Educomp in Forbes 200 Best Under A Billion
200 Best Under A Billion Lesson Plans.India is on a tear to educate its children. Shantanu Prakash's Educomp is cashing in by bringing computers to the classroom.
India is pouring billions more into education each year in a rush to feed its booming economy with well-prepared workers. That spells big opportunities for education businesses such as Everonn Systems in Chennai and NIIT in Gurgaon that are chasing contracts to provide computer-aided lessons in schools. They're using technology to make education more available--and more interesting--to students across the country. But the company doing the best in this market is Educomp Solutions, also in Gurgaon. It makes our list this year of the 200 best public companies in Asia-Pacific with sales under $1 billion a year.
Educomp is on a tear. Its revenue leaped from $12.5 million for the year ended in March 2006 to $71 million for fiscal 2008. Profits jumped from $3 million to $18 million. And both the top line and bottom line are expected to nearly double this year and next, says Mumbai's Icici Securities. The stock debuted in January 2006 at $2.83 and traded recently at $78.98, but it may be overvalued. The share price is 48 times the company's expected earnings per share this year, says Icici. "Flawless, continuous execution is required to meet the expectations that they have set," warns Krupal Maniar, a research analyst at the firm. "Execution risk is the biggest risk they may face."
Educomp's main business is developing and licensing digital lessons, which are uploaded onto servers provided to schools. It also trains teachers (75,000 just in the last quarter), provides vocational training to students with courses such as accounting and marketing, and offers online and in-person tutoring. "We are all about how the education sector can use information technology," says Shantanu Prakash, the company's 43-year-old founder and managing director.
Educomp would like to own schools, but a key education board prohibits for-profit companies from doing that. So in 2005 it began opening private schools with not-for-profit educational trusts, providing the computers, the digital lessons, the books and sometimes the land and building. It now helps run eight K--12 schools. It joined up in January with New Delhi real estate developer Ansal Properties & Infrastructure to start 25 private schools in new townships. It aims to start 150 schools in all over the next three years.
At one of the private schools it helps run, the PSBB Millennium School in Chennai, seventh-grader Shreya Sreekumar peers into her laptop on a recent morning as her teacher walks her and her 38 classmates through a lesson on the human respiratory system. As they study brightly colored pictures of a larynx and lungs, a potentially dull biology class suddenly becomes much more engaging. "It's a fun way of learning," she says. Once the class is done, the teacher sends the homework assignment wirelessly to each student's laptop.
Educomp's big money-maker is smartclass, a range of interactive digital lessons with animation and graphics that's marketed mainly to private schools because they have deeper pockets than public schools. The multimedia lessons--it offers 16,000 so far--are based on the different curricula in place across the country and use 12 of the country's languages. Lessons feature video images that students can rotate to see from different angles, explaining hard-to-visualize concepts such as the splitting of an atom or the structure of human DNA. Educomp has 400 people developing lessons at three sites, in the New Delhi suburbs of Noida and Gurgaon and in Bangalore.
With all this material in place, Educomp is expanding abroad. In June of last year it bought a Singapore e-learning company for $7 million and now holds half that country's market for supplying digital lessons to schools. It's a small market, but it's strategic because it's an entree to the rest of the region. It entered the U.S. market last November by picking up a 51% stake--for $24.5 million--in an e-learning company called Learning.com, which reaches 2.5 million students in more than 2,000 school districts across the U.S. William Kelly, chief executive of Learning.com, believes that Educomp's Smart Class content can be deployed, with tweaks, in the U.S. "While the marketplace is very different and we are in different stages of development, we are all dedicated to digital education," he says.
To break into China, Educomp has tied up with Singapore's Raffles Education Corp. to help it navigate the Chinese market and sell digital lessons to Chinese schools. And Prakash is going to help Raffles--which already has a design school in Mumbai--with the higher education market in India.
Meanwhile, the use of smartclass has grown from 90 private schools in 2006 to 1,200 now, and Educomp expects it to touch 1,800 by March. Even with all this growth, Prakash has just scratched the surface in India, which has 1.12 million public and private schools. There's also been exponential growth in the number of public schools signing on for computers and courseware from Educomp, going from 2,808 for fiscal 2007 to 7,300 now. Public schools account for roughly a third of Educomp's revenue, while Smart Class supplies 49%. And its private-school business is far more profitable, with gross margins of nearly 60%, compared with 29% for public schools.
The government contracts present the biggest challenges because the schools are so far-flung. Educomp sometimes transports computers on bullock carts and even boats to get to remote parts of the country. "We implement even the last mile of the project on our own," says Soumya Kanti, who heads the division that handles government work at Educomp. This means providing generators in schools without a power supply.
As with any outfit dependent on government contracts, Educomp is vulnerable to policy changes. Also, budgetary constraints can cause delays in its payments. What's more, this segment is extremely competitive, but players say there's enough business to go around. "If you have to get to all the schools in the country, you need many more Everonns, Educomps and NIITs," says Everonn's managing director, Kishore Padmanabhan. Everonn, with $23 million in revenue in fiscal 2008, provides classes via satellite to 232 schools and 239 colleges across India.
Prakash figures he veered toward the education sector because he got a sound education himself, rare in a country where even today 141 million of the 362 million school-age children are not in school, much less a good one. He grew up in a steel town in the eastern state of Orissa and studied at St. Paul's School in Rourkela, where his mother was a teacher, and then went on to the Delhi Public School in New Delhi for 11th and 12th grades. A commerce degree at the city's Shriram College followed. After that he went to the country's leading business school, the Indian Institute of Management in Ahmedabad.
Prakash's father, Jagdish, worked for the government-owned Steel Authority of India and was a big believer in getting a steady government job. So when his son joined a friend's startup education company after business school in 1988, Dad wasn't too thrilled. Later Prakash borrowed $3,000 from his dad to set up his own education business; his dad now sits on Educomp's board. "Shantanu had this entrepreneurial streak even back on campus," says Educomp's Kanti, who was a classmate at the Indian Institute of Management. "He always wanted to do something on his own."
When Educomp started in 1994 computers were just appearing in Indian schools. Prakash set up computer labs in schools and then launched eCampus, a management tool that computerized everything from accounting to payroll to attendance. Then he expanded into computer-based learning, first with CD-ROMs and then with his library of digital content. "When you come up with something very disruptive you have to do a lot of concept-selling and evangelizing," he says, referring to how teachers had to learn new skills to use his lessons.
The big break came after 2000, when the UN called for universal elementary education. India upped its ante on education in 2004 and launched a plan to educate every primary-school-age child. This year public education spending will jump 20%, to $8.4 billion.
His next move? Gaming. Prakash is now putting his educational content on the Xbox gaming platform, through a tie-up with Microsoft. A demo Xbox lesson in his office has a drawing of the human ear with explanations of the different parts. And he's working with Intel on developing the next generation of student computers, for use in classrooms. "Shantanu recognizes things very quickly," says Ajit Singh, a director at Intel who handles emerging markets. "He's also a fast decision maker. When you walk away [after a meeting] you know what the next steps are."