Educomp shows how education firms can battle the slump
Posted on Feb 27 2014 | IANS
New Delhi, Feb 27 : India's education firms are under pressure with the stock prices of most listed firms like NIIT, Educomp and Everonn taking a beating in the last few years due to the government's inability to push forward reforms, industry analysts said.
Educomp's share price has slumped from a peak of over Rs.600 to around Rs.22.80 currently. In the past year, Everonn's share price fell from a peak of Rs.82.75 to Rs.32 and Core Technologies' price fell from Rs.295.50 to Rs.16, while the NIIT share declined to Rs.24.95 from a peak of Rs.49.
According to analysts and experts, lack of reforms and bureaucratic muddling have negatively affected India's education sector.
"We are in the 21st century with a mid-20th century regulatory architecture. Countries like China, Korea and Singapore have transformed from developing to advanced economies in a decade due to strategic planning and a larger vision that correlated economic development to transformation in the education sector to become globally competitive," said an analyst.
"Perhaps India needs a 'vision education' mission to arrest the downward spiral and kickstart a revolution in the sector, bereft of bureaucratic muddling and characteristic indecision," he added.
Analysts point out that despite some announcements, the government has not pushed forward reforms in the education sector.
During his tenure as human resource development minister, Kapil Sibal had announced a number of reform measures. But most of these promises remain unfulfilled.
Sibal announced a 100-day plan, many promises of which were either put in cold storage or delayed beyond deliverance, notably the implementation of the Right to Education Act and Public Private Partnership in Education.
Many of the schemes, such as the National Skills Development Mission also failed to achieve the necessary scale, having got embroiled in either bureaucracy or simply the slowness that characterises government decisions.
An unfavourable capital market scenario and mounting interest rates ensured that many leading companies, such as Everonn, Educomp, NIIT and Aptech, were denied a level playing field in which to nurture their business.
Consequently, many of them, having invested in capital-heavy projects such as schools and colleges, are now battling high debt and a hostile regulatory environment.
Inevitably, the stock markets wrote them off. However, balance sheets reveal a different scenario.
Some of the companies have shown a steady turnaround as they attempt to readjust their strategy and business models to plan for the next phase of their growth.
"It seems that after a lull, many of the education companies have now dealt with key issues such as high debt through debt restructuring programmes or discussions with their bankers to give them a longer window in which to repay," said an equity analyst who closely tracks education companies.
"They have made their model capital-light and the focus has shifted on new products and services with which they plan to capture the larger education opportunity in India," he added.
Educomp is a case in point. In the past three quarters, Educomp has announced a large number of measures to re-ignite growth and rewrite its cost model.
According to an insider, operational costs have been brought down by around 40-50 percent in different business segments. Similar cost-rationalisation programmes are being undertaken by other companies.
Educomp has also launched new innovative products that are not capex intensive, for example products such as Educomp Insight for Assessment and Educomp English Mentor, an English language lab.
The company is also in the process of launching individualistic products where the focus is on launching student-centric products, a company statement said.
"In the pipeline is the launch of Uni-class -- a low-cost product that enables content access for individual learners. As a business model, selling directly to students has till now proved itself as a profitable one," it said.