Everonn mess rattles education sector

Last December, when Everonn Education received the best ‘Franchisable concept of the year 2010’ award under the education category from Franchise India, industry players looked at emulating its growth path.

Last week, when the company’s shares plunged 20 per cent after the arrest on a bribery and tax evasion charge of its managing director, P Kishore, and resignation of its shocked chairman, J J Irani, industry players started questioning its rise.Opinion is divided on what this means for the sector. An executive from a professional services firm which has advised companies on various business ventures says, “Sector players like Educomp and Everonn have grown very fast. What has happened with Educomp (income tax raids in its offices) and Everonn will certainly affect the fast-growing education companies. Everonn was a tall player and many companies looked at emulating its model but this development will not do any good for the sector.”

Many investors, however, say though the event highlights corporate governance issues in the company, their belief in the sector’s growth story remains strong. Ramesh Venkat, chief executive of Reliance Equity Advisors, a private equity arm of Reliance Capital, said, “These are mere compliance issues which hit across sectors in India. These have no direct connection with the education sector.” In this backdrop, PE investors should do thorough due diligence on promoters and target companies, he added.

Reliance Equity Advisors had invested about Rs 100 crore in Pathways World School, a primary and higher secondary school in 2010. Venkat agrees there are concerns over the education sector which would pull back future investments.

“There are no big-sized deals available in Indian education space for PE investments. Also, some institutes which are working under the corporate structure remain a concern,” he said.

Private equity/venture capital investors remain bullish on the education space. Milestone Religare, a 50:50 venture between Milestone Capital and Religare Enterprises, with focus on education and healthcare, has plans to raise a $200-million offshore fund.

It started with a Rs 400 crore corpus and has invested Rs 25 crore in IMS Learning Resources and Rs 60 crore in Resonance Eduventures.

Last month, InOpen Technologies, an IIT Bombay-based start-up, developing content and teacher training solutions, raised about $500,000 from VenturEast, an early stage investor.

Everonn
Everonn was incorporated in 2000 and became a leading education player in a decade. The Blackstone Group invested $42 mn in Everonn in 2009. The increasing penetration of satellite-enabled courses in colleges and schools, classroom software in schools and government contracts enabled it to scale up its education business rapidly.

The company’s growth can be attributed to two major segments — ICT (information and communications technology) and ViTELS (virtual and technology-enabled learning solutions) platforms. It is predominantly focused on ICT for revenue. The segment involves setting up of computer laboratories in government schools under the built/own/operate/transfer (BOOT) model, typically for five years. Schools run by the state governments are its customers. The central government has been funding this initiative under its Sarva Shiksha Abhiyan (SSA) and ICT@Schools programmes.

The Everonn ViTELS segment involves delivering soft skills or non-curriculum courses in colleges through VSAT (satellite)-based platforms and providing multimedia-based curriculum content in schools. Non-curriculum courses in colleges mainly include courses on English speaking and personality development.

In 2010-11, the company had added 1,455 schools against 1,017 during 2009-10 and 1,920 colleges against 1,567 in 2009-10. The number of government schools it was working with till the end of 2010-11 was 6,628 against 5,862 the year before. During the year ended March 2011, revenue was Rs 301.6 crore and net profit was Rs 72.9 crore. During the quarter ending June, revenue growth was 45 per cent at Rs 98.2 crore and net profit was Rs 9.7 crore.

One reason for education service providing companies to grow has been the central government’s increased allocation. In the 11th five-year plan, it was Rs 3.1 lakh crore, six times higher than that in the 10th Five-Year Plan. A part of this outlay, Rs 83,500 crore or four times more than in the 10th Plan, was to be spent on SSA, an initiative to improve public education and upgrade it by including computer literacy (ICT).