Educomp Chairman and MD responds to our story

In response to our story ‘The Rise and Fall of Educomp’ Shantanu Prakash clarified some controversial aspects of the story

Published: Apr 18, 2013

In response to the Forbes India story titled ‘The Rise and Fall of Educomp’ in the edition of April 19, 2013, Shantanu Prakash, the chairman and managing director of Educomp sent us a letter clarifying some controversial aspects of the story. Here is his letter along with our comments in bold and italics:

We wish to place on record our disappointment at the report filed by your journalist.

That there is an attempt to sensationalize the story is not only evident from the headlines and title of the article but the opening paragraph itself - it paints the exit of former CFO Ms. Gulati as an act of intrigue and her divestment of shares earned through ESOPs as some sort of a conspiracy.  As a journalist in the financial sector, he should have known that all senior management use ESOPs to sell shares and create value. Even if one were to keep that aside, the facts don’t support this conclusion as anyone analyzing data on her divestment will figure out (grant date, vesting date, exercise date and sale date of the same are a matter of public record and can be accessed easily , however for the sake of convenience the data is attached. (attached excel sheet)

He has focused on Educomp without pointing to the challenges all players in the education sector are facing. He forgets to mention that of the eight companies’ active in the education space; seven have noticed erosion in market value in the last fiscal which has ranged from 22% to 77%. It is therefore safe to conclude that evaluation of Educomp has been done in a vacuum with no reference to externalities.

He finds fault with Educomp's ability to pay off its debt or restructure it.  Hundreds of companies raised FCCB in 2007-08 as it was a popular instrument then. Educomp was one among those able to do, in full, and on its due date, and from such marquee investors. But he sees this as a matter of regret instead of an achievement and a validation of the intrinsic value of Educomp.

He is unable to address why, if the company is such a bad bet, it has been able to secure funding from marquee investors over the last fiscal; why International Finance Corporation (IFC) would choose Educomp to makes its debut investment in the education sector in India or why Educomp has attracted more investment than any other player in India and continues to be the investment of choice for high caliber investor interest globally.

He ignores the high quality of Educomp businesses which have attracted the attention of discerning investors such as Gaja Capital, Pearson, Kaizen and Bertlesmann who have invested over Rs. 200 Crore over the past 6 months in either investing in or acquiring Educomp run and managed businesses, the period which he refers to as the ‘Fall of Educomp’.

Our response: Based on inputs from reliable sources, we understand that Pearson found it more prudent to acquire Educomp’s stake in the joint venture because of serious operational concerns and Educomp’s diminishing role in the partnership.

Note his use of "several high profile exits" as something stunning and unique for a company. All we can say to that is that if the story makes reference to exits, it could have also mentioned high profile entries at a senior level-a new Group CEO and a new Business Head for Smartclass business is not something that should be selectively ignored.

The journalist presents the difference in 50000 school seats versus 22000 students as some sort of anomaly. In India, by law, you can only launch grades from K-5 and then ramp up to K-12 grades in a few years. When you construct capacity, you obviously create capacity for all grades (because it is cost-effective), but students will come in over time, so it is only natural that a school wouldn’t have 100% capacity utilization instantly. Therefore ‘highlighting’ this aspect seems deliberately designed to give out a false impression of our schools running at low capacity.

The attempt to tarnish Educomp's business model is clear. The journalist picks out one case from South India to create a scenario of failure in spite of admitting a quote from Educomp that this was a case of dispute. Even with the largest customer base of over 15000 schools, Educomp NPA rate is less than 1% (this data was shared with the journalist)and yet he chooses to call our Smartclass model ‘perilous’. Not to mention that he ignores the fact that every single of Educomp’s competitor uses the exact same business model which his research must have certainly shown. The model that Educomp pioneered is in fact standard for the entire industry.

An entire piece within the main story aims to raise questions about my leadership ‘style’ and opinions of direct competitors of Educomp (which can hardly be considered credible or genuine) is offered as evidence  for the same.  If you were to take an opinion on leadership style would you take a quote from our direct competitor or an impartial credible third party?

Our response: We solicit inputs from a range of stakeholders for our stories, including competitors, investors, company executives, analysts and investors. So there’s nothing unusual about a quote from a direct competitor.

Educomp retains the pole position among education companies in India. It remains a pioneer with considerable IP advantages. It is the market leader and its business model is now being followed by almost all competitors. Educomp is the largest company in education in India on several metrics. It is number one in seven of its nine main verticals and leading the pack in others. It has the biggest customer base of any education company; it has trained more teachers than any other and it remains the largest education provider to the largest number of school children in the history of India – reaching over 32,000 schools and over 20 million learners and educators across the world- largest in the world for any education company. These are hardly the characteristics of a company that has fallen.  All the above data was given in writing to the journalist which he conveniently chose to ignore. He fails to mention why, if the company is such as bad bet, Educomp still remains one of the highest valued education companies in India till date.

Our response: Educomp’s stock price has lost over 90 percent of its value in the last 3 years, and another 10 percent in just the 3 weeks since March 23rd 2013 when the Forbes India story was filed. But it is also true that some of its smaller competitors may be doing even worse.

The education business, like all businesses in India and even across the globe, is passing through turbulent market conditions. At such times, expansion strategies, growth targets and bottom lines all come under pressure. This is not an unusual phenomenon in the life of a business. Had the journalist wanted to understand the business, its potential, its challenges, and how Educomp is reorienting itself to face them, he would have been greatly benefited, and Forbes’ readers equally illumined.

I personally invited him to visit our R&D facilities, see our path-breaking products and speak to our leadership team but he declined. Had he done that he would have seen the contribution that Educomp has made to the entire education sector in India and understood the long term vision of the company. Forbes India is a magazine that stands for fair, accurate, balanced and credible reporting and presenting the full story rather than a one- sided negative view would have given readers the data they need to make a balanced judgment.

Our response: We did not imply any permanence with our title, “The Rise and Fall of Educomp”. It is entirely possible for Educomp to rise again, and we wish it luck in that.

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  • Raghav Bhosle

    Educomp has most worse set of management who are from some great business schools but this doesn't help at all in this case. " Example1 :They have extended the services to the schools who did not pay for two Quarters and in return they have provided services till next couple of years and by the time they the payment tower has grew-up slowly the people began negotiating the payment and have provided discount of 50% of the total due where as the loss could have been minimized if they stopped service. " " Example2 : Company provides hardware support for 5 years as a contract and because of the poor and cheap quality hardware purchased from china the material is used get repairs quite often due to which school disagree to pay but negotiations continues for next 6 to 8 month requesting for payment and school refuses, by the time payment pending will grew up and company waives off 60% and picks up 40% where as the hardware could have been rectified with just 5% of the due payment for 6 months." " Example3 : In every service sector companies the ground level employee is key for progress of the company hence is named the pillars of an organization .In Educomp the lower employee is call co-ordinator who works in school on behalf of the company, if such employee whose salaries are not paid in time just think about the mental state of that employee ? what best can he perform ? how can he manage things an ex-Employee said that they have huge line of hierarchy in which some are just fits for nothing as a matter of fact there is a manager to handle different schools for payment hardware and lower employees there is an other manager called regional manager who draws a salary that can be paid to 8 lower level employees, there is another manager called Zonal Manager on the top of regional manager, the argument is, if the manager is made responsible for picking up payments and the lower grade employee to support him what could the regional manager do ? if at all support is required there is a zonal manager who can support manager what is the used of a regional manager be ? when the major responsibilities are carried out by just 2 .This is how the funds are getting misused .when you know the company is in trouble better had less hierarchy. Source : Former Employee worked as the level 2 employee from the bottom Looking at the entire scenario of educomp it is has been clear that the company is not learning from its mistake and fixes up their drawback . We can confirmly say that purchasing the educomp stock or holding can make you more loss as a matter of fact Educomp is like a ship with a hole in the bottom, leaking water, and people at Educomp's job is to get the ship pointed in the right direction.

    on Dec 13, 2014
  • Manikandan

    Can you run movies , on and on and on? Particularly in school classrooms?

    on Apr 3, 2014
  • Asha

    Do you know Educomp has not paid salary to its employees for the past few months

    on Dec 23, 2013
  • Smart C Cordinator

    Yes I agree with below comment. If they put SCC salary on hold then why are good for nothing managers being paid every month. Who become deaf when it comes to hardware complains but they want school payment on time. Classes are closed for more than two months school management and students suffering but all they need is money. Now they started saying straight forwardly that make your school pay then we\'ll pay or else forget your salary. YOUR DAYS ARE OVER EDUCOMP..NO ONE CAN STOP YOU FROM BEING BANKRUPT

    on Sep 2, 2013
  • Employee Of Educomp

    School Co-ordinator is doing all the job not so called MANAGERS thet are waste, Managers are receinig salary but not SCC. Managers are called collectors of MONEY and depositng it to the company account thats it and nothing else and they are so Kool. But poor SCC has to do all the job as school demands and everything. And STILL I havent recieved my last four month salary........................ Mr Shanthanu plz give back our Hard worked salary...... do this one favour

    on Aug 6, 2013
  • Bhanuchander

    Actually what is final step off educomp......all are employees resigned the job...still they did not get salary from three months......

    on Jul 29, 2013
  • Rohit

    Also iv been tracking educomp for long. Its a bogus company that has had lots of insider trading and has bribed its way through govt tenders. A company that was able to capitalize on corrupt indian tendering trends.

    on Jul 5, 2013
  • Abhishek Asthana

    The story be it educomp, everonn or edserv is same. The reasons of the same are: 1. They are run by technocrats without having acdemic mindset 2. Failed to shift the mindet of user toward E learning, usage of LMS etc. 3. Barring Educomp, rest having very poor quality of content 4. Starting with emphasis of E learning and they changing the policy itself and moving to Brick and Morter based education 5. Buying cheap content at very high prices and thus draining the money out to personal pocket 6 Fail to gain confidence of public at large ( ETEN CA is only exception) 7. A Education company but getting every thing outsourced. Eg Company like Edserv is having salary expense of only 10 LAc a Month. It reflects an attempt to run an education company like an automobile company and not emphasizing on capacity building though CAPEX.

    on Jun 10, 2013
  • Arun Goel

    Have gone through the reverts of Mr Shantanu..... seems to be satisfied excpt the fact that leaving of senior management should not be linked to downfall. Actually its only the senior management who know where the company is going...... its only the sailer jumps when the ship start sinking On the other hand... I am closely watching Educomp for last so many years (as an outsider) and have confidence that company will regain their market capitalisation. One can be easily cursed in their bad times but important is that how that person is trying to deal with its bad time. Mr. Shantanu.. All the best for you future endeavors

    on May 7, 2013
  • Friend

    company not going well , you can ask this from any employee working in educomp.Few of employee thinking to lodge case against company for fraud with them,They are working with company and company not paying salaries at time ,Hr not doing its work not answering calls ,they are using employees salary for their own .shunting employees not clearing their des at time . Reason behind educomp fall is missmanagment ,Managers not taking its jobs seriously but senior cant shount on them bcoz they either relative collage friend. Intyerview creteria is bad ,Company fail to show carrier path to employess so employees not serviving best . school not renewing contract and this is the reason company going down.

    on May 6, 2013
  • K A Prasanna

    Business is about trust, reputation and credibility. Educucomp has none of these. Hence raising again will be difficult.

    on Apr 29, 2013
  • Vikas Kukreja

    Its interesting to read views of both sides, however none of them are fully right. Its a fact and known secret in market about how Educomp has managed its financials and working capital poorly leading to overall degradation of business and erosion of shareholder\'s wealth. However, the original article by forbes was incomplete and not revealing true business anomalies rather stressing upon sensational issues of CFO resignation etc. The reasons of business degradation, margins shrinkage and working capital stretches were not explained at all. Merely highlighting the figures and spicing up the story is not good journalism by any means and its pity that even Forbes is playing along these lines rather than setting up standards by detailed analysis and in depth research for its readers. Remember that we Indians are not fools or Idots (as Mr. Katju claims) but are rather smart and willing to have indepth analysis and knowledge of issue a hand. So its important to raise your standards of journalism to maintain a brand.

    on Apr 26, 2013
    • True Very True

      THUMBS UP

      on May 17, 2013
  • Aravind

    Guys, you are just getting eye washed by the CEO\'s comments. Educomp has badly managed its cash flows. There is no doubt. Any fact can be presented with a view that there is a problem which is gripping the industry or sector. But come on the journey of stock price of 600 to a stock price of 50 is not going to happen unless the company is grossly mismanaged and some grave operational errors have occurred during that time.

    on Apr 23, 2013
  • Srini Rao

    Forbes seems to present one sided view of story. Reminds of flipkart story too. Journalist needs to present complete data and present impartial view.

    on Apr 22, 2013
  • Ravi Puttur

    Dear Editor, I went through the original article and the reply from Educomp. I feel the article was not well researched. Sad to say but it seemed one sided. Hope forbes india will not turn out to be any other magazine. I have been following forbes india for some time now, but didn't expect this! Please don't allow forbes india to be any other magazine (who publish false stories). Thanks Ravi

    on Apr 22, 2013
  • Ashish

    The reply is nice and I think Forbes has NOT done a good job of the story of Educomp. They seem to be biased. Few more \"Stupidly sensational\" stories like this and I\'ll stop reading the magazine.

    on Apr 22, 2013
  • Shubhendu

    A very good reply from Educomp. Infact, upon reading the reply, it appears to be a genuine case of company struggling but fighting hard to come out of it.

    on Apr 21, 2013
  • Sudhakar

    The reply is very convincing

    on Apr 19, 2013
  • Shenil Raghavan

    Its good to note the prompt response.

    on Apr 19, 2013
  • Utkarsh

    Having read the article and the response by Educomp, I must admit that the reply has been very convincing. It is obviously impossible for a retail investor to know the ins and outs of the story, but we must thank Forbes for the insight it regularly gives us into companies and the debate that it raises. The response also shows that the Educomp manangement cares enough to respond to articles in the press and it is a compliment to ForbesIndia that each of their articles is taken very seriously. Keep it up guys.

    on Apr 19, 2013
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