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Educomp and Education’s sub prime crisis (Part II)

Posted in Business Cases by Manas Ganguly on April 23, 2013

This is Part II of a series of posts that discusses the Rise and Fall of Educomp track the growth of the prodigal education services company and track the factors that led to its fall. Read Part I here

From an asset light services to a capex laden balance sheet player – Educomp was getting its business mode wrong – Why did Shantanu Prakash (CEO, Founder) and Educomp move to this business model which would take in more capital and where the money would not come in quickly? The Answer – The lure of high valuation. In January 2008, it’s price-earnings multiple was 27.8 (today it is just a fraction of that at 6.77).

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Buoyed by Educomp’s rosy growth numbers, between 2008 and 2009 investment banks and broking firms started putting out fat reports on the massive pot of gold at the end of the education rainbow. And Educomp was buoyed by its greed to ride the wave. The potential market was estimated at $30-35 billion across various education segments like multimedia-in-classrooms, privately run K-12 schools, vocational training, preschools, coaching classes and higher education.

Secondly Shantanu Prakash and Educomp diffused the effort over too many businesses in education using every conceivable strategic tool. For instance, Educomp’s joint ventures list reads-
IndiaCan with Pearson Plc (Vocational training)
Raffles Millenium colleges with Raffles Education
Topper TV with Network 18 in the TV space.

There were investments and acquisitions
PurpleLeap in vocational training
Vidya Mandir and Gateforum in test preparation
Eurokids in preschools.
And of course there were numerous new subsidiaries of which its own brand of K-12 schools was the most significant one.

Educomp’s annual report for 2009-10 listed 15 directly held subsidiaries, 28 indirectly held ones, five joint ventures and 14 associate companies spread across India, Singapore, Canada, USA and the British Virgin Islands.

Diffused sense of direction alongwith an awry business model is one of the worst cocktails and Educomp was brewing this.

Continued in Part III

Reproduced from Article on Forbes: The Rise and the Fall of Educomp (April 8, 2013)

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