 "Education firms pull out all stops to get back to profitability")
However, while players like Educomp Solutions, Core Education and Technologies and NIIT Ltd have seen drop in profits and total income, Aptech has managed to stay profitable by building an asset-light model.
Educomp Solutions, Core Education and Technologies and NIIT Ltd have seen a net loss for the first quarter ended June 30, 2013 as compared to a net profit in same quarter last fiscal.
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Everonn Education saw its net loss widening to Rs 22.94 crore as compared to Rs 22.89 crore in previous fiscal. The only player in this segment to post profits was Aptech.
Aptech posted a 25.2% rise in its net profits for the first quarter ended June 30, 2013, as compared to same quarter last year. Aptech posted profit after tax of Rs 4.72 crore, against Rs 3.77 crore. The total income for the quarter stood at Rs 42.48 crore, showing a 9.8% growth on a year-on-year basis.
Ninad Karpe, Managing Director & CEO, Aptech Limited said, "With a strong operating performance, underlined by second successive quarter of revenue growth and fourth successive quarter of Operating EBITDA growth, we are further strengthening our position as a global education & training services leader.”
Karpe explained that the company has built a model which is not involved in building assets. “Our main thrust is on the content, aided by a partnership-franchise model. We have not gone out blindly and entered into contracts,” he said.
Aptech is now increasing its focus on international expansion and Karpe said that the target was to have 50% of retail business from international locations. About 80% of their business is retail and the rest is enterprise business.
The main focus areas for the company would be online testing and career education.
For the other companies, as revenues are falling and receivables are going up, companies are facing issues to service their debt obligations. This is also a reason that some of these companies are resorting to both business and debt restructuring.
NIIT limited has posted net loss of Rs 9.4 crore for the first quarter ended June 30, 2013. The company had posted a profit of Rs 11.5 crore in the same period last year. From being an IT training company, it is now moving to become an IT-enabled training company.
Educomp posted a loss of Rs 23.96 crore for the quarter ended June 30, 2013 (consolidated), against net profit of Rs 4.88 crore for the corresponding year-ago quarter. Its debt recast is still in the works.
“We have changed the business model of our flagship SmartClass program from outright to BOO (build own operate) model with effect from April 1, 2013 where the revenue recognition of the contract would be over the entire contract period (20% of order book annually),” said Shantanu Prakash, chairman and managing director of Educomp.
Earlier the company was selling smart class on outright basis and recognised revenue (75% of contract value) over 2 years. Prakash said that this has resulted in drop of revenue and profits. The expenses, on the other hand, are mostly fixed in nature (salaries/admin expenses etc.) so EBIDTA and profit before tax dropped significantly, he added.
Everonn Education, a satellite-enabled education provider, on the other hand, has been facing problems ever since former chairman P Kishore was arrested on bribery charges in 2011 and later released on bail. In April, A Srinivasan was recently appointed as managing director of the company. Net sales saw a huge dip from Rs 67.09 crore in Q1 FY13 to Rs 10.46 crore in Q1 FY14.
“We need to admit that the untoward incidents have reflected on our numbers for the year, which lead to a dip in the revenue and business operations," the company said in its annual report last year.
However, the company has added that this is just a passing phase and they would soon resurface stronger. However, with debt woes increasing, Everonn Education board has given the nod for debt restructuring of the company. It is now waiting for a go-ahead from the lenders.
Other peers are facing similar issues. Core Education had posted a net loss of Rs 33.36 crore for the quarter ended June 30, compared to a net profit of Rs 78.54 crore in the same period of FY13. Their net sales stood at Rs 342.11 crore against Rs 482.64 crore in the same period in FY13.
Core Education faced significant financial stress during the April-June quarter due to decrease in the sales revenue and increase in overdue trade receivables. The non-availability of Rs 85 crore sanctioned funds made matters worse.
The company, which is hit by delays in payments by state governments as well as economic slowdown in the US, plans to raise Rs 200 crore in fresh funding from lenders as part of a debt restructuring programme.
The education services company has already knocked the doors of the corporate debt restructuring (CDR) cell to rework repayments for 50% of its Rs 1,300 crore of advances. It is also in talks to recast the balance portion.
Nikhil Morsawala, director (finance), Core Education had earlier told Business Standard that in a bid to reduce capital expenditure, they have decided not to tender for ICT projects for the time being and instead focus on service-oriented businesses.
According to Morsawala, the company will need 12-24 months to come back to its original position. In the past three months, the company has pruned down its staff strength by 250, mostly developers and marketing staff. The staff strength now stands at about 1,200.
However, these companies are not sitting idle. Educomp is taking steps to ferment growth, which includes a ‘horizontal extraction’ strategy that offers more products to existing customers with a view to grow spend from schools and improve income per capita customer contact point.
Further, Prakash said that Educomp has also progressively divested itself of most non-core businesses and monetized non-core assets to improve liquidity and reduce capital need.
“Over the last 3 months, the company has let go of over 3500 employees. This alone has the potential of significant savings for the company,” he said.
Educomp has recently outsourced its service and maintenance logistics to HCL Infosystems. The company is targeting a reduction in operational costs of close to 20% over the last fiscal due to these measures. Educomp has also initiated a zero-tolerance regime for recoveries has been initiated with an aggressive collection drive currently underway across the country.
“Today, when the economic environment poses a challenge to the education sector (in fact Indian economy)as a whole, as India’s largest education company, we are confident that our core strengths will see us through these times as they have done earlier in our nearly two decades of existence,” said Prakash.
Recently Educomp said that it has laid-off 3,500 employees. Broadly at current average salary, this could mean an annual saving of about Rs 80 crore, which is almost 60% of its annual interest cost of about Rs 140 crore. Analysts said that this is enough for the company to return to profitability.
Employees cost is the biggest component of cost, which is why the companies in the sector are looking to bring it down to fight the slowdown. In June quarter, the employee cost of Educomp fell by almost 10.2% whereas Everonn reported whopping 49% decline in employee cost. However despite that Everonn reported a loss of Rs 22.94 crore, which is largely attributed to 67% drop in revenues and higher interest cost.
Analysts believe that though restructuring could be positive but there are worries high debt in the books and deteriorating working capital. If the situations persist the companies will have to reply on the borrowed funds and thus the interest cost remain at the elevated levels.
In June quarter, Educomp reported 51.6% jump in interest cost to Rs 71.66 crore and Everonn's interest cost went up by 18% to Rs 13.19 crore. Also, on business front the companies are facing huge challenges in terms of growth because of slow demand and realisations from the existing clients.