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Educatio
Executive Summary 2
Industry 4
Human Resources - Powering Indias competitiveness in Global Economy 5
Government initiatives to raise literacy rates in India 6
School Infrastructure Not up to the mark 10
Public Private Partnership (PPP) The way ahead 15
The role of private companies and educators 16
Indian IT Training Industry Tracking the IT Industry with a lag 18
Corporate Training Market 23
Conclusion 24
Companies
Educomp Solutions 26
Everonn Systems India 46
NIIT Limited 60
Index
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are working on providing infrastructure in the form of computer labs and content at governme
schools apart from training teachers to use their content and infrastructure. Training is also bei
provided to the teachers to enhance their education imparting capabilities.
Employability of manpower also depends a lot on soft skills like communication skills, IT skil
computer proficiency and so on. This requirement is currently satisfied, to a large extent,
private mentoring institutions and industries themselves by providing short and medium-term cours
and induction trainings. However, there needs to be a more intimate linkage between academ
and industry to solve this problem. Private companies like Everonn and NIIT are competing fo
piece of this business through their innovative products. As per NASSCOM, going ahead, the
will be a requirement for 2.3mn IT professionals by 2010 and a shortage of 5,00,000 personn
required. It is the quality of personnel that needs to be focused on rather than the absolu
numbers. This reflects the strong growth potential that the IT Training Industry has and
ever-increasing relevance for the IT Sector.
A large part of a students time is spent at post-school mentoring institutions, as large class siz
in private schools hamper teachers from giving individual attention to students. This consumes
lot of time, effort and money. Companies like Educomp and Everonn have introduced innovati
products to get a slice of this market. These products enjoy a distinct advantage over the curre
ones on account of being available 24/7 and the student not being required to travel to the locati
where the classes are held. On the flip side, most of these products require broadba
connectivity, the availability of which is very poor in India. The total number of broadba
subscribers stood at a mere 4.01mn at the end of April 2008, implying penetration of a fair
pathetic 0.35%. Hence, for these products to gain greater acceptability, India's broadban
penetration will have to improve substantially.
India has approximately 50,000 private schools, present generally in urban clusters. These schoo
share a sizable load of educating the Indian student population and satisfy the demand for qua
of education and infrastructure by the Indian middle and elite class. To provide quality educatio
these schools are on always on the look-out for better content, which is also provided by t
afore-mentioned education companies.
The Union Budget 2008-09 has chalked out a higher allocation for the Education System, up 20
to Rs34,400cr during FY2009. The allocation is expected to continue to increase in th
foreseeable future as well. The government is also intent on improving the levels and quality
education in India. As for Indias middle class households, we believe this segment of socie
would continue to spend a large part of its income to fund the education (with an eye on quality)its children. Overall, we believe Budget allocations and high spending by the Indian midd
class on education are expected to fuel growth of private education companies in India.
Comparative Valuations
Price MCap Target P/E (x) EV/EBITDA (x) RoE (%) RoCE(%)
Company Recos (Rs) (Rs cr) Price (Rs) FY08 FY09E FY10E FY08 FY09E FY10E FY08 FY09E FY10E FY08 FY09E FY10E
Educomp Buy 3,496 6,041 4,051 103.9 53.4 32.1 49.9 26.7 15.9 21.8 27.0 31.2 21.9 26.1 30.4
NIIT* Accumulate 109 1,797 123 25.0 17.4 12.5 20.4 13.5 9.2 21.3 25.9 29.6 9.9 14.7 19.7
Everonn Neutral 624 865 - 61.5 56.3 43.7 25.8 17.6 11.8 27.9 8.4 9.8 20.6 8.9 10.1
Source: Company, Angel Research; * For NIIT Limited, FY08 results have not yet been declared.
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Human Resources - Powering Indias competitiveness in Global Economy
India's GDP has been on a strong growth trajectory in the past couple of years. The country's GD
has clocked a compounded rate (CAGR) GDP growth of around 8.5% over FY2003-08, growing
over 8% in four of the five fiscals. In FY2007, India's GDP registered accelerated growth in at
impressive 9.6%. In FY2008 also, GDP growth came in at 9%, which though slightly slower on
yoy basis, still signals strong economic expansion.
The Services Sector has been the key component of this strong growth clocking robu
double-digit growth rates over the past few years. The Manufacturing Sector has also managedregister decent growth rates in excess of 6-7% annually. But clearly, it has been the Servic
Sector that has contributed the maximum to Indias economic growth and currently accounts f
over 55% of GDP. Sectors like IT-ITES, Hospitality, Tourism, Retail and Aviation have also clock
robust growth and are expected to maintain the tempo going ahead as well.
The human resource-intensive Services Sector, as mentioned earlier, has been responsible f
such growth. It has been due mainly to its human resource base that India is getting its right
place in the sun in the global economy. The Services Sector has led the way forward, with brig
engineers, chartered accountants, architects and MBAs all contributing their share to the stro
growth being clocked by India.
However, it should be noted that all is not hunky-dory with all segments of the Indian econom
Beneath the good growth numbers, lies a harsh and potentially lethal truth the dismal conditi
of the countrys education system. Even as young Indians today are enjoying prosperity of a
unprecedented magnitude, leading to increased consumerism, buying everything from FMC
products, consumer durables, cars, mobile services to financial services, it is the sustainability
this prosperity for future generations that is under a cloud.
5
6
7
8
9
10
FY04 FY05 FY06 FY07 FY08
(%)
Source: Angel Research
Exhibit 1: India's GDP - On a strong growth trajectory
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A strong grassroots-level educational infrastructure, which helps in the creation of a well-round
human resource base, is important to sustain strong GDP growth rates going ahead. A resilie
education system would facilitate a steady supply of high quality personnel who would join t
workforce in future years. Thus, the educational system acts as the creator of a strong pipeline
talent, enabling sustainable and inclusive economic growth.
Educating India's population - A humungous task
India has the largest student population in the world with over 13.5cr pupils in primary educati
followed by China at over 12.1cr pupils at this level. India has the second-largest population in t
world of over 110cr people (1.1bn), with a literacy rate of 61% and ranks a disappointing 172nd
this front. Educating such a large population is not only an expensive task but also a very diffic
one. This task is being handled primarily by the government through its school infrastructure a
large Budgetary outlays. In the last five years, the government has been focusing on t
Education Sector through increased fund allocations. In the current year also, the governme
has increased the allocation by 20% from Rs28,674cr to Rs34,400cr. This amount would be spe
under various schemes like the Sarva Shiksha Abhiyan (SSA), the Mid-day meal scheme, Kastur
Gandhi Balika Vidyalaya and teacher's education. The allocation for SSA is Rs13,100cr, t
Mid-day meal scheme would be provided Rs8,000cr and Rs4,554cr would be allocated
secondary education. In the current Five-Year Plan period, the focus of SSA would shift fro
access and infrastructure to enhancing retention and improving the quality of learning. (Sourc
Statistics from Nationmaster and Union Budget 2008-09)
Intent/focus of the Government
The government intends to raise the general literacy rate in India in line with which, it introduc
the Right to Education Bill 2005. This Bill seeks to guarantee elementary education to every ch
between the age of 6 and 14 years. It also states that every child in the specified age ge
enrolment in a school in the vicinity of their domicile. The Bill promotes the usage of region
language as the medium of education by stating that as far as possible, a child should
instructed in his/her mother tongue at least for the first five years of the elementary stage.
Government initiatives to raise literacy rates in India
Sarva Shiksha Abhiyan (SSA)
The SSA (education for all) is the prime initiative undertaken by the Central Government of Ind
to improve the overall literacy levels and quality of education in the country. SSA was undertak
in the Eleventh Five-year Plan. SSA is an action plan whereby the government would incorpora
the following:
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Kasturba Gandhi Balika Vidyalayas
India faces discrimination in the field of education based on the gender of the child. The paren
are more interested in getting their male children educated rather than the female children. Th
has led to a lower literacy rate among females compared to males. In a country where we have
dismal literacy rate vis-a-vis world standards, this discrimination based on the gender paints
even worse picture. The gender disparity at the primary levels is reasonably low and has be
decreasing consistently. It is quite high at the upper primary level. Such disparity at the high
level has been declining but at a slower pace. The government is trying to reduce this anoma
and has set up approximately 800 Kasturba Gandhi Balika Vidyalayas. Also, as part of the SS
an additional 410 such vidyalayas are to be set up in educationally backward areas. This mov
should help in improving the educational levels for females in India.
Level 2002-03 2003-04 2004-05 2005-06
Primary (Grades I-IV) 5.5 5.1 5.1 4.2
Upper Primary (Grades V-VIII) 10.7 9.4 8.9 8.8
Elementary (Grades I-VIII) 6.8 6.2 6.1 5.4
Exhibit 3: Gender disparity in Education (%)
Source: DISE
Mid-day meal scheme
The Mid-day meal scheme was introduced in India in 1925 by the Madras Municipal Corporati
for disadvantaged children. It was later undertaken by the states of Gujarat, Kerala and Tam
Nadu and the union territory of Pondicherry. The Scheme states that a hungry child will not be ab
to cope up with studies and would subsequently drop out of the school. Even if the child continu
with school, he/she would lag behind. Hence, to improve the standard of education, to attra
more children to schools and reduce the drop out rates, the government started the Mid-day me
scheme in India for children of class I-IV in the government-run schools. To support this schem
the government provides free food grains to the schools along with transportation in the form
subsidy, cost of cooking and provision of essential infrastructure for cooking. As per certa
responses from the teachers at schools in Rajasthan, the Scheme has boosted enrolments a
enhanced school attendance levels. In the recent Budget speech, the Finance Minister propos
to increase the coverage of the Mid-day meal scheme to the upper primary classes (V-VIII) in t
government schools across the country. This step would cover additional 2.5cr children taking ttotal children under its coverage to 13.9cr.
Funding of education schemes Implementation of Education Cess
The government has imposed an Education cess on income tax to fund its various program
which target to improve the quality and reach of education in India. This cess is used to fun
programs like the SSA. Through the collection of Education cess, Rs8,500-9,000cr was raised
FY2007. We estimate Rs14,000-15,000cr to be collected during FY2008, a significant 44% of t
As per certain responses from
the teachers at schools in
Rajasthan, the Scheme has
boosted enrolments and
enhanced school attendance
levels
A significant 44% of the total
allocation of Rs34,400cr for the
Education Sector
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total allocation of Rs34,400cr for the Education Sector. This will go a long way in improving litera
levels in India and enhancing the implementation and execution of various schemes undertak
by the government to increase the reach and improve the quality of education in India. Collectiof Education cess will also help in keeping the cost of education in India low at all levels includi
schools and colleges, as subsidies and aids are provided to a large number of these institutions
improve accessibility for the lower and middle class families to educate their children.
Access to Education
The first step towards building the base for a well-rounded human resource pool is undoubted
the creation of infrastructure for providing access to elementary education. In this regard, t
governments performance has been reasonable. As per the All-India School Education Surv
conducted by the government (Ministry of Human Resource Development) through the Nation
Council of Educational Research and Training (NCERT), 98.5% of the rural population was servby primary schools (Grades I-IV) and had access to primary schools / sections within o
kilometer from their habitations in 2002-03. In terms of habitations, nearly 87% had access
primary schooling facilities within a vicinity of one kilometer. During the Tenth Plan, over 0.13m
primary schools were sanctioned and it is estimated that over 96% of habitations have a prima
school within a vicinity of one km.
Evidently, over the years, the percentage of rural population having access to primary schooli
facilities has increased, reflecting good progress. However, it should be noted that the progre
on providing facilities in the upper primary grades (Grades V-VIII) has not been quite
satisfactory. Just 78% of total habitations had access to such facilities within a vicinity of three k
in 2002-03. Even though this figure has improved over the years, it is still far from satisfactory.
terms of population coverage also, even as the percentage population having access to the
facilities within a range of three km stood at over 86% in 2002-03, it was still much lower than t
percentage of population having access to primary schooling facilities.
1986 1993 2002-03
Rural population 593.6mn 659.7mn 742.5mn
Population served by primary schools* 560.6mn 618.5mn 731.6mn
Percentage (%) 94.5 93.8 98.5
Rural habitations 0.98mn 1.06mn 1.23mn
Habitations served by primary schools* 0.82mn 0.88mn 1.07mn
Percentage (%) 83.8 83.4 87.0
Exhibit 4: Access to Primary education - Good coverage
Source: MHRD, Angel Research; * Population / habitations having access to primary schools within a vicinity one kilometer
In terms of habitations, nearly
87% had access to primary
schooling facilities within a
vicinity of one kilometer
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1986 1993 2002-03
Rural population 593.6mn 659.7mn 742.5mnPopulation served by upper primary schools* 498.4mn 560.8mn 639.6mn
Percentage (%) 84.0 85.0 86.1
Rural habitations 0.98mn 1.06mn 1.23mn
Habitations served by upper primary schools* 0.73mn 0.81mn 0.96mn
Percentage (%) 74.0 76.2 78.1
Exhibit 5: Access to Upper Primary education - Not satisfactory
Source: MHRD, Angel Research; * Population / habitations having access to upper primary schools within a vicinof 3 kilometers
Therefore, in terms of access to primary and upper primary educational facilities, the progress
the upper primary front has not been satisfactory, even as access to primary education in terms
percentage population coverage seems to be satisfactory. Going ahead, there is a need to amore upper primary schools to bring down the ratio of primary to upper primary schools. This ra
stood at 2.5:1 at the end of 2005-06, vis--vis the 2:1 norm specified in the SSA.
Year Primary schools (P) Upper primary schools (UP) P:UP
1999-2000 6,41,695 1,98,004 3.2
2000-2001 6,38,738 2,06,269 3.1
2001-2002 6,64,041 2,19,626 3.0
2002-2003 6,51,382 2,45,274 2.7
2003-2004 7,10,471 2,62,649 2.72004-2005 7,67,520 2,74,731 2.8
Exhibit 6: Primary-Upper Primary ratio - Work yet to be done
Source: MHRD, Angel Research
School Infrastructure Not up to the mark
Information collected through the District Information System for Educaion (DISE) suggests th
3% of the primary schools and 2.4% of upper primary schools did not have any building
2005-06. Further, there is a severe shortage of classrooms in schools where the school building
present. There was a shortage of over 6lakh class rooms during 2006-07. In 2005-06, a significa
44.6% of primary schools and 15.3% of upper primary schools did not have any toilet at all. Simi
proportion of schools, both in the primary and upper primary stages, did not have any boundawall. Drinking water facilities were not available in 15.1% primary and 4.8% upper primary schoo
These are very important issues and call for adequate attention to ensure availability of t
required physical infrastructure in the schooling system. Such lack of facilities would consequen
hamper both enrolments as well as the quality of education.
There was a shortage of over
6lakh class rooms during
2006-07
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Enrolments Good growth
While capacity creation is the first step needed to drive the process of development of qual
human resources, the actual enrolment of students and consequent effective utilisation of th
infrastructure is a reflection of the actual coverage of the education system. Student enrolmenhave grown at a good rate of 3.2% CAGR over 1999-2000 to 2004-05 for primary enrolments, a
3.9% for upper primary enrolments.
Year Primary enrolments (Mn) Upper primary enrolments (Mn)
1999-2000 113.6 42.1
2000-2001 113.8 42.8
2001-2002 113.9 44.8
2002-2003 122.4 46.9
2003-2004 128.3 48.72004-2005 131.7 51.7
Exhibit 8: Student enrolments
Source: MHRD, Angel Research
Enrolment ratios Rapidly on the rise
A key ratio for assessing the actual extent of access of children is the enrolment ratio. The Gro
Enrolment Ratio (GER) is defined as the ratio of gross enrolment of students to the proportion
total children in the relevant age group. It is over 100% in some cases on account of cases
repeaters and some children being either over-aged or under-aged. It is clear that the GER f
upper primary grades is far less satisfactory than that for primary grades, reflecting yet again t
pressing need for capacity creation in the upper primary segment. Overall GERs for the totelementary system have been on the rise, hitting nearly 95% in 2004-05.
% schools without Primary Upper Primary
facilities like 2004-05 2005-06 2004-05 2005-06
Building 3.5 3.0 2.8 2.4
Toilets 51.4 44.6 16.8 15.3
Boundary walls 50.4 50.8 15.7 16.5
Drinking water 16.3 15.1 4.7 4.8
Exhibit 7: Schools without basic facilities
Source: DISE data
GERs for the total elementary
system have been on the rise,
hitting nearly 95% in 2004-05
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Year Class I-V (%) Class I-VIII (%)
1999-2000 40.3 54.52000-2001 40.7 53.7
2001-2002 39.0 54.6
2002-2003 34.9 52.8
2003-2004 31.5 52.3
2004-2005 28.5 50.4
Exhibit 10: Dropout rates
Source: MHRD, Angel Research
Performance of students A metric to gauge quality of education imparted
The quality of education provided also needs to be gauged, especially for a country like Ind
where literacy rates are far from satisfactory. Pertinently, quality is a highly subjective term a
therefore, generally difficult to assess, unlike access to education, where the coverage of schoo
can be used as a parameter to judge this metric. We have used the NCERTs periodical surv
(every 2-3 years) to explain the quality of education in India.
Class States covered Mathematics Language Science Social science
Class III 29 58.3 63.1 NA NA
Class V 27 46.5 58.6 NA 50.3
Class VII 10 29.9 53.0 36.0 33.0
Class VIII 17 38.5 52.5 40.5 45.0
Exhibit 11: Average marks achieved by students (%)
Sample survey: NCERT
It can be observed that the achievement levels of students are low across subjects. Clearly, this
the reason that the government is taking initiatives to improve the quality of education. T
initiatives include recruitment of new teachers, re-skilling the existing teachers to be mo
effective in imparting education, providing better infrastructure to schools and providing bett
content for education. This is where education companies like Educomp, Everonn and NIIT ha
an opportunity to improve the total quality of education in India through Public Priva
Partnerships by providing content and IT infrastructure for its effective delivery.
Teacher capacity
Along with the creation of capacity, the number of teachers also has to keep pace, ensuring t
delivery of education to students. The total number of teachers rose from 1.9mn in 1999-2000
2.3mn in 2004-05 for the Primary section, while for Upper Primary, the respective figures stood
1.3mn and 1.4mn.
Education companies like
Educomp, Everonn and NIIT
have an opportunity to improve
the total quality of education in
India through Public-Private
Partnerships
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Year Primary ('000) Upper Primary ('000)
1999-2000 1,919 1,2982000-2001 1,896 1,308
2001-2002 1,928 1,468
2002-2003 1,913 1,581
2003-2004 2,093 1,602
2004-2005 2,310 1,439
Exhibit 12: Number of Teachers
Source: MHRD, Angel Research
Teacher-Student ratio Not satisfactory
Pertinently, just the number of teachers and educational institutions do not necessarily me
much by themselves. These figures need to be looked at in totality, in conjunction with the numb
of students. Hence, the student-teacher ratio can be used to judge the adequacy of capacity.
The national teacher-student ratio for Primary education has increased from 1:43 in 1999-2000
1:46 in 2004-2005. This ratio for the Upper Primary reduced from 1:38 in 1999-2000 to 1:35
2004-2005. Though these figures are at a national level and hide regional disparities, it
apparent that the increase at the Primary level is not a factor to be enthusiastic about, as th
would lead to less attention of a teacher per student. In the opposite case, the decrease
students per teacher in the Upper Primary grades is a positive.
The teacher-student ratio for Secondary education in India is higher than that in countries li
China, the UK, US, Germany and France (Refer Exhibit 14). This typically impacts the quality
teaching, as each teacher would have less time to devote to a student.
1:26
1:29
1:32
1:35
1:37
1:40
1:43
1:46
1:49
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
P rima ry U pp er Pr im ar y
Source: SES, MHRD
Exhibit 13: Teacher-Student ratio
The national teacher-student
ratio for Primary education has
increased from 1:43 in
1999-2000 to 1:46 in 2004-2005
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Country Teacher-Student ratio
India 1:18Bangladesh 1:43
Pakistan 1:28
United Kingdom 1:17
China 1:16
Germany 1:15
Sweden 1:15
US 1:15
Japan 1:14
Argentina 1:14
France 1:12Switzerland 1:11
Exhibit 14: Teacher-Student ratio - Secondary schools
Source: Nationmaster, Angel Research
Hence, there exists significant scope for improvement in the Teacher-Student ratio across t
Primary, Upper Primary and Secondary schools, given its importance and key role in leading
sustained, equitable and inclusive growth going ahead.
Public Private Partnership (PPP) The way ahead
In view of huge requirements of infrastructure and manpower in the field of Education a
backlogs in the implementation of the SSA, the government is exploring new ways to achieve
targets, such as the public-private partnership (PPP) route. The first step is to improve the qua
of education by getting content and certain school infrastructure designed and implemented
private companies. These private companies also undertake training of teachers so that the teache
are better equipped to understand the learning requirements of the students and improve on t
delivery of instructions. Thus, the companies that provide an end-to-end solution including setti
up the infrastructure, systems integration, teacher training, content development and learni
delivery are likely to be beneficiaries of these partnerships.
The ownership of private schools is not allowed except under a trust format. Currently, India fac
a backlog of approximately 2,00,000 schools to accommodate students and provide easy acce
to education for all children. This shortage of schools may lead to the government opening uowning of schools to private players, thereby enabling them to make profits by legitimate mean
In such a scenario, the ownership of schools would become easier and may lead to more schoo
being opened up, thereby improving access to education. It should be noted that we have not bu
in the outcome of this scenario into the businesses of any of the companies covered in this rep
viz., Educomp, Everonn or NIIT.
India faces a backlog of
2,00,000 schools to
accommodate students andprovide easy access to
education for all children
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The role of private companies and educators
Private schools Meeting the demand for quality and access to a great extent
There are approximately 50,000 private schools in India. A majority of these schools are present
the urban pockets and cater to more affluent classes. The parents whose children are studying
these schools expect a higher standard of education and have comparatively higher expectatio
from these schools in terms of infrastructure, facilities and courseware. Similarly, they expe
better academic achievements from their children. These schools are constantly trying to upgra
their facilities and courseware to improve the standard of education provided by them and
match up to the expectations of the students and their parents. Thus, the new products usi
multimedia-based platforms to enhance the quality of education and equip the educators to
better extent are being sought.
Quality education requires teacher training
In India, as many as 54% of the Primary schools (4.17lakh) have only one or two teachers. Th
number of primary schools with three or less teachers is a staggering 71.5% (5.49lakh). Most
the governments teacher training programs have been designed for mono-grade teachi
situations. Wherever training programs on multi-grade issues have been held, they provide som
learning organisation ideas, but not a comprehensive guideline for teachers who have to tea
the entire curriculum to five classes. A significant 31% of Primary schools in the country hav
enrolments less than 60. These schools would have actual student attendance of 40-50 studen
only, spread over five classes. The key to effective teaching-learning practice in such schools
multi-level teaching using group and self-learning materials. There have been severexperiments in the country for such school situations. What is required is systematic work f
appropriate materials and teacher training for small school situations.
The issues of teachers competence, teaching at Upper Primary levels in subjects li
Mathematics, Science and English needs to be addressed. For the Upper Primary stage, linka
with Secondary/Higher Secondary schools and good subject teachers could prove useful f
upgrading skills of Upper Primary teachers. In several states and union territories, as part of t
initiatives of the respective governments, a 20 days training program is being implemented in
routine manner.
There is a large backlog of teachers who have been recruited, but have not received inductiotraining. This means that teachers, most of whom do not have a pre-service training qualificati
begin teaching in schools without any orientation. In some states, 7-15 days training is impart
to these new teachers along with regular in-service training of teachers. This is not adequate,
the new teachers need a different orientation with an overview of the Primary curriculu
textbooks and teaching methods. This aspect needs greater attention, since large teach
recruitments are taking place in several states.
Most of the governments
teacher training programs have
been designed for mono-grade
teaching situations
Most teachers do not havea pre-service training
qualification and begin
teaching in schools without
any orientation
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Thus, the need for teacher training stems from the significant impact it has on the overall quality
education imparted to students. Not only does capacity need to be created (ie., the sheer numb
of teachers needs to be adequate), but the quality of education imparted also has to be monitorethrough teacher training, apart from providing better quality courseware and material an
implementing IT-based education.
There are approximately five million teachers in India. There is also a requirement of a substant
number of additional teachers to sustain the growth level in the field of education. All the fres
recruits would have to be imparted induction training and the existing teachers would have to
provided with orientation to upgrade their teaching techniques or re-skill them to impart bett
quality education. Apart from the government-provided training, companies like Educomp als
provide professional training to these teachers as a part of their joint ventures.
Demand for education in regional language
As per the Right to Education Bill 2005, it is the intent of the government to provide education
children in their mother tongue or the appropriate regional languages. The motivation of th
government is due to the fact that the child would understand instructions easily in his/her moth
tongue and thus, the quality of education would be better. In the computer literacy initiative that
being undertaken by the state governments, there is a clear mandate to the education compani
to develop and provide the education content in regional languages. This leads to strong dema
for content in regional languages and companies with strong content development teams with t
ability to modify the content as per regional requirements stand to benefit.
Need for Multimedia-based education in schools
One of the innovative ways to teach students is through the use of multimedia. Multimedia hel
the child to understand the instructions and courseware better thereby enhancing the quality
instructions by explaining the content graphically wherever needed. Companies like Educom
and Everonn provide various products that enhance the capabilities of teachers and help studen
understand the courseware better, leading to a significant improvement in the quality of educatio
imparted. Out of the 50,000 private schools in India, 10-12,000 charge a fee of over Rs1,000 p
month per student. These schools are the immediately addressable market for such coursewar
Demand for Post-school mentoring - Hampered by low broadband penetration
A lot of students to get better quality of education take the help of Post-school mentoring. Th
need also arises from the fact that individual children do not get sufficient attention from th
school teachers due to the large class sizes, more specifically in urban areas. The demand f
post-school mentoring has led to the development of several innovative products such as virtu
class rooms and coaching through broadband connections. These products are currently not ve
popular, as India has very low penetration of broadband services (a mere 0.32%), which a
necessary to access these products. With the increase of broadband connectivity, the popular
Apart from the government-
provided training, companies
like Educomp also provide
professional training to these
teachers as a part of their joint
ventures
Companies like Educomp and
Everonn provide various
products that enhance the
capabilities of teachers
Individual children do not get
sufficient attention from the
school teachers due to the
large class sizes, more
specifically in urban areas
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of these products is expected to increase. These products are expected to directly compete w
the existing providers of such services, which forms approximately two-thirds of the educatio
budgets of regular Indian middle class families, according to our interactions with thmanagements of companies operating in this space.
Indian Broadband Market Poor penetration hinders growth of IT-enabled education
The story of the phenomenal growth of India's Mobile Telecommunications Sector is well-know
Mobile subscribers at the end of April 2008 stood at over 264mn, with monthly net addition
crossing the 8mn-mark for the last six months in succession. Heightened competition, expansi
of coverage area, a continuous fall in minimum subscription costs and ever-increasing affordabil
have been the key factors driving this phenomenal growth. However, in complete contrast to t
Mobile Telephony Sector is the Broadband Sector. The growth of broadband internet acces
connections (access speeds in excess of 256kbps) has been pathetic, to say the least. The tonumber of broadband subscribers at the end of April 2008 stood at a mere 4.01mn, implying
broadband penetration of a miserable and pitiable 0.35%.
This poor growth has been on account of a number of reasons including the slow growth
personal computers (PCs) in the country leading to low PC penetration, greater affordabil
issues as compared with mobile phones and the reluctance of state-owned telcos to un-bund
their last-mile access infrastructure and share it with private telcos. To get an idea about ho
much India is lagging on the broadband front, it should be noted that the targeted number
broadband subscribers by the end of 2007 was nine million, and the figure achieved at the end
April 2008 was not even half of this target. The target for 2010 is 20mn, implying monthly net ad
of around 0.5mn from May 2008 till end-2010. However, rather than achieving these figures onmonthly basis, the current quarterly rate of broadband net adds is barely higher than this figur
Thus, the current monthly net adds will need to increase by a factor of nearly three to achieve t
government's ambitious target of 20mn broadband subscribers.
The poor broadband penetration will prove to be a challenge to the development of vario
internet-based products of companies like Educomp like Mathguru.com. The focus of the
products is to bring quality education products at home and being accessible at any time.
Indian IT Training Industry Tracking the IT Industry with a lag
One of the major reasons for the ever-increasing visibility and recognition of India on the globmap has been the outstanding success of its Software Industry. Major Indian software compani
like TCS and Infosys were the pioneers of the now-famed Global Delivery Model (GDM), whi
emphasises execution excellence from any part of the globe 24/7, along with a strong focus o
process excellence. The GDM is one of the major process innovations that has been discover
in recent times and has literally changed the entire business dynamics of the Software Servic
Sector, forcing incumbents like IBM, Accenture, EDS and CSC to change their busine
strategies and move towards this model, or offshoring as it is called in popular parlance.
The total number of broadband
subscribers at the end of
April 2008 stood at a mere
4.01mn, implying a broadband
penetration of a miserable and
pitiable 0.35%
Poor broadband penetration
will prove to be a hindrance to
the development of various
internet-based products
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The Indian IT-ITES Export Sector has grown at a rapid rate over the past few years, hitting a si
of US $40.3bn in FY2008, up from just US $7.7bn in FY2002, recording a CAGR of around 32%
this period. This has been driven by ever-increasing acceptance of offshoring by globcorporations looking to cut costs and add value to their businesses. In terms of employment, t
Sector employed over 1.6mn personnel in FY2007, up from just 0.52mn in FY2002, recording
CAGR of over 25%. In FY2008, the Sector is expected to have directly employed nearly tw
million personnel, a growth of 23% (3,75,000) over FY2007.
As is well-known, the Software and BPO Sectors are highly people-intensive. Human resourc
are the major raw materials that drive growth in these Sectors. Therefore, to grow on
sustainable basis, quality manpower is critical for the industry. Thus, it follows that a business th
trains personnel for IT careers is also likely to do well if the IT Sector does well. The Indian
Training Sector plays the role of a supplier of critical raw materials (read human resources) to t
IT Sector. The training industry provides computer literacy to school students, trains colle
students for IT careers and also provides re-skilling to industry professionals looking to mo
higher up the corporate ladder through refining their IT skills.
Latest figures show that Indian IT Training Industry revenues hit Rs2,135cr in FY2007, up 46
from Rs1,453cr in FY2006 (Source: Dataquest). The growth rate of 46% was also much high
than the growth of around 14% recorded in FY2006. Thus, growth has accelerated in the indust
aided by the strong growth of the Indian IT Industry. It should be noted that post the dot com buindustry revenues collapsed dramatically, de-growing at a CAGR of nearly 24% over FY2001-0
with revenues in FY2004 under 45% of FY2001 revenues. However, FY2005 onwards, indust
revenues started picking up again, as the Indian offshoring story started to play out in f
measure.
The Indian IT-ITES Export
Sector has grown at a CAGR
of 32% during FY2002-08
The Indian IT Training Sector
plays the role of a supplier of
critical raw materials to the
IT Sector
Indian IT Training Industry
revenues hit Rs2,135cr in
FY2007, up 46% from
Rs1,453cr in FY2006
Source: NASSCOM, Angel Research
Exhibit 15: Indian IT-ITES revenues and employment - Strong growth
0.0
0.4
0.8
1.2
1.6
2.0
0
9
18
27
36
45
FY02 FY03 FY04 FY05 FY06 FY07 FY08
(Mn(US$ bn) IT-ITES Exports Direct employment (RHS)
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Source: Dataquest, Angel Research
Exhibit 16: Indian IT Training Industry - Back on a strong growth path
0
600
1,200
1,800
2,400
3,000
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
(Rs cr)
Start of the recovery after the dot combust, with growth accelerating
significantly in FY07
A collapse in industry
revenues following the dotcom bust
In terms of revenues, it was NIIT that maintained its position at the top, posting Rs795cr
revenues in FY2007. This was considerably higher than the second-ranked player, Aptech, wh
posted revenues of Rs190cr. However, it should also be noted that NIIT is a diversified compa
having a presence in several segments apart from retail, such as government institution
business, corporate training and newer initiatives like financial services training and manageme
education. If we take only the revenues pertaining to retail training, the company recorded Rs247
which is still nearly double that of Aptech, which recorded Rs125cr as retail revenues. Even in th
China and rest of the world revenues are included for both companies. However, given that Aptech
marketshare in China stood at over 32%, more than 4x that of NIITs marketshare (7.6%), if w
exclude China, NIITs retail training revenues are over double those of Aptech. These two playe
clearly dominate the market, with the players following them recording much lower revenues.
Company FY2006 revenues FY2007 revenues
NIIT 450 795
Aptech 121 190
Jetking Infotrain 63 87
Siemens 34 44
CMS Computers 15 23
SQL Star 16 15
MAAC 5 19
New Horizon - 16
Educomp - 28
Exhibit 17: Indian IT Training Market - Dominated by NIIT and Aptech (Rs cr)
Source: Dataquest, Angel Research
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As per NASSCOM, there will be a requirement for 2.3mn IT professionals by 2010. There will be
shortage of quality trained personnel required by the IT Industry of 5,00,000 by that year. This
even as the country enrolls nearly 10mn students annually in its colleges and institutes of higheducation. A total of 4,95,000 technical graduates, 2.3mn other graduates and over 3,00,00
post-graduates are produced each year from the system.
Given that the annual requirement of the IT Industry stands in the region of 4,00,000 and that t
industry can also recruit science, commerce, arts and other graduates who are certified in
courses provided by companies like NIIT and Aptech, it is clear that the total number
graduates passing out from the system is not a constraint to growth. It is the quality of personn
that requires attention. Around 25% of the total graduates passing out of the system are actua
industry-ready, reflecting the urgent need to create more intimate linkages between academ
and industry. This reflects strong growth potential ahead for the IT Training Industry, given
ever-increasing relevance for the IT Sector.
Substantial manpower requirements of varied sectors Significant opportunity
As per United Nations (UN) population statistics, Indias population is estimated to touch 1.5bn b
2030, making it the worlds most populous country. Indias working population, defined as peop
aged between 25 - 59 years, would reach a huge 700mn by 2030 and account for almost half
Indias total population. The number of middle and high income households is forecast to increa
from 70mn to over 100mn by 2010 as a result of rising income levels and the breakdown of fam
ties, resulting in a greater number of smaller nuclear families. These statistics reflect the like
strong GDP growth rates expected going ahead.
The phenomenal success story of Indias Software Sector is well-known. To sustain this growt
as mentioned earlier, there will be a significant requirement for quality manpower at variou
levels, from entry-level programmers/coders, middle management level personnel and proje
managers right up to senior-level management personnel. Thus, there is a strong grow
opportunity in this space.
However, the Indian IT Sector is currently facing several challenges, which are likely to persist f
some time to come. These include wage inflation, higher attrition rates, a shortage of qual
trained personnel, Rupee appreciation (in spite of the current depreciation on account of reco
crude prices), a likely end to the tax holiday under the Software Technology Parks of India (STP
scheme post-FY2010 and above all, the current turmoil in the US economy, given as it forms far the largest part of most IT companies' businesses. With the recent stunning collapse of Be
Stearns, the fifth-largest investment bank in the US, comes the clearest sign yet that the U
economy is in trouble and that this pain is unlikely to subside in a hurry. It seems likely at th
moment that more companies may report such losses on their sub-prime exposure, with to
losses estimated in a wide range, from US $285bn (S&P) to US $600bn (UBS). Therefore, goi
ahead, uncertainty lurks in the US and this could spell trouble for the Indian IT Industry, leading
possible slower growth also for the IT Training Industry.
The total number of
graduates passing out from the
system is not a constraint to
growth - it is the quality of
personnel that requires
attention
Indias working population
would reach a huge 700mn by
2030 and account for almost
half of Indias total population
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Companies like NIIT, in an effort to make a transition from being just IT training companies, a
beginning to leverage their knowledge base in IT to expand into talent development in oth
sectors also. Given likely strong GDP growth expected over the next few years, manpower neeacross sectors are fairly substantial. These include Banking, Financial Services and Insuran
(BFSI), Retail, Aviation, Hospitality, Research and Development (R&D) in sectors li
Pharmaceutical and Bio-technology and Telecom, apart from IT.
Consequently, to sustain higher GDP growth rates, these sectors, which are part of the broad
Services Sector that has been the cornerstone of Indias growth over the past few years, requ
significant numbers of quality personnel. A shortage of manpower in these sectors, apart from
could have serious repercussions on the countrys economic growth and this is a very real thre
that, if not effectively addressed, has the potential to derail the economy.
Thus, there is a strong opportunity for companies involved in training and developing talent fthese industries. Take the Indian BFSI sector for example. There are around 321mn citizens in t
paid work force category in India (Source: IFBI). Out of this, a mere 2.5% are active investors
equity, either directly or through mutual funds. Majority of the investible surplus goes into ban
and post office deposits. There is huge potential for growth here. Only 32.8% of them hold at lea
one insurance policy. Thus, insurance policy penetration is very low. Also, most of the insuran
policies taken are more for tax savings rather than for any scientific evaluation of needs vers
financial situations. Thus, there is significant scope for growth in these industries.
Driven by strong economic growth, ever-increasing affluence, greater savings, investments a
spending power, the need for financial intermediation has never been more pronounced. T
domestic Retail Banking Market is expanding at a rapid rate, with annual revenues expected to a significant US $16.5bn by 2010 (Source: McKinsey study). While the overall Banking industry
growing at 20%, New Private Sector banks like ICICI Bank, HDFC Bank and Axis Bank a
growing even faster. India's Banking Sector could potentially generate 7.5% of GDP and empl
as many as 1.5mn people going ahead (Source: IFBI), leading to significant manpower needs
The Insurance Sector is another high growth area. With the entry of private players into the l
insurance business a few years ago, breaking the monopoly of the Life Insurance Corporation
India (LIC), the market opened up and has since expanded more rapidly. Private players like ICI
Prudential have grabbed a significant chunk of the incremental marketshare, leading to LIC
share rapidly declining. Going ahead, private players are expected to continue to gain marketsha
The continuous launch of newer and innovative products like unit-linked insurance plans (ULIP
has helped faster growth of the industry and greater penetration into the market. Given that t
penetration levels of the sector are very low in India, there is significant scope for growth.
The General Insurance Sector also has many private players like ICICI Lombard and Bajaj Allian
This segment is slated to grow to a size of US $7.3bn (Rs29,000cr) this year, an annual grow
rate of 15%. Private Sector players have clocked a strong premium growth of 27%. This grow
coincides with the growing affluence of the Indian middle class and an expansion phase of Indi
Manpower needs across
sectors are fairly substantial,
including BFSI, Retail,Aviation, Hospitality, Research
and Development (R&D) and
Telecom
There is a strong opportunityfor companies involved in
training and developing talent
for Indias Services Sector
The domestic Retail Banking
Market is expected to hit a
significant US $16.5bn by 2010
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corporations. A growing consumer class, rising insurance awareness, increased investments a
enlarged infrastructure spending provide a strong platform for premium expansion. Forei
insurance majors are also making a beeline for the Indian insurance market. That is because Indis turning into one of the top markets in Asia. Thus, this sector will also need quality personnel
several functions like finance, sales, actuaries, customer service, and middle and sen
management, leading to a strong opportunity in training of professionals in this field.
Further, the growth and development of the Indian financial markets is well-known. Along w
strong economic growth, the financial markets have also kept pace, with the introduction of
number of new and innovative products like mutual funds, ULIPs, commodities, art and so o
This has significantly increased the choice of options for investors. Over the longer-term, India
expected to continue on a high growth trajectory, leading to greater affluence and the need f
proper financial planning and advice. Given this scenario, there is likely to be strong manpow
demand for financial market professionals and for Financial Planners.
Industries like Hospitality, Aviation and Retail are also likely to witness significant manpow
demand going ahead. Therefore, the opportunity for businesses providing critical raw materials
Indias Services Sector is fairly immense, given the criticality of scarce human resources to t
Indian economy in general and these industries in particular.
Corporate Training Market
The current Education System does not address the needs of many industries. Many kinds of s
skills (ie., English speaking, computer literacy, financial knowledge and skills) are lacking in t
pass out from these institutions. For this reason, companies in many industries prefer to trapeople at the time of induction, get them trained through specialised training institutions or abso
candidates from institutions that provide such specialised training. NIIT and Everonn provide su
specialised courses to candidates through their short and medium-term courses. In several case
the companies use the platform provided by these education companies to provide training
their fresh recruits as well as existing employees.
On the other hand, the estimated size of the North American corporate training market is in t
region of US $45.9bn, of which delivery services account for the maximum share of the pie of U
$21.6bn, while content development accounts for US $16.3bn. Going ahead, spending
corporate training is expected to rise by around 7% per annum until 2010 (Source: IDC), w
training outsourcing expected to grow by a considerably faster rate of nearly 25% per annum ovthe same period. Thus, there exists good scope for growth in this business, which is relevant f
NIIT, given that it derives most of its corporate business revenues from the US.
English Language Training Need to integrate with the Global Economy
With the rapid growth of the Indian economy and increasing globalisation of Indian corporat
given their burgeoning ambitions, there is an ever-increasing need for skilled, English-speaki
human resources. India has one of the largest English-speaking workforces. However, it shou
The current Education System
does not address the needs of
many industries
Spending on corporate
training is expected to rise by
7% until 2010, with training
outsourcing expected to grow
by nearly 25% over the sameperiod
Over the longer-term, India is
expected to continue on a high
growth trajectory, leading to
strong manpower demand for
financial market professionals
and for Financial Planners
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be noted that often, fluency in English is an issue. This is particularly a problem in industries l
BPO, which require extensive interaction with customers of foreign corporations. Consequent
as is the case in industries like IT, the problem is not of quantity but of quality. This has led tosignificant addressable market for English language training. The estimated market size is arou
10.5mn students. Companies like NIIT and Everonn are attempting to tap this growing mark
through their innovative products. NIIT has estimated a market size of around Rs800cr in thr
years and expects to capture around 10% of the market.
Conclusion
With the strong growth expected in the Indian economy going ahead, it is clear that hum
resources will be the key competitive advantage that the country has to sustain this robust grow
Thus, a strong foundation in the form of a robust education system will be the cornerstone
leading India's growth over the next many years. With the Government showing a clewillingness to engage the private sector in accomplishing the daunting task of educating India
13.5cr students, there are thus significant opportunities to tap for companies like Educom
Solutions, Everonn Systems India and NIIT Limited, both in the Government schools and Priva
schools businesses. With burgeoning demand for skilled human resources also in sectors li
Financial Services, there exist significant opportunities for growth in the Corporate Traini
business as well. We remain positive on the Indian Education Sector and believe it is a multi-ye
growth story that will play out over the next many years and thus, are enthused about the grow
prospects of companies serving this space.
The estimated market size for
English language training is
around 10.5mn students and inrevenue terms, this is expected
to hit Rs800cr in three years
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Jain Irrigatio
Initiating Covera
January 30, 2008 For Private Circulation Only - Sebi Registration No : INB 010996539June 5, 2008 For Private Circulation Only - Sebi Registration No : INB 010996539
Shareholding Pattern (%)
Promoters 56.0
MF / Banks / Indian FIs 2.6
FII / NRIs / OCBs 33.0
Indian Public / Others 8.4
BSE Code 532696
NSE Code EDUCOMP
Reuters Code EDSO.BO
Bloomberg Code EDSL IN
BSE Sensex 15,770
Nifty 4,677
Abs. 3m 1yr 3yr*
Sensex (%) (4.7) 8.5 68.2
Educomp (%) (9.9) 88.7 1,125.1
Stock Info
Sector Education
Market Cap (Rs cr) 6,041
Beta 1.05
52 Week High / Low 5,650/1,706
Avg Daily Volume 79481
Face Value (Rs) 10
BUY
Price Rs3,496
Target Price Rs4,051
Investment Period 12 Months
Sulabh Agrawal
Tel: 022 - 4040 3800 Ext: 346
E-mail: [email protected]
Educomp Solution
Initiating Covera
The Star at Pole Position
Educomp Solutions, the fastest-growing education solutions company in India, is a leader
providing end-to end solutions to government and private schools. The company now hplans to venture into new businesses of education, organically as well as inorganically in
attempt to increase its addressable market and have a presence in new geographies. On t
back of these initiatives we estimate the company's Top-line and Bottom-line to grow at CAG
of 76% and 67% over FY2008-10E, respectively. We Initiate Coverage on the stock, with
Buy recommendation and DCF-based Target Price of Rs4,051.
Leader in SmartClass, ICT Segments: Educomp has embarked on strong growth pa
owing to its leadership position and bright prospects of its key business segments. At the e
of FY2008, Educomp had 933 private schools under its coverage, with an addressab
market of 12,000 schools for its SmartClass business. We expect Educomp's SmartCla
revenues to grow at a CAGR of 70% over FY2008-10E. The Instruction and Computin
Technologies (ICT) segment is the second-largest contributor to its overall revenues. Arou
6,000 government schools were serviced by the company's ICT business at the end of FY200
which is the largest count in this segment v/s competitors . With an addressable market
9,50,000 schools, the growth potential is substantial for Educomp and its peers.
Well-developed content: Strong content development is the backbone of Educomp
product offerings. The company currently has a team of 400 professionals working on t
development and improvement of content. Apart from this, the company also has entered in
a tie-up with Discovery and Eureka for providing multimedia content for education. It curren
has a library of content for children from grade 6-12 mostly for Mathematics and Science
Educomp has over 16,000 modules of content, in over 1,00,000 pages and 10 languages
Strong sales team: Educomp has a strong sales team of 120 people and is planningincrease it to 170 people by the end of FY2009. A strong sales team results in go
conversion of prospective clients. Educomp has so far achieved it sales targets due to
aggressive sales team apart from its strong content development capabilities. This w
enable the company to achieve 70% CAGR in its SmartClass business.
Source: Company, Angel Research
Key Financials
Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E
Net Sales 106.6 262.1 483.8 811.2
% chg 103.8 145.9 84.6 67.7
EBITDA Margin (%) 47.0 47.6 48.1 48.3
Net Profit 28.7 70.1 117.9 196.5% chg 105.8 144.5 68.3 66.7
Diluted EPS (Rs) 17.9 35.2 68.4 113.9
P/E (x) 204 103.9 53.4 32.1
RoE (%) 25.0 21.8 27.0 31.2
RoCE (%) 22.7 21.9 26.1 30.4
P/BV (x) 54.9 19.6 14.4 10.0
EV/Sales (x) 58.4 23.7 12.9 7.7
EV/EBITDA (x) 124.2 49.9 26.7 15.9
* Since listing on January 13, 2006
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Company Background
Educomp Solutions, incorporated in 1994, has grown to become one of the large
technology-driven innovative education companies in India. With an employee base of over 3,0
professionals, Educomp currently serves approximately 6mn learners and educators across Ind
USA and Singapore. Educomp has 11 offices in India, 1 each in the US, Canada, Sri Lanka a
Singapore. The company has a sales presence in over 57 locations. Educomp works closely w
schools to implement innovative models to create and deliver content to enhance student learni
experience. The company went public on January 13, 2006, with an Issue price of Rs125 p
share and a total Issue size of 40lakh shares.
Educomp is India's leading Kindergarten to class 12 (K-12) Education Company and has, over t
years, pioneered various initiatives in the e-education space. Notable among them are t
'teacher-led' content system called SmartClass that has dramatically improved learnieffectiveness in classrooms, development of India's largest K-12 content library, with over 15,0
modules of rich 3D content that is aligned to Indian as well as international learning standard
India's first structured pre-school learning system, Roots 2 Wings, online learning initiatives li
mathguru.com and pioneering Education Process Outsourcing in India through the Learning Ho
platform, which has emerged as a benchmark for many similar initiatives.
Educomp has a track record of implementing large-scale Public-Private-Partnership (PPP) projec
The company works closely with various State and Central Government agencies, the IT and HR
Ministries and the governments of other countries. These educational programs also invo
across-the-board education infrastructure implementation, teacher training and conte
development projects. The current client base of PPP projects is over 6,000 schools includilarge projects from the governments of Assam, Chattisgarh, Orissa, Karnataka, Uttar Prades
Tripura, Gujarat, and West Bengal. Educomp today works with over 7,000 schools across Ind
the US and Singapore. In the US, the company's presence is via its fully owned subsidiary, Edumat
Corporation, based in Ventura, California.
Business Overview
SmartClass (Private schools)
SmartClass, a private schools initiative, accounts for the largest part of Educomp's revenue p
with approximately half the of revenues during FY2008 coming from this business. Educomp is tleader in this segment. This business entails providing multimedia-based education (primarily
Mathematics and Sciences) and infrastructure to children of the contracted private schools. Educom
provides the schools computers, LAN networking and Plasma screens for the classrooms, with t
intent of replacing the blackboard to a large extent. After the hardware is installed, the content
teaching the children is provided to the schools and teachers are trained to use the hardware a
content. Educomp has managed to create one of the largest content libraries in this field, w
approximately 400 content developers currently working on developing this content and arou
Educomp is Indias leading
K-12 Education Company
The current client base of PPP
projects is over 6,000 schools
including large projects from
state governments
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16,000 modules of content being available. This content is available in a variety of region
languages as well.
Currently, there are approximately 50,000 private schools in India. Out of these, about 10-12,0
charge fees of over Rs1,000 per month per student. Such schools make up the immedia
addressable market for Educomp. At the end of FY2008, Educomp was providing services to 9
private schools. All the company's contracts with the schools are unique and normally opera
under the Build-Own-Operate-Transfer (BOOT) method over an average period of five years. T
infrastructure is either purchased by the school directly or provided by Educomp, which amortis
it over the period of the contract as per the terms of the contract. At the end of the contract, th
infrastructure is transferred to the schools and the content is withdrawn as Educomp holds t
copyrights for the same. However, the school has the option to renew the contract and continue
use the content.
Educomp provides content on subjects like Mathematics, Science, English, History a
Geography to schools from primary to secondary levels (K-12). The students move through t
various classes and learn new topics in various subjects across the grades. This has be
visually presented below in Exhibit 1.
Around 10-12,000 schools
charge fees of over Rs1,000 per
month per student, which make
up the immediate addressable
market for Educomp
Exhibit 1: Progress through the grades
Source: Company, Angel Research
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Educomp had tie-ups with 933 private schools in its SmartClass business at the end of FY200With approximately 45 students per class and an average of 19 classes per school, SmartCla
revenues for FY2007 stood at Rs127.8cr. SmartClass revenues during FY2008 stood at Rs127.8
and accounted for 49% of total revenues. The average number of classes per school
increasing, as programs are being implemented in larger schools. This is expected to increase t
revenue per school going ahead. Educomp currently charges Rs150 per student per month f
providing its services. We estimate SmartClass revenues to hit Rs247cr in FY2009E. We expe
Educomp to grow its SmartClass revenues at an outstanding CAGR of 87% over FY2008-10
The SmartClass business would be primarily driven by strong sales initiatives, superior quality
content and a huge addressable market. As per the schools using this product there has been
remarkable increase in the marks of their students in the examinations which speaks about t
quality of the content. It clearly reflects the good quality of education being imparted by SmartClas
SmartClass revenuesaccounted for 49% of total
revenues in the period FY2008
FY2007 FY2008 FY2009E FY2010E
Number of SmartClass schools 331 933 1,700 2,700
YoY Growth (%) 264 182 82 59
Students per class 45 45 45 45
Classes per school 15 19 24 27
Revenue per student (Rs per month) 175 150 145 140Revenue per class (Rs per month) 12,265 8,868 6,525 6,300
Revenue per school (Rs per month) 1,83,976 1,68,489 1,56,600 1,70,100
Annual revenue per school 22,07,716 20,21,867 18,79,200 20,41,200
Total SmartClass Revenue (Rs cr) 46.6 127.8 247.4 449.1
YoY Growth (%) 126 174 94 82
As % of total revenue 49 49 51 55
EBIT Margin (%) 58 50 50
EBIT (Rs cr) 74.1 123.7 224.5
Source: Company, Angel Research
Exhibit 2: SmartClass - Revenue Profile
The students used to these methods of studying would appreciate the ease of learning that th
provide. It can thus be seen that Educomp's revenues have strong visibility, stability a
predictability, given their recurring nature. We believe that going ahead, even after the expiry the contracts with the schools, given the execution excellence shown by Educomp and its stro
content library, the contracts are more likely than not to be renewed.
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This business segment is the second-largest contributor to the company's overall revenues. IC
accounted for 36% of Educomp's FY2008 revenues. Educomp provided services to over 6,0
government schools at the end of FY2008 and the business is expected to grow at a robust raover the next few years with the government expected to offer 29,000 schools for tendering
FY2009. Further, with 9,50,000 existing government schools in India, we believe the grow
potential of this segment is substantial and state governments are expected to increasingly depl
resources to improve education in their schools.
FY2007 FY2008 FY2009E FY2010E
Number of ICT schools 2,808 6,004 12,000 18,500
YoY Growth (%) 358 114 100 54
Revenue per school (Rs per month) 14,699 17,651 16,500 15,500Revenue per school (Rs per year) 1,76,390 2,11,813 1,98,000 1,86,000
Total ICT Revenue (Rs cr) 30.2 93.3 178.2 283.7
YoY Growth (%) 90 209 91 59
As % of total revenue 32 36 37 35
EBIT Margin (%) 29 28 28
EBIT (Rs cr) 27.3 49.9 79.4
Exhibit 4: ICT - Revenue Profile
Source: Company, Angel Research
At the end of FY2008, Educomp was providing services to 6004 government schools. T
average revenue realisation per school was Rs2,11,813 per year. However, we believe goi
ahead, the average realisation per school per annum would decline as this business is procur
through competitive bidding via tenders and the lowest-cost bidder generally wins the contra
Nonetheless, going ahead we believe that a greater number of schools would be receptive to su
concepts owing to the Central Government's intent to improve the quality and reach of educati
and to increase the overall literacy levels in India. Till date, approximately 30,000 schools ha
been included in the ICT comparative programs. The total number of government schools in Ind
are approximately 9,50,000, of which a mere 3% have included ICT and equivalent programs
their curriculum. As for Educomp, it is the leader in ICT and education, has considerab
experience in the competitive bidding process and has developed regional content as required
state governments. Thus, we expect it to achieve high growth over the next few years.
On a conservative basis, we estimate this business to record a CAGR of 74% in Top-line ov
FY2008-10E. EBIT Margins stood at 29% in FY2008. We expect Educomp to maintain its Marg
in this business, given that the market potential is substantial and the players would not need
undercut each other to increase their business. Further, with Educomp being the largest player
enjoys a competitive edge apart from being the most profitable player in the business.
There are 9.5lakh government
schools in India, of which just
3% have included ICT and
equivalent programs in their
curriculum
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Professional Development (Teacher Training)
Educomp has tied up with three companies (computer manufacturer, software and chip) name
Intel, Microsoft and Wipro. These tie-ups are towards providing training and upgrading the skills
the teachers in India. There are approximately five million teachers in India and a majority of the
lack the training to teach. Hence, Educomp, through its Teacher Training initiative, provides t
required training to the teachers apart from refurbishing their skills. The teachers have to under
training over a two-week period. Educomp's partners in the business compensate it for providi
this service. Educomp is currently the largest teachers' trainer in India having trained over 3,00,0
teachers during FY2008. This business contributed around 10% to the company's total revenu
during FY2008.
FY2007 FY2008 FY2009E FY2010E
Total number of teachers trained 1,10,000 3,05,570 3,81,963 4,58,355
YoY Growth (%) 47 178 25 20
Revenue for training each teacher (Rs) 1595 839 800 800
Total Prof. Development Revenue (Rs cr) 17.5 25.6 30.6 36.7
YoY Growth (%) 43 46 19 20
As % of total revenue 19 10 6 5
EBIT Margin (%) 61 58 57
EBIT (Rs cr) 15.7 17.7 20.9
Exhibit 6: Professional Development
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 5: Growth of ICT business
0
80
16
24
32
40
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,00020,000
FY2007 FY2008 FY2009E FY2010E
(%Nos.N um be r o f ICT s ch oo ls G ro wt h ( RH S)
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We believe that the potential for growth in this field is also immense given the paucity of teache
having pre-service training and the growing emphasis on improving the quality of educatio
imparted to students. Teachers' training earns approximately 61% EBIT Margins for Educomp. Westimate revenues from Professional training to grow at a CAGR of 20% over FY2008-10E.
Retail Tutoring and websites - Limited by low broadband penetration
A major part of the expense connected to education for a middle class Indian family is mone
spent on individual coaching of children. To tap this market, Educomp has set up two websit
viz., 'mathguru.com' and 'learninghour.com', which caters to the students' needs after scho
Mathguru.com is an online portal for Mathematics and guides on NCERT books study for grade
to 12 students. Learninghour.com provides retail online tutoring to children in India, the US and t
Middle East on all curricular subjects and tests preps with services. The websites can b
accessed by subscribing to them. The charges for mathguru.com are approximately Rs1,800 pstudent per annum. Broadband web connection is a vital and limiting factor to access the
web-sites. Currently, broadband penetration is very low (0.35%) in the country. However,
Budget 2008-09, customs duty on import of equipment for providing broadband services has be
lifted, which we believe will lower the costs of setting up infrastructure for providing these service
This would in turn help increase the penetration of internet services and lend a boost
subscriptions of web-based learning portals.
Exhibit 7: Web-based Retail Tutoring and Subscriptions
Source: Company, Angel Research
FY2008 FY2009E FY2010E
Subscriptions 85,339 1,53,610 2,61,137
YoY Growth (%) 0 80 70
Revenue per subscription (Rs) 1,800 1,800 1,600
Total Subscription Revenues (Rs cr) 15.4 27.6 41.8
YoY Growth (%) 0 80 51
As % of total revenue 6 6 5
EBIT Margin (%) 56 45 36
EBIT (Rs cr) 8.7 12.4 15.0
Approximately 33% of the monthly income of the 300mn-strong Indian middle class is spent on t
education of their children. One-third of this amount is spent on school education while tbalance two-thirds is spent outside the school for private tutoring. Educomp is accessing th
market through its retail tutoring initiatives. This product would have an advantage over priva
coaching, as it would be available 24 hours a day as per the convenience of the individual stude
The student would not have to leave his/her home as well and travel to receive the coachin
Educomp has a strong content development team that designs content for these websites. W
believe that with higher internet and broadband access and penetration in India, the market f
portals like mathguru.com would increase. We estimate that revenues from this product wou
grow at a strong 65% CAGR over FY2008-10E even as EBIT Margins decline marginally.
Mathguru.com is an online
portal for mathematics and
guides on NCERT books study
for grade 6 to 12 students
Approximately 33% of the
monthly income of the300mn-strong Indian middle
class is spent on the education
of their children
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India. The JV would be used to sell entire range of Educomp's products to K12 students. Throu
this JV, Educomp would be able to reach over one million Chinese schools, thus enhancing t
addressable market size tremendously. Further the JV would bring to India the entire range
Raffles professional development programs and courses. This would provide a meaning
education alternative to student graduating from high schools in India. Under the terms of the J
the existing Raffles Design Institute in Mumbai will be merged into the JV operations. We have n
factored in the revenue and profit resulting from this JV as it is in a very nascent stage
development.
Export of services and content
Under the SmartClass business, Educomp also sells content and services to schools in forei
countries (mainly in the US and Middle East). This segment accounts for approximately 10%
Educomp's overall revenue and profits. Educomp is also on the look-out for opportunities in oth
geographies to expand its market. Generally, education content is similar across countries an
has to be modified slightly to make it adaptable to the respective students. Thus, Educomp incu
marginal costs to modify/adapt the content for geographical diversification though this requir
recruitment of new content developers with the requisite geographical orientation. Educomp h
considerable expertise in the development of content and selling to new customers across vario
regions. We believe the company has strong potential for growth for export of its content
existing and new destinations.
Tutoring Business
Educomp is planning to launch tutoring business through ThreeBrix. In this business, Educom
would be providing its SmartClass content to students through its leased centers. Educomp wou
be able to further leverage upon its strong content library through this business and increase
penetration to students who do study at SmartClass schools. The estimated market size for th
product is Rs530cr. As this business would be run through leased centers, the capex requireme
would be low. Currently Educomp is testing this product and we have not factored this busine
into our model.
Strategic acquisitions
Educomp is making several strategic acquisitions to broaden its product offerings a
geographical reach thereby increasing its addressable market size. The company has acquir
four companies in the recent past.
Educomp acquired 76% stake in ThreeBrix, which is a dome
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