Educomp Solutions (EDSO.BO):: Takeaways from Citi India Investor Conference – Day 2

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Educomp Solutions (EDSO.BO; Rs450.65; 3M)

 Takeaways from Mumbai – Educomp presented at our India Investor Conference
in Mumbai. Below are key takeaways.
 SmartClass expected to continue to grow – The company is undertaking a few
initiatives to keep the SmartClass growth engine going along. (1) New way of
delivering the solution to schools. (2) Addition of about 200 sales people this year.
(3) Big advertising campaign undertaken. The company has two term sheets signed
for the securitization – one for Rs6b at 100% corporate guarantee while the other
for Rs3b at 20% guarantee.
 K-12 schools initiative on track – The company has the visibility of ~80 schools
right now and expects to reach 150 by the end of CY13. Management maintains
that a school typically takes about 5 years to reach a steady state where it enjoys
EBITDA margins of 55-60% and ROCE of ~30%. There are different revenue
models in this business – (1) In the co-branded schools, Educomp pays a royalty
fee to the brand owner while everything else flows to its P&L (2) In the dry
management scenario, Educomp gets ~15% of total fees as its revenues.
 Management positive – The management reiterated its guidance for FY12 where
they are also building in revenues and profits from the monetization of past
investments. SmartClass penetration is still small and the company expects to
continue to grow in this segment as highlighted above. K-12 is the other big area –
a large part of the capital is employed in this business.