Career Launcher diversifies business model, eyes pre-IPO funding by 2015
CL Educate Ltd, formerly known as Career Launcher India Ltd, has diversified its business model beyond test preparation to beat slow growth in its core business while adding new segments to boost its revenue stream. Through a mix of organic growth and acquisitions, it has created a bouquet of new verticals like vocational training, running K-12 schools and starting a publishing business as part of the strategy to achieve scale and be a well-rounded education company, its founder and chairman told VCCircle.
Three years ago, the company generated almost all of its Rs 85-90 crore revenue from the test preparation business. Now it is just a shade above half of the total revenue of Rs 230 crore. The non-test prep business now generates nearly Rs 100 crore in revenues, growing at 45-50 per cent annually, as against the test prep segment (the original business of the firm), which is growing at 12-14 per cent a year, said Satya Narayanan R, chairman of CL Educate.
A company, which stuck to its test preparation business for over a decade, has a reason for diversifying, explained Narayanan. “Test prep was intended to gain entry into the education sector. But eventually, we want to grow and grab a bigger pie of this sector. Going outside test preparation was inevitable to achieve this,” he said.
According to the company, the test prep segment is around 4 per cent of what is a multi-billion-dollar education market in India. So the gap between other segments of education and test preparation is huge. “Even the largest company in the test prep business is Rs 150 crore and you can very well realise that the market is fragmented. It is difficult to become a Rs 500 crore or Rs 1,000 crore company with just test preparation,” observed Narayanan.
The company’s investors including Gaja Capital, which has invested through multiple tranches since 2007 and also made other investments in the education sector like Educomp, are backing the business extension strategy.
According to Gopal Jain, managing partner at Gaja Capital, education verticals are interconnected with each other, unlike other industries of the consumer sector. “That’s why the verticals that CL Educate has entered are a logical extension of its test preparation business. For example, all its publishing under the content and publishing business is test preparation focused. The company is top third in the test preparation business,” he added.
He also mentioned that in the past five years, the company has evolved from ‘one product, one region’ business to a ‘multi product, pan-India presence’.
Vertical strategy and future plans
Today, K-12 schools under Indus World Schools brand brings in around 10 per cent of the revenues while vocational training (SkillSchool and Kestone divisions) and its publishing business bring in another 20 per cent each.
Narayanan sees the revenue split among verticals to be stable for the next three years. “While test preparation is an asset-light business, schools is a cash-upfront business,” he added.
The company’s most capital-intensive vertical is K-12 schools. It is run under the brand Indus World Schools, which opened the first school in 2005 in Hyderabad and the second one in 2006 in Indore. The vertical received Rs 50 crore in funding in February 2011 from India’s largest mortgage lender, Housing Development Finance Corp (HDFC). Private equity firm Gaja Capital, an existing investor in the main company, also co-invested in the subsidiary.
Today, it runs 14 schools and plans to consolidate its presence across the existing units in the next one year, rather than going for an immediate expansion. “We have used the entire amount (Rs 50 crore) raised for this segment as this is a capital-intensive business,” said Narayanan. This is also the smallest vertical for the company in terms of revenues.
Another vertical is the publishing business, but the company entered this space inorganically. In January last year, CL Educate acquired Noida-based GK Publications Pvt Ltd, a publisher of competitive exams books. “But we won’t look at any acquisition in the publishing space for the next three years. We want to grow organically,” said Narayanan while detailing the future plans.
Another business vertical for the company is Kestone division, which marked CL Educate’s foray into formal vocational training, aimed at employability enhancement of the Indian workforce. This largely targets urban college students and seeks to provide requisite skills that will make them job-ready from Day I. At present, the firm has 35 company-run vocational training centres and wants to open 100 of them in the next three years.
The company’s core test preparation business has a total of 175 centres today, of which 100 are franchisees of the firm. “We aim to have 250 test prep centres in the next three years,” said Narayanan.
This explains the business mix remaining more or less the same in the next three years as it is now, in terms of revenues. While it is looking to expand its slow growing test prep segment, it expects its existing schools to generate more revenues while expansion in vocational training and organic growth in the publishing unit will sustain revenue growth in the short-medium term.
Career Launcher is one of the first education companies to raise venture funding in India. While its original investor Intel Capital had exited long ago, the current shareholders include Gaja Capital Partners, Edelweiss Capital, Granite Hill and HDFC.
Although Narayanan does not have any immediate fundraising plan, he said, “We will definitely go for an IPO in the next three years. We will also look for another pre-IPO round of PE funding in 2015. But we haven’t decided the amount yet.”
Jain of Gaja Capital added, “We would like to stay invested in CL Educate as long as possible. But we won’t be able to do this as we are a PE fund and we will have to exit sometime. We have also seen a lot of interest from strategic investors for Career Launcher. We will pass on when the right time comes.”
(Edited by Sanghamitra Mandal)