Small-town dreams to $1 billion valuation: How Aakash Educational Services grew wings

We will rapidly expand our omni channel & digital offerings, as we embark on the next trajectory of quality education & growth,” said the company’s statement.

Early days
Born on August 1, 1949 in Sevli village, Haryana, Aakash Educational Services founder JC Chaudhry attended a school in Hathin, a town in the State’s Palwal district. Being born in a village did not deter him from dreaming big.

Chaudhry completed his Master’s degree in Science (Botany) from the Birla Institute of Technology and Science (BITS), Pilani, Rajasthan in 1972. Soon after, he started his career as a teacher at Vaish College, in Bhiwani, Haryana, where he taught in 1972 and 1973. Between 1973-1974 he taught at Hansraj Model School, Punjabi Bagh, New Delhi.

He soon taught at Delhi Administration schools and was selected as principal through the UPSC. It was during this teaching journey that Chaudhry realised that there was a big gap in the coaching segment in the country.

In the mid-1980s, coaching centres were unheard of and the market was unorganised with medical exam pass-outs offering informal teaching services.

Chaudhry took a leap at this opportunity and started a small coaching centre named Aakash Institute (after his son) for medical exams in Delhi’s Janakpuri area, with just 12 students. When seven of the 12 students cleared the tests, word spread quickly.

The class strength grew to 50 and then to 100 over the next few years. Chaudhry started expanding the centres slowly but consistently in Delhi.
The institute crossed another milestone in 1993 when 23 of its students were selected for the pre-medical test (PMT now called NEET-UG).

Students and parents woke up to the news of a local coaching centre and that was when a new realisation dawned that Aakash Institute could be their magic flight to a medical education. Today, AESL has over 200 classroom centres teaching over 250,000 students.

Early expansion

By 1996-97, Aakash Institute had started exploring the franchise model to set up coaching centres. Chaudhry soon realised that his institute was ready for expansion nationally. From 2003 onwards, centres started coming up in Ranchi, Guwahati, Bhubaneshwar, Kolkata, Dehradun and Lucknow.
Company insiders said that all the push and ideas came from Chaudhry, who started aspire for a nationwide expansion.

“Chaudhryji has always dreamed big and wanted to replicate the Delhi success in all the major cities of India. By that time his son Aakash also joined the business and the duo immediately realised the missing piece: engineering test-prep,” said a company official.

By 2006, Aakash had found his calling too. A Harvard Business School graduate, he worked with companies such as Infosys and Cognizant before joining AESL.

The-milestones-for-Aakash-Educational-Services
Once Aakash came in, the company started to expand rapidly to places such as Mumbai. From the name of Aakash Institute, it was incorporated as a public limited company with the name Aakash Educational Services, in October 2007.

Simultaneously, Chaudhry was also turning his eyes to other interests. In 2017, he founded the Aakash Healthcare Super Speciality Hospital in Delhi. The website says that it is a 230-bed tertiary-care facility, with 15 Dialysis, and 70 Critical care beds for the most complex cases in the Delhi National Capital Region (NCR).

A practicing numerologist for close to 35 years, Chaudhry has also written a book on ‘Advanced Numerology’.

Interestingly, his personal website also states that Chaudhry has conducted numerological audits of corporates/companies, helped give a suitable name to a brand/establishment/company, helped in naming newborn children and in finding out boy-girl compatibility for marriage.

A former AESL employee said that Chaudhry has always kept his hands full by not focussing merely on one activity.

“Nobody would imagine a teacher and test-prep business founder showing so much interest in numerology and Vastu Shastra. But JC Chaudhry is known to be a dabbler in multiple interests. Probably that is what has kept him going,” said the person quoted above.

Entry into other segments
Under Aakash Chaudhry, AESL entered the engineering test-prep space as Aakash IIT-JEE. It offers preparatory courses for students in Class 11 and Class 12, and repeater courses for students who have passed Class 12, and are again preparing for State engineering Common Entrance Tests (CETs) and for Joint Entrance Examinations (JEE) conducted at the State and Central levels, including the JEE Main and Advanced.

In addition, the company also set up Aakash Foundations in 2009 to offer test preparatory courses to students in Class 9 and Class 10 for Science, Mathematics, English and Social Sciences. In addition, AESL provides training to these students for central and state board examinations, and for junior competitive scholarship tests and merit tests, such as the Olympiads and National Talent Search Examination.

Soon, the big thrust was on digital learning solutions with both students and parents exploring technology-led education tools.

To cater to this growth, Chaudhry and his son set up Aakash Digital Learning solutions in 2013. It later comprised of Aakash Live (launched in 2016) and Aakash iTutor (launched in 2012).

Aakash iTutor is a digital content-based platform providing recorded video lectures with integrated test taking. Aakash Live is an interactive virtual classroom that replicates a real classroom with the help of the web in real time.

Son Aakash, who was now managing the business full-time, also started getting hungry for expansion and fund raising. The company had also planned an IPO in 2019/19 but that hasn’t seen the light of the day yet.

The Blackstone entry

When the IPO plans took a backseat, Blackstone picked up a 37.5 percent stake in AESL for Rs 1,350 crore in October 2019, valuing Aakash at Rs 3,500 crore ($500 million). The money was meant for AESL to expand into the online space — seen as inevitable by some of the offline test prep incumbents.

After the acquisition, Amit Dixit, India head of Blackstone, said in a statement: “Live tutoring, whether in physical or online classrooms, has proven to be an effective model globally for delivering consistent results in standardised tests...Our thesis is to accelerate AESL’s push in online live tutoring, both organically and through acquisitions.”

Blackstone’s investment also came after AESL shelved plans for an IPO. AESL had planned to raise Rs 1,000 crore and had filed its draft documents with the market regulator in 2018 for a listing but chose not to, seeing volatility in public markets, and private capital being available.

With Blackstone’s investment, the company took the online route seriously, unlike incumbents such as PACE, FIIT-JEE and others for whom the internet and app-based learning is still uncommon. While success in the digital space is yet to be seen, a concerted effort in that direction shows AESL’s priorities.

Acquiring Meritnation (a live classes platform) in January 2020 for Rs 100 crore, setting up the digital business subsidiary in July 2020 and appointing Abhishek Maheshwari as AESL CEO in November 2020 was part of the plan. Maheshwari was earlier Byjus’ head of international business.

CRISIL Research said the undergraduate test-preparation coaching industry would accelerate to a size of Rs 39,000 crore in 2020-21. It is estimated that 50-55 percent of this market would constitute NEET and JEE test coaching.

So, when is the deal with Byju’s?

And while it may be some time away, Byju’s may have to think about an exit option as well. Since it is too big to sell to anyone, an IPO down the line may be the only option, and even that is with many caveats. Founder Byju Raveendran had said earlier that he wants to go public at some point.
Acquiring Aakash may help in that regard as well. It almost went public once, has reasonable scale, is a recognized brand in India, and is profitable with over Rs 1,000 crore in revenue in 2018.

In FY19, the total income of AESL rose to Rs 1,140.6 crore while profit was Rs 196.92 crore as per its MCA filings. For FY20, profit stood at Rs 164.68 crore as per filings with the MCA and total income stood at Rs 1,261.4 crore.
However, Blackstone could stand in the way of a deal. According to a person close to the firm, “Blackstone was not very bullish on the online space. They invested in a high cash generating business at a decent valuation where even purely offline you can grow 15 percent year-on-year".

So, Blackstone may not want to take a stake in Byju’s. That leaves the option of Byju giving Blackstone a cash exit.

If the billion-dollar valuation holds for a cash exit, Blackstone will get a 2x return on its investment in 18 months, a solid outcome given the forces at play.