Educomp Solutions - a pot of gold for investors

Educomp Solutions, a virtually unheard company, established in 1994, went public in 2006 and has given investor returns 10 fold since listing. It is India’s largest technology driven education company, using digital content for teaching and learning. It operates through four business segments:
(i) Smart Class – Offers animated content designed as per the text books for K–12 (Kindergarten to Class 12) segments of private schools
(ii) Instructional & Computing Technologies (ICT) – Offers computer literacy program to government schools, involving setting up of a computer lab in each school and running the project on BOOT (Build, Own, Operate and Transfer) model
(iii) Professional Development – Offers cognitive learning workshop for teachers, students and parents
(iv) Retail – Markets CD ROMs and education aids contents, also includes new initiatives like mathguru portal and own branded pre schools “Roots to Wings”

The company functions in a non-competitive area and gains from couple of factors. Factually, India is the largest education market in the world in terms of numbers, 22 crore students accessing the education system and another 10 crore out of the systems. There are total 10 lakh Schools — 9.5lakh government schools and 50,000 private schools of which < 2% are IT enabled, and as a result over 50lakh teachers need training (both IT and Pedagogy). Also, India is spending more on Education as is evident from the huge allocation in Sarva Shiksha Abhiyan and ICT @school project. Budget 2007 also increased focus on education as Education Cess was increased from 2% to 3% — 1% increase allocated for Secondary Education.

The competitive strengths of the companies lies in fact that it has a differentiated business model and a huge library content in 11 languages. It has already trained over 6 lakh teachers and has BOOT contracts with 1833 Govt school and 228 private schools. The industry is in the initial growth phase and is characterized by few players. Educomp has direct competition with NIIT (more emphasis in graduation and post graduation level) in the Smart Class and ICT segment and from small regional players like IEC in ICT segment and iDiscoveri and Education Initiatives in Professional development segment. However, Educomp cannot be benchmarked against these competitors owing to difference in level and scale of revenue.

However, the company’s rapid expansion has certain risks involved -  The reducing hardware costs may put pressure on the already entered contracts,smaller schools may have financial difficulty in owning and maintaining the infrastructure. Any change in government policies or reallocation of the government budget away from education services could impact business prospects. The product may face obsolescence owing to changes in education system and curriculum. The company has entered into many Government contracts which could have delays in payments due to bureaucratic procedure, and finally the company faces huge competition from large global dominant players which could put pressure on margins of the company.

But, given the risks involved and the potential market, investors for sure are not complaining.  For current market price of Educomp Solutions, click here