Test prep firm CL Educate open to acquiring firms; to add about 300 more physical centres: Group CEO Nikhil Mahajan

Test prep company CL Educate (fomerly Career Launcher) is looking to expand its physical footprint from around 200 centres now to 500 centres witinin next two to three years  as it charts its growth path, says group chief executive officer Nikhil Mahajan.

In its quest for expansion, it is open to acquiring firms but will not put money by looking at only valuations and subscriptions of a test-prep of edtech firm. It is only evaluating those who have positive cash flows, Mahajan told Moneycontrol in an interview.

He also said that the pandemic has made CL educate more efficient and a hybrid model -- both digital and physical in education offerings will play out more visibly. Mahajan, who is also the executuve director of the firm,  said CUET, the new centralised entrance exams for university admission, may offer a bigger opportunity to test prep players than JEE and NEET exams put together. And CL is gearing to capture that market. Edited excerpts from the interview

How is your education services business doing?

We have two large businesses, education services and MarTech. So yes, Test prep is a large segment of our total revenues, but that's about 60 percent and our marketing services business is about 40 percent. We have some of the leading technology brands, as our customer in this (MarTech) sector like Google, AWS, SAP, Dell, IBM etc. We have operations in India, Singapore, the US and Dubai among others.

So, the 60:40 mix in your portfolio of test prep and MarTech will remain a constant or you believe this MarTech is going expand given the opportunity in technology led marketing?

We hope that that business is likely to go past that because of its wider geographical acceptance. And being a more tech-oriented product.

We also are confident that the educational services will keep expanding in India. We currently cover about 125 local cities in India (with over 200 centres). Our endeavour is, in the next three years, we want to have 500 points where our physical locations exist. And I think that will enable and enhance our reach significantly and will give a wider acceptance to our test prep offerings.

Test prep businesses is in an interesting zone, and some of the traditional big names have already got acquired by young Edtech players. How are you evaluating the situation and your business?

I will give a very straightforward answer. See, we've built out this organization over the last 25-27 years, and we are building out this organization to survive 100 years or longer. What will happen, six quarters down the line. I can't state what happens, but our endeavour is we are here to stay. See when COVID hit, obviously it was a very bad period for our business. And predominantly because our physical centers were closed.

We were able to move to the digital line of business, but obviously in education, the pricing power for digital business is significantly dimmed as compared to physical center. But as the centers have reopened, we realise the pandemic helped us to become a more efficient, high touch as well as tech savvy company. We will operate, probably in a much more efficient manner, than we used to do in pre Covid-19 era.

Will you be more digital or physical as a test prep firm?

My hypothesis is digital came because that was a necessity.  But education is also a high touch business. An equilibrium will get established between physical and digital. Pre-COVID, maybe 90% was offline and there was 10% online delivery. It moved to 100 percent online during Covid, and now when the equilibrium re-establishes whether it is 50-50, 60-40 or 40-60…the needle will settle somewhere. We will know in next few months.

But it's going to be in every sphere of business. Everything will become and becoming hybrid with a healthy mix of technology deployment and physical offerings.

So, CL Educate is not talking to any company either to acquire or to get acquired?

We are open to acquiring players as long as they come at right price, bring in right value. I'm not going to throw money at high valuations. Which some of the other people did or are trying to. I think equilibrium will also get established in the Edtech market. Eventually, more reality based, cashflow based, profitable, sustainable businesses will survive.

Valuation apart, the business actually has to be real cash generating. I'm not going to acquire something, which is only subscriptions without any revenue.

During the two years of Covid, we ensured and sustained positive cashflow generation. And I think that is the reality of business, even in the most adverse environment. If I generate positive cash, I won't have to dip into my accrued reserve. I think that's the beauty of business.

So, you are on a growth path?

We are now on a reasonably well laid out highway for us to grow reasonably over the next 24 months. One or two positive developments are also happening in the environment. In the sense the CUET exam probably will be the largest entrance exam in India. While this year it's only for the central universities, we are finding a huge number of private universities also subscribing to it. In a couple of years. I won't be surprised if the test takers numbers touch one crore.

And if there are 1 crore test taker in next few years, having 1 or 2 percent market share for people to be CL students would not be too big thing for us…CUET is probably going to be a much bigger (opportunity) than JEE and NEET put together in a couple of years.

So I think a very big opportunity is opening up, and we are currently focused, extremely hard on capitalizing on this opportunity to the best possible extent, besides our well laid out plan to touch 500 physical location points.

You said from about 200 odd centers now to 500 centers in next three years. How many centres directly, and how many via franchise?

Out of the current centers, we directly run about 20-25 centers ourselves. And about 180 odd centers are run by our franchise partners. And 95% of the incremental centers, which will be opened will be through the franchise partnerships. We have one of the most robust franchise systems. And we are sure about the process robustness and scalability.