Strong presence in the growing education sector bodes well for the company.
Educomp, one of the few companies with a scalable business model in the burgeoning education business, is gearing up for another phase of growth. The company has been targeting strong volume thrust in the next few years. There are about 75,000 private schools that the company can target, reckon analysts. This is 30 per cent of the 2,43,895 private schools in the country in 2007-08, as measured by the District Information System for Education.
The company is expected to see its market share grow from 4.4 per cent to around 16 per cent in the next three years. This indicates the company has potential to maintain revenue growth of 21 per cent for its Smart Class model. Recently, the company received Rs 415 crore by way of securitisation of Smart Class revenues. Also, Rs 500 crore has been sanctioned for the current financial year. This should improve the company’s cash flows. It has also transferred its build, own, operate and transfer business to its subsidiary, Edusmart. This, reckon analysts, will allow better bunching of revenues.
For FY10, revenues grew 63 per cent to Rs 1,040 crore and net earnings were up 134 per cent to Rs 271 crore. However, after adjusting the numbers for securitisation, adjusted revenues and net earnings grew at a lower rate of 38 per cent and 71 per cent, respectively. Operating profit margins remained strong at 53 per cent levels. While the Smart Class business seems to be on a sound footing, revenues from other businesses look tense. Higher learning, 12 schools and other supplemental online revenues, however, have witnessed a fall in the March quarter and FY10. It is completely dependent on the school-learning solutions for its earnings and revenue growth — something that makes analysts a tad uncomfortable. Smart Class growth would have been much lower if securitisation of old BOOT contracts was excluded, said analysts at Citi. Going ahead, the company will have to maintain its order execution rate to justify rich valuations.
