Moneycontrol
Mar 17, 2017 11:07 AM IST | Source: Moneycontrol.com

Class Dismissed: Education tech cos are no longer recession-proof

Once the sunshine segment of the education market, education technology companies including Educomp Solutions, Core Education & Technologies and Everonn Education are now reeling under rising losses and falling revenues.

ByM Saraswathy
Class Dismissed: Education tech cos are no longer recession-proof

Once the sunshine segment of the education market, education technology companies including Educomp Solutions, Core Education & Technologies and Everonn Education are now reeling under rising losses and falling revenues.

Pioneers of the smart classroom concept in the country, these companies were on an aggressive expansion mode tying up with private sector schools as well as government schools. In the initial stages, while payments were steady, dues started mounting.

In the case of Everonn Education, a winding-up petition has been filed against the company by Hewlett-Packard Financial Services (India) in the Madras High Court. The court has appointed a provisional liquidator and has directed the said provisional liquidator to take possession of all the assets of the company.

Further, trading in the equity shares of Everonn Education has been suspended from November 4, 2016. There was a 97.4 percent drop in their share price ever since listing in 2007 to November 3.

In 1994, a few years after passing out of the Indian Institute of Management-Ahmedabad (IIM-A), Shantanu Prakash set up Educomp Solutions with an aim to provide technology-enabled education solutions in the country. Within two decades, the company set up more than 25 offices across the globe and revenue touched Rs 129.39 crore for nine months ended December 2016.

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 back to grassroots. Almost 30 years later, Kishore is no longer associated with Everonn, which has seen its profits slump. Mumbai-headquartered Core Education and Technologies is no different which was founded about 15 years ago. With falling revenues and rising losses, Core is in talks with lenders to work out a restructuring package.

The conventional wisdom about education being a recession-proof sector has taken a few hard knocks. Unpaid dues, schools constantly pressurising them for discounts had led to weakening books of these companies.

Peers in the sector like Aptech and NIIT have widened the scope of their business beyond computer education. In order to stay relevant in the market, they have also embraced IT and skill training as well. They have kept costs under control and stayed focused on an asset-light model.

Debt servicing has also become an issue for some of these companies. Core Education, in its June results (which is the latest available), said that it is looking at various possibilities for financial revival of the company. These include paring down debt through bilateral negotiations with various lenders and accelerating collections of long-pending dues from some government clients. It is also negotiating with its lenders for restructuring and settlement of its loans. The company’s stock has been suspended due to penal reasons.

Taking multiple ICT (Information and Communication Technology) contracts from government clients proved to be costly for these companies since mounting dues have only added to existing issues.

For the quarter ended December 31, 2016, Educomp posted a net loss of Rs 131 crore. In its results statement, the company said that they have incurred substantial losses and their net worth has been fully eroded.

“The company has not been able to meet its debt-related obligations including those as per its CDR package executed with lenders,” Educomp had said. The company did not respond to a questionnaire sent by Moneycontrol. As per its existing proposal, Educomp is planning to monetise its investments, receivables and assets apart from taking steps to improve its operational efficiencies.

On one hand, while debt restructuring packages may have to be significantly revised to offer payment flexibility to these companies so that they stay in business, branching out into other skilling areas where volumes could generate revenue growth is what could become the core focus in the future.
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