Educomp Solutions, a publicly listed integrated education company, has picked up a strategic stake in leading engineering test preparation player Vidya Mandir Classes (P) Ltd (VMC) for close to Rs 34 crore, the company said in its communique to the exchanges.
Founded in 1989, VMC is a test preparation institute for ITT JEE (Joint Entrance Examination for Indian Institutes of Technology in India) and other engineering entrance examinations such as AIEBE, NSIT, DCE, BITS, etc. VMC is run by three brothers and ex-IIT Delhi engineers (Shyammohan Gupta, Brijmohan Gupta and Mammohan Gupta). VMC’s core focus in on IITJEE entrance exams. It has only four centres (3 in Delhi and 1 in Patna, Bihar) in India.
“Consumer spend outside formal education in verticals such as tutoring, career counseling, assessment, academic skills enhancement and admissions is growing significantly and Educomp is well placed to lead in these market segments,” said Shantanu Prakash, Chief executive officer (CEO) and managing director (MD), Educomp Solutions.
Shares of the company declined Rs 66.7, or 9.67%, to trade at Rs 623.10. The total volume of shares traded was 694,199 at the BSE (11.19 a.m., Wednesday).
Educomp’s acquisition of an existing test prep firm Vidya for Rs 34 crore comes as a surprise given that Educomp is developing a test prep business under its existing Learning Hour business and has VSAT centres under Educomp Leap that are expected to reach 75 centres. The company’s Learning Hour business is a chain of tutorial centers which provide tutoring to students from classes VIII to XII and also provide online tutoring through learninghour.com, an assistance services to students across the world.
“Educomp’s acquisition of brick & mortar Test Prep firm Vidya Mandir after acquiring test prep firm Learning Hour in 2008 indicates inability in scaling in-house products and management desperation in searching for alternate growth avenues to Smart Class (the company’s core business of providing technology to the class room),” Ankur Rudra, lead analyst, Execution Noble, told VCCircle. On the valuation front too, rival firm Everonn recently purchased test prep firm Toppers Tutorial with 15 centres (6 centres when acquired) for just Rs 10 million. Rudra said, “The premium paid by Educomp for 4 centres (Rs 85 million per centre) looks excessive.”
Educomp has been getting big on the acquisition route to growth. It acquired education startup Studyplaces.com for $1.29 million early this year, Takshila Management Services Ltd. (a company specializing in setting up high quality schools in Tier II & Tier III cities), Euro Kids international Pvt. Ltd ( pre-school for kids), A-Plus Education Solutions Pvt. Ltd. (tutoring & test preparation) and Learning.com (test prep).
Listed firms in classroom software such as Educomp, Everonn and NIIT are facing increased competition from the private players such as Edurite (part of TutorVista). Apart from pricing pressure, there are other challenges such as receding competitive advantages of first movers and several private education companies raising capital at a substantial premium to their listed counterparts (trading at ~15x one year forward earnings), Rudra reasons.
Educomp essentially pioneered the trend in evangelizing online education models be it teaching in the class room or test prep or creating social networking sites for teachers and classrooms. It launched Mathguru.com in 2006, an online math-help programme catering to students studying in classes VI through XII, Wizig.com, an online virtual classroom developed by Educomp’s subsidiary AuthorGen that connects students and teachers from around the world and Authorstream.com, a web platform for sharing power point presentations on blogs and websites. But none of those initiatives actually led to any substantial results in terms of profitability or market reach.