 "Education firms learn a few lessons")
The catch, however, is the revenue actually declined a whopping 46.5 per cent compared to the same period in the previous year. And the company posted a net loss of Rs 82.66 crore compared to a net profit of Rs 3.63 crore in the same period in the previous year.
Educomp's case is not an isolated one. P Kishore had co-founded Everonn Education (then called Systems International) in Tamil Nadu to take technology-based education to grassroots. Almost 26 years later, Kishore is no longer associated with Everonn, which has seen its profits slump.
Mumbai-headquartered Core Education and Technologies is no different. Founded in 2003 by Sanjeev Mansotra, Core is now knocking on the doors of the Corporate Debt Restructuring (CDR) cell to rework repayments for 50 per cent of its Rs 1,300 crore loans. It posted a net loss of Rs 29.24 crore for the quarter ended September 30, 2013, compared to a net profit of Rs 72.93 crore in the same period a year ago.
With revenues falling and receivables going up, these companies are facing issues of debt servicing. This is also a reason that some of these companies are resorting to both business and debt restructuring. Educomp laid off 3,500 employees over three months, though Prakash said this alone had the potential of significant savings for the company.
Prakash is confident things would turn around. He said Educomp had changed the business model of its flagship Smartclass programme with effect from April 1, 2013, where the revenue recognition of the contract would be over the entire contract period.
"Earlier, Educomp was selling smart class on an outright basis and recognised revenue (75 per cent of contract value) over two years. This has resulted in a drop of revenue and profits. The expenses, on the other hand, are mostly fixed in nature (salaries/admin expenses etc.) so EBITDA (earnings before interest, taxes depreciation and amortisation) and profit before tax dropped significantly. Revenue declined by Rs 140.6 crore, mainly due to the change in Smartclass in the business model," he said.
Educomp also made two exits from what it called non-core segments. Earlier this year, the company sold its entire 50 per cent stake in the vocational training firm IndiaCan, to its joint venture partner Pearson. Further, Educomp also announced a primary capital investment from Kaizen PE and Bertelsmann in its internet education platform business, Authorgen.
In March, it completed the sale of 50 per cent stake in Eurokids International to a group of investors led by GPE India. The company had said it made a profit of Rs 70 crore on this investment, and that the proceeds would be used for its core businesses.
According to Prakash, Educomp has made 3X (three times) its original investment in Eurokids and has seen a good demand for its assets. He also said some debt realignment would also happen, thanks to the sale of non-core assets.
Everonn Education, a satellite-enabled education provider, on the other hand, has been facing problems ever since former chairman Kishore was arrested in an alleged bribery and tax evasion case in August 2011, and later released on bail. Hopes rose when Dubai-based Varkey Group acquired 12 per cent stake in Everonn for Rs 138.23 crore through a preferential allotment in December 2011. Post this transaction, Varkey Group was treated as a co-promoter of the company.
Soon after, in April 2013, A Srinivasan was appointed managing director of the company after Rakesh Sharma resigned from the post.
Everonn has been quite candid about its business performance and the way forward. "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.
"Our revenues are difficult to predict and can vary significantly from period to period, which could cause our share price to decline. We may not be able to sustain our previous profit margins or levels of profitability," said Everonn in its recent 2012-13 annual report.
Hit by cash paucity and liquidity concerns, a CDR process has been initiated in all the three companies.
Nikhil Morsawala, director (finance), Core Education had earlier told Business Standard that in a bid to reduce capital expenditure, the company has 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 get back to its original position.
The market obviously has been quick to punish these companies. The share prices of Everonn, Educomp and Core, which were well above Rs 100 (Core was above Rs 300), have now dropped below Rs 40 for Everonn and below Rs 25 for Core and Educomp.
How Aptech bucked the trend
Aptech was the first to discover the advantages of an asset-light model. It started the process of re-engineering four years ago - from changing its logo to consolidating its operations to focussing on its core strength of career education. Not only has the company seen a rise in net profit from Rs 4.7 crore in the September quarter of 2012-13 to Rs 7.62 crore in September quarter 2013-14, its revenues have also seen a four per cent rise.
Aptech is also bullish about growth in this sector. "We remain optimistic about the industry. It still has a lot of depth and continues to grow at a CAGR (compound annual growth rate) of 12-15 per cent. Only those education companies, which are able to reinvent themselves and rise above the clutter, will survive and grow. Technology will also be a key differentiator," Ninad Karpe, managing director of Aptech, had told Business Standard.