Educomp may hive off overseas businesses

Education services and technology company Educomp Solutions is looking to exit all businesses that are non-core. Shantanu Prakash, Chairman and Managing Director of Educomp Solutions said that they would only want to be present in the schools and digital business and would hive off all others, that may include the overseas acquisitions

"We are bringing a whole sea-change in the business and want to be an intellectual and knowledge company. In FY16, we will focus on internet, social (peer to peer learning & sharing) and cloud. In the due course, we may exit other businesses," he said.

Prakash said that in the next one month, their content will be available on Flipkart, Amazon and Snapdeal, and in 3 months time, it will be available in electronics retailers like Croma too. He added that the content has already been put on the cloud platform, which are available for students to purchase at a price and access from their own devices, be it smartphones or laptops.

He explained that the products offerings have also expanded and is not just restricted to Smartclass, but includes newer products like English Mentor and E-Dac Learning System. He said that they also have a low-priced version of smartclass called UniClass.

"We haven't stopped investments in R&D. However, we are trying to bring all the delinquent schools back on track. Collections have improved from contracts and we have collected Rs 500 crore," he added.

The focus of the company is to re-position the brand as a pure knowledge company. Prakash said that their corporate overheads and salary costs overall have come down by 35%. Similarly, Educomp has 17 warehouses earlier, which has now come down to only two.

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. He expects it to be EBITDA (earnings before interest, taxes depreciation and amortisation) positive from this fiscal onwards.

Earlier, Educomp was selling smart class on an outright basis and recognised revenue (75% of contract value) over two years. This had resulted in a drop of revenue and profits. .

Educomp also made two exits from what it called non-core segments. The company sold its entire 50% 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.

Later, it completed the sale of 50% 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.

Their corporate debt restructuring (CDR) scheme was already approved earlier comprising Working Capital Debt of Rs 399.04 crore and Long Term Debt of Rs 83.05 crore, Prakash said that from the first quarter of this fiscal itself they would see better business growth and more recovery from government contracts.

In January 2015, Educomp Solutions board has approved issuance of equity shares to the lenders on conversion of Funded Interest Term Loan. Further, it had initiated the process for merging Edu Smart Services with itself.

"Our efforts to refocus on our core business is an ongoing process. The investment intent in education is coming back and we may raise Rs 450-500 crore from private equity investors," he said. Prakash also said that the competitive intensity from other players is coming down in the Smartclass category.

The company posted losses of Rs 591.6 crore for the quarter ended December 31, 2014 compared to loss of Rs 87.61 crore in same quarter previous year. Their sales also came down by almost 20% in that period.

The higher losses were due to higher provisions for doubtful trade receivables including dues from government companies/agencies.

Further rationalisation may also happen with respect to jobs in the company, though Prakash said that they are hiring people for the call-centre and R&D positions. In 2013 itself, Educomp Solutions had said that it slashed 3,500 jobs in three months, truncating its workforce by almost 20%.