and good music, people start to sing it in "CHORUS".

_____________________________________________________________

In the global context India is emerging as a talent hotspot but our education system is grossly inadequate .Whoever can capitalize on this will be a huge winner?Maybe Educomp can.On PE Educomp looks overpriced to those who doubt sustainablity.But opportunity is there.And one cannot ignore competition that will emerge.

Broadly that is an option for the buyer of the FCCB to either get his paper converted into the stock of Educomp at Rs 900 can't make much out of that company will use this cash to make some acquisitions I am told. 

WHile writing something I want to err on the side of caution - irrespective of the stock we are discussing. I want to be wrong by underestimating rather then overestimating. 

Through this joint initiative, Educomp, Microsoft and Intel plan to bring large number of schools in India into the digital learning age "where students are able to learn in a multi-sensory".

"The education sector in India is one of the largest in the world, with over a million schools and over 220 million learners - yet less than two percent classrooms are digitally-enabled," Educomp Solutions Limited MD Shantanu Prakash pointed out.

"This technology shift is urgently necessary if we have to build on our traditional competencies for the knowledge economy of the future," he said.

The Smart Class programme, an internationally acclaimed digital learning programme developed by Educomp, was showcased before 50 Chennai schools.

"More and more teachers are realising the value of IT to explain complex concepts to students," he said.

Educomp is offering an interactive programme to schools in small towns across India, through a build, operate and transfer system, in which Educomp installs the entire technology infrastructure and provides digital content library to schools along with campus training of teachers and maintenance support.

Smart Class works on Windows-based operating software from Microsoft, computers running on the Intel(r) architecture and curriculum-based digital content and service support from Educomp.

Over 100,000 students are already learning in Smart Class rooms across schools in India, the United States and Singapore.

Did any of you read about the adverse New York Court ruling about on line tutoring ...??

Although online tutoring  was on Educomp’s radar as an opportunity, it currently had very negligible / nil revenues from this segment.

 They have conducted a pilot in the US for its Smart Class suite at the Franklin Public school in Santa Barbara. We should see them scale up this model in the US over the next 2-3 years.This to mind does not come under the purview of the above ruling.

mentoraide.com  might get affected – we will have to wait for company to issue a clarification on this. However mentoraide.com is currently on a free trial run and so it should not affect revenues in any way.

To my mind, Educomp has its hands full for the next 4-5 years just addressing and scaling up the India Education opportunity so the online tutoring should be more of a opportunity negative [ if at all !! ] then a business hit for them.

Looking at the stock y’day shows that the market may have had an inkling of this ruling coming through and weak / speculative hands [ if any !!] may jump boat.next week.

If the stock reacts negatively, I feel it will provide a good opportunity to add further at lower levels. If not………it’s a good sign that the stock is in strong hands whoe have done their homework and believe in the opportunity / market that Educomp addresses.

Lets wait and see !!

 jayendra

Its in todays' Times Of India, Mumbai edition - front page / cover story. Not seen it online but may be available on timesofindia.com

jayendra

Nice analysis Basant ji:

Is buying @ current levels advisable OR should we wait to get lower levels for entry...

plz advise on entry target(s).

Thanx

But since charts would not be available for a longer period he would also have difficulty let us see what he says!

Basant ji,