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New directions in Smartclass
The most important takeaway from attending Educomp’s Smartclass
Business Development meet was its effort in de-commoditising the
Smartclass offering. The key components of Educomp’s “Shock and Awe”
strategy for Smartclass for FY12 are its own proprietary design hardware
(Digital Teaching System) and a refreshed content suite (Class
Transformation System). Also, Educomp intends to increase its
advertising spend and ramp-up its sales force to 550 from ~400
currently. These moves should help Educomp consolidate its market
leading position (90%+ share currently) in the Smartclass segment. We
are already factoring in an increase in annual classroom additions to
35,000 in FY12/13 from 29,000 in FY11.
Shock and Awe strategy for FY12
We attended Educomp’s annual business development meet for Smartclass.
The key takeaway from the meet was Educomp’s effort at changing its
positioning in a business which has seen rapid commoditisation post entry of
a slew of players. The integral elements of this de-commoditisation effort are
Educomp’s proprietary design hardware also called Digital Teaching System
and a more complete content suite termed Class Transformation System.
Educomp’s “Shock and Awe” strategy for FY12 has 5 key components:
#1: Proprietary Designed Hardware
Educomp has designed its own hardware for Smartclass which it intends to
offer to schools going ahead. Termed the Digital Teaching System (to be
imported from China/Taiwan), it has all hardware elements like CPU,
projector, UPS, document camera among others in-built.
Per Educomp, all problems faced historically on the hardware front will be
solved with this new system. While a team could install 3 classrooms in a day
earlier, the new system will allow the productivity to go up and upto 5
classrooms can be implemented. A single switch operation and remotecontrolled
content management also makes this more user-friendly than the
earlier system. Also, unlike the earlier hardware (which had to be replaced
every 5 years), Educomp believes that the life of new hardware is much
longer which should help reduce capital intensity of the business. However,
these advantages do come at a slightly higher cost, which Educomp believes
the schools will be open to paying.
#2: Content
Our belief has been that content is not a differentiator in the Smartclass
business as it is replicable given the standard school syllabus. Educomp’s
refreshed content suite, Class Transformation System is aimed at moving
ahead of peers (making it more difficult for them to replicate), who have all
focused just on animations. The new content encompasses animations,
assessments, and question banks among others. Also, the content is mapped
to curriculum of all education boards in India, CBSE, ICSE as well as all State
Boards. This widens the appeal of Smartclass and could help target certain
untapped schools.
#3: Greater market penetration
Educomp intends to ramp-up its sales force in FY12. Plans are afoot to
increase sales staff strength from 400 currently to 550 over the next year.
This will help Educomp cover over 500 districts in India through its field force.
Also, Educomp now intends to follow a segmented and more focused
marketing strategy. Educomp is targeting schools in three different brackets:
q Lower-tier schools where a limited version of Smartclass will be offered.
q The normal Smartclass schools which form a bulk of the current base.
q The legacy and reputed schools.
Educomp plans to have separate sales force for each of the above school
segments. It intends to hire new sales staff for selling to reputed schools as
that requires a different kind of engagement.
#4: Brand advocacy
Educomp’s efforts at increasing market and mind share will also result in a big
step-up in advertising and brand-building spends. Educomp plans extensive
roadshows, promotions as well as advertisements across different media as
part of this.
#5: Re-skilling
Such a massive transformation of the Smartclass business would require
intensive re-skilling of the existing sales as well as support staff and Educomp
intends to invest in these people initiatives as well.
What does this mean for our SmartClass estimates?
We expect Educomp to close FY11 with 29,000 classrooms against their
guidance of 25,000-30,000. The productivity gains from quicker hardware
implementation have been somewhat factored into our estimates already. We
have built-in 35,000 classroom additions in FY12 and FY13 each.
Proprietary designed hardware introduces an additional step in Educomp’s
Smartclass supply chain. While Educomp previously directly sourced from
OEM’s and implemented the hardware in classrooms, they will now have to
not only ensure sourcing of components but also the assembly. As a result, in
the near term, some chinks in this supply chain (until it gets into steady
state) somewhat compensate for productivity gains from the quicker
hardware implementation in classrooms.
Another important point to consider is whether these additional costs on the
hardware translate into premium pricing. In a market place that is now
increasingly cluttered by suppliers with more competitive prices and buying
behaviour of schools is yet to mature, we believe that superior branding will
allow Educomp to maintain its current prices (at a per classroom level) but
getting higher pricing could be a bit difficult.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
New directions in Smartclass
The most important takeaway from attending Educomp’s Smartclass
Business Development meet was its effort in de-commoditising the
Smartclass offering. The key components of Educomp’s “Shock and Awe”
strategy for Smartclass for FY12 are its own proprietary design hardware
(Digital Teaching System) and a refreshed content suite (Class
Transformation System). Also, Educomp intends to increase its
advertising spend and ramp-up its sales force to 550 from ~400
currently. These moves should help Educomp consolidate its market
leading position (90%+ share currently) in the Smartclass segment. We
are already factoring in an increase in annual classroom additions to
35,000 in FY12/13 from 29,000 in FY11.
Shock and Awe strategy for FY12
We attended Educomp’s annual business development meet for Smartclass.
The key takeaway from the meet was Educomp’s effort at changing its
positioning in a business which has seen rapid commoditisation post entry of
a slew of players. The integral elements of this de-commoditisation effort are
Educomp’s proprietary design hardware also called Digital Teaching System
and a more complete content suite termed Class Transformation System.
Educomp’s “Shock and Awe” strategy for FY12 has 5 key components:
#1: Proprietary Designed Hardware
Educomp has designed its own hardware for Smartclass which it intends to
offer to schools going ahead. Termed the Digital Teaching System (to be
imported from China/Taiwan), it has all hardware elements like CPU,
projector, UPS, document camera among others in-built.
Per Educomp, all problems faced historically on the hardware front will be
solved with this new system. While a team could install 3 classrooms in a day
earlier, the new system will allow the productivity to go up and upto 5
classrooms can be implemented. A single switch operation and remotecontrolled
content management also makes this more user-friendly than the
earlier system. Also, unlike the earlier hardware (which had to be replaced
every 5 years), Educomp believes that the life of new hardware is much
longer which should help reduce capital intensity of the business. However,
these advantages do come at a slightly higher cost, which Educomp believes
the schools will be open to paying.
#2: Content
Our belief has been that content is not a differentiator in the Smartclass
business as it is replicable given the standard school syllabus. Educomp’s
refreshed content suite, Class Transformation System is aimed at moving
ahead of peers (making it more difficult for them to replicate), who have all
focused just on animations. The new content encompasses animations,
assessments, and question banks among others. Also, the content is mapped
to curriculum of all education boards in India, CBSE, ICSE as well as all State
Boards. This widens the appeal of Smartclass and could help target certain
untapped schools.
#3: Greater market penetration
Educomp intends to ramp-up its sales force in FY12. Plans are afoot to
increase sales staff strength from 400 currently to 550 over the next year.
This will help Educomp cover over 500 districts in India through its field force.
Also, Educomp now intends to follow a segmented and more focused
marketing strategy. Educomp is targeting schools in three different brackets:
q Lower-tier schools where a limited version of Smartclass will be offered.
q The normal Smartclass schools which form a bulk of the current base.
q The legacy and reputed schools.
Educomp plans to have separate sales force for each of the above school
segments. It intends to hire new sales staff for selling to reputed schools as
that requires a different kind of engagement.
#4: Brand advocacy
Educomp’s efforts at increasing market and mind share will also result in a big
step-up in advertising and brand-building spends. Educomp plans extensive
roadshows, promotions as well as advertisements across different media as
part of this.
#5: Re-skilling
Such a massive transformation of the Smartclass business would require
intensive re-skilling of the existing sales as well as support staff and Educomp
intends to invest in these people initiatives as well.
What does this mean for our SmartClass estimates?
We expect Educomp to close FY11 with 29,000 classrooms against their
guidance of 25,000-30,000. The productivity gains from quicker hardware
implementation have been somewhat factored into our estimates already. We
have built-in 35,000 classroom additions in FY12 and FY13 each.
Proprietary designed hardware introduces an additional step in Educomp’s
Smartclass supply chain. While Educomp previously directly sourced from
OEM’s and implemented the hardware in classrooms, they will now have to
not only ensure sourcing of components but also the assembly. As a result, in
the near term, some chinks in this supply chain (until it gets into steady
state) somewhat compensate for productivity gains from the quicker
hardware implementation in classrooms.
Another important point to consider is whether these additional costs on the
hardware translate into premium pricing. In a market place that is now
increasingly cluttered by suppliers with more competitive prices and buying
behaviour of schools is yet to mature, we believe that superior branding will
allow Educomp to maintain its current prices (at a per classroom level) but
getting higher pricing could be a bit difficult.
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