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Index
Executive Summary Industry Human Resources - Powering India’s competitiveness in Global Economy Government initiatives to raise literacy rates in India School Infrastructure – Not up to the mark Public Private Partnership (PPP) – The way ahead The role of private companies and educators Indian IT Training Industry – Tracking the IT Industry with a lag Corporate Training Market Conclusion Companies Educomp Solutions Everonn Systems India NIIT Limited 26 46 60 2 4 5 6 10 15 16 18 23 24

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Executive Summary
"We don't need no education", sang the band Pink Floyd way back in the 70's in the famous super-hit album, "The Wall". While this may sound all right for idealistic rebels, it certainly does not apply to the current Indian scenario. India's GDP has grown at a compounded rate (CAGR) of around 8.5% over FY2003-08, growing at over 8% in four of the five fiscals. GDP growth in FY2007 accelerated and came in at an impressive 9.6%. Even for FY2008, India logged in GDP growth of 9%, commendable by any standards. This makes it a hat-trick for India's GDP, which has now recorded in excess of 9% GDP growth in each of the last three fiscals. A robust performance by the Services Sector, which has been clocking strong double-digit growth rates over the past few years, has been primarily responsible for the high GDP growth rates recorded. The Manufacturing Sector has also grown at a decent rate in excess of 6-7% annually. This fantastic growth rate has been achieved due to the humongous talent pool available in India, which is a subset of its entire population. The biggest asset of any country is its people. India has a population if 108cr, the second-largest in the world. However, India's literacy rate is just 61% and it ranks a disappointing 172nd in the world on this front. Thus, there is a short supply of educated manpower in India. In fact, there is a huge requirement of talent in the fields of Hospitality, IT Services, Retail, Financial Services and Aviation, to name a few. We believe India will have to significantly gear up its educational infrastructure to meet this demand. Education is primarily handled by the government through its school infrastructure and large Union Budget outlays. The Indian Government targets to guarantee elementary education to every child between the age of 6 and 14 years and for this purpose, it expects to increase access to education as well as improve the quality of education being provided. It has been laying greater emphasis on the quality of education imparted in the country since the Eleventh Five-Year Plan. The quality of education has assumed importance in light of the poor academic achievement by the students. We believe poor academic performance by students and lack of proper training in soft skills would reduce their employability post passing out of the education system. In line with this, to improve access to and taking care of the quality aspect of education, the government has introduced programs like the Sarva Shiksha Abhiyan (SSA), Mid-day meal schemes and Kasturba Gandhi Balika Vidyalayas. These schemes stress on the following: Increase the number of schools to provide access to a larger population, Improve infrastructure of existing and new schools by building more classrooms and amenities, Increase enrolment rates and reduce dropout rates, Reduce gender inequality, Recruit more teachers and train them to impart education more effectively, and Improve the content and quality of education. The government is also looking at the private sector in its quest to further improve the quality of education through Public-Private Partnership (PPP). The government targets to provide IT-based education to a majority of India’s student population through its PPP initiative. Private companies

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are working on providing infrastructure in the form of computer labs and content at government schools apart from training teachers to use their content and infrastructure. Training is also being provided to the teachers to enhance their education imparting capabilities. Employability of manpower also depends a lot on soft skills like communication skills, IT skills, computer proficiency and so on. This requirement is currently satisfied, to a large extent, by private mentoring institutions and industries themselves by providing short and medium-term courses and induction trainings. However, there needs to be a more intimate linkage between academia and industry to solve this problem. Private companies like Everonn and NIIT are competing for a piece of this business through their innovative products. As per NASSCOM, going ahead, there will be a requirement for 2.3mn IT professionals by 2010 and a shortage of 5,00,000 personnel required. It is the quality of personnel that needs to be focused on rather than the absolute numbers. This reflects the strong growth potential that the IT Training Industry has and its ever-increasing relevance for the IT Sector. A large part of a student’s time is spent at post-school mentoring institutions, as large class sizes in private schools hamper teachers from giving individual attention to students. This consumes a lot of time, effort and money. Companies like Educomp and Everonn have introduced innovative products to get a slice of this market. These products enjoy a distinct advantage over the current ones on account of being available 24/7 and the student not being required to travel to the location where the classes are held. On the flip side, most of these products require broadband connectivity, the availability of which is very poor in India. The total number of broadband subscribers stood at a mere 4.01mn at the end of April 2008, implying penetration of a fairly pathetic 0.35%. Hence, for these products to gain greater acceptability, India's broadband penetration will have to improve substantially. India has approximately 50,000 private schools, present generally in urban clusters. These schools share a sizable load of educating the Indian student population and satisfy the demand for quality of education and infrastructure by the Indian middle and elite class. To provide quality education, these schools are on always on the look-out for better content, which is also provided by the afore-mentioned education companies. The Union Budget 2008-09 has chalked out a higher allocation for the Education System, up 20% to Rs34,400cr during FY2009. The allocation is expected to continue to increase in the foreseeable future as well. The government is also intent on improving the levels and quality of education in India. As for India’s middle class households, we believe this segment of society would continue to spend a large part of its income to fund the education (with an eye on quality) of its children. Overall, we believe Budget allocations and high spending by the Indian middle class on education are expected to fuel growth of private education companies in India.
Comparative Valuations
Price Company Educomp NIIT* Everonn Recos Buy Accumulate Neutral (Rs) 3,496 109 624 MCap Target FY08 103.9 25.0 61.5 P/E (x) FY09E 53.4 17.4 56.3 FY10E 32.1 12.5 43.7 FY08 49.9 20.4 25.8 EV/EBITDA (x) FY09E 26.7 13.5 17.6 FY10E 15.9 9.2 11.8 FY08 21.8 21.3 27.9 RoE (%) FY09E 27.0 25.9 8.4 FY10E 31.2 29.6 9.8 FY08 21.9 9.9 20.6 RoCE(%) FY09E 26.1 14.7 8.9 FY10E 30.4 19.7 10.1 (Rs cr) Price (Rs) 6,041 1,797 865 4,051 123 -

Source: Company, Angel Research; * For NIIT Limited, FY08 results have not yet been declared.

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For Private Circulation Only .Angel Broking Service Truly Personalized TM Education Industry June 5. 20082008 January 30.Sebi Registration No : INB 010996539 4 .

5% over FY2003-08. which though slightly slower on a yoy basis. it has been the Services Sector that has contributed the maximum to India’s economic growth and currently accounts for over 55% of GDP.Powering India’s competitiveness in Global Economy India's GDP has been on a strong growth trajectory in the past couple of years. mobile services to financial services. Retail and Aviation have also clocked robust growth and are expected to maintain the tempo going ahead as well. cars. consumer durables. 2008 January2008 For Private Circulation Only . India's GDP registered accelerated growth in at an impressive 9. Hospitality. Tourism. The Manufacturing Sector has also managed to register decent growth rates in excess of 6-7% annually. still signals strong economic expansion. The Services Sector has led the way forward. Exhibit 1: India's GDP . buying everything from FMCG products. architects and MBAs all contributing their share to the strong growth being clocked by India. June 5. Beneath the good growth numbers. However. has been responsible for such growth. with bright engineers. leading to increased consumerism. The human resource-intensive Services Sector. GDP growth came in at 9%. In FY2008 also.Angel Broking Service Truly Personalized TM Industry Overview Education Human Resources . growing at over 8% in four of the five fiscals.On a strong growth trajectory (%) 10 9 8 7 6 5 FY04 Source: Angel Research FY05 FY06 FY07 FY08 The Services Sector has been the key component of this strong growth clocking robust double-digit growth rates over the past few years. lies a harsh and potentially lethal truth – the dismal condition of the country’s education system. Sectors like IT-ITES. it is the sustainability of this prosperity for future generations that is under a cloud. Even as young Indians today are enjoying prosperity of an unprecedented magnitude. it should be noted that all is not hunky-dory with all segments of the Indian economy.Sebi Registration No : INB 010996539 5 . The country's GDP has clocked a compounded rate (CAGR) GDP growth of around 8. 30. But clearly. It has been due mainly to its human resource base that India is getting its rightful place in the sun in the global economy.6%. chartered accountants. as mentioned earlier. In FY2007.

the government has been focusing on the Education Sector through increased fund allocations.554cr would be allocated to secondary education. This task is being handled primarily by the government through its school infrastructure and large Budgetary outlays. the government has increased the allocation by 20% from Rs28. It also states that every child in the specified age gets enrolment in a school in the vicinity of their domicile. with a literacy rate of 61% and ranks a disappointing 172nd on this front. The allocation for SSA is Rs13. The Bill promotes the usage of regional language as the medium of education by stating that as far as possible. This amount would be spent under various schemes like the Sarva Shiksha Abhiyan (SSA). (Source: Statistics from Nationmaster and Union Budget 2008-09) Intent/focus of the Government The government intends to raise the general literacy rate in India in line with which.1bn). 20082008 January 30.000cr and Rs4. Government initiatives to raise literacy rates in India Sarva Shiksha Abhiyan (SSA) The SSA (education for all) is the prime initiative undertaken by the Central Government of India to improve the overall literacy levels and quality of education in the country.A humungous task India has the largest student population in the world with over 13. the Mid-day meal scheme would be provided Rs8. This Bill seeks to guarantee elementary education to every child between the age of 6 and 14 years.674cr to Rs34. SSA was undertaken in the Eleventh Five-year Plan. Kasturba Gandhi Balika Vidyalaya and teacher's education. the educational system acts as the creator of a strong pipeline of talent. In the current year also. India has the second-largest population in the world of over 110cr people (1. Educating India's population .5cr pupils in primary education followed by China at over 12.1cr pupils at this level. the Mid-day meal scheme. In the current Five-Year Plan period. which helps in the creation of a well-rounded human resource base. enabling sustainable and inclusive economic growth.400cr. the focus of SSA would shift from access and infrastructure to enhancing retention and improving the quality of learning.100cr. Thus. is important to sustain strong GDP growth rates going ahead. SSA is an action plan whereby the government would incorporate the following: June 5. it introduced the Right to Education Bill 2005.Sebi Registration No : INB 010996539 6 . a child should be instructed in his/her mother tongue at least for the first five years of the elementary stage.Angel Broking Service Truly Personalized TM Industry Overview Education A strong grassroots-level educational infrastructure. A resilient education system would facilitate a steady supply of high quality personnel who would join the workforce in future years. For Private Circulation Only . Educating such a large population is not only an expensive task but also a very difficult one. In the last five years.

967 7.35cr 7.Sebi Registration No : INB 010996539 7 .690 87.47. providing better courseware and syllabus. * Completed and In-Progress There has been significant growth in infrastructure.Progress against key targets The government has set aggressive targets for enhancing the resources available to provide education. SSA .Angel Broking Service Truly Personalized TM Industry Overview Education Increase the availability of schools (capacity creation) through opening of new schools and construction of new classes. 2008 January2008 For Private Circulation Only .345 Comp* 71. Exhibit 2: SSA .735 30. but the implementation process has been slow and a huge gap still remains. and Create an environment more conducive to imparting better education to every one who needs to be educated.20. 30. Improve the standards of education (quality of learning) by enhancing the skill levels of teachers.25lakh upper primary schools in India.422 70.017 % Achievement 82% 76% Comp* 58% 47% 71% 87% 97% 94% 77% IP* 85% 99% 63. The targets include setting up new schools.225 5.87. recruiting more teachers.29.388 IP* 31.140 23. increasing the number of classes and teachers.814 Achievement upto 1.201 66.55. The demand for upper primary school would be greater than the demand for primary schools.000 6.29. there is a shortfall of approximately 1. June 5.53. and providing training to the existing teachers. SSA has succeeded in helping the states in largely achieving the basic task of providing infrastructure and creating systems and processes for improved educational attainments. School Buildings b.72.Performance round-up Item Opening of New Schools Teachers appointed Construction of a.285 Target 1.143 1. The performance against the targets can be gauged from Exhibit 2.629 3.000 Functional Academic Resource Centers Source: Ministry of Human Resource Development (MHRD). the process improvements effected by SSA need to be maintained in the future to continue the improvement process of education in India. As per SSA estimates.57.893 5.70. The very nature of this mission is to complete the task of improving the literacy levels of India in a time-bound manner. Additional classrooms Enrolment in EGS/AIE Centers Children receiving free textbooks Block level Cluster level Teachers trained 1.00. As quality and equity are two main thrust areas of SSA. Attract more students to schools by implementation of the Mid-day meal scheme.00.14cr 7. which will help provide better nutrition levels to children.587 1.

The government is trying to reduce this anomaly and has set up approximately 800 Kasturba Gandhi Balika Vidyalayas. which target to improve the quality and reach of education in India. In the recent Budget speech. The parents are more interested in getting their male children educated rather than the female children. an additional 410 such vidyalayas are to be set up in educationally backward areas. Through the collection of Education cess. Kerala and Tamil Nadu and the union territory of Pondicherry. cost of cooking and provision of essential infrastructure for cooking. 20082008 January 30. In a country where we have a dismal literacy rate vis-a-vis world standards.000-15. This move should help in improving the educational levels for females in India.9 6. a significant 44% of the June 5.4 6. to improve the standard of education.9cr.5 10. To support this scheme.Sebi Registration No : INB 010996539 8 . Exhibit 3: Gender disparity in Education (%) Level Primary (Grades I-IV) Upper Primary (Grades V-VIII) Elementary (Grades I-VIII) Source: DISE 2002-03 5. Rs8. the government started the Mid-day meal scheme in India for children of class I-IV in the government-run schools.000cr to be collected during FY2008. Even if the child continues with school.2 8. Hence.1 8. he/she would lag behind.Angel Broking Service Truly Personalized TM Industry Overview Education Kasturba Gandhi Balika Vidyalayas India faces discrimination in the field of education based on the gender of the child.500-9. For Private Circulation Only . It is quite high at the upper primary level. Also. As per certain responses from the teachers at schools in Rajasthan. This step would cover additional 2. Funding of education schemes – Implementation of Education Cess A significant 44% of the total allocation of Rs34. The Scheme states that a hungry child will not be able to cope up with studies and would subsequently drop out of the school.1 9. the Finance Minister proposed to increase the coverage of the Mid-day meal scheme to the upper primary classes (V-VIII) in the government schools across the country. This cess is used to fund programs like the SSA. It was later undertaken by the states of Gujarat. Such disparity at the higher level has been declining but at a slower pace.8 2003-04 5.000cr was raised in FY2007.2 2004-05 5. the Scheme has boosted levels enrolments and enhanced school attendance The Mid-day meal scheme was introduced in India in 1925 by the Madras Municipal Corporation for disadvantaged children.400cr for the Education Sector The government has imposed an Education cess on income tax to fund its various programs. The gender disparity at the primary levels is reasonably low and has been decreasing consistently. the government provides free food grains to the schools along with transportation in the form of subsidy. to attract more children to schools and reduce the drop out rates. the Scheme has boosted enrolments and enhanced school attendance levels.4 Mid-day meal scheme As per certain responses from the teachers at schools in Rajasthan.1 2005-06 4. this discrimination based on the gender paints an even worse picture.8 5. This has led to a lower literacy rate among females compared to males. as part of the SSA. We estimate Rs14.5cr children taking the total children under its coverage to 13.7 6.

nearly 87% had access to primary schooling facilities within a vicinity of one kilometer. it was still much lower than the percentage of population having access to primary schooling facilities.8 1. However. In terms of habitations. 98. reflecting good progress.5mn 731. it should be noted that the progress on providing facilities in the upper primary grades (Grades V-VIII) has not been quite as satisfactory. * Population / habitations having access to primary schools within a vicinity of one kilometer Evidently.Good coverage 1986 Rural population Population served by primary schools* Percentage (%) Rural habitations Habitations served by primary schools* Percentage (%) 593.98mn 0.6mn 94.6mn 560.4 2002-03 742. nearly 87% had access to primary schooling facilities within a vicinity of one kilometer The first step towards building the base for a well-rounded human resource pool is undoubtedly the creation of infrastructure for providing access to elementary education. even as the percentage population having access to these facilities within a range of three km stood at over 86% in 2002-03. Exhibit 4: Access to Primary education .13mn primary schools were sanctioned and it is estimated that over 96% of habitations have a primary school within a vicinity of one km.82mn 83.7mn 618.88mn 83.23mn 1. Collection of Education cess will also help in keeping the cost of education in India low at all levels including schools and colleges.Sebi Registration No : INB 010996539 9 . In this regard. As per the All-India School Education Survey conducted by the government (Ministry of Human Resource Development) through the National Council of Educational Research and Training (NCERT). 2008 January2008 For Private Circulation Only .Angel Broking Service Truly Personalized TM Industry Overview Education total allocation of Rs34. This will go a long way in improving literacy levels in India and enhancing the implementation and execution of various schemes undertaken by the government to increase the reach and improve the quality of education in India. Access to Education In terms of habitations.5 0.5mn 93. June 5.5 1.06mn 0. During the Tenth Plan. the percentage of rural population having access to primary schooling facilities has increased.6mn 98. 30. over 0.400cr for the Education Sector.5% of the rural population was served by primary schools (Grades I-IV) and had access to primary schools / sections within one kilometer from their habitations in 2002-03.0 Source: MHRD. In terms of population coverage also. Angel Research. it is still far from satisfactory. Just 78% of total habitations had access to such facilities within a vicinity of three km in 2002-03. Even though this figure has improved over the years. the government’s performance has been reasonable.07mn 87.8 1993 659. as subsidies and aids are provided to a large number of these institutions to improve accessibility for the lower and middle class families to educate their children. over the years.

81mn 76.731 P:UP 3.5:1 at the end of 2005-06. did not have any boundary wall.8% upper primary schools.1% primary and 4. Such lack of facilities would consequently hamper both enrolments as well as the quality of education. a significant 44.269 2.041 6. even as access to primary education in terms of percentage population coverage seems to be satisfactory. For Private Circulation Only .626 2.7 2.98mn 0.0 0. In 2005-06. there is a need to add more upper primary schools to bring down the ratio of primary to upper primary schools.51.3% of upper primary schools did not have any toilet at all.06mn 0.10.Not satisfactory 1986 Rural population Population served by upper primary schools* Percentage (%) Rural habitations Habitations served by upper primary schools* Percentage (%) 593.1 1.5mn 639. vis-à-vis the 2:1 norm specified in the SSA. Going ahead. in terms of access to primary and upper primary educational facilities. Drinking water facilities were not available in 15.4% of upper primary schools did not have any building in 2005-06. These are very important issues and call for adequate attention to ensure availability of the required physical infrastructure in the schooling system.471 7.Sebi Registration No : INB 010996539 10 .Work yet to be done Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: MHRD.7 2.23mn 0.45.67.98. There was a shortage of over 6lakh class rooms during 2006-07. This ratio stood at 2.62.2 3.2 2002-03 742. 20082008 January 30.274 2. * Population / habitations having access to upper primary schools within a vicinity of 3 kilometers Therefore.649 2. both in the primary and upper primary stages.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 5: Access to Upper Primary education .38.738 6. June 5.74.695 6. Exhibit 6: Primary-Upper Primary ratio .7mn 560.73mn 74.19.64.41.1 3. Angel Research Primary schools (P) 6.0 2.96mn 78. there is a severe shortage of classrooms in schools where the school building is present. Angel Research.520 Upper primary schools (UP) 1.1 Source: MHRD.6% of primary schools and 15.4mn 84.8 School Infrastructure – Not up to the mark There was a shortage of over 6lakh class rooms during 2006-07 Information collected through the District Information System for Educaion (DISE) suggests that 3% of the primary schools and 2.06. Further. Similar proportion of schools.0 1. the progress on the upper primary front has not been satisfactory.6mn 498.004 2.382 7.0 1993 659.8mn 85.6mn 86.

4 50.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 7: Schools without basic facilities % schools without facilities like Building Toilets Boundary walls Drinking water Source: DISE data Primary 2004-05 3. the actual enrolment of students and consequent effective utilisation of that infrastructure is a reflection of the actual coverage of the education system. It is over 100% in some cases on account of cases of repeaters and some children being either over-aged or under-aged.4 16.1 42.7 Upper primary enrolments (Mn) 42. The Gross Enrolment Ratio (GER) is defined as the ratio of gross enrolment of students to the proportion of total children in the relevant age group.8 113.9 122.3 131. June 5. 30.9 48.5 4.8 46. 2008 January2008 For Private Circulation Only .8 44.8 15. reflecting yet again the pressing need for capacity creation in the upper primary segment.6 50. Overall GERs for the total elementary system have been on the rise.0 44.4 128.8 16. It is clear that the GER for upper primary grades is far less satisfactory than that for primary grades.7 Enrolment ratios – Rapidly on the rise GERs for the total elementary system have been on the rise.1 Upper Primary 2004-05 2.7 2005-06 2.4 15.2% CAGR over 1999-2000 to 2004-05 for primary enrolments.Sebi Registration No : INB 010996539 11 .8 Enrolments – Good growth While capacity creation is the first step needed to drive the process of development of quality human resources. Exhibit 8: Student enrolments Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: MHRD. hitting nearly 95% in 2004-05. Angel Research Primary enrolments (Mn) 113. hitting nearly 95% in 2004-05 A key ratio for assessing the actual extent of access of children is the enrolment ratio.3 2005-06 3.8 15.5 51.7 4.6 113.3 16. and 3.9% for upper primary enrolments.7 51. Student enrolments have grown at a good rate of 3.

2 ‘Out-of-school’ children have fallen significantly from 44mn in 2000-01 to 7mn in 2006-07 Net Enrolment Ratio (NER) is calculated as a percentage of net enrolment of children of the right age group to the total children in the relevant age group.6 81.3 86. Dropout rate is defined as the proportion of children that cease to remain enrolled in the schooling system.6 Upper Primary GER (%) 58. However.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 9: GERs . whereas the figure for Upper Primary stood at 23%. In 2004-05.Scope for significant improvement at the Upper Primary level Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: MHRD.0 95. Thus.6 98. implying the extent of access of children in the target age group. the figure stood at less than 40%.3% and 50. June 5. whereas for the Upper Primary section.5% in 2003-04 for the Primary section. leading to increasing social unrest.7%.8 93. which we believe is partly a result of focused efforts taken by the government to provide increased access to education and higher enrolments. In 2003-04.1 84.9 96.Sebi Registration No : INB 010996539 12 . For Private Circulation Only . adjusting for these figures.6 56. a bright spot here is the fact that the total number of ‘out-of-school’ children has fallen significantly from 44mn in 2000-01 to 7mn in 2006-07. Angel Research Primary GER (%) 94. indicating that a significant number of children exit the mainstream educational system over time after enrolment in Grade I. the respective figures improved to 94. This. the true test of the effectiveness of the Education System lies in the student dropout rates. we believe.8 65. the NER stood at 82. Even as the overall dropout rates have been consistently witnessing a declining trend over the years.3 62. 16% of the children in the Primary grades were under or over-aged.8 85. is a matter of serious concern and can be a major reason for the government failing to achieve ‘inclusive growth’. This improved slightly to 14% and 20% respectively in 2004-05.9 94.5 Elementary (Grades I-VIII) 81.3 69. an extremely disappointing performance.5 70. the overall level is still very high – over 28% in 2004-05 for primary and a high 50% for the entire elementary education system. given the exclusion of these people from the economic prosperity of the country.3 108. This clearly reflects the urgency with which the government needs to take focused measures to improve these metrics at the Upper Primary level. 20082008 January 30. Dropout rates – A measure of the real effectiveness of the system A significant 50% of children exit the mainstream educational system over time While the importance of capacity creation and student intake as the building blocks for sustainable development is clearly evident.

3 40. the number of teachers also has to keep pace.0 40.0 52.3 50.3mn in 2004-05 for the Primary section. ensuring the delivery of education to students.3mn and 1.0 45. Exhibit 11: Average marks achieved by students (%) Class Class III Class V Class VII Class VIII Sample survey: NCERT States covered Mathematics 29 27 10 17 58. ‘quality’ is a highly subjective term and therefore. Everonn and NIIT have an opportunity to improve the total quality of education in India through Public-Private Partnerships It can be observed that the achievement levels of students are low across subjects. 2008 January2008 For Private Circulation Only .9mn in 1999-2000 to 2.5 Language 63.4mn.0 Education companies like Educomp.5 53.0 34. re-skilling the existing teachers to be more effective in imparting education.5 Class I-VIII (%) 54. generally difficult to assess. This is where education companies like Educomp. while for Upper Primary.5 Social science NA 50.1 58. The initiatives include recruitment of new teachers.5 28. this is the reason that the government is taking initiatives to improve the quality of education. the respective figures stood at 1. unlike access to education.9 38.9 31. June 5. 30.3 33.7 39. Everonn and NIIT have an opportunity to improve the total quality of education in India through Public Private Partnerships by providing content and IT infrastructure for its effective delivery. The total number of teachers rose from 1. Pertinently. where the coverage of schools can be used as a parameter to judge this metric.7 54.5 29.5 Science NA NA 36. Clearly.6 52.6 53.3 46. We have used the NCERT’s periodical survey (every 2-3 years) to explain the quality of education in India. especially for a country like India where literacy rates are far from satisfactory.Sebi Registration No : INB 010996539 13 .4 Performance of students – A metric to gauge quality of education imparted The quality of education provided also needs to be gauged. providing better infrastructure to schools and providing better content for education.8 52.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 10: Dropout rates Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: MHRD. Angel Research Class I-V (%) 40. Teacher capacity Along with the creation of capacity.

928 1. just the number of teachers and educational institutions do not necessarily mean much by themselves. as each teacher would have less time to devote to a student. June 5. the decrease of students per teacher in the Upper Primary grades is a positive.919 1.093 2. it is apparent that the increase at the Primary level is not a factor to be enthusiastic about.581 1. For Private Circulation Only .602 1. These figures need to be looked at in totality. Germany and France (Refer Exhibit 14).298 1.Sebi Registration No : INB 010996539 14 .310 Upper Primary ('000) 1. as this would lead to less attention of a teacher per student. US. MHRD The teacher-student ratio for Secondary education in India is higher than that in countries like China. Angel Research Primary ('000) 1. The national teacher-student ratio for Primary education has increased from 1:43 in 1999-2000 to 1:46 in 2004-2005 The national teacher-student ratio for Primary education has increased from 1:43 in 1999-2000 to 1:46 in 2004-2005.439 Teacher-Student ratio – Not satisfactory Pertinently. the UK. Though these figures are at a national level and hide regional disparities. Hence. This typically impacts the quality of teaching. Exhibit 13: Teacher-Student ratio 1:49 Primary Upper Primary 1:46 1:43 1:40 1:37 1:35 1:32 1:29 1:26 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: SES.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 12: Number of Teachers Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: MHRD. This ratio for the Upper Primary reduced from 1:38 in 1999-2000 to 1:35 in 2004-2005. In the opposite case. in conjunction with the number of students.308 1.896 1. the student-teacher ratio can be used to judge the adequacy of capacity.913 2. 20082008 January 30.468 1.

June 5. 30. Angel Research Teacher-Student ratio 1:18 1:43 1:28 1:17 1:16 1:15 1:15 1:15 1:14 1:14 1:12 1:11 Hence. teacher training.00.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 14: Teacher-Student ratio .Secondary schools Country India Bangladesh Pakistan United Kingdom China Germany Sweden US Japan Argentina France Switzerland Source: Nationmaster.000 schools to accommodate students and provide easy access to education for all children The ownership of private schools is not allowed except under a trust format. Upper Primary and Secondary schools. These private companies also undertake training of teachers so that the teachers are better equipped to understand the learning requirements of the students and improve on the delivery of instructions. The first step is to improve the quality of education by getting content and certain school infrastructure designed and implemented by private companies.000 schools to accommodate students and provide easy access to education for all children. Educomp.00. Thus. systems integration. thereby enabling them to make profits by legitimate means. equitable and inclusive growth going ahead. Everonn or NIIT. there exists significant scope for improvement in the Teacher-Student ratio across the Primary. In such a scenario. the ownership of schools would become easier and may lead to more schools being opened up. It should be noted that we have not built in the outcome of this scenario into the businesses of any of the companies covered in this report viz. This shortage of schools may lead to the government opening up owning of schools to private players. such as the public-private partnership (PPP) route. content development and learning delivery are likely to be beneficiaries of these partnerships. India faces a backlog of 2. Public Private Partnership (PPP) – The way ahead In view of huge requirements of infrastructure and manpower in the field of Education and backlogs in the implementation of the SSA. Currently. 2008 January2008 For Private Circulation Only . India faces a backlog of approximately 2.. the companies that provide an end-to-end solution including setting up the infrastructure. given its importance and key role in leading to sustained.Sebi Registration No : INB 010996539 15 . the government is exploring new ways to achieve its targets. thereby improving access to education.

as part of the initiatives of the respective governments. teaching at Upper Primary levels in subjects like Mathematics. Similarly. What is required is systematic work for appropriate materials and teacher training for ‘small school’ situations. most of whom do not have a pre-service training qualification begin teaching in schools without any orientation. The key to effective teaching-learning practice in such schools is multi-level teaching using group and self-learning materials. The parents whose children are studying at these schools expect a higher standard of education and have comparatively higher expectations from these schools in terms of infrastructure. but have not received induction training. textbooks and teaching methods. A significant 31% of Primary schools in the country have enrolments less than 60.5% (5. Wherever training programs on multi-grade issues have been held. These schools are constantly trying to upgrade their facilities and courseware to improve the standard of education provided by them and to match up to the expectations of the students and their parents. but not a comprehensive guideline for teachers who have to teach the entire curriculum to five classes. teaching in schools without June 5. In some states. they provide some learning organisation ideas. a 20 days’ training program is being implemented in a routine manner. For the Upper Primary stage. as many as 54% of the Primary schools (4. These schools would have actual student attendance of 40-50 students only. A majority of these schools are present in the urban pockets and cater to more affluent classes. The issues of teachers’ competence. spread over five classes.Sebi Registration No : INB 010996539 16 . For Private Circulation Only . Science and English needs to be addressed.17lakh) have only one or two teachers. Quality education requires teacher training Most of the government’s teacher training programs have been designed for mono-grade teaching situations In India. linkage with Secondary/Higher Secondary schools and good subject teachers could prove useful for upgrading skills of Upper Primary teachers. 7-15 days’ training is imparted to these new teachers along with regular in-service training of teachers. as the new teachers need a different orientation with an overview of the Primary curriculum. since large teacher recruitments are taking place in several states. Thus.Angel Broking Service Truly Personalized TM Industry Overview Education The role of private companies and educators Private schools – Meeting the demand for quality and access to a great extent There are approximately 50. There have been several experiments in the country for such school situations. This means that teachers. they expect better academic achievements from their children.000 private schools in India. This aspect needs greater attention. 20082008 January 30. This is not adequate. Most of the government’s teacher training programs have been designed for mono-grade teaching situations. facilities and courseware. Most teachers do not have a pre-service and training begin qualification any orientation There is a large backlog of teachers who have been recruited.49lakh). The number of primary schools with three or less teachers is a staggering 71. the new products using multimedia-based platforms to enhance the quality of education and equip the educators to a better extent are being sought. In several states and union territories.

the popularity June 5. 10-12.32%).Angel Broking Service Truly Personalized TM Industry Overview Education Thus. This need also arises from the fact that individual children do not get sufficient attention from the school teachers due to the large class sizes. These schools are the immediately addressable market for such courseware. Multimedia helps the child to understand the instructions and courseware better thereby enhancing the quality of instructions by explaining the content graphically wherever needed. There is also a requirement of a substantial number of additional teachers to sustain the growth level in the field of education. there is a clear mandate to the education companies to develop and provide the education content in regional languages. All the fresh recruits would have to be imparted induction training and the existing teachers would have to be provided with orientation to upgrade their teaching techniques or re-skill them to impart better quality education. The motivation of the government is due to the fact that the child would understand instructions easily in his/her mother tongue and thus.000 private schools in India. the quality of education would be better. In the computer literacy initiative that is being undertaken by the state governments. the sheer number of teachers needs to be adequate). The demand for post-school mentoring has led to the development of several innovative products such as virtual class rooms and coaching through broadband connections. it is the intent of the government to provide education to children in their mother tongue or the appropriate regional languages. Need for Multimedia-based education in schools Companies like Educomp and Everonn provide various products that enhance the capabilities of teachers One of the innovative ways to teach students is through the use of multimedia. 2008 January2008 For Private Circulation Only . more specifically in urban areas. This leads to strong demand for content in regional languages and companies with strong content development teams with the ability to modify the content as per regional requirements stand to benefit. companies like Educomp also provide professional training to these teachers as a part of their joint ventures There are approximately five million teachers in India. apart from providing better quality courseware and material and implementing IT-based education. With the increase of broadband connectivity. Apart from the governmentprovided training.000 per month per student.Sebi Registration No : INB 010996539 17 ..Hampered by low broadband penetration Individual children do not get sufficient attention from the school teachers due to the large class sizes. Apart from the government-provided training. Demand for education in regional language As per the Right to Education Bill 2005. through teacher training. as India has very low penetration of broadband services (a mere 0. more specifically in urban areas A lot of students to get better quality of education take the help of Post-school mentoring. the need for teacher training stems from the significant impact it has on the overall quality of education imparted to students. Demand for Post-school mentoring . companies like Educomp also provide professional training to these teachers as a part of their joint ventures. leading to a significant improvement in the quality of education imparted.000 charge a fee of over Rs1. Not only does capacity need to be created (ie. but the quality of education imparted also has to be monitored. 30. These products are currently not very popular. Out of the 50. which are necessary to access these products. Companies like Educomp and Everonn provide various products that enhance the capabilities of teachers and help students understand the courseware better.

To get an idea about how much India is lagging on the broadband front. along with a strong focus on process excellence. The growth of broadband internet access connections (access speeds in excess of 256kbps) has been pathetic.35%. This poor growth has been on account of a number of reasons including the slow growth of personal computers (PCs) in the country leading to low PC penetration. according to our interactions with the managements of companies operating in this space. Indian Broadband Market – Poor penetration hinders growth of IT-enabled education The total number of broadband subscribers at the end of April 2008 stood at a mere 4. Major Indian software companies like TCS and Infosys were the pioneers of the now-famed ‘Global Delivery Model’ (GDM).Angel Broking Service Truly Personalized TM Industry Overview Education of these products is expected to increase. rather than achieving these figures on a monthly basis.01mn. EDS and CSC to change their business strategies and move towards this model. the current monthly net adds will need to increase by a factor of nearly three to achieve the government's ambitious target of 20mn broadband subscribers. These products are expected to directly compete with the existing providers of such services. The target for 2010 is 20mn.5mn from May 2008 till end-2010. which emphasises execution excellence from any part of the globe 24/7. Mobile subscribers at the end of April 2008 stood at over 264mn. which forms approximately two-thirds of the education budgets of regular Indian middle class families. implying a broadband penetration of a miserable and pitiable 0.35% The story of the phenomenal growth of India's Mobile Telecommunications Sector is well-known. in complete contrast to the Mobile Telephony Sector is the Broadband Sector. The focus of these products is to bring quality education products at home and being accessible at any time.01mn. However. or ‘offshoring’ as it is called in popular parlance. Poor broadband penetration will prove to be a hindrance to the development of various internet-based products The poor broadband penetration will prove to be a challenge to the development of various internet-based products of companies like Educomp like Mathguru. a continuous fall in minimum subscription costs and ever-increasing affordability have been the key factors driving this phenomenal growth. expansion of coverage area. 20082008 January 30. implying monthly net adds of around 0. For Private Circulation Only .com.Sebi Registration No : INB 010996539 18 . to say the least. forcing incumbents like IBM. Thus. implying a broadband penetration of a miserable and pitiable 0. June 5. However. Indian IT Training Industry – Tracking the IT Industry with a lag One of the major reasons for the ever-increasing visibility and recognition of India on the global map has been the outstanding success of its Software Industry. and the figure achieved at the end of April 2008 was not even half of this target. with monthly net additions crossing the 8mn-mark for the last six months in succession. the current quarterly rate of broadband net adds is barely higher than this figure. Heightened competition. it should be noted that the targeted number of broadband subscribers by the end of 2007 was nine million. The total number of broadband subscribers at the end of April 2008 stood at a mere 4. Accenture. The GDM is one of the major process innovations that has been discovered in recent times and has literally changed the entire business dynamics of the Software Services Sector. greater affordability issues as compared with mobile phones and the reluctance of state-owned telcos to un-bundle their last-mile access infrastructure and share it with private telcos.

In FY2008. June 5.000) over FY2007. Thus.135cr in FY2007. Angel Research The Indian IT Training Sector plays the role of a supplier of critical ‘raw materials’ to the IT Sector As is well-known.135cr in FY2007. quality manpower is critical for the industry.Sebi Registration No : INB 010996539 19 .52mn in FY2002.7bn in FY2002. a growth of 23% (3. However. Exhibit 15: Indian IT-ITES revenues and employment .6 27 1. with revenues in FY2004 under 45% of FY2001 revenues.Angel Broking Service Truly Personalized TM Industry Overview Education The Indian IT-ITES Export Sector has grown at a CAGR of 32% during FY2002-08 The Indian IT-ITES Export Sector has grown at a rapid rate over the past few years. recording a CAGR of over 25%.75. up 46% from Rs1. as the Indian offshoring story started to play out in full measure. The training industry provides computer literacy to school students.Strong growth (US$ bn) 45 IT-ITES Exports Direct employment (RHS) (Mn) 2. trains college students for IT careers and also provides re-skilling to industry professionals looking to move higher up the corporate ladder through refining their IT skills. The growth rate of 46% was also much higher than the growth of around 14% recorded in FY2006. 30. Human resources are the major ‘raw materials’ that drive growth in these Sectors. 2008 January2008 For Private Circulation Only . up from just US $7. recording a CAGR of around 32% in this period. hitting a size of US $40. Thus. de-growing at a CAGR of nearly 24% over FY2001-04.4 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 0.8 9 0. The Indian IT Training Sector plays the role of a supplier of critical ‘raw materials’ (read human resources) to the IT Sector. FY2005 onwards. growth has accelerated in the industry.453cr in FY2006 (Source: Dataquest). the Sector is expected to have directly employed nearly two million personnel.0 Source: NASSCOM. industry revenues started picking up again.2 18 0. the Sector employed over 1. the Software and BPO Sectors are highly people-intensive.3bn in FY2008. In terms of employment. up 46% from Rs1. It should be noted that post the dot com bust.6mn personnel in FY2007. aided by the strong growth of the Indian IT Industry. up from just 0. This has been driven by ever-increasing acceptance of offshoring by global corporations looking to cut costs and add value to their businesses. Indian IT Training Industry revenues hit Rs2. it follows that a business that trains personnel for IT careers is also likely to do well if the IT Sector does well. to grow on a sustainable basis. industry revenues collapsed dramatically.453cr in FY2006 Latest figures show that Indian IT Training Industry revenues hit Rs2. Therefore.0 36 1.

which recorded Rs125cr as retail revenues. 20082008 January 30. posting Rs795cr in revenues in FY2007. with growth accelerating significantly in FY07 2. it should also be noted that NIIT is a diversified company having a presence in several segments apart from retail.200 600 0 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 Source: Dataquest. These two players clearly dominate the market. which posted revenues of Rs190cr. such as government institutional business. If we take only the revenues pertaining to retail training. However. if we exclude China. it was NIIT that maintained its position at the top. given that Aptech’s marketshare in China stood at over 32%. Aptech. NIIT’s retail training revenues are over double those of Aptech.Back on a strong growth path (Rs cr) 3. For Private Circulation Only .000 A collapse in industry revenues following the dot com bust Start of the recovery after the dot com bust. This was considerably higher than the second-ranked player. with the players following them recording much lower revenues.Dominated by NIIT and Aptech Company NIIT Aptech Jetking Infotrain Siemens CMS Computers SQL Star MAAC New Horizon Educomp Source: Dataquest. Even in this. Angel Research (Rs cr) 795 190 87 44 23 15 19 16 28 FY2006 revenues 450 121 63 34 15 16 5 - FY2007 revenues June 5. which is still nearly double that of Aptech. Exhibit 17: Indian IT Training Market . Angel Research In terms of revenues.Sebi Registration No : INB 010996539 20 .6%). China and rest of the world revenues are included for both companies. the company recorded Rs247cr.400 1. more than 4x that of NIIT’s marketshare (7. However.Angel Broking Service Truly Personalized TM Industry Overview Education Exhibit 16: Indian IT Training Industry . corporate training and newer initiatives like financial services training and management education.800 1.

commerce. This is even as the country enrolls nearly 10mn students annually in its colleges and institutes of higher education. Therefore.000 post-graduates are produced each year from the system. making it the world’s most populous country. would reach a huge 700mn by 2030 and account for almost half of India’s total population.00.it is the quality of personnel attention that requires Substantial manpower requirements of varied sectors – Significant opportunity India’s working population would reach a huge 700mn by 2030 and account for almost half of India’s total population As per United Nations (UN) population statistics. It seems likely at the moment that more companies may report such losses on their sub-prime exposure. India’s working population. 2008 January2008 For Private Circulation Only . there is a strong growth opportunity in this space. reflecting the urgent need to create more intimate linkages between academia and industry. there will be a significant requirement for quality manpower at various levels.Angel Broking Service Truly Personalized TM Industry Overview Education As per NASSCOM.000 and that the industry can also recruit science.Sebi Registration No : INB 010996539 21 .00. These include wage inflation. Around 25% of the total graduates passing out of the system are actually ‘industry-ready’. A total of 4. Thus. defined as people aged between 25 . the fifth-largest investment bank in the US.95. These statistics reflect the likely strong GDP growth rates expected going ahead. It is the quality of personnel that requires attention. from entry-level programmers/coders. going ahead.000 technical graduates. middle management level personnel and project managers right up to senior-level management personnel. higher attrition rates. This reflects strong growth potential ahead for the IT Training Industry. there will be a requirement for 2. With the recent stunning collapse of Bear Stearns. arts and other graduates who are certified in IT courses provided by companies like NIIT and Aptech. a shortage of quality trained personnel. given its ever-increasing relevance for the IT Sector. it is clear that the total number of graduates passing out from the system is not a constraint to growth. which are likely to persist for some time to come. the Indian IT Sector is currently facing several challenges.3mn IT professionals by 2010. uncertainty lurks in the US and this could spell trouble for the Indian IT Industry. The total number of Given that the annual requirement of the IT Industry stands in the region of 4.3mn other graduates and over 3. Rupee appreciation (in spite of the current depreciation on account of record crude prices). India’s population is estimated to touch 1. graduates passing out from the system is not a constraint to growth . as mentioned earlier. 2. comes the clearest sign yet that the US economy is in trouble and that this pain is unlikely to subside in a hurry.00. resulting in a greater number of smaller nuclear families.5bn by 2030. from US $285bn (S&P) to US $600bn (UBS). There will be a shortage of quality trained personnel required by the IT Industry of 5. However.000 by that year. leading to possible slower growth also for the IT Training Industry. The phenomenal success story of India’s Software Sector is well-known.59 years. given as it forms by far the largest part of most IT companies' businesses. a likely end to the tax holiday under the Software Technology Parks of India (STPI) scheme post-FY2010 and above all. The number of middle and high income households is forecast to increase from 70mn to over 100mn by 2010 as a result of rising income levels and the breakdown of family ties. June 5. 30. the current turmoil in the US economy. with total losses estimated in a wide range. To sustain this growth.

investments and spending power. if not effectively addressed. sectors are fairly substantial. the need for financial intermediation has never been more pronounced. manpower needs across sectors are fairly substantial. breaking the monopoly of the Life Insurance Corporation of India (LIC). Majority of the investible surplus goes into banks and post office deposits. could have serious repercussions on the country’s economic growth and this is a very real threat that. leading to LIC’s share rapidly declining. Given likely strong GDP growth expected over the next few years. While the overall Banking industry is growing at 20%. Hospitality. For Private Circulation Only . Research and Development (R&D) in sectors like Pharmaceutical and Bio-technology and Telecom. Private Sector players have clocked a strong premium growth of 27%. India's Banking Sector could potentially generate 7. require significant numbers of quality personnel. insurance policy penetration is very low. there is significant scope for growth.3bn (Rs29. Aviation.000cr) this year. greater savings. 20082008 January 30. Only 32. New Private Sector banks like ICICI Bank. Consequently. The domestic Retail Banking Market is expanding at a rapid rate.5% of GDP and employ as many as 1. Retail. There are around 321mn citizens in the paid work force category in India (Source: IFBI). most of the insurance policies taken are more for tax savings rather than for any scientific evaluation of needs versus financial situations. across Retail. these sectors. Thus. This segment is slated to grow to a size of US $7. Out of this.5mn people going ahead (Source: IFBI). the market opened up and has since expanded more rapidly. Financial Services and Insurance (BFSI). HDFC Bank and Axis Bank are growing even faster. Going ahead. private players are expected to continue to gain marketshare. The domestic Retail Banking Market is expected to hit a significant US $16. an annual growth rate of 15%.8% of them hold at least one insurance policy. Also. There is huge potential for growth here. This growth coincides with the growing affluence of the Indian middle class and an expansion phase of Indian June 5. either directly or through mutual funds. there is a strong opportunity for companies involved in training and developing talent for these industries. to sustain higher GDP growth rates. These include Banking.5% are active investors in equity.5bn by 2010 (Source: McKinsey study). a mere 2. there is significant scope for growth in these industries. The continuous launch of newer and innovative products like unit-linked insurance plans (ULIPs) has helped faster growth of the industry and greater penetration into the market. Given that the penetration levels of the sector are very low in India. A shortage of manpower in these sectors. are beginning to leverage their knowledge base in IT to expand into talent development in other sectors also. with annual revenues expected to hit a significant US $16.Sebi Registration No : INB 010996539 22 . Research and Development (R&D) and Telecom There is a strong opportunity for companies involved in training and developing talent for India’s Services Sector Thus. ever-increasing affluence. With the entry of private players into the life insurance business a few years ago. Aviation. Take the Indian BFSI sector for example. The General Insurance Sector also has many private players like ICICI Lombard and Bajaj Allianz. in an effort to make a transition from being just IT training companies. Hospitality. apart from IT. leading to significant manpower needs. Private players like ICICI Prudential have grabbed a significant chunk of the incremental marketshare.Angel Broking Service Truly Personalized TM Industry Overview Education Manpower including needs BFSI. The Insurance Sector is another high growth area. Companies like NIIT. apart from IT.5bn by 2010 Driven by strong economic growth. has the potential to derail the economy. which are part of the broader Services Sector that has been the cornerstone of India’s growth over the past few years. Thus.

the estimated size of the North American corporate training market is in the region of US $45. companies in many industries prefer to train people at the time of induction. Over the longer-term. Corporate Training Market The current Education System does not address the needs of many industries The current Education System does not address the needs of many industries. with training outsourcing expected to grow by nearly 25% over the same period English Language Training – Need to integrate with the Global Economy With the rapid growth of the Indian economy and increasing globalisation of Indian corporates given their burgeoning ambitions.. India has one of the largest English-speaking workforces. the opportunity for businesses ‘providing critical raw materials to India’s Services Sector’ is fairly immense. rising insurance awareness. This has significantly increased the choice of options for investors. sales. spending on corporate training is expected to rise by around 7% per annum until 2010 (Source: IDC). while content development accounts for US $16. with the introduction of a number of new and innovative products like mutual funds. training is expected to rise by 7% until 2010. A growing consumer class. with training outsourcing expected to grow by a considerably faster rate of nearly 25% per annum over the same period. the financial markets have also kept pace. Going ahead. Many kinds of soft skills (ie. this sector will also need quality personnel in several functions like finance. it should June 5. which is relevant for NIIT. 2008 January2008 For Private Circulation Only . Thus. 30. increased investments and enlarged infrastructure spending provide a strong platform for premium expansion. India is expected to continue on a high growth trajectory. commodities. In several cases. Given this scenario. actuaries. customer service. art and so on. English speaking. financial knowledge and skills) are lacking in the pass out from these institutions.Angel Broking Service Truly Personalized TM Industry Overview Education corporations. Aviation and Retail are also likely to witness significant manpower demand going ahead. of which delivery services account for the maximum share of the pie of US $21. For this reason. the companies use the platform provided by these education companies to provide training to their fresh recruits as well as existing employees. there is likely to be strong manpower demand for financial market professionals and for Financial Planners. and middle and senior management. get them trained through specialised training institutions or absorb candidates from institutions that provide such specialised training. Foreign insurance majors are also making a beeline for the Indian insurance market. Industries like Hospitality.3bn. Along with strong economic growth. Therefore. leading to greater affluence and the need for proper financial planning and advice. ULIPs. Over the longer-term.Sebi Registration No : INB 010996539 23 . NIIT and Everonn provide such specialised courses to candidates through their short and medium-term courses. However. English-speaking human resources. there exists good scope for growth in this business. there is an ever-increasing need for skilled. the growth and development of the Indian financial markets is well-known. Thus. given that it derives most of its corporate business revenues from the US.6bn. computer literacy. That is because India is turning into one of the top markets in Asia. Spending on corporate On the other hand. leading to strong manpower demand for financial market professionals and for Financial Planners Further.9bn. given the criticality of scarce human resources to the Indian economy in general and these industries in particular. India is expected to continue on a high growth trajectory. leading to a strong opportunity in training of professionals in this field.

Thus. this is expected to hit Rs800cr in three years be noted that often. it is clear that human resources will be the key competitive advantage that the country has to sustain this robust growth. 20082008 January 30. June 5. both in the Government schools and Private schools businesses. For Private Circulation Only .Angel Broking Service Truly Personalized TM Industry Overview Education The estimated market size for English language training is around 10. as is the case in industries like IT. which require extensive interaction with customers of foreign corporations. there are thus significant opportunities to tap for companies like Educomp Solutions. With the Government showing a clear willingness to engage the private sector in accomplishing the daunting task of educating India's 13. With burgeoning demand for skilled human resources also in sectors like Financial Services.5mn students. This has led to a significant addressable market for English language training. NIIT has estimated a market size of around Rs800cr in three years and expects to capture around 10% of the market. The estimated market size is around 10.5cr students. there exist significant opportunities for growth in the Corporate Training business as well. fluency in English is an issue. Consequently.Sebi Registration No : INB 010996539 24 . Companies like NIIT and Everonn are attempting to tap this growing market through their innovative products. are enthused about the growth prospects of companies serving this space. Everonn Systems India and NIIT Limited.5mn students and in revenue terms. a strong foundation in the form of a robust education system will be the cornerstone to leading India's growth over the next many years. We remain positive on the Indian Education Sector and believe it is a multi-year growth story that will play out over the next many years and thus. the problem is not of quantity but of quality. This is particularly a problem in industries like BPO. Conclusion With the strong growth expected in the Indian economy going ahead.

30.Angel Broking Service Truly Personalized TM Education Companies June 5.Sebi Registration No : INB 010996539 25 . 2008 January2008 For Private Circulation Only .

Educomp had 933 private schools under its coverage.7 FY2010E 811.9 47.2 FY2008 262.Angel Broking Service Truly Personalized TM Jain Irrigation Educomp Solutions Initiating Coverage BUY Price Target Price Investment Period Rs3.7 54.4 12.50.5 66. 20082008 January 30.051 12 Months The ‘Star’ at Pole Position Educomp Solutions. We Initiate Coverage on the stock.9) 1yr 8. Educomp has over 16.000 modules of content.0 8. ICT Segments: Educomp has embarked on strong growth path owing to its leadership position and bright prospects of its key business segments. On the back of these initiatives we estimate the company's Top-line and Bottom-line to grow at CAGRs of 76% and 67% over FY2008-10E. with a Buy recommendation and DCF-based Target Price of Rs4.Sebi Registration No : INB 010996539 26 .0 7.0 2.4 FY2007 106. with an addressable market of 12.9 26.00. We expect Educomp's SmartClass revenues to grow at a CAGR of 70% over FY2008-10E. respectively.1 * Since listing on January 13.5 35.0 22.8 47. With an addressable market of 9.9 32.7) (9.4 53. Well-developed content: Strong content development is the backbone of Educomp's product offerings.000 pages and 10 languages.3 68. For Private Circulation Only .6 33.agrawal@angeltrade. in over 1.9 19.4 124.2 88.com June 5. Sensex (%) Educomp (%) 3m (4. Around 6.000 government schools were serviced by the company's ICT business at the end of FY2008.4040 3800 Ext: 346 E-mail: sulabh. Leader in SmartClass.5 3yr* 68.000 schools for its SmartClass business. It currently has a library of content for children from grade 6-12 mostly for Mathematics and Sciences.05 5.7 105.9 204 25.9 68. the growth potential is substantial for Educomp and its peers.496 Rs4.1 31. the company also has entered into a tie-up with Discovery and Eureka for providing multimedia content for education.9 Abs.3 196.0 28. Angel Research Stock Info Sector Market Cap (Rs cr) Beta 52 Week High / Low Avg Daily Volume Face Value (Rs) Education 6.677 BSE Code NSE Code Reuters Code Bloomberg Code 532696 EDUCOMP EDSO.2 67.706 79481 10 BSE Sensex Nifty 15.9 58.9 21. A strong sales team results in good conversion of prospective clients. which is the largest count in this segment v/s competitors .1 144. Key Financials Y/E March (Rs cr) Net Sales % chg EBITDA Margin (%) Net Profit % chg Diluted EPS (Rs) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x) Source: Company.9 FY2009E 483.6 70. Apart from this. The company currently has a team of 400 professionals working on the development and improvement of content.8 84.0 26.4 10.041 1. Educomp has so far achieved it sales targets due to its aggressive sales team apart from its strong content development capabilities.1 14.7 15.6 48.BO EDSL IN Shareholding Pattern (%) Promoters MF / Banks / Indian FIs FII / NRIs / OCBs Indian Public / Others 56.051.8 17.770 4. is a leader in providing end-to end solutions to government and private schools. The company now has plans to venture into new businesses of education. the fastest-growing education solutions company in India. This will enable the company to achieve 70% CAGR in its SmartClass business.7 49.2 103.2 30.8 21.650/1.7 113. At the end of FY2008.1 145.125.6 23. 2006 Sulabh Agrawal Tel: 022 .1 117.7 1.000 schools.6 103. The Instruction and Computing Technologies (ICT) segment is the second-largest contributor to its overall revenues. Strong sales team: Educomp has a strong sales team of 120 people and is planning to increase it to 170 people by the end of FY2009. organically as well as inorganically in its attempt to increase its addressable market and have a presence in new geographies.7 48.4 27.

000 schools across India. The company went public on January 13. This business entails providing multimedia-based education (primarily for Mathematics and Sciences) and infrastructure to children of the contracted private schools. LAN networking and Plasma screens for the classrooms. the IT and HRD Ministries and the governments of other countries. has grown to become one of the largest technology-driven innovative education companies in India. The company has a sales presence in over 57 locations. Educomp is India’s leading K-12 Education Company Educomp is India's leading Kindergarten to class 12 (K-12) Education Company and has. With an employee base of over 3. These educational programs also involve across-the-board education infrastructure implementation. incorporated in 1994. The company works closely with various State and Central Government agencies. development of India's largest K-12 content library. 30. Educomp today works with over 7. Educomp has managed to create one of the largest content libraries in this field. Educomp works closely with schools to implement innovative models to create and deliver content to enhance student learning experience. which has emerged as a benchmark for many similar initiatives. accounts for the largest part of Educomp's revenue pie. and West Bengal. Canada. 2006. over the years.Angel Broking Service Truly Personalized TM Educomp Solutions Education Company Background Educomp Solutions. India's first structured pre-school learning system. USA and Singapore. teacher training and content development projects. Roots 2 Wings. Business Overview SmartClass (Private schools) SmartClass. Orissa. Karnataka. Educomp currently serves approximately 6mn learners and educators across India. a private schools initiative. 2008 January2008 For Private Circulation Only . online learning initiatives like mathguru. California. Educomp provides the schools computers. with an Issue price of Rs125 per share and a total Issue size of 40lakh shares.Sebi Registration No : INB 010996539 27 . In the US. Gujarat.000 schools including large projects from state governments Educomp has a track record of implementing large-scale Public-Private-Partnership (PPP) projects. the US and Singapore.000 professionals. Educomp has 11 offices in India. the company's presence is via its fully owned subsidiary. Educomp is the leader in this segment. with approximately 400 content developers currently working on developing this content and around June 5. pioneered various initiatives in the e-education space. Tripura. the content for teaching the children is provided to the schools and teachers are trained to use the hardware and content.com and pioneering Education Process Outsourcing in India through the Learning Hour platform. Notable among them are the 'teacher-led' content system called SmartClass that has dramatically improved learning effectiveness in classrooms. based in Ventura. with the intent of replacing the blackboard to a large extent.000 modules of rich 3D content that is aligned to Indian as well as international learning standards.000 schools including large projects from the governments of Assam. Sri Lanka and Singapore. with approximately half the of revenues during FY2008 coming from this business. Uttar Pradesh. with over 15. The current client base of PPP projects is over 6. After the hardware is installed. 1 each in the US. Chattisgarh. The current client base of PPP projects is over 6. Edumatics Corporation.

which make up the immediate addressable market for Educomp Currently. Around 10-12. Such schools make up the immediate addressable market for Educomp. However. 20082008 January 30. Science. the infrastructure is transferred to the schools and the content is withdrawn as Educomp holds the copyrights for the same. History and Geography to schools from primary to secondary levels (K-12).000 modules of content being available.Sebi Registration No : INB 010996539 28 .000 charge fees of over Rs1. the school has the option to renew the contract and continue to use the content. At the end of the contract. The students move through the various classes and learn new topics in various subjects across the grades. English. Angel Research June 5. Out of these. At the end of FY2008. All the company's contracts with the schools are unique and normally operate under the Build-Own-Operate-Transfer (BOOT) method over an average period of five years. This content is available in a variety of regional languages as well. For Private Circulation Only . Exhibit 1: Progress through the grades Source: Company.000 per month per student. about 10-12. there are approximately 50. Educomp provides content on subjects like Mathematics.000 per month per student. Educomp was providing services to 933 private schools.000 schools charge fees of over Rs1. which amortises it over the period of the contract as per the terms of the contract.000 private schools in India.Angel Broking Service Truly Personalized TM Educomp Solutions Education 16. This has been visually presented below in Exhibit 1. The infrastructure is either purchased by the school directly or provided by Educomp.

489 20.265 1.Sebi Registration No : INB 010996539 29 . given their recurring nature. The average number of classes per school is increasing.83. Exhibit 2: SmartClass .300 1.700 59 45 27 140 6. Educomp currently charges Rs150 per student per month for providing its services.07.41. We expect Educomp to grow its SmartClass revenues at an outstanding CAGR of 87% over FY2008-10E. SmartClass revenues for FY2007 stood at Rs127.70.716 46. 30.525 1. With approximately 45 students per class and an average of 19 classes per school.1 82 55 50 224.68. As per the schools using this product there has been a remarkable increase in the marks of their students in the examinations which speaks about the quality of the content. 2008 January2008 For Private Circulation Only . We believe that going ahead.Revenue Profile FY2007 Number of SmartClass schools YoY Growth (%) Students per class Classes per school Revenue per student (Rs per month) Revenue per class (Rs per month) Revenue per school (Rs per month) Annual revenue per school Total SmartClass Revenue (Rs cr) YoY Growth (%) As % of total revenue EBIT Margin (%) EBIT (Rs cr) Source: Company.1 FY2009E 1.200 449.56.21. We estimate SmartClass revenues to hit Rs247cr in FY2009E.8cr.867 127.79. It can thus be seen that Educomp's revenues have strong visibility. The SmartClass business would be primarily driven by strong sales initiatives.700 82 45 24 145 6.100 20. given the execution excellence shown by Educomp and its strong content library.600 18. even after the expiry of the contracts with the schools.976 22. the contracts are more likely than not to be renewed. as programs are being implemented in larger schools. stability and predictability. accounted for 49% of total revenues in the period FY2008 June 5. SmartClass revenues during FY2008 stood at Rs127. superior quality of content and a huge addressable market.8 174 49 58 74. Angel Research FY2008 933 182 45 19 150 8.200 247.6 126 49 SmartClass revenues Educomp had tie-ups with 933 private schools in its SmartClass business at the end of FY2008. It clearly reflects the good quality of education being imparted by SmartClass.7 FY2010E 2.Angel Broking Service Truly Personalized TM Educomp Solutions Education The students used to these methods of studying would appreciate the ease of learning that they provide.868 1. This is expected to increase the revenue per school going ahead.5 331 264 45 15 175 12.4 94 51 50 123.8cr and accounted for 49% of total revenues.

For Private Circulation Only . Thereafter. we have been conservative and have modeled for a fall in EBIT Margins apart from factoring in a reduction in fees charged per student every year. It also provides IT education and infrastructure to the government schools along with providing full-time instructors at the school. it normally takes 40-45 days to set up the infrastructure and start providing the training at these schools.600 120 800 60 0 FY2007 FY2008 FY2009E FY2010E 0 Source: Company.Sebi Registration No : INB 010996539 30 . Exhibit 3: Growth of SmartClass business Nos. The company has developed extensive content for this business and provides instructions and content in regional languages wherever stipulated by the contract. Pertinently. Such operating leverage we believe will improve Margins going ahead. Angel Research ICT (Government schools) ICT is Educomp's initiative at getting government schools under its fold. At the end of the contract. the ownership of infrastructure shifts to the respective school. Educomp currently has Educomp currently has partnerships with 10 state governments and provides content in ten different regional languages. the state government has the option to renew the contract for providing the remaining education services to the schools. These contracts are procured through competitive bidding and are on a BOOT basis.400 180 1. Post bagging the contract. with content being homogenous across schools. partnerships with 10 state governments and provides content in ten different regional languages June 5. However.Angel Broking Service Truly Personalized TM Educomp Solutions Education The SmartClass business clocks EBIT Margins of approximately 58% The SmartClass business clocks EBIT Margins of approximately 58%. content development costs per school would reduce as more schools get added.200 240 2. The state governments typically float tenders for a certain number of schools to provide infrastructure and content to the students of those schools. 20082008 January 30. A large part of the expenses are towards content development. Number of Smart class schools Growth (RHS) (%) 300 3. Educomp provides multi-media education software and courseware to the students in regional languages.

000 existing government schools in India.004 114 17.11.500 54 15. with Educomp being the largest player. of which just 3% have included ICT and equivalent programs in their curriculum At the end of FY2008. Exhibit 4: ICT . ICT accounted for 36% of Educomp's FY2008 revenues. On a conservative basis.Sebi Registration No : INB 010996539 31 .000 178. The average revenue realisation per school was Rs2. given that the market potential is substantial and the players would not need to undercut each other to increase their business. Further. Educomp was providing services to 6004 government schools.86.500 1. we estimate this business to record a CAGR of 74% in Top-line over FY2008-10E. Educomp provided services to over 6. Till date. 30.98.3 209 36 29 27.3 FY2009E 12.000 100 16.4 2. However.000 schools for tendering in FY2009.651 2.2 90 32 There are 9.000 283. Angel Research FY2008 6. June 5. going ahead we believe that a greater number of schools would be receptive to such concepts owing to the Central Government's intent to improve the quality and reach of education and to increase the overall literacy levels in India. approximately 30.Revenue Profile FY2007 Number of ICT schools YoY Growth (%) Revenue per school (Rs per month) Revenue per school (Rs per year) Total ICT Revenue (Rs cr) YoY Growth (%) As % of total revenue EBIT Margin (%) EBIT (Rs cr) Source: Company.11.50.390 30.Angel Broking Service Truly Personalized TM Educomp Solutions Education This business segment is the second-largest contributor to the company's overall revenues. Thus.808 358 14.76. 2008 January2008 For Private Circulation Only . Further. it is the leader in ICT and education.50. EBIT Margins stood at 29% in FY2008. it enjoys a competitive edge apart from being the most profitable player in the business. We expect Educomp to maintain its Margins in this business. we believe the growth potential of this segment is substantial and state governments are expected to increasingly deploy resources to improve education in their schools.000.699 1. we expect it to achieve high growth over the next few years.9 FY2010E 18.500 1. with 9.000 schools have been included in the ICT comparative programs.5lakh government schools in India.813 93.813 per year.7 59 35 28 79. Nonetheless. has considerable experience in the competitive bidding process and has developed regional content as required by state governments.2 91 37 28 49. the average realisation per school per annum would decline as this business is procured through competitive bidding via tenders and the lowest-cost bidder generally wins the contract. we believe going ahead. The total number of government schools in India are approximately 9. As for Educomp.000 government schools at the end of FY2008 and the business is expected to grow at a robust rate over the next few years with the government expected to offer 29. of which a mere 3% have included ICT and equivalent programs in their curriculum.

000 2.570 178 839 25. Educomp.000 16.355 20 800 36.000 teachers during FY2008.81. Educomp is currently the largest teachers' trainer in India having trained over 3.000 8. Angel Research Professional Development (Teacher Training) Educomp has tied up with three companies (computer manufacturer.000 10.000 47 1595 17. Educomp's partners in the business compensate it for providing this service. This business contributed around 10% to the company's total revenues during FY2008.000 4.000 0 FY2007 FY2008 FY2009E FY2010E 320 240 160 80 0 Source: Company. These tie-ups are towards providing training and upgrading the skills of the teachers in India.963 25 800 30. provides the required training to the teachers apart from refurbishing their skills.9 1.7 20 5 57 20. The teachers have to undergo training over a two-week period.6 46 10 61 15.6 19 6 58 17. For Private Circulation Only .00. There are approximately five million teachers in India and a majority of them lack the training to teach. 20082008 January 30.000 6. Development Revenue (Rs cr) YoY Growth (%) As % of total revenue EBIT Margin (%) EBIT (Rs cr) Source: Company.5 43 19 June 5. through its Teacher Training initiative.000 18.05.000 12. Hence. Microsoft and Wipro.000 14.Angel Broking Service Truly Personalized TM Educomp Solutions Education Exhibit 5: Growth of ICT business Nos.Sebi Registration No : INB 010996539 32 .10.7 FY2010E 4. Exhibit 6: Professional Development FY2007 Total number of teachers trained YoY Growth (%) Revenue for training each teacher (Rs) Total Prof.58. Angel Research FY2008 3. Number of ICT schools Growth (RHS) (%) 400 20. software and chip) namely Intel.7 FY2009E 3.

2008 January2008 For Private Circulation Only . We estimate revenues from Professional training to grow at a CAGR of 20% over FY2008-10E.Limited by low broadband penetration Mathguru. Currently.61.Angel Broking Service Truly Personalized TM Educomp Solutions Education We believe that the potential for growth in this field is also immense given the paucity of teachers having pre-service training and the growing emphasis on improving the quality of education imparted to students.8 51 5 36 15.com is an online portal for mathematics and guides on NCERT books study for grade 6 to 12 students A major part of the expense connected to education for a middle class Indian family is money spent on individual coaching of children. We estimate that revenues from this product would grow at a strong 65% CAGR over FY2008-10E even as EBIT Margins decline marginally. One-third of this amount is spent on school education while the balance two-thirds is spent outside the school for private tutoring. Educomp has a strong content development team that designs content for these websites. This would in turn help increase the penetration of internet services and lend a boost to subscriptions of web-based learning portals. Broadband web connection is a vital and limiting factor to access these web-sites. Exhibit 7: Web-based Retail Tutoring and Subscriptions FY2008 Subscriptions YoY Growth (%) Revenue per subscription (Rs) Total Subscription Revenues (Rs cr) YoY Growth (%) As % of total revenue EBIT Margin (%) EBIT (Rs cr) Source: Company. The charges for mathguru. The student would not have to leave his/her home as well and travel to receive the coaching.0 85.800 15. To tap this market. June 5.com would increase. 'mathguru.7 Approximately 33% of the monthly income of the 300mn-strong Indian middle class is spent on the education of their children Approximately 33% of the monthly income of the 300mn-strong Indian middle class is spent on the education of their children. Educomp has set up two websites viz..6 80 6 45 12. The websites can be accessed by subscribing to them.com' and 'learninghour. as it would be available 24 hours a day as per the convenience of the individual student.com is an online portal for Mathematics and guides on NCERT books study for grade 6 to 12 students. This product would have an advantage over private coaching.35%) in the country. Educomp is accessing this market through its retail tutoring initiatives.137 70 1.53. Teachers' training earns approximately 61% EBIT Margins for Educomp.com are approximately Rs1. customs duty on import of equipment for providing broadband services has been lifted. in Budget 2008-09. Mathguru. which caters to the students' needs after school. Angel Research FY2009E 1.4 FY2010E 2. Retail Tutoring and websites .339 0 1.com'. the market for portals like mathguru. Learninghour. broadband penetration is very low (0.4 0 6 56 8.600 41. which we believe will lower the costs of setting up infrastructure for providing these services.com provides retail online tutoring to children in India. However.610 80 1. 30.Sebi Registration No : INB 010996539 33 .800 per student per annum.800 27. We believe that with higher internet and broadband access and penetration in India. the US and the Middle East on all curricular subjects and tests preps with services.

000 high-tech government schools.000 students. Educomp has entered into tie-ups with DLF. classes would be extended upto Grade 10. We have currently not built in revenues and profits from this business into our projections. which provide better understanding to children about their courseware and helps them in improving their academic performance.Angel Broking Service Truly Personalized TM Educomp Solutions Education New Business prospects The Budget for FY2008-09 has provided Rs650cr for setting up of 6. Management and maintenance would be handled by Educomp. Educomp owns and manages the schools. the modernisation contracts of 22 Sainik Schools at the cost of Rs2cr per school will likely be competed for by Educomp and peers Everonn and NIIT.. Full strength of these schools is expected to be 2. Also. Ansal and several other smaller builders for setting up 60 schools in the Millennium School format. The company expects to have (own or manage) 25 schools by the end of FY2009 and 100 such schools by FY2010. EI would not come into the picture. Educomp provides consultancy to schools with respect to general management and designing and providing courseware. These schools would be managed and/or owned by two subsidiaries viz. JV with China-based Raffles Educomp has entered into a 50:50 JV with Raffles which is a leading education services provider in China. EI would own the building and infrastructure of the schools while ESML will provide the services to the schools.000 per student per year and a one-time admission fee of about Rs35. and upto Grade 12 in the third phase.000.Sebi Registration No : INB 010996539 34 . In the first phase. The schools would be charging fees of approximately Rs35-40. In these cases. Educomp Infrastructure (EI) and Educomp School Management Limited (ESML). Details are awaited. 20082008 January 30. China is world's second largest education market by number of school aged student after June 5. Own School business ('Roots 2 Wings'. In the second phase. 'Millennium Schools') In this business format. It has developed 40 books. It has already set 3 schools and admissions are in progress in 2 more schools. Millennium Schools are brick-and-mortar schools that educate children right from kindergarten to Grade 12 (K-12) at the school level. school classes from Kindergarten to Grade 7 would be set up. The schools would be set up and expanded in three phases. Roots 2 Wings are neighborhood schools for kindergarten-aged children. where the land and building would be owned by the respective builders in their townships and provided to the school on a renewable lease of 30 years. For Private Circulation Only .500 students per school post completion of all the three phases. These schools would either be owned by Educomp or by joint venture (JV) partners and would be entirely managed by Educomp. Educomp is also in the process of setting up 100 new schools in the next 2-3 years. Educomp holds 75% stake in both the companies. These schools have a total student population of 6. but we believe that companies like Educomp would be the prime service providers to these high-tech schools.

education content is similar across countries and has to be modified slightly to make it adaptable to the respective students.Angel Broking Service Truly Personalized TM Educomp Solutions Education India. This segment accounts for approximately 10% of Educomp's overall revenue and profits. 30. the capex requirement would be low. Strategic acquisitions Educomp is making several strategic acquisitions to broaden its product offerings and geographical reach thereby increasing its addressable market size. Educomp would be able to further leverage upon its strong content library through this business and increase its penetration to students who do study at SmartClass schools.Sebi Registration No : INB 010996539 35 . The JV would be used to sell entire range of Educomp's products to K12 students. Thus. The portal is used by school students in the Middle East and helps school students with test preparation and application assistance. which is expected to strengthen the company's online tutoring platform. Educomp would be able to reach over one million Chinese schools. Educomp also sells content and services to schools in foreign countries (mainly in the US and Middle East). Generally. Through this JV. As this business would be run through leased centers. Export of services and content Exports account 10% for of Under the SmartClass business. It owns the online tutoring portal called The Learning Hour and Threebrix. We have not factored in the revenue and profit resulting from this JV as it is in a very nascent stage of development. Educomp acquired 76% stake in ThreeBrix. This would provide a meaningful education alternative to student graduating from high schools in India. In this business. which is a domestic company home tutoring Educomp acquired 76% stake in ThreeBrix. Currently Educomp is testing this product and we have not factored this business into our model. which is a domestic home tutoring company. We believe the company has strong potential for growth for export of its content to existing and new destinations. approximately and profits Educomp’s overall revenues June 5. thus enhancing the addressable market size tremendously. The Learning Hour is India's first tutoring web-site to have full audio-video conferencing along with standard tutoring whiteboard functionality.com. Further the JV would bring to India the entire range of Raffles professional development programs and courses. The estimated market size for this product is Rs530cr. Educomp has considerable expertise in the development of content and selling to new customers across various regions. The company has acquired four companies in the recent past. Educomp incurs marginal costs to modify/adapt the content for geographical diversification though this requires recruitment of new content developers with the requisite geographical orientation. 2008 January2008 For Private Circulation Only . Educomp is also on the look-out for opportunities in other geographies to expand its market. Under the terms of the JV. Tutoring Business Educomp is planning to launch tutoring business through ThreeBrix. the existing Raffles Design Institute in Mumbai will be merged into the JV operations. Educomp would be providing its SmartClass content to students through its leased centers.

In the Asia-Pacific (APAC) region. Learning.com.com connects students and teachers from around the world with capabilities to run on any web browser and on any operating system. apart from expanding its geographical presence and client base.com for which it has paid US $24. China. which is the largest education market in the world by value. For Private Circulation Only . we believe these acquisitions will help Educomp increase its addressable market size. Educomp recently acquired the Singapore-based ASKnLearn Inc. student-teacher marketplace models. 20082008 January 30. June 5.Angel Broking Service Truly Personalized TM Educomp Solutions Education Educomp also acquired a 51% strategic stake in AuthorGen Technologies Pvt. It has also recently acquired 51% stake in Learning. and Web 2.0 platforms for online learning. Educomp has also acquired a 70% stake in Toronto-based Savvica. While we have not factored these acquisitions into our assumptions. which has helped consolidate its position in online tutoring with access to key technology competence.com currently has access to 2 million students spread across 800 school districts in US. Savvica is an education technology company that aims to improve education through lowering barriers to entry into online teaching and learning. Their leading portal wiziq. Ltd. which owns the website savvica.5mn. Japan and Brunei. Thailand.Sebi Registration No : INB 010996539 36 . ASKnLearn is a premier pan-Asian provider of education solutions and services that caters to over 120 educational institutions in Singapore. This acquisition gives Educomp a presence in US.

It extended its services to 933 private schools at the end of FY2008 under this business segment and has an addressable market of approximately 12. Educomp also leads in the Professional development for teachers. The company currently has a team of 400 professionals working on development and improvement of content. We believe that acceptability of this product would increase as penetration of broadband services increase in India. there exists immense potential for Educomp to increase the subscriber base of its education portals in turn recording strong growth in revenues and profitability.Angel Broking Service Truly Personalized TM Educomp Solutions Education Investment Arguments Leadership position in the SmartClass and ICT businesses Educomp enjoys leadership position in its flagship business. business prospects of this segment are strong. which adequately justifies the good quality of education imparted. Well-developed content and initiatives to develop it further Educomp lays stress on good quality content development. SmartClass. Educomp has over 16. Thus. Thus. children of the SmartClass program have shown an improvement in marks achieved in examinations. This leadership position and abundant availability of new business in the target segments point to strong growth prospects for Educomp. which is the largest count in this segment vis-à-vis competitors like Everonn and NIIT.50. which has a potential market size of 5mn teachers. 2008 January2008 For Private Circulation Only . Educomp is also a leader in the ICT business and provides services to 6.000 government schools.Sebi Registration No : INB 010996539 37 . Customs duty on broadband service providing equipment has been removed. It also has a library of content for children from grades 6 .000 schools. New business of Internet-based education expected to record robust growth The new business of retailing through the internet has strong business potential. with which this product is competing. well-developed content development is the backbone of Educomp's product offerings.000 schools.000 pages in 10 languages.12 mostly for Mathematics and Sciences.000 modules of content or over 1.00. we believe that developing such comprehensive and quality content would be quite difficult for competition and would act as an entry barrier. With an addressable market of 9. as almost two-thirds of the education spending by an average Indian middle class family is in the space of post-school mentoring. This product has advantages over conventional coaching as access to websites is available through the day and night as per the convenience of the student and the student does not have to leave his or her home to receive the instructions. This would result in broadband becoming cheaper and thus increase access to these products. 30. with minor modifications. June 5. This is homogenous content and can be used for teaching children anywhere in the world. Remarkably.

the government is laying emphasis on improving literacy levels by enhancing the reach and quality of education.Angel Broking Service Truly Personalized TM Educomp Solutions Education Strong sales team Educomp has a large sales team that is regularly beefed up by fresh recruitments. assuming that the government continues to increase its allocation on education and Indians strive to provide better education to their children. Educomp is taking several strategic initiatives to increase its business opportunities in the space of Education. It is also planning to open brick-and-mortar schools through joint ventures. Growth through organic as well as inorganic routes: Educomp is taking several initiatives to expand its product offerings. Thus. It has been constantly increasing its Budget allocation on Education apart from imposing a cess on Income Tax to provide for such increased allocations. Strategic acquisitions: Educomp is making several strategic acquisitions to broaden its product offerings and geographical reach thereby increasing its addressable market size. On its part. Increased allocation by the Central Government and higher spending on education by the growing Indian middle class are generally spent on products similar to the ones offered by Educomp in a large way. Exhibit 8: Revenue and Revenue Growth (Rs cr) 960 Revenue Growth (RHS) (%) 150 720 125 480 100 240 75 0 FY2007 FY2008 FY2009E FY2010E 50 Source: Company. Educomp's revenues are expected to continue to grow at a strong pace going ahead. Its strong sales team has been successful in achieving high levels of conversion of prospective clients. For Private Circulation Only . middle class spending on education The strong growth in Educomp's Top-line and Bottom-line of 76% and 67% CAGR during FY2007-10E. respectively will be aided by government initiatives to increase literacy. Thus. Strong growth aided by government initiatives. it is also making acquisitions to gain access to new businesses and customer bases. 20082008 January 30. and higher spending by the Indian middle class on education. Apart from this. The company has acquired stake in four companies and entered into a JV with Raffles in the recent past. Angel Research June 5. The company recently launched its websites for retail tutoring of children.Sebi Registration No : INB 010996539 38 .

The reduction in our estimated growth rate is primarily due to the base effect. This would have consequences on the future growth and profitability of the company. leading to slower growth. This growth will be driven primarily by strong sales. 2008 January2008 For Private Circulation Only . However. High debtor days: Educomp generally raises its bills to Government schools at the end of each quarter. Lack of growth in broadband connectivity: India has low broadband penetration (a mere 0. Going ahead. large addressable market. we estimate Educomp to clock a strong CAGR growth of 76% in Revenues over FY2008-10E. We believe the company's acquisitions strategy to increase its target market will also go a long way in enhancing its Top-line. We have assumed that these contracts would be renewed as and when they expire for providing services to these schools. Financials Robust Top-line growth: In FY2008. Educomp recorded a robust Top-line growth of 146% to Rs262. 30.Angel Broking Service Truly Personalized TM Educomp Solutions Education Concerns Execution risks: Educomp is in a phase of exponential growth. Non-renewal of these contracts would erode future revenues and profits and consequently. We expect it to grow faster going ahead due to removal of customs duty on import of equipment for providing internet services.1cr (Rs106. along with a fall in the proportion of revenues from the Government schools business. The bills raised for Government schools take a longer time to be cleared. Bills to Private schools are also raised on a quarterly basis.6cr). the total number of debtor days was high at approximately 160 days at the end of FY2008.Sebi Registration No : INB 010996539 39 . strong existing product line and innovative new products. Any change in the Government's policies towards education in India may have serious repercussions on Educomp's business. June 5. Inability to raise requisite funds to meet capital requirements: Educomp is growing at an exponential pace and requires significant amount of funds to maintain its growth rate. A large part of Educomp's r evenue is derived from government schools. We believe that failure to increase broadband penetration would have negative consequences for Educomp. Risk in completion of contracts: Educomp has entered into BOOT contracts with the government for the ICT business and Private schools for the SmartClass business. reduce revenue and profit growth. leading to a possible downgrade in the premium valuations currently being enjoyed by it on the bourses. If the company is unable to raise these funds to meet its capital requirements. it may impact its expansion plans adversely.35%). Hence. We expect the number of debtor days to reduce due to a change in product mix. profitability and the faith enjoyed by its customers. Change in government’s outlook towards Education: We have assumed future growth based on current growth patterns and visibility of addressable markets. any delays in implementation of its contracts would result in loss of revenue.

which though relatively low compared to its other products. ThreeBrix and Raffles initiatives.Angel Broking Service Truly Personalized TM Educomp Solutions Education Pertinently. However the success of these products and JV's would provide an additional upside to our estimates. For Private Circulation Only . However. Roots 2 Wings.0 180 40. June 5. respectively.0 Source: Company.0 0 FY2007 FY2008 FY2009E FY2010E 30. during FY2007 and FY2008. is still quite good. The strong growth in Bottomline would be primarily supported by an impressive growth in Top-line which would be further supported by innovative new products which are currently in nascent stages of development. Professional Development has 61% EBIT and Retail (Tutoring and subscription) has 56% EBIT. Educomp has a mild shift in product mix towards its Smart class from its ICT business. FY2008. Margins sustainable over long-term: Educomp has a healthy revenue mix in terms of the proportion of its various products in total revenue.0 90 35. Angel Research Bottom-line to grow at a scorching pace: Educomp registered a strong 106% and 144% yoy growth in Bottom-line amounting to Rs28.Sebi Registration No : INB 010996539 40 . The blended EBIT margin of the company after factoring in the unallocated expenses is 41%. and Rs70. we have not factored in Revenues and Earnings from the company's Millennium Schools. Its SmartClass business enjoys 58% EBIT. the company's Margins would sustain going ahead. New products and the retail initiatives are also expected to have high Margins and would support growth. 20082008 January 30.1cr. We believe that with the shift in product mix towards SmartClass.7cr. Compared to this. Exhibit 9: EBIT Margins (Rs cr) 360 EBIT EBIT Margin (RHS) (%) 50. its ICT business enjoys 29% Margin.0 270 45. we have conservatively estimated EBIT Margins to reduce to around 36% over FY2008-10E. We have conservatively estimated Educomp's bottom-line to grow at a CAGR of 67% over FY2008-10E.

The Bonds would mature and would be fully convertible upto July 2012. This amounts to Rs1. Angel Research Capital Raising Initiatives FCCB Issue: Educomp issued FCCBs amounting to US $80mn in FY2008.000cr assuming US$1 = Rs40.Angel Broking Service Truly Personalized TM Educomp Solutions Education Exhibit 10: Net profit and Profit growth (Rs cr) 240 Net profit Profit growth (RHS) (%) 180 144 160 108 72 80 36 0 FY2007 FY2008 FY2009E FY2010E 0 Source: Company. Information on pricing. apart from expansion of its SmartClass and ICT products.Sebi Registration No : INB 010996539 41 . The conversion ratio is 13. We expect the conversion option to be fully exercised. We are assuming full conversion of the issue and are building it into our model as fully converted FY2009 onwards.900 per share assuming US $1 = Rs40.1lakh shares and conversion value is approximately Rs2. June 5.8076 shares for every US $1. usage of proceeds and other details of the issue are still awaited. We have not factored in the proceeds of this issue and its subsequent usage into our model as we await further clarity on the same. 2008 January2008 For Private Circulation Only .000 amounting to a total dilution of 1. GDR issue: Educomp recently announced that it would be raising US$250mn through GDR issue. 30. This would provide Educomp with cash to manage its capital need for new products like Millennium Schools and Roots 2 Wings.

Angel Broking Service Truly Personalized TM Educomp Solutions Education Outlook and Valuation India has a population of over 110cr.5cr. Educomp. June 5. India has a poor literacy rate and to counter this. ICT and Professional Development for Teachers products is the front-runner in the education industry. Our model captures most of the concerns present in the market.Sebi Registration No : INB 010996539 42 . Given the likelihood of Educomp generating strong free cash flows going ahead. the largest in the world. For Private Circulation Only . with its SmartClass. 20082008 January 30. with a student population of a massive 13. Thus. We have arrived at a DCF-based fair value for the company of Rs4. The 6% growth rate is deserved by Educomp due to the high growth orbit in which the company is present. We have applied a weighted average cost of capital (WACC) of 13% and assumed a Terminal growth rate of 6%. well-positioned to leverage the growth opportunity and would remain the fastest-growing company in this space. the Government has embarked upon an ambitious drive to improve quality and accessibility through the Public-Private Partnership route. we believe that DCF is the best way of capturing this growth.051. we Initiate Coverage on Educomp Solutions with a ‘Buy’ recommendation. the student population is also increasing by the same amount. The total population grows by 1% (1cr) every year and as a result.

458 2.692 3.9) 539 215 754 (126) 5.705 3.0 6.671 6.959 2.051 10.5 16.9) 415 211 626 (120) (8.186 4. of equity shares DCF value/ share Source: Company.226 10 346 4.051 3.0 7.0 575 6 269 FY15E 1.5 (207) 9.5 11.9) 1.05 13.0 (221) 2.0 5.180 2.0 (230) 2.284 3.0 1.237 22 (407) (32.089 (136) 4.9) 829 260 1.594 2.0 736 7 304 FY16E 1.3 133 3 91 FY12E 619 35 (204) (32.256 0.455 (146) 3.6 (213) 3.5 14.418 6.571 5.0 Free cashflow to the firm (FCFF) (25) 0 Discounted FCFF Terminal value Risk-free rate Risk Premium Beta for the stock Cost of Equity Cost of Debt Debt Equity Tax rate WACC Enterprise Value Less: Debt Add: Cash DCF value of equity No.0 18 6.0 2 2 2 FY11E 459 56 (151) (32.9) 197 113 310 (101) 15. Angel Research (25) Sensitivity Analysis WACC 4.003 1.790 3.748 8. 30.8) 74 32 107 (62) 199 (69) 6 FY09E 176 65 (58) (32.9) 680 239 919 (131) 4.814 11.912 8. cap.6) (204) (4.531 7.Angel Broking Service Truly Personalized TM Educomp Solutions Education Exhibit 11: Discounted Cash Flow Model Projected Cash Flow (Rs cr) Y/ E March (Rs cr) EBIT Growth rate Less: Tax % tax rate Operating Cashflow Add: Depreciation Gross Cashflow Less: Change in Net wkg.364 3.0 5.73 4.675 4.25 5.972 9.9) 987 277 1.008 4.097 5.5 6.162 4. % chg Less: Capex % chg FY08 107 132 (33) (30.5 12.567 7.951 2.2) 301 4 182 FY13E 805 30 (265) (32.604 (148) 2.0 1.259 345 1.170 2.873 4.755 2.00 1.5 3.707 16 (562) (32.669 3.909 8.089 4.263 (141) 4.9) 118 71 190 (87) 41.0 12.Sebi Registration No : INB 010996539 43 .8 (87) 1 (77) FY10E 294 66 (97) (32.472 19 (485) (32.0 901 8 328 FY17E 1.976 3.145 310 1.014 26 (334) (32.0 (217) 2.0 (213) 2.0 20.567 4.3 13.300 6.784 2.432 2.5 June 5.925 18 96 7.409 2.292 Terminal Growth Rate 5.0 9.193 2.499 2.0 420 5 223 FY14E 1.0 (226) 2.900 3.197 3.0 (209) 2.812 6.893 8.521 3.5 13.9) 1. 2008 January2008 For Private Circulation Only .763 3.084 9 347 FY18E Terminal 1.878 10 (619) (32.077 4.256 4.491 5.051 15.9) 308 170 478 (131) 29.4 (190) 173.5 10.153 6.

1 (2.9 53.1 381.0 117.2 16.2 67.6 0.1 206.6 189.6 251.1 10.8 21.1) 101.7 59.1 247.1 33.7 142.3 0.3) (16.9 26.7 35.6 45.6 202.3 4.9 43. Tax) Others/Extra ordinary items Cash Flow from Financing Inc.4 79.7 1.5 48.1 47.8 84.7 Balance Sheet Y/E March SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deffered Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc.5 5.3 28.2 441.1 160.1 116.9 17.8) 0.6 32.4 7.1 65.4 234.2 51.7 105.6 17.2 68.0 117.6 28.0 328.8 56.0 60.7 419. June 5.0 28.0 70.0 113.1 239.9 0.0 0.2 51.5 15.7 464.1) 8.0 635.2 (87.4 109.5 5.7) (90.1 232.3 17.0 196.2 0.2 (28.7) (1.5 21.5 69.9 68./ (Dec.9 137.0 32.3 112.4 45.3 618.6 (101.0 17.0 22.0 36.8 32. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Miscellaneous Exp.0) 40.7 0. 20082008 January 30.5 5.5 5.3 33.5) (58.0 150.6 (87.9 179. Total Assets 93.3 1.0 160.3 1.0 464.3 5.7) 0 (2.0) (96.0 293.9 58.3 124.1 38.3 Key Ratios Y/E March Per Share Data (Rs) Diluted EPS Diluted Cash EPS DPS Book Value Operating Ratios Inventory (days) Debtors (days) Creditor (days) Debt / Equity (x) Return Ratios (%) RoE RoCE RoIC (Pre tax) Dividend Payout (%) Valuation Ratios (x) P/E P/BV EV / Sales EV / EBITDA 203.4 Rs crore FY2010E 278.7) (1.) in Cash Opening Cash balances Closing Cash balances FY2007 FY2008E FY2009E 39.0 0.0 176.6 161.3 309.4 5.1 8.3 31.0 32.7 391. The Balance Sheet and Cash Flow data is estimated.) in Investments Issue of Equity Inc.7 15.6 88.0 26.5 238.) in Fixed Assets Free Cash Flow Inc.5 566.0 326.7 143.8 1.7 32.4 54.8 FY2007 FY2008E FY2009E Rs crore FY2010E 17.4 FY2007 FY2008 FY2009E FY2010E Note: All figures are given on a standalone basis.0 9.0 9.0 0.0 (2.1 161.9 27.5 301.1 19.0 22.4 1.4 124.5 17.0 112.0 103.Sebi Registration No : INB 010996539 44 .8 33.2 0.0 349.7 349.5 1.3 424.0 0.4 21.4 12.7 205.2 30.8 71.2 103.6 253.1) 86.2 14.9 23.7 48.Angel Broking Service Truly Personalized TM Educomp Solutions Education Profit and Loss Account Y/E March Net sales % chg Total Expenditure EBITDA (% of Net Sales) Depreciation & Amortization Interest Other Income PBT (% of Net Sales) Tax (% of PBT) PAT % chg FY2007 106.9) (33.1 145.5 483.8 54.0 125.3 36.4 (47.4 14.1 25.2 170.9) 18.6 103.8 7.3 14.3 36.0 71.3 (61.6 23./(Dec.7 71.6 21.2 0.0 (2.9 119.4 58.5 0.3 1.0 0.1 0.3 15.5 50.0 28.4 2.0 3.0 7.1 144.7 49.4 1.0 658.9 25.2 96.8 98.9 158.7) 0 29.0 0.6 360.8) 208.7) 0 (2.7 160.1 71.3 0.8 35.8 FY2008 FY2009E 262.0 42.7 658.4 (19.1 39.6 9.8 34.0 0./ (Dec.0 28.8 16.6 64.6 0.3 17.6 0.5 98.9) 0.0 15.6 45.3) 27.9 19.5 15.8 47.1 250.1 17.6 46.6) 99.0 38.) in loans Dividend Paid (Incl.2 0.0 (2.5 66.5 Cash Flow Statement Y/E March Core PBT Other income Depreciation & Amortization Change in Working Capital Direct taxes paid Cash Flow from Operations Inc.6 365.3 Rs crore FY2010E 811.8 103. For Private Circulation Only ./(Dec.4 17.6 99.

30.Angel Broking Service Truly Personalized TM Education This page has been intentionally left blank June 5.Sebi Registration No : INB 010996539 45 . 2008 January2008 For Private Circulation Only .

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Jain Systems Everonn Irrigation
Initiating Coverage

NEUTRAL
Price Target Price Investment Period Rs624 -

‘Vitel’ innovations
Everonn Systems is a pioneer in the Government Schools business and has several innovative products in its ViTELS business. It has a strong focus on developing partnerships with corporate and educational institutions for providing solutions in the field of training and short courses with the intent of enhancing the skill sets of students and employees. The company is set to grow at a CAGR of 52% and 28% in Top-line and Bottom-line respectively during FY2008-10E. Our DCF-based value for the stock is Rs623. Thus, even as we are positive on the company's growth prospects going ahead, we Initiate Coverage on the stock, with a 'Neutral' recommendation. IEIS- Highly scalable business: Everonn is a pioneer in the Institutional Education and IT Infrastructure Services (IEIS) business. It has the ability to bid for and win large Government contracts. Currently, Everonn caters to over 3,000 Government schools and can tap a huge addressable market size of 950,000 Government schools, 29,000 of which are expected to be opened for tendering over the next year. Focus on content development a key to maintaining competitive edge: Everonn has 50 professionals working on development and improvement of content for products to be offered across the Virtual & Technology Enables Learning Solutions (ViTELS) platform. Content forms the backbone of its initiatives to provide education services to various institutions and it is constantly developing new products and content to remain competitive. Less prone to economic cyclicality: The Education Sector in India is currently dependent on government spending and spending by the 300mn-strong Indian middle class. We believe that the spending on education would remain inelastic in India and Everonn would not face any economic downturn. Thus we estimate Everonn's revenues to increase at a 52% CAGR over the period FY2008-10E. High dependence on Government business and High debtor days: The IEIS business contributes a substantial 59% of Everonn's Topline. Any shift in government's focus on Education sector could have a negative impact on Everonn. Due to the high focus on this product Everonn has very high debtors at 170 days of revenue. This position is not likely to improve substantially in future if high focus on IEIS business is maintained. Key Financials
Y/E March (Rs cr) Net Sales % chg Net Profit % chg FY2007 43.0 39.2 4.1 0.9 4.0 41.5 157.3 11.2 10.7 23.7 20.5 49.5 FY2008 92.1 113.9 14.1 244.7 10.1 37.2 61.5 27.9 20.6 17.2 9.6 25.8 FY2009E 139.7 51.8 17.9 27.6 11.1 36.0 56.3 8.4 8.9 4.1 6.3 17.6 FY2010E 213.5 52.8 23.1 28.9 14.3 35.0 43.7 9.8 10.1 3.7 4.1 11.8

Stock Info
Sector Market Cap (Rs cr) Beta 52 Week High / Low Avg Daily Volume Face Value (Rs) Education 865 0.80 1,236/245 422926 10

BSE Sensex Nifty

15,770 4,677

BSE Code NSE Code Reuters Code Bloomberg Code

532876 EVERONN EVSI.BO ESIL IN

Shareholding Pattern (%) Promoters MF / Banks / Indian FIs FII / NRIs / OCBs Indian Public / Others 31.1 3.3 25.7 39.9

Abs. Sensex (%) Everonn (%)

3m (4.7) (11.4)

1yr* 5.6 30.5

3yr -

Diluted EPS (Rs) EBITDA Margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

* Since listing on August 1, 2007

Sulabh Agrawal
Tel: 022 - 4040 3800 Ext: 346
E-mail: sulabh.agrawal@angeltrade.com

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Everonn Systems
Education

Company background
Everonn has set up Virtual and Interactive Learning classroom networks delivering across quality India, and Everonn, incorporated in 1987, is one of the pioneers in computer education at schools and colleges, and has partnered various state governments to bridge the 'digital divide'. The company has set up Virtual and Interactive Learning classroom networks across India, delivering quality and affordable education. Everonn is a fully integrated Knowledge Management, Education and Training Company offering a range of services, including:

affordable education

Creating educational and training content that is globally relevant, Designing and executing large learning initiatives, and Setting up the needed infrastructure for learning and training.
Everonn develops integrated content for the Indian and global audience for schools, colleges, corporate and retail segments. It sets up the Computer Lab infrastructure in schools and colleges, and IT Education is imparted through well-trained Everonn faculty. Everonn has experience in bringing management programs from premier institutions like the IIMs, XLRI, IIT, LIBA, MICS and MAHE to working professionals and students all over the country through its well-developed and unique platform that uses V-SAT technology. In FY2007, the company accessed the capital markets with an IPO of Rs50cr.

Business Overview
IEIS business
IEIS contracts are mostly entered into with the state governments in the Build-OwnOperate-Transfer years (BOOT) format, with a tenure of 3-5 Everonn's Institutional Education and IT Infrastructure Services (IEIS) business includes imparting computer literacy to students at government schools. In this business, companies participate in competitive bidding through tenders and the contracts are awarded to the lowest bidder. The contracts are mostly entered into with the state governments in the Build-Own-Operate-Transfer (BOOT) format, with a tenure of 3-5 years. Depending on the contracts, Everonn provides infrastructure in the form of a computer lab and networking along with the content and teachers to the schools covered under the contract. The infrastructure is transferred to the schools at the end of the contract period. Thereafter, both parties have the option to renew the contract. Till date, only one contract of Everonn has expired with the state government of Andhra Pradesh. This contract has been renewed for a period of one year. We believe that the state governments would renew the contracts as and when they expire or open them for fresh tenders to provide services to these schools. Currently, Everonn provides services to 3,164 government schools spread across nine states, with Gujarat having the largest concentration at 1,256 schools. Given Everonn's pioneer status and experience in this business and with an addressable market of 9,50,000 government schools in India, we believe that the company will not face major problems in winning more orders in this space. While inviting tenders from parties, state governments set criteria including eligibility of bidders, which deals with past experience, financial

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Everonn Systems
Education

strength, execution and experience in content development. This acts as an entry barrier for Everonn's competitors who are pitching for a share of the pie. We estimate the IEIS business to clock a CAGR growth of over 53% in Revenues We believe this business would continue to grow at a strong pace, primarily due to increased spending by the government and the entry barriers in the business. We estimate the IEIS business to clock a CAGR growth of 53% in Revenues to Rs125cr in FY2010E from Rs53.6cr in FY2008. This strong growth would be achieved on the back of an increase in the number of government schools under coverage. However, the increase in the number of schools is expected to be partially offset by a decline in realisations per school, as the bidding for these contracts is very competitive. Everonn's IEIS business clocked EBITDA Margins of 33% in FY2008. We estimate that as revenues from the business increase, profitability would also increase due to the economies of scale. However, we have conservatively estimated EBITDA Margins of the business to decline by 100bp annually over FY2008-10E.

Management estimates that bids for 29,000 schools would be invited for availing the services of this product

The computer lab set up in government schools to impart IT-based education currently costs approximately Rs2.4 - 2.5lakh. Management estimates that bids for 29,000 schools would be invited for availing the services of this product and Everonn would be able to win bids for 4,000 schools translating into a capital requirement of Rs100cr for setting up the infrastructure at the schools. On a conservative basis, we have estimated Everonn to add 2,057 schools under this business at an estimated capital requirement of Rs2.5lakh per school.

Exhibit 1: IEIS Business Profile
FY2007 Government Schools YoY growth (%) Revenue per school (Rs per month) Revenue per school (Rs per year) Total IEIS Revenue (Rs cr) As % of total revenue YoY growth (%) EBITDA margin (%) EBITDA (Rs cr)
Source: Company, Angel Research

FY2008 3,164 65 17,575 2,10,899 53.6 59 83 33 17.7

FY2009E 5,221 65 17,000 2,04,000 85.5 62 60 32 27.4

FY2010E 7,831 50 16,000 1,92,000 125.3 59 47 31 38.8

1,919 83 16,448 1,97,373 29.3 68 45 13.2

ViTELS business – Very innovative product lines
Everonn's ViTELS business concentrates on providing the best possible professional and personal growth to geographically dispersed students by creating virtual classrooms at remote locations with the help of VSAT terminals. This is achieved by providing education and instructions using VSAT technology. Everonn has developed this unique product by tying up with some of the best educators and instructors for each course.

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Everonn Systems
Education

The company has four studios at Chennai from where its instructors conduct the classes. It has set up the virtual classroom infrastructure with partner institutions at 180 schools and 230 colleges where students can receive the instructions. There are LCDs, projectors and cameras at both ends, i.e. the studios and the classrooms and the student and the teacher can see and interact with each other just as in an actual classroom environment. This leads to providing classroom-like focus and attention to students through effective real-time communication.

Exhibit 2: Visual presentation of ViTELS

Source: Company, Angel Research

Everonn has set up the virtual classroom infrastructure with 410 partner institutions and intends to raise this to 1,000 by end-FY2010

The number of students availing the programme and receiving the instructions can be increased through the use of technology and the same faculty simultaneously links up with the students at multiple locations. There is virtually no capacity constraint, as there is no limit on the number of connections that can be created. Everonn, to expand its span of providing services, is increasing the number of studios to seven from the existing three. Management also intends to raise the number of partner institutions from 410 currently to 1,000 by end-FY2010. This would increase the reach of the program tremendously. Everonn enjoys the first-mover advantage in this business and faces minimal competition from peers. There are three different initiatives that the company has taken under this business: Corporate initiative is where Everonn provides its ViTELS platform to corporates to train their employees. Instructions are either provided by the corporate staff or by an expert at Everonn depending on the need of the corporate. This includes providing induction training to fresh recruits, soft skills or refresher training to existing employees. Currently, Everonn's prime customers in this business category are Cognizant and Royal Sundaram.

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we believe such seasonality would diminish as the company's product portfolio improves. is developing new courses. under this initiative. Currently. In the curriculum-based subjects. the company has been constantly upgrading its product portfolio through in-house development of new course material. June 5. 20082008 January 30. Everonn is currently working on increasing the number of partner institutions. This growth is expected on the back of an increase in the number of partner institutions and higher revenue per partner institution. the schools product has been dropped and a new product called 'I School' has been rolled out the details of which are discussed further in the report. For Private Circulation Only . Everonn intends to strengthen its content development team as and when required. usually instructions are given on school or college-based subjects like mathematics and sciences. Under this partnership. revenues from the ViTELS business are lumpy and higher revenues are recorded during non-examination quarters. Retail initiative is where Everonn coaches students at remote locations for competitive and entrance examinations like the CET. Everonn currently has 50 professional working on development and improvement of content for products to be offered across the ViTELS platform Everonn currently has 50 professionals working on development and improvement of content for products to be offered across the ViTELS platform. However. The non-curriculum based subjects include English speaking. Similarly. improving its current courseware and promoting sale of higher-end courses. which used to provide coaching for JEE.Angel Broking Service Truly Personalized TM Everonn Systems Education Institutional initiative is where Everonn provides instructions to students at various partner institutions (schools and colleges). PMT and JEE. We estimate the business to record CAGR growth of 18% to hit Rs52. the fees charged also vary from course to course from Rs1.000 to Rs25.Sebi Registration No : INB 010996539 50 . This business model is highly scalable and we expect the company to record strong growth in this segment going ahead. The courses are curriculum as well as non-curriculum based. as per our conservative estimates this business would report range-bound EBITDA Margins of 45%. starting new courses and acquiring existing infrastructure. Going ahead. but we believe that further new schools would be enrolled only in the 'I School' format. Nonetheless. vocational training and courses related to the employability of students post getting their college degrees. Everonn has entered into a partnership with Toppers at Patna.7cr in FY2007. Apart from this. The management intends to continue with the partners in the current format or give them an option to convert to the new format as per their desire.1cr in Topline in FY2010E v/s Rs13. As product offerings increase.000 per student per course. the addressable market increases. Everonn derives 41% of its revenues from the ViTELS business Currently. Here. However this growth would be subdued compared to the past due to Everonn’s shift in focus to ‘I School’ business. Everonn has recently added to its content library through its acquisitions and tie-ups. The programs under each initiative last between one or two weeks to six months. Content forms the backbone of its initiatives to provide education services to various institutions and the company is constantly developing new products and content to address a larger market. Everonn has gained access to the superior content developed by the coaching class and its teaching faculty. which would be achieved with the number of courses increasing. Everonn derives 41% of its revenues from the ViTELS business. Currently.

one of its subsidiarys. Further more. In the new 'I School' format.000 questions. This content comprises of 6. a similar product was being provided under the ViTELS platform. Everonn has plans to use the infrastructure at the schools after school hours in order to provide coaching classes.5 25 915.7 'I School' .6 FY2009E 512. The target of the same was under achieved by 100 schools. only one or two class rooms were wired and the students would have to move amongst classes to these equipped rooms in order to access instructions provided by Everonn.Angel Broking Service Truly Personalized TM Everonn Systems Education Exhibit 3: ViTELS Revenue Profile FY2007 Partner institutions YoY growth (%) Average revenue per partner (Rs) YoY growth (%) Total ViTELS Revenue (Rs cr) As % of total revenue EBITDA Margin (%) EBITDA (Rs cr) Source: Company.Sebi Registration No : INB 010996539 51 .610 31 37. In the previous ViTELS format.0 FY2010E 625 22 915. The students would not have to move between classes in order to access instructions. Everonn has content library for students in class 7 to class 12 under this program. In this new program. all the classes of the school would be provided with LAN connectivity and a screen.A Smart product line Everonn has recently introduced a new product called 'I School'. In this initiative. Apart from this. June 5. In certain core topics. Education Resources Pvt. Apart from this. all the students of the member school would take part in program and all the classes would be equipped with the necessary infrastructure. which is on similar lines as Smart class by Educomp. a teacher from Everonn would be able to link up with the class remotely through VSAT and give specialized lectures.701 13.500 animations and bank of 50. 30. all the books of certain state boards are electronically available. The management claims that the target was under achieved due to the change of product and platform.7 32 34 4. the students would be able to access multimedia education content in their class room assisted by the teacher. The company is bullish about the product and has given a guidance to ramp up the program to 650-700 schools in one year time. Ltd. Angel Research FY2008 410 108 915. would be instrumental in providing and updating the content in future. The enrolment to this program was optional for the students and only a few students from the schools would take part in this ViTELS program.5 41 47 17.4 197 697.2 31 45 19.610 0 52.1 25 43 22. Before the onset of this program. 2008 January2008 For Private Circulation Only .610 0 42. The acquisition of education arm of Aban Lloyd provided Everonn with a large chunk of this content.

Sebi Registration No : INB 010996539 52 . Exhibit 4: 'I School' Revenue Profile FY2009E Number of schools YoY growth (%) Students per School Total number of students Revenue per student per month (Rs) Revenue per student per year (Rs) Total I School Revenues (Rs cr) As % of total revenue EBITDA margin (%) EBITDA (Rs cr) Source: Company.740 34.Angel Broking Service Truly Personalized TM Everonn Systems Education Everonn expects to realize revenue of Rs180 per student per month from this product and an average of 1.250 145 1. Toppers Tutorials has a good reputation and an excellent turnaround ratio.500 150 1. Angel Research FY2010E 375 150 750 2. this product would provide a boost to the revenue of Everonn. Everonn has gained access to Toppers' content and faculty and the lectures are now delivered using ViTELS' platform at Chennai. Everonn recently also acquired a license to set up 15 prometric centers to conduct the GMAT. which has been conducting coaching classes for the JEE examinations Everonn is currently working on expanding its product offerings in the field of providing coaching for competitive and entrance examinations. The company is also in process of initiating a tie -up with Sonefe for providing CA coaching and medical examination coaching. Patna. 20082008 January 30. which had been conducting coaching classes for the JEE examinations. we prefer to be conservative about 'I School' as it is a brand new product and thus we have assumed that it would be availed of by 150 schools in the first year and a total of 375 schools by 2010E. For Private Circulation Only . With this tie-up. June 5. However.1 7 35 4 New Business opportunities Everonn recently entered into a tie-up with Toppers Tutorials. SAT. The operating margin for the product is currently expected to be 37% and would improve going further as the number of schools and students in the program increases. It intends to increase the number of these centers to 29 over next one year.800 10. In the previous ViTELS format. Similarly the Revenue per student is assumed at Rs150 per student per month which is similar to the competitor's product available in the market. Everonn recently entered into a tie-up with Toppers Tutorials. Thus. TOEFL and other similar examinations. Everonn has given a target of 650-700 schools by the end of FY2009 and is confident about the success of the product.81. The product is well accepted by the schools and the company managed to sell it to 21 schools in first 35 days after its launch. the realization per student was Rs114 per month for an average of 225 students per school.000 students per school.12. The contract for this product would be usually be for a period of four years at the end of which the equipment would get transferred to the respective school and a fresh contract can be entered into by the school and Everonn for accessing the content.3 16 37 13 150 750 1. Towards this. More clarity on this business would develop later as work on the same is still progressing.

Angel Broking Service Truly Personalized TM Everonn Systems Education Investment Argument IEIS and ViTELS . Tie-ups and acquisitions Everonn has acquired the education business of Aban Offshore. It intends to strengthen its content development team. Everonn is also taking steps to expand its product offerings and reach.50. Everonn would not face any problems in growing this business at a fast clip over the next few years. 30. Less prone to economic cyclicality The Indian Education Sector is currently dependent on the government spending and spending by the 300mn-strong Indian middle class. The company's management expects to add 4. Everonn is constantly expanding its product offerings and entering into tie-ups with more institutions to increase its penetration and reach. We believe that with a substantial addressable market of 9. We believe that the spending on education will remain inelastic in India and thus Everonn is unlikely to face any economic downturn.Key to maintaining competitive edge Everonn is scouting for a strategic acquisition to enhance its content and development team in its bid to remain competitive over its peers and enhance its product range. Through the VSAT links. Further.000 schools to its IEIS business during FY2009E. ViTELS. 2008 January2008 For Private Circulation Only . which would in turn result in Margins of this business improving.Sebi Registration No : INB 010996539 53 . the Indian middle class spends a major portion of its earnings on the education of its children by way of school fees. It currently caters to over 3. which is expected to provide access to content and a full team to Everonn. instructions can be simultaneously delivered at multiple locations. The company has the ability to bid for and win large-sized government contracts. which would bring down the cost of delivering a lecture. The government intends to improve the overall literacy levels in India. we have estimated Margins of this business to rule constant going ahead. on a conservative basis. Focus on content development . This business earns EBITDA Margins of over 40%.000 schools. Everonn's VSAT-based short and medium-duration courses provided with the help of partner institutions. June 5. Everonn has also made a few acquisitions. which has resulted in additions to its content library and team. The company currently has 50 professionals working on the development and improvement of content for the products offered through the ViTELS and 'I School' platform.Highly scalable businesses Everonn pioneered the Institutional Education and IT Infrastructure Services (IEIS) business (government schools) in India and is one of the top players in this segment along with Educomp and NIIT. uniforms and private coaching. supplies. is a highly scalable business as there are no capacity constraints. However.164 government schools. The division has been in operation for the last 12-13 years and brings with it a huge experience in the field of providing education and improves the prospects of the ViTELS business.

Everonn is intends to raise Rs167cr for its expansion purposes by preferential allotment of equity shares and warrants to FII's and promoters. Everonn. Going ahead. 'I School'. going forward. This was on account of the fact that most of Everonn's revenues are derived from its IEIS business. where state governments are the counterparties. High debtor days: Everonn had high debtor days of 170 at the end of FY2008. in order to grow. any dilution in the government's focus on the Education Sector could negatively impact Everonn. We believe that such high debtor days will more-or-less continue for Everonn.8cr in FY2008. In order to fund its growth. however this would also lead to near-term pressure on EPS. a virtual classroom is created with the student and faculty present at different locations. 10% of which is payable on warrant allocation. Net Profit stood at Rs14. For Private Circulation Only . Financials Everonn posted a 115% yoy growth in Top-line to Rs92. Hence. needs further cash infusion. most of which has been deployed in the business for expansion purposes.1cr in FY2008. we estimate EBITDA Margins to decline marginally.Sebi Registration No : INB 010996539 54 . and we estimate it to grow at a strong CAGR of 28% over FY2008-10E. High dependence on the government business: The IEIS business contributes a substantial 59% the Everonn's current overall revenues. The subscription amount of Equity shares is Rs91cr and the accruals from allotment of warrants is Rs76.5cr.Angel Broking Service Truly Personalized TM Everonn Systems Education Concerns Fresh capital infusion requirement: Everonn had raised Rs50cr through its IPO during FY2007. we estimate Top-line to post a CAGR growth of 52% over FY2008-10E on the back of strong growth recorded by both the IEIS and ViTELS business segments and Launch of new product. Blended EBITDA Margins stood at 37% in FY2008. The infusion of this fresh capital would help in the growth plans of Everonn. which will inevitably keep the company requiring high levels of working capital. June 5. the acceptability of the product may be hindered due to the geographical divide. Acceptability of ViTELS platform: In this business. 20082008 January 30. However. Though the entire interaction is real-time.

Angel Research Exhibit 6: EBITDA Margins (Rs cr) 100 EBITDA Margin (RHS) (%) 44 80 42 60 40 40 38 20 36 0 FY2007 FY2008 FY2009E FY2010E 34 Source: Company. We have assumed a capex expenditure of approximately 12 lakhs per 'I School' amounting to approximately Rs17cr for 150 schools during FY2009E. Everonn is constantly developing new products so that its content enjoys a competitive edge over peers. Angel Research Everonn currently requires Rs150cr to meet its capex requirements. 30. would also require capital investment. The company has announced preferential allotment of Shares and Warrants to FII's and Promoter's amounting to Rs167cr. lead to further capital requirements of approximately Rs52cr. However. 2008 January2008 For Private Circulation Only . June 5. Hence.Angel Broking Service Truly Personalized TM Everonn Systems Education Exhibit 5: Revenue and Revenue growth (Rs cr) 250 Revenue Growth (RHS) (%) 128 114 200 100 150 86 72 58 50 44 0 FY2007 FY2008 FY2009E FY2010E 30 100 Source: Company.057 new government schools in FY2009E. Content is the backbone of all the company's initiatives.Sebi Registration No : INB 010996539 55 . a part of which would be utilised to beef up its content development team. the new product. Apart from this. This would. We have factored in the receipt of cash and consecutive increase of number of shares fully into our model. 'I School'. We expect the company to start providing services to 2. this increase in number of shares would dent the EPS growth of the company substantially.

We believe that DCF would be the best way to capture the growth and value of the company. The company would continuously need fresh capital inflows to fund its ambitious expansion plans and support its working capital requirements. We have applied weighted average cost of capital (WACC) of 13% and assumed a Terminal growth rate of 6%. June 5. The company is a dominant player in the Southern markets. Our model captures most of the concerns present in the market.Sebi Registration No : INB 010996539 56 . Everonn relies very heavily on its IEIS business. we Initiate Coverage on Everonn Systems with a Neutral recommendation. which is working capital-intensive. However.5 and attractive rate of interest enjoyed by the company. Our DCF-based fair value for the company is Rs623. 20082008 January 30.Angel Broking Service Truly Personalized TM Everonn Systems Education Outlook and Valuation Everonn has proved itself to be a highly innovative company with unique offerings through its ViTELS platform. The WACC is on the lower side due to a healthy debt equity ratio of 0. For Private Circulation Only . Thus.

4 (10) (30.0 13.0 190 10 56 846 6.9) 62 64 126 (8) (406.0 12.0 1.747 1.0 (79) 3.0 5.7) 114 67 181 (22) 31. 30.0) (70) (15.130 845 658 527 430 9.8 (72) (0.040 779 606 485 13.0 2.7) 165 111 276 (29) 14.0 (75) (34.0 801 654 543 455 386 329 282 4.0 3.62 623 11.0 919 736 601 499 418 354 302 Terminal Growth Rate 5.25 6.7) 180 122 302 (34) 14.0 24 865 0.1 (8) (31.3 (16) (32.027 24 4 1.0 (96) (34.0 (74) 3.Sebi Registration No : INB 010996539 57 .0 1.4) 27 35 62 (18) 81.0 14.5) 85 66 150 (17) 100.007 1.1 (45) (34.0 Sensitivity Analysis WACC 623 10.5) 47 5 25 FY14E 129 38.0 141 8 53 FY17E 253 17.333 998 777 623 508 421 353 7. 2008 January2008 For Private Circulation Only .2 1 0 Discounted FCFF Terminal value Risk-free rate Risk Premium Beta for the stock Cost of Equity Cost of Debt Debt Equity Tax rate WACC Enterprise Value Less: Debt Add: Cash DCF value of equity No.0 170 9 57 FY18E Terminal 276 9.9) 45 59 105 3 (145.0 1.80 1 FY09E 32 25.6) 24 4 15 FY13E 94 38.7 (73) 291.372 1.7) 141 100 241 (26) 15.2 (52) 2 (40) FY11E 51 28.2) (83) (14.0 (88) (34.6 (96) 32. of equity shares DCF value/ share Source: Company.3 61 6 29 FY15E 174 34.0 15.0 1.609 1.2 (12) (31.9) 87 7 37 FY16E 216 24.4) (98) 1.7) (19) 46.575 1. Angel Research 8.482 1.058 2.0 16.8 (22) (32.3 13.085 845 677 553 458 384 325 6.2) 34 50 84 (6) (65.0 June 5.5 (42) 1 (37) FY10E 40 25.8 (32) (33.0 (73) 3.7 (20) 3 (14) FY12E 68 32.1 11.Angel Broking Service Truly Personalized TM Everonn Systems Education Exhibit 7: Discounted Cash Flow Model Projected Cash Flow (Rs cr) Y/ E March (Rs cr) EBIT Growth rate Less: Tax % tax rate Operating Cashflow Add: Depreciation Gross Cashflow Less: Change in Net working capital % chg Less: Capex % chg Free cashflow to the firm (FCFF) FY08 25 206.2) 17 10 27 (8) (35.5) 22 19 41 (10) 23.5 (77) 3.227 918 715 573 468 387 8.8 (60) (34.00 0.

2 12.5 FY2007 FY2008 FY2009E FY2010E Note: All figures are given on a standalone basis.9 14.9 20.0 0.7 35.2 54.2 219.) in Fixed Assets Free Cash Flow Inc.3 0.2 35.6 4.0 38.9 41.0 0.7 3.7 20. Tax) Others/Extra ordinary items Cash Flow from Financing Inc.7 1.5 77.0 13.8 74.6 (2.1 22.8) (9.6 43./(Dec.3 17.2 11.9 36.4 152./ (Dec.6 0.3 36.1 28.9 27.8 138.5 50.0 35.4 251.0 17.1 6.5 13.6 25.5 83.0 0.0 144.2 9.4 29.5 74.7 139.1 244.0 9.4 35.2 5.2) 0 144.3 235. Total Assets 56. The Balance Sheet and Cash Flow data is estimated.3 4.2 0.8 110.7 12.1 99.6 114.0 0.5 34.8 31.4 0.7 237.9 13.2 44.5 (0.0 4.4 274.2) (55.7 36.0 4.4 89. For Private Circulation Only .1 11.3 0.2) 0 10.9 23.7 14.0 0.) in loans Dividend Paid (Incl.9 243.5 96.6 19.9 57.0 5.5 49.3) (0.6) (0.3 0.5 0.6 33.7 27.7) 0.4 48.8 1.0 18.0 18.0 39.5 0.9 Balance Sheet Y/E March SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc.1 4.1 0.9 18.5) 0.9 0.8 9.4 50.7 21.5 9.7 9.4 0.2 0.1 65.0 27.2 1.0 10.7 (6. 20082008 January 30.2 98.1 113.0 140.0 61.2 36.7 (7./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2007 FY2008E FY2009E 5.8 34.0 0.0 5.7 51.8 56.1 131.2) 0 (0.0 89.0 5.6 0.9 10.3 212.0 (0.9 FY2008 FY2009E 92.4 34.1 29.9) (7.6 0.2 25.4 0.8 147.4 0.7 5.0 20.6 0.2 196.2 Rs crore FY2010E 35.0 65.6 (9.Sebi Registration No : INB 010996539 58 .8 72.1 0.5 61.2 63.0 65.9 23.6 16.0 0.6 4.9 FY2007 FY2008E FY2009E Rs crore FY2010E 16.0 144.8) 110. June 5.5 10.5 17.0 173.3 36.5 23.9 35.2 19.4 0.1 (55.6 4.1 36.1 145.1 0.3 145.4 Key Ratios Y/E March Per Share Data (Rs) Diluted EPS Diluted Cash EPS DPS Book Value Operating Ratios Inventory (days) Debtors (days) Creditor (days) Debt / Equity (x) Return Ratios (%) RoE RoCE RoIC (Pre-tax) Dividend Payout Valuation Ratios (x) P/E P/BV EV/Sales EV/EBITDA 157.4 34.8 169.1 (17.3 3.) in Investments Issue of Equity Inc.4) 7.8) 0.8 10.0 0.6 2.4 8.7) 6.5 5. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Miscellaneous Exp.2 17.5 52.2) (2.8 29.4 65./ (Dec.0 23.3 23.4 45.9) 15.2 21.6) 0.0 251.1 17.4 11.0 13.8 7.3 26.3 7.8 16.8 27.9 Cash Flow Statement Y/E March Core PBT Other income Depreciation & Amortization Change in Working Capital Direct taxes paid Cash Flow from Operations Inc.1 9.6 Rs crore FY2010E 213.2 9.4 9.8 1.4 8.Angel Broking Service Truly Personalized TM Everonn Systems Education Profit and Loss Account Y/E March Net sales % chg Total Expenditure EBITDA (% of Net Sales) Depreciation & Amortization Interest Other Income PBT (% of Net Sales) Tax (% of PBT) PAT % chg FY2007 43.4 0.6 (8.0 5.6 (45.7) 26.8 4.5 0.0 0.7) (12.4 11.0 274.6 17.0 0.7 (3.8 11.1 18.0 35.3 14.7 3.3 0.7 4.3 37.1 160.7 35.0 (0.4 0.8 89.4) 40.1 4.0 35.8 3.2 10.

Sebi Registration No : INB 010996539 59 . 2008 January2008 For Private Circulation Only .Angel Broking Service Truly Personalized TM Education This page has been intentionally left blank June 5. 30.

3 9. For Private Circulation Only .3 17. Sensex (%) NIIT (%) 3m (4. 20082008 January 30.5 (3.3 2.9 73 26.3 44. Stock Info Sector Market Cap (Rs cr) Beta 52 Week High / Low Avg Daily Volume Face Value (Rs) Education 1. leading to a shift in its business mix.7 1. serving the burgeoning manpower needs of varied sectors including IT. financial services training and technology-led management education enjoy high operating leverage.0 104 43.4 14.3 19.6 8.0 20.8 19.770 4.5) (17.6 13.5 133. has improved Margins significantly. it has now positioned itself as a 'Global Talent Development Corporation'.3 29.4 25.9 2.4 9.0 Harit Shah Tel: 022 .7 57 38. These businesses record higher Margins with higher capacity utilisation. the company has diversified its business model.677 BSE Code NSE Code Reuters Code Bloomberg Code 500304 NIITLTD NIIT.2 Abs.5 9.60 172/85 290796 2 BSE Sensex Nifty 15.6 19. We Initiate Coverage on the stock.5 25.3 9. the company is positioning itself as a 'Global Talent Development Corporation'.3 Key Financials Y/E March (Rs cr) Net Sales % chg EBITDA Margin (%) Net Profits FY2007 795 76. Thus.5x FY2010E EPS.4040 3800 Ext: 345 E-mail: harit.6 3.4 4. given the strong economic growth expected and the manpower required to sustain strong GDP growth. Angel Research 8.8 6. With a presence across the chain of IT learners as also expansion into newer verticals like financial services.5 3.5 FY2010E 1.7 FY2008E 998 25. having a pre-eminent position in the Indian retail training segment.Angel Broking Service Truly Personalized TM Jain Irrigation NIIT Limited Initiating Coverage ACCUMULATE Price Target Price Investment Period Rs109 Rs123 12 Months The 'globe' is its oyster! NIIT Limited is India's largest IT training company.4 31. Scalability of new businesses: NIIT's new businesses. moving into newer verticals by leveraging its strengths in IT.com June 5. as they gain greater acceptance. We expect this business to continue to grow at a decent rate along with good profitability.7 6.194 19. Strong position in the domestic IT training market: NIIT is the market leader in the domestic IT training market. We have modeled for 15% Margins in FY2010E vis-à-vis operating losses of 125% in FY2007.6 4.Sebi Registration No : INB 010996539 60 .7) 1yr 3yr % chg Diluted EPS (Rs) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) Source: Company.shah@angeltrade. As a result. From being a mainly IT-focussed training company.1 25.0 5.7 1. In line with this. In recent times.5% and 36. The shift to a 'Global Talent Development Corporation': NIIT has taken a slew of strategic initiatives.9 14.1 6. We expect NIIT to record CAGRs of 21. NIIT has introduced new business initiatives in financial services and management education apart from re-jigging its existing business portfolio to align with market realities.6 5. This business has grown at a CAGR of 37% over FY2005-07 and. the company is now in a strong position to capitalise on the huge manpower requirements of varied industries and act as a 'supplier of talent across sectors' owing to which NIIT's addressable market has also increased substantially. with higher capacity utilisation.BO NIIT IN Shareholding Pattern (%) Promoters MF / Banks / Indian FIs FII / NRIs / OCBs Indian Public / Others 30.7 12.2 146 39.4 FY2009E 1. profitability is likely to improve. over FY2007-10E. with an Accumulate recommendation and 12-month Target Price of Rs123.4% in Topline and Bottomline respectively. going ahead. the stock is trading at 12.8 12.797 0.0 21.6) 325. At the CMP.427 19.

Hence. NIIT’s ILS net revenues hit Rs234cr. This business contributed the maximum to NIIT’s net revenues. recording Net Revenues of Rs247cr in FY2007. The company trains over 5. NIIT delivers IT training to graduates and under-graduates who are looking to make a career in IT. with an alumni base exceeding 3mn. The CLS business contributed the maximum to NIIT’s net revenues in 9MFY2008 Corporate Learning Solutions (CLS) . The company has a strong focus on the US. recording yoy growth of 43%. learning management solutions and training delivery services to its clients in its CLS business. Going ahead. which has further increased with the acquisition of Element-K. This business is segregated into two parts – ‘Careers’ and ‘Non-careers’. The company provides IT education and training to students and professionals.Angel Broking Service Truly Personalized TM NIIT Limited Education Company Background NIIT is India’s largest IT training company NIIT Limited is India’s largest IT training company and has the largest network of centres (own and franchisee) across the country. 2008 January2008 For Private Circulation Only . SLS net revenues hit Rs63cr. In the ‘Non-careers’. On the other hand. In the ‘Careers’ segment. NIIT’s business segments are fairly diverse and can be divided as follows: NIIT is the market leader in the Indian retail IT training market Individual Learning Solutions (ILS) – NIIT is the market leader in the Indian Retail IT training market. a leading provider of learning solutions in North America.00. In the government schools segment. In 9MFY2008.NIIT‘s SLS business segment caters to the computer education requirements of school children studying in government and private schools in India.000 schools. It’s training programmes cover the entire spectrum of learners. at the end of 3QFY2008.NIIT provides content development. it works with the concerned state governments towards setting up the infrastructure. through a tendering process the company bids for contracts and after securing a contract. Its flagship program. or Re-skilling segment.828 government schools in its Government schools business. from youngsters learning computers for the first time. to students looking at pursuing IT as a career option to professionals looking to upgrade their IT skills to keep pace with the demands of a highly competitive working environment. June 5. was working with 3.Sebi Registration No : INB 010996539 61 . In 9MFY2008. with training outsourcing expected to grow by a considerably faster rate of nearly 25% per annum over the same period. NIIT served around 940 private schools. 30.50. In its SLS business. NIIT trains professionals currently working in the industry and enables them to upgrade their skills to become more relevant in line with market requirements. the CLS business clocked net revenues of Rs418cr. the market size is fairly significant. GNIIT. NIIT also designs and develops the courseware and textbooks in many Indian languages. There are 9. the estimated market size for private schools is 50. NIIT caters to the computer education requirements government of and school private children studying in the schools in India School Learning Solutions (SLS) . enables students to get up-to-date on the latest technologies and skill sets in the industry. NIIT. At the end of 9MFY2008. spending on corporate training is expected to rise by around 7% per annum until 2010 as per IDC.000 learners each year.000 private schools in the country catering to the education requirements of over 200mn students.000 government schools and 50. clocking a strong yoy growth of 30%. At the end of December 2007. aided by the acquisition of Element-K.

accounted for over 51% of NIIT’s incremental revenues over FY2005-07 on a gross basis and nearly 29% on a net basis.Angel Broking Service Truly Personalized TM NIIT Limited Education NIIT has leveraged its New Businesses . which hit Rs20cr. provide content. In the period 9MFY2008. among others) have grown at a CAGR of 36. NIIT has also signed up HDFC Bank and Yes Bank. This reflects a strong CAGR growth of over 25% since FY2002. ICICI Prudential and ICICI Securities. ICICI Bank. its contribution to profitability has been even more pronounced. The company has leveraged its extensive experience in IT to expand into newer verticals and business segments. reflecting a CAGR growth of around 32%. the Sector has grown from a mere US $7. It is well-known that the IT Industry is people-intensive and that human resources are the key ‘raw material’ driving its growth. Yemen and Sri Lanka. NIIT Imperia offers long and short-term programmes in general and functional management to working executives. Even as the ILS Business’ contribution to revenues has been significant. In terms of revenues. It should be noted that the ILS business is characterised by strong operating leverage. while its partners. including three IIMs. For Private Circulation Only . The ILS business has. Financial Services and Insurance (BFSI) vertical through the Institute of Finance. reflecting the key contribution that it has made in this time-frame.7bn in exports in FY2002 to US $40. experience in IT to venture into newer verticals like financial services and management education Business Overview Individual Learning Solutions (ILS) – Supplier of key ‘raw materials’ to the IT Industry NIIT’s key growth area has been its retail training business (ILS). Banking and Insurance (IFBI). Ghana. The total direct employment in the IT-ITES Industry was estimated at nearly 2mn in FY008. The ILS business has seen its India-based gross revenues (system-wide revenues. Thus.7% over the same period.3bn in FY2008. SWR) clock a CAGR growth of over 41% over FY2005-07. With the strong growth of the Indian IT Industry. teaching and certification. 20082008 January 30. the centre June 5. NIIT has also started a technology-led management training initiative called NIIT Imperia. the new businesses clocked a robust yoy growth of 416% in net revenues. a joint venture with private banking major. which include China revenues and Rest of the World (Vietnam.Over the past two years. The proportion of fixed costs – rent. The company has also tied up with Infosys to offer training on its Finacle software product. in fact. the strong growth of this industry has been the key enabler to NIIT’s own growth over the past few years. NIIT’s role as a ‘supplier of raw materials’ to the industry has enabled it to grow at a rapid rate. Overall ILS net revenues. NIIT has commenced training courses in the Banking. Insurance and Financial Services launched in partnership with industry majors like ICICI Bank. staff costs – is typically high. reflecting the ever-increasing acceptance that IFBI is getting from the industry. As capacity utilisation of a centre reaches a particular level. Egypt. The company offers courses like Retail Banking. in which NIIT holds an 81% stake. This compares favourably with the growth of around 33% recorded by the Indian IT-ITES Export Sector over the mentioned period. NIIT has made conscious attempts to expand and diversify its business portfolio away from purely IT training. electricity. NIIT provides the platform for the delivery of quality management education.Sebi Registration No : INB 010996539 62 .

Its centres are typically a mix of its own centres and franchisee-owned centres. given their differing capacities. reflecting the strong traction being witnessed by the business. when it reported a marginally negative EBITDA Margin of 0. enabling deeper expansion into the interiors of the country. had a total of 473 India retail centres. A more subdued performance of the CLS business on the profitability front due to the acquisition of Element-K (which has much lower Margins) and Rupee appreciation (in spite of the current depreciation on account of record crude prices) also partly contributed to the increase in contribution of the ILS business EBITDA to the total EBITDA.Sebi Registration No : INB 010996539 63 . However. 2008 January2008 For Private Circulation Only . NIIT was able to achieve this level in FY2005.6%. of which 52 centres were self owned (11%). Margins have already hit 20% on the back of strong enrolments and increased capacity utilisation of 55% on enhanced capacity. these centres accounted for around 40% of the total capacity in terms of seat-years. leading to Margins of 7. In terms of incremental EBITDA contribution. which flows straight through to the pre-tax profits (PBT). at the end of December 31. location. This can be attributed to the strong improvement in profitability of the ILS business on account of operating leverage and higher capacity utilisation. which recorded lower Margins due to the restructuring of the business with a greater focus on the Private Schools business. June 5. profitability and cost structures. 30. capacity utilisation levels hit 46% and 54% respectively. NIIT operates its ILS business through a hub-and-spoke model. course material and so on. while the other centres generally located in smaller cities and towns are franchisee centres. NIIT. as capacity utilisation levels rose. respectively. high revenue-potential centres with higher capacity in major cities are typically owned by NIIT. Thus. While the levels of capacity utilisation required for break-even differ for each centre. However. Margins for the business soared. (as there are no additional costs involved to earn those higher Margins). For 9MFY2008. average capacity utilisation required for break-even levels is around 35-36%.7% and 17.Angel Broking Service Truly Personalized TM NIIT Limited Education breaks-even at the operating level.2%. In FY2006 and FY2007. 2007. all the major. and poor performance of the SLS business. the ILS business’ contribution was an astonishing 116% and 159% in FY2006 and FY2007. NIIT earns a revenue share in the region of 25-40% from the franchisees for use of its brand name. Any rise in capacity utilisation over and above the break-even level leads to strong Margin expansion.

3 58. it should be noted that the contribution in FY2008 is expected to fall mainly on account of full consolidation of Element-K with the company.5 167 26. We expect ILS SWR to clock a CAGR growth of nearly 25% over FY2007-10E.6 50. For Private Circulation Only .2) (0.7 39. which will lead to the contribution of CLS SWR to total SWR rising significantly.3 37.5 13 7. we expect the contribution of ILS SWR to the total to continue to rise by over 400bp.1 17.9 31.7 21.6 56.2 (0) (0.Strong correlation (%) 30 EBITDA Margins Capacity utilisation (RHS) (%) 70 24 62 18 54 12 46 6 38 1QFY06 2QFY06 3QFY06 4QFY06 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 (6) 30 0 Source: Company. However.1 23.1 158.Driving growth and profitability (Rs cr) System-wide Revenues (SWR) % chg Contribution to Total SWR (%) Contribution to Incremental SWR (%) Net Revenues % chg Contribution to Total Net Revenue (%) Contribution to Incremental Net Revenue (%) EBITDA % chg EBITDA Margins (%) Contribution to Total EBITDA (%) Contribution to Incremental EBITDA (%) Capacity utilisation (%) Source: Company.2 115. However.9 46 FY2007 566 44.Angel Broking Service Truly Personalized TM NIIT Limited Education Exhibit 1: ILS business .9% CAGR growth expected in total SWR over this period.2 43 239. as compared to the 27. Angel Research We expect NIIT’s ILS business to record strong growth going ahead.5 247 47. over FY2008-10E. 20082008 January 30. Angel Research FY2005 320 50. June 5. In terms of its contribution to SWR.6) 38 FY2006 391 22. we expect it to decline from over 50% in FY2007 to 47% in FY2010.1 66.Sebi Registration No : INB 010996539 64 .0 184.5 54 Exhibit 2: ILS business capacity utilisation and EBITDA Margins .3 132 33.

3 86 35.0% in FY2010. vis-à-vis a total EBITDA CAGR growth of 37. it should be noted that in FY2008 itself.0 June 5.Sebi Registration No : INB 010996539 65 . 2008 January2008 For Private Circulation Only .8% CAGR growth expected in these revenues over FY2007-10E.0 116 35.259 3.5 47.584 54 88.1 164.9 31.4 31. 30.610 65 168.4 44.1 43 239.2 FY2008E 721 27.0 57.746 31.792 7.1 527 28. we expect the contribution of ILS EBITDA to surge to over 64% of total EBITDA.6 56.8% CAGR growth over FY2007-10E.707 29. we expect contribution of ILS EBITDA to the total to actually decline over FY2008-10E due to faster growth in the EBITDA of other segments.0 FY2009E 890 23.0 317 28.0 22.4 194.1% in FY2007 to 37. Thus. as compared with the 21. given the impressive 28.5 21.0 59. We expect ILS EBITDA to clock a 38. Exhibit 3: ILS business projections (Rs cr) System-wide Revenues (SWR) % chg Contribution to Total SWR (%) Net Revenues % chg Contribution to Total Net Revenue (%) EBITDA % chg EBITDA Margins (%) Contribution to Total EBITDA (%) Number of seat-years Capacity utilisation (%) Seat-years utilised Revenues per utilised seat-year (Rs) % chg Source: Company. we expect the total contribution of ILS EBITDA to rise from 56. In terms of operating profitability.4 259.9 37.7 247 47.8 409 29.349 4.Angel Broking Service Truly Personalized TM NIIT Limited Education On the other hand.099 23.9 224. we expect the contribution of ILS net revenues to the total to rise from 31.120 56 108.7% over the same period.1 17.181 5. However.2 20.5% CAGR growth expected in total net revenues over the same period.0 FY2010E 1.875 27.4% in FY2010. Angel Research FY2007 566 44.1% in FY2007 to 57.5 43.0 34. mainly on account of the impressive growth in the fiscal due to higher capacity utilisation and strong growth in enrolments.770 60 134.6 50.862 30.8 63 46. mainly CLS and New Businesses.0 64.

Sebi Registration No : INB 010996539 66 . Therefore. NIIT generally makes upfront investments in setting up the infrastructure of the school. From FY2007 onwards. managing the set-up. NIIT also designs and develops courseware and textbooks in many Indian languages. was working with 3. given the intense competition and the government typically awarding tenders to the lowest bidders. NIIT shifted its focus away from government schools towards private schools. there exists strong scope for growth going ahead. Thus. For Private Circulation Only . In terms of revenues.000 private schools in the country catering to the education requirements of over 200mn students. the company typically bids through a tendering process and after securing a particular contract for a certain number of schools. around 30% of the total contract value is required for upfront investments.Restructuring in progress NIIT through its SLS business segment caters to the computer education requirements of school children studying in government and private schools in India. With the government strongly focusing on IT and IT-enabled education in the country. Going ahead. this is a highly capex-intensive business. NIIT served around 940 private schools.In restructuring mode (Rs cr) 100 Government schools Private schools 80 60 40 20 0 FY06 FY07 Source: Company. Thus.000 schools. In the government schools segment. There are 9. at the end of 3QFY2008.000 government schools and 50. The estimated market size for private schools is 50. On an average. systems integration. NIIT on an average earns Rs15. the market size is fairly significant. After winning a contract.828 government schools in its Government schools business. Exhibit 4: SLS Business revenues . there is significant scope for growth in this business.50. 20082008 January 30. NIIT. The receivable days are also on the higher side in this business. Angel Research June 5. works with the concerned state governments towards setting up infrastructure. education delivery and teacher training. we expect this to taper down. given that the government machinery typically creaks along at its own pace and takes its time to pay back.Angel Broking Service Truly Personalized TM NIIT Limited Education School Learning Solutions . due to a significant receivables problem. At the end of December 2007.000 per school per month.

30. vis-à-vis a considerably higher total EBITDA CAGR growth of 37.and EBITDA is expected to decline going ahead.5% CAGR growth expected in these revenues over FY2007-10E compared with a 21.7% in FY2007 to 9. This far in 9MFY2008.8% in FY2010. June 5. NIIT expects this business segment to revert to a higher growth path. SLS revenues have grown by a marginal 2% yoy compared to the substantial 28% yoy fall in FY2007.Angel Broking Service Truly Personalized TM NIIT Limited Education However. with the government clear in its intentions to engage the private sector to leverage the use of IT in the Education Sector. given the relatively subdued growth in this business. it should be noted that at the current juncture.5% CAGR growth expected in total net revenues over the same period. the segment’s contribution to overall revenues – SWR and net . we expect the contribution of SLS net revenues to the total to decline from 10.6% in FY2010. while EBITDA Margins have increased by over 200bp. reflecting the increased focus on profitability. On the other hand. given the slower (albeit decent) 19% CAGR growth expected in SLS SWR over FY2007-10E.Focus on profitability (Rs cr) 120 SLS revenues EBITDA margins (RHS) (%) 20 96 16 72 12 48 8 24 4 0 FY06 FY07 9MFY08 0 Source: Company.7% in FY2007 to 8.7% over the same period. In terms of operating profitability. We expect the contribution of SLS SWR to the total SWR to decline from 7. we expect the total contribution of SLS EBITDA to fall from 12. Angel Research Nonetheless. in spite of an improved performance expected going ahead.1% over FY2007-10E. with the restructuring being more or less complete. This is on account of the expected fall in the Margins of the segment due to intense competition. given the slower (albeit decent) 17. Exhibit 5: SLS Business . NIIT is looking at re-focusing on this business as well.4% in FY2007 to 6% in FY2010. 2008 January2008 For Private Circulation Only .9% CAGR growth expected in total SWR in the mentioned period.Sebi Registration No : INB 010996539 67 . vis-à-vis a significantly higher 27. Going ahead. leading to an EBITDA CAGR growth of 22.

931 (5.0 12.3 8.600 18 17.6 14.7 FY2008E 88 1.0) 47 23.380 (2.8 113 31.7 5.2 FY2009E 115 31. marquee clients in the US and Canada and well-respected brand name in that region. For Private Circulation Only .0) 28 17. June 5. NIIT acquired Element-K.006 14.900 13.8 Corporate Learning Solutions . Angel Research FY2007 86 (27.0) 38 36.8 1.5 9.6 12.0 13.3) 3.Acquisition of Element-K In July 2006.5 6. offers over 3.7 9.653 (2.200 13.6 58 (5. a leading provider of learning solutions in North America.000 13.6 6.4 85 (27.0) 3.0 13.5 10.1 1.500 courses in the US and Canada and hosts a learning platform.0 8. NIIT significantly increased its size and the combined entity is amongst the world’s leading global providers of comprehensive learning solutions.6 FY2010E 140 21.1) 7.0) 11.7 61 (37.2 86 1.5 75 29. 20082008 January 30.0 137 21.9 950 12 22.Sebi Registration No : INB 010996539 68 .665 24 16.300 15 27.9) 10.6 90 20. With this acquisition. The company’s (NIIT) global reach and complementary learning solutions provide a good fit with Element-K’s extensive content library.Angel Broking Service Truly Personalized TM NIIT Limited Education Exhibit 6: SLS business projections (Rs cr) System-wide Revenues (SWR) % chg Contribution to Total SWR (%) Net Revenues % chg Contribution to Total Net Revenue (%) Government schools revenues % chg Number of schools Average revenues per school per month (Rs) % chg Private schools revenues % chg Number of schools EBITDA % chg EBITDA Margins (%) Contribution to Total EBITDA (%) Source: Company.8 5.1 5.0 806 10 (54. Element-K has the world’s second-largest content library.

2008 January2008 For Private Circulation Only . of which delivery services account for the maximum pie of US $21. The estimated size of the North American corporate training market is US $45.6bn. NIIT offers content development. with training outsourcing expected to grow at a considerably faster rate of nearly 25% over the same period.3bn.Inorganic push* (Rs cr) 450 CLS revenues EBITDA margins (RHS) (%) 20 360 16 270 12 180 8 90 4 0 FY05 FY06 FY07 9MFY08 0 Source: Company. while content development accounts for a size of US $16.Sebi Registration No : INB 010996539 69 . learning management solutions and training delivery services to its clients in its CLS business.3bn Source: Company presentation June 5. 30. The company has a strong focus on the US.6bn Technologies US$ 1. Angel Research.2bn Content Development US$ 16.2bn Colleges / Universities US$ 2.9bn Outsourcing Services US$ 1. spending on corporate training is expected to rise by around 7% until 2010 as per IDC. which has increased further with the acquisition of Element-K.Angel Broking Service Truly Personalized TM NIIT Limited Education Exhibit 7: CLS Business .4bn Consulting US$ 0. * The spike in 9MFY2008 revenues is because of the acquisition of Element-K.7bn Fulfillment US$ 0.4bn Delivery Services US$ 21.2bn Segments Assessment / Testing US$ 0. Going ahead.9bn. Exhibit 8: North American Corporate Training Market Facilities US$ 0.

2% CAGR growth expected in these revenues over FY2007-10E. BFSI. we expect the total contribution of CLS EBITDA to fall significantly from 45.and EBITDA to decline going ahead. We expect the segment’s contribution to overall revenues – SWR and net . we expect the contribution of CLS net revenues to the total to fall from 57% in FY2007 to 46.Sebi Registration No : INB 010996539 70 . In fact. given the slower 13. namely ILS and New Businesses. we expect CLS SWR to grow at a CAGR of 15. EBITDA. Post the acquisition of Element-K. Over FY2007-10E. Along with Element-K. In terms of operating profitability. It should be noted that the contribution of the CLS business to total SWR will increase significantly in FY2008 on account of full consolidation of Element-K with NIIT’s revenues. Thus. We expect the contribution of CLS SWR to the total SWR to decline from nearly 50% in FY2008 to 41.9% CAGR growth in total SWR.7% over FY2007-10E mainly due to the significant fall in FY2008E. over FY2008-10E. 20082008 January 30. we expect EBITDA to witness decent growth over FY2008-10E. For Private Circulation Only . due mainly to considerably higher growth being witnessed by other business segments of the company.8% to net revenues in 9MFY2008).3% in FY2010.4% in FY2010. in FY2007 (56. NIIT’s strategy is to grow its content library subscription-based business. However. Pertinently. Intel. We estimate a CLS EBITDA CAGR fall of 1. IBM and Symantec to provide training to professionals on their platforms. This is compared to overall EBITDA CAGR growth of 37. In FY2007. Element-K recorded negative margins compared to a low-to-mid-single digit range that it is clocking currently. the company has managed to make Element-K more profitable.5% vis-à-vis a 27. on an absolute basis.Angel Broking Service Truly Personalized TM NIIT Limited Education NIIT also partners with industry majors like Microsoft. we expect CLS EBITDA CAGR growth of around 19%. is expected to be lower by around 24% yoy in FY2008. as compared with a 21. given the considerably slower 6. the full consolidation of Element-K with NIIT will provide a kicker to CLS revenues in FY2008E.7% over FY2007-10E and 43. At the time of acquisition. However.2% over FY2008-10E. with revenue share of around 41% and 57% respectively. retail and publishing. the financials of Element-K were consolidated with those of NIIT for a period of 8 months.5% CAGR growth expected in total net revenues over the same period.6% CAGR growth expected in CLS SWR over FY2008-10E v/s the substantially higher 17.9% in FY2007 to 26. The company provides corporate training services in several verticals such as technology. It should be noted that EBITDA Margins in FY2008 are likely to be lower by a significant 306bp yoy due to the substantial appreciation witnessed in the Rupee and lower profitability of Element-K vis-à-vis organic CLS Margins. June 5. provide end-to-end solutions and grow more profitably by off-shoring some of Element-K’s work to India. NIIT also has a Learning Management Solution (platform) called CLiKS. the CLS business is the second-largest contributor to NIIT’s gross revenues (SWR) and the largest contributor to net revenues. the integration of Element-K with NIIT is well on track. In fact. On the other hand.9% CAGR growth expected in total SWR over this period.5% in FY2010.

among others. a leading provider of English Language and Communication Training. headquartered in Noida.4 36 35.0 456 174. Chennai. NIIT’s CLS business. Evolv has a total of around 160 employees including 98 trainers. Insurance. Bangalore.5 49. Evolv counts among its clients. NIIT estimates that this market could touch a size of Rs800cr in three years’ time and expects to corner 10% of the market. The courses include Accent Neutralization. Banking. TCS. SRL Ranbaxy. 2008 January2008 For Private Circulation Only . among others. Cross Cultural Communication.5 39 46.2) 4.3 FY2009E 665 7. Cognizant. as opposed to being perceived purely as an IT training company.0 51. will be boosted significantly through the acquisition of Evolv. and has a presence across major cities in India such as New Delhi.Sebi Registration No : INB 010996539 71 .5 7. HP. Deutsche Bank. marquee names such as Accenture.3 41. The company also has an international presence in the Philippines and Pakistan.5 FY2010E 705 6. Evolv provides training services to marquee clients across the IT-ITES. Presentation Skills.7 27.1 41. Airtel and Unitech. Mumbai. Kolkata and Chandigarh.9 FY2008E 620 35.8 45.5 661 7.6 8. June 5. Telecom. New Businesses – Powering broader areas of the new economy NIIT in September 2006 ventured into newer terrain. 30.0 26.8 57.0 27 (24.4 27. This was yet another step towards achieving its vision of becoming a ‘Global Talent Development Corporation’. Oracle.Angel Broking Service Truly Personalized TM NIIT Limited Education Exhibit 9: CLS business projections (Rs cr) System-wide Revenues (SWR) % chg Contribution to Total SWR (%) Net Revenues % chg Contribution to Total Net Revenue (%) EBITDA % chg EBITDA Margins (%) Contribution to Total EBITDA (%) Source: Company. with the launch of two key new businesses – financial services training and management education. HDFC Bank. Real Estate. Healthcare and Travel industry segments.8 569 24.7 6. The company has developed over 50 specialised courses and a library of modules for providing training in the English Language and Communication domain. which offers integrated learning solutions to companies in the IT-ITES. Telecom and Retail sectors. whose expertise in English language training will provide greater penetration into existing and potential markets on account of a wider range of solutions. ICICI Bank. Angel Research FY2007 458 171.3 New Business Opportunities The acquisition of Evolv – ‘Evolving’ market for English Language training NIIT in January 2008 acquired a controlling stake in Evolv Management Services (Evolv).7 615 8.4 57. Banking.6 46. Business Writing Assertive Communication and Conversational Skills.2 45. Prudential. Fluency and Expression. Insurance.4 53 34.

NIIT is looking to drive strong growth in this business going forward. Thus. NIIT Imperia offers long and short-term programs in general and functional management to working executives. NIIT’s key strength areas lie in content development and delivery of the content through its platforms. ICICI Bank has supported IFBI in designing the curriculum. NIIT Imperia. namely Retail Banking. Its first offering was a six-month full-time programme. and implements and manages the overall student experience. 20082008 January 30. Banking and Insurance (IFBI) in partnership with ICICI Bank. The launch of IFBI leverages NIIT’s reach and expertise in distributed non-formal education and harnesses the domain expertise of ICICI Bank.Angel Broking Service Truly Personalized TM NIIT Limited Education Financial Services Training To mark its entry into training for the Financial Services Sector. Financial Services and Insurance (BFSI) sectors in India and overseas markets. teaching and certification is from one of the IIMs. SLT enables remote classrooms to be connected live with the faculty teaching at institutes. replicates face-to-face teaching.Sebi Registration No : INB 010996539 72 . The institute has set up Centres for Advanced Learning that offer programs from the Indian Institutes of Management (IIM) Ahmedabad. technology and CRM. under which it trains budding finance professionals in areas like core banking. NIIT launched the Institute of Finance. Management Education NIIT also marked its entry into the field of technology-enabled management education. and offering laboratory and Internship sites to students. reflecting the ever-increasing acceptance that IFBI is getting from the industry. Thus. and special software. with the launch of a new institute. Insurance. While the content.400 until December 31. NIIT has also tied up with Infosys to offer training on its Finacle software product. with NIIT holding 81% equity. effective content delivery and partnerships. NIIT provides the platform for the delivery of quality management education. enabling NIIT to move into growing areas of the knowledge economy. the Post Graduate Diploma in Banking Operations (PGDBO). which focusses on grooming entry-level professionals for the Banking industry. developing the course content. The company has integrated its Learning Management and e-learning systems with this technology. through in-depth broad course content. June 5. to working executives. India’s largest private sector bank. synchronous classrooms across the country and management of the distributed education system is provided by NIIT. IFBI commenced admissions in October 2006 and has recorded cumulative enrolments of over 7. and Financial Services program. which it has launched in partnership with ICICI Prudential. 2007. NIIT currently offers numerous courses in the BFSI domain. launched in partnership with ICICI Securities (I-Sec). which it is looking to leverage to drive growth in these businesses. the technology. For Private Circulation Only . using Synchronous Learning Technology (SLT). NIIT has also signed up HDFC Bank and Yes Bank and is in talks with other banks also. while the balance 19% is held by ICICI Bank. The usage of broadband with two-way audio-video. This Institute caters to the needs of the exponentially-growing Banking. Kolkata and Indore.

through NIIT Imperia. Mumbai. is well-placed to cater to the burgeoning manpower requirements of several varied industries. NIIT Imperia offers post graduate programs in varied areas like retail management. Ghaziabad. Nagpur. Hyderabad.5% in FY2010. New Delhi and Institute of Management Technology (IMT). international business. We expect the contribution of New Businesses SWR to the total SWR to rise from under 1% in FY2007 to 5. Kolkata.9% CAGR growth expected in total SWR over this period.Sebi Registration No : INB 010996539 73 .Angel Broking Service Truly Personalized TM NIIT Limited Education NIIT Imperia Education Centers are located in New Delhi. We expect absolute EBITDA to improve from a loss of Rs9cr in FY2007 to Rs15cr in FY2010. 2008 January2008 For Private Circulation Only . we expect the total contribution of New Businesses EBITDA to the total to rise from a negative 12% in FY2007 to 7. Bhubaneswar. Chandigarh. the segment’s contribution to overall revenues – SWR and net .4% in FY2010. Consequently. This is a reflection of the strong traction being witnessed by NIIT’s management education initiative and lends confidence that it will be able to sustain high rates of growth in future. given the strong 140% CAGR growth expected in these revenues over FY2007-10E. the need for well-trained professional managers is significant and NIIT. On the other hand. Bangalore. Chennai.5% CAGR growth expected in total net revenues over the same period. Vizag. that is. and family-owned businesses and entrepreneurship. 30. Thus. NIIT has also signed up two new partners for Imperia. on account of the scorching growth in this business. the impressive growth in the Margins of the New Businesses is a strong lever for NIIT’s overall Margin expansion expected over FY2007-10E. we expect the contribution of New Businesses’ net revenues to the total to rise from under 1% in FY2007 to over 7% in FY2010. vis-à-vis a 27. Ahmedabad and Pune. The advantages of such a technology-based solution are that it neither requires executives to leave their workplace while they upgrade their skills. Indian Institute of Foreign Trade (IIFT). as compared with the 21. given the outstanding 132% CAGR growth expected in these revenues over FY2007-10E. sales & marketing. June 5. Given the strong 8-9% annual growth in India’s economy. This is on account of the strong improvement expected in segmental Margins due to higher enrolments and operating leverage. nor does it call for the creation of additional infrastructure in the management institute.and EBITDA is expected to increase more significantly going ahead. In terms of operating profitability.

3 3. The Corporate Learning Solutions (CLS) segment has seen the maximum increase in its contribution.0 2.0 15. as NIIT has re-aligned its business strategy for this segment to focus more on Private schools. aided by the acquisition of Element-K. For Private Circulation Only . over the past nearly two years. from the young people learning computers for the first time.Sebi Registration No : INB 010996539 74 .1% and 37% respectively in FY2010E from FY2008E levels of around 43% and 32%. NIIT provides IT education and training to students and professionals.9 (9) (124.5 Investment Arguments Shift from pure-play training to becoming a ‘Global Talent Development Corporation’ NIIT has traditionally been known and perceived as an IT training company. Towards this. 20082008 January 30. NIIT has also commenced newer businesses in verticals like BFSI and June 5.1 15 425. however.0 FY2010E 126 70. It has leveraged its extensive experience in the IT vertical to expand into newer verticals and business segments.9) FY2009E 74 116. the School Learning Solutions (SLS) business has witnessed a significant decline in contribution. On the other hand. While the ILS business’ contribution to SWR and net revenues has fallen slightly.8 3 5.6 (4) (15.0 4.0 2. given the strong growth it is seeing.6 5.3 2.0 26 250.4 101 75. The company’s training programs cover the entire spectrum of learners. the company has also re-jigged its strategy to drive higher growth rates along with better profitability. The company is India’s largest IT training company and has the largest network of centres (own and franchisee) across the country. NIIT has made conscious attempts to change its perception from merely being an IT training company to becoming a ‘Global Talent Development Corporation’. NIIT has taken a slew of strategic initiatives to mark a shift in its revenue mix in terms of business segments as well as verticals. the contribution is expected to increase to 47.7 57 125. A change in the business mix While the ILS business continues to remain a key part of NIIT’s overall business portfolio.9 7 0. going ahead.0 7. Angel Research FY2007 10 0.8) FY2008E 34 237. The company’s business portfolio has seen a notable shift.0) (3.Angel Broking Service Truly Personalized TM NIIT Limited Education Exhibit 10: New Businesses projections (Rs cr) System-wide Revenues (SWR) % chg Contribution to Total SWR (%) Net Revenues % chg Contribution to Total Net Revenue (%) EBITDA % chg EBITDA Margins (%) Contribution to Total EBITDA (%) Source: Company.7) (11. to students looking at pursuing IT as a career option to professionals looking to upgrade their IT skills to keep pace with the demands of a highly competitive working environment. However.0 7.

7bn in exports in FY2002 to US $40. with the Private Schools business expected to clock a CAGR of around nearly 26% in the mentioned period. we have been conservative on the profitability front and expect EBITDA Margins to decline by 50bp each year over FY2008-10E. we expect these to increase over FY2007-10E after a dip in FY2008E on account of Rupee appreciation. we estimate NIIT’s SLS business to clock a 17. 30. Overall. We estimate that this segment will clock a scorching 140% CAGR growth over FY2007-10E driven by increasing industry acceptance and expect the huge demand for talent across industries to lead to greater demand for these services. NIIT’s New Businesses are expected to be the major growth driver going ahead. This compares favourably with the growth of around 33% recorded by the Indian IT-ITES Export Sector over the mentioned period. ILS net revenues have grown at a CAGR of 36. in terms of business segments. 2008 January2008 For Private Circulation Only . Direct employment in the IT-ITES Industry was estimated at nearly 2mn in FY008. This is vis-à-vis operating losses of 125% in FY2007. Going ahead. We expect NIIT’s CLS business to clock a 13. the sector has grown from US $7. The ILS business has seen its India-based gross revenues (SWR) clock a CAGR growth of over 41% over FY2005-07.Angel Broking Service Truly Personalized TM NIIT Limited Education technology-enabled management education. In terms of EBITDA Margins. Thus. It should be noted that this segment has already reported EBITDA break-even in 3QFY2008 and we expect continued improvement on this parameter. In terms of revenues. We have been slightly conservative on the profitability front and expect EBITDA Margins in this business to hit 15% levels by FY2010. With the strong growth of the Indian IT Industry. NIIT’s role as a ‘supplier of raw materials’ to the industry has enabled it to grow at a rapid rate. the strong growth of this industry has been the key enabler to NIIT’s own growth over the past few years. leveraging its knowledge in IT to expand to these verticals and tap the market for the requirement of skilled personnel in these businesses.2% CAGR over FY2007-10E driven by the increased adoption of training outsourcing and strong growth in the content library of Element-K. all the above strategic initiatives taken by NIIT have enabled it to move even further towards its vision of becoming a ‘Global Talent Development Corporation’ and have consequently expanded the addressable market for the company. focussed execution of its business plans and strong positioning to leverage the burgeoning demand for skilled manpower in India going ahead and this is the key reason we are positive on the company.Sebi Registration No : INB 010996539 75 . given the burgeoning growth they are witnessing. Strong position in the ILS business NIIT’s key growth driver over the past couple of years has been its retail training business . Thus. after a 306bp yoy decline in Margins in FY2008E.5% CAGR growth over FY2007-10E. Nonetheless. reflecting a CAGR growth of 32%. We estimate Margins to rise by 150-160bp annually over FY2008-10E. reflecting a CAGR growth of over 25% since FY2002.3bn in FY2008.7% over the same period. June 5. We are enthused by the company’s vision.ILS. It is well-known that the IT Industry is people-intensive and that human resources are the key ‘raw materials’ driving its growth. as against management expectations of a 20-25% range.

the manpower needs across industries are quite significant. However. and take long-term non-linear growth initiatives (not headcount-based growth) like platform-based BPO.Sebi Registration No : INB 010996539 76 . namely a recession in the key US economy. NIIT is well-positioned to leverage on the opportunity for providing skilled manpower to meet the burgeoning needs of varied industries apart from IT. NIIT achieved EBITDA break-even in the ILS business in FY2005 at around 38% capacity utilisation. reflecting the strong traction being witnessed by the business. high attrition rates. a highly competitive hiring environment and the likely expiry of tax benefits under the Software Technology Parks of India (STPI) scheme post-FY2010. Consequently. wage inflation. in FY2006 and FY2007.7% and 17. change the business mix in favour of higher value-added services like consulting. On the other hand. since it typically tracks growth in the Indian IT Industry with a lag effect. These initiatives are likely to lead to a slow down in headcount addition going ahead. the company is likely to be much less impacted if such a development were to take place and the IT sector’s growth was to get stymied to a significant extent in future. capacity utilisation levels hit 46% and 54% leading to Margins of 7. We expect strong growth in domestic revenues as also in the company’s Chinese operations and ROW. On account of the strong 8-9% GDP growth recorded by the Indian economy. A positive impact of these strategic initiatives has been diversification of its business portfolio. given the high fixed-cost nature of the business has led to strong operating leverage. we expect NIIT’s ILS business to clock a 29% CAGR growth over FY2007-10E. the current operating environment is indeed a fairly difficult one for IT companies and they face multiple headwinds. During 9MFY2008. since NIIT’s business portfolio is more diversified. Hence. with close to 80% of net revenues in FY2008E likely to come from avenues other than the Indian IT Industry. With capacity utilisation expected to hit 65% by FY2010E. Well-hedged business portfolio NIIT. Rupee appreciation (in spite of the current depreciation on account of record crude prices). 20082008 January 30. after a strong 243bp yoy increase in FY2008E. “Challenges = Opportunities” On account of having built a well-diversified business portfolio over the past couple of years. thereby reducing the dependence purely on the IT Sector. we expect EBITDA Margins in this business to continue to expand mainly on the back of higher capacity utilisation.Angel Broking Service Truly Personalized TM NIIT Limited Education Even as the ILS Business’ contribution to revenues has been significant. we have modeled for a steady 100bp annual increase in Margins over FY2008-10E. such an event would have ramifications on NIIT’s growth. driving higher Margins. For Private Circulation Only .6%. Margins have already hit 20%. aided by expansion into newer geographies. As is well-known. Going ahead. June 5. has been able to move closer to its vision of becoming a ‘Global Talent Development Corporation’. through the strategic initiatives taken by it in the recent past. Higher capacity utilisation and fee increases are also expected to drive Top-line. the key for IT companies (apart from hedging and higher utilisation rates. However. its contribution to profitability has been even more pronounced driven mainly by higher capacity utilisation which. Well-positioned to capture the opportunity due to the talent war among industries. respectively. which are short-term measures) is to improve productivity. to succeed in this challenging environment.

Significant exposure to the Indian retail training market While NIIT’s strategic initiatives over the past two years have enabled it to expand its business portfolio beyond IT training. with multiple headwinds such as a US recession.7cr being shaved off the EBITDA (119bp) during 9MFY2008. Growth at the cost of NIIT acquired Element-K in 2006 to expand its business portfolio in the CLS business. which will further drive growth. Going ahead. most of which are derived from the US. Thus. profitability is likely to improve significantly. 30. given the high operating leverage enjoyed by them. the Indian IT Sector is going through a difficult period. if the US recession was to lead to cuts in training outsourcing budgets. These businesses record higher Margins with higher capacity utilisation. This leaves it vulnerable to the impact of a US recession and Rupee appreciation (in spite of the current depreciation on account of record crude prices). a slowdown would likely lead to lower growth rates for the company going forward and could lead to downside risks to our projections. there exists significant scope for strong Margin expansion. In fact. its CLS business has been adversely impacted by the strong Rupee. with Rs44. the company would likely be negatively impacted and growth would slow substantially. continued Rupee appreciation is likely to continue to impact NIIT adversely. Concerns High US exposure NIIT has significant exposure to the US market through its CLS business. While this acquisition was a fairly large one and added a significant chunk of revenues to NIIT. even as we have factored in a more conservative 15%. Around 57% of its revenues are expected to come from the CLS business in FY2008. Rupee appreciation (in spite of the current depreciation on account of record crude prices). In case a significant slowdown was to ensue in the IT sector. In the organic CLS business pre-acquisition of profitability? June 5.Sebi Registration No : INB 010996539 77 . high attrition rates and a likely end to the STPI tax holiday post-FY2010. In fact. on the profitability front. This gives a significant growth opportunity for NIIT to leverage. management expects EBITDA Margins to hit a range of 20-25% by FY2010. in FY2008 this far. Thus. as IFBI and Imperia gain greater acceptance and newer enrolments flow in. over 30% of its revenues are derived from the ILS business. in much the same manner as the ILS business. This would adversely impact NIIT. the company saw a fall. all impacting the performance of these companies. On a net basis.Angel Broking Service Truly Personalized TM NIIT Limited Education Sectors like Telecom.3cr being wiped off the Topline (as much as 15%) and Rs7. the significant challenges being faced by these varied industries on the manpower front equate to a significant growth opportunity for NIIT. Strong scalability of new businesses The newer businesses launched by NIIT have recorded operating-level break-even in 3QFY2008. it could result in a likely toning down of hiring plans by these companies. wage inflation. given its fairly high exposure to this segment. it still derives over 50% of gross revenues from this business and nearly 34% from India-based training revenues. 2008 January2008 For Private Circulation Only . Currently. it could also consider entering newer verticals like Retail. Going ahead. Further. Thus. Considering that this business has been the star performer over the past two years for NIIT. BFSI and Retail are on high growth trajectories and hence require significant manpower to sustain growth going ahead.

systems integration and so on after winning the contract. CLS Margins stood at nearly 15% in FY2007. Angel Research CLS standalone 14. consolidated segment Margins and overall Margins took a hit. a decline of nearly 700bp. After consolidation with Element-K. NIIT had to sacrifice Margins. For Private Circulation Only . there would be a need for significant financial resources to execute such projects. significant execution risks also exist. Nonetheless. The business is also characterised by higher capex intensity.Growth at the cost of profitability? (FY2007) EBITDA Margins (%) Source: Company. capex intensity of Government schools business The Government schools business is characterised by a high number of debtor days. This was the main reason why NIIT has shifted its focus towards the more profitable Private schools business over the past couple of years.8 CLS consolidated 7. matters have worsened on account of the Rupee appreciation (in spite of the current depreciation on account of record crude prices). due in part to offshoring some of Element-K’s work to India. given the steep difference in Margins. since Element-K was loss-making at the time. High debtor days. Thus. 20082008 January 30. it may further impact profitability. if NIIT takes similar decisions to ‘buy’ growth at the cost of profitability. It should be noted that NIIT has done a good job in increasing the Margins of the standalone Element-K since acquiring it. This is not surprising given that the government machinery works at its own pace.Sebi Registration No : INB 010996539 78 . June 5. Apart from these factors. overall Margins were always likely to get adversely impacted. In FY2008. On an organic basis. However. these factors could lead to cash constraints going ahead along with slower growth.Angel Broking Service Truly Personalized TM NIIT Limited Education Element-K. Exhibit 11: Acquisition impact . Therefore. it is clear that in the quest for growth. which is a risk to our Margin expansion call. segmental Margins stood at below 8% levels. after the acquisition. EBITDA Margins ranged between 14-16%. given the consolidation in this business globally. Going ahead. which recorded Margins of under 3%.8 Chg (bps) (698) Thus. as the company has to make upfront investments in infrastructure.

We are enthused by the strategic initiatives being taken by the management to drive strong growth in future. enabling the economy to sustain strong growth. Telecom.Sebi Registration No : INB 010996539 79 . leading to strong growth in consumption demand and a policy of ‘continuation’ being followed with respect to the reforms process. We believe NIIT is in a strong position to tap these markets with its diversified business portfolio. leading to a significant business opportunity for training and developing talent for these sectors. manpower demand will continue to increase in sectors like IT. we believe there is strong visibility of growth for companies that act as ‘suppliers of talent to the Indian Services Sector’.4% CAGR growth in Bottom-line over FY2007-10E. 2008 January2008 For Private Circulation Only . with an Accumulate recommendation and 12-month Target Price of Rs123.5% CAGR growth in Top-line and 36. especially in its new businesses like financial services training and management education. improving the quality of education and retaining children in the education system to ensure that they remain in the mainstream.Angel Broking Service Truly Personalized TM NIIT Limited Education Outlook and Valuation We expect the Indian economy to continue on a strong growth path over the next few years. In view of this. the stock trades at a P/E of 12. Apart from this. BFSI. capital investments. increasing affluence and the growth of the great ‘Indian middle class’. along with a largely positive bias on Margins. as well as in the SLS business. June 5. along with a 442bp expansion in Margins over the mentioned period. We estimate a 21. driven by an increase in training outsourcing. given that it is this sector that is likely to lead the growth of the Indian economy over the next many years. Retail. resulting in a ‘demographic dividend’ with a significant proportion of the population joining the workforce. We Initiate Coverage on the stock. growth and development of content library and strong demand for such services from major Indian and global corporates. even as the other segments of the company also seem set to grow at a decent rate.5x FY2010E EPS. The Corporate Training market is also likely to grow at a decent clip. given favourable demographics. strong partnerships with industry majors. we expect the Education Sector to continue to receive priority from the Government and believe it will continue to allocate a significant amount of funds for capacity creation. This is the key factor that is likely to lead to a strong pipeline of talented human resources joining the workforce in future. This will consequently lead to a huge requirement for talented manpower to sustain growth. Consequently. 30. There is strong visibility of growth for the company. At the CMP of Rs109. Aviation and Hospitality.

Angel Research June 5.020 780 540 300 FY05 FY06 FY07 FY08E FY09E FY10E Source: Company.Sebi Registration No : INB 010996539 80 . Angel Research Exhibit 13: EBITDA Margins (%) 17 15 13 11 9 7 FY05 FY06 FY07 FY08E FY09E FY10E Source: Company. Angel Research Exhibit 14: Net Profits (Rs cr) 150 126 102 78 54 30 FY05 FY06 FY07 FY08E FY09E FY10E Source: Company. For Private Circulation Only . 20082008 January 30.260 1.500 1.Angel Broking Service Truly Personalized TM NIIT Limited Education Exhibit 12: Sales Growth (Rs cr) 1.

8 47.1 22.7 9.3 24.4 0.1 61.8 252.4 25.4 0.0 29.2 3.2 68.7 627.2 14.4 250. Charges (Net) PBT % of Net Sales Tax Effective Tax Rate (%) Profit in assoc.1 8.5 9.9) 0.7 13.9 406.6 Key Ratios Y/E March Per Share Data (Rs) Diluted EPS Cash EPS DPS Book value per share Operating Ratios (%) Sales growth EBITDA Margins Net Profit Margins Return Ratios (%) RoE RoCE Dividend payout Valuation Ratios (x) P/E P/BV Sales/GFA EV/EBITDA 31.3 130.5 19.2 32.6 (33. int.4 584.2 198.7 159.4 40.224.3 43.5 13.8 1.1 588.426.5 (50.0 5.0 0.7 6.3 1.9) 30.4 4.7 32.6 997.5 1.4 717.9 365.7 25.3 0.8 294.3 72.7 542.4 17.7 19.3 19.2 8.1 61.6 (65.7 12.0 25.1) 21.3) 618.9 371.7 25.4 9.5 3.8 13.1 (1.0 0.7) 751.6 Note: All figures are given on a consolidated basis.5 899.9 112.4 6.3 11.Angel Broking Service Truly Personalized TM NIIT Limited Education Profit and Loss Account (Consolidated) Y/E March Net Sales % chg Total Expenditure EBITDA % of Net Sales Other Income Depreciation & Amortisation Int.4 (134.7 0.9 376.8 8.9 25.1 0.1 57.4 20.1 377.6 47.1 8.2 10.7 Cash from financing activities 143.7 6.6 19.4 1.0 14.0 43.2 (30.4 0.1 1.5 FY2007 FY2008E FY2009E Rs crore FY2010E 32.1 61.0 26.2 52.0 0.4) 39.1 584.3 9.4 8.6 5.2 3.2 25.6 26.7) 42.0 73.1 618.3 189.1 68.4 24.9 14.8 Dividend and dividend tax paid 16.0 0.8 58.4 192.6 FY2007 FY2008E FY2009E FY2010E Cash from investing activities (21.9 4.9 143.6 20. 30.1 714.2 57.5 309.6 80.0 1.0 0.9 21..2 (38.9 332.5 12.7 7.9 7.1 822.0 8.4 1.1 76.3 38.5 19.8 145.5 269.0 52.4 155.8 224.2 8.6 40.9) 0.8 8.8 23.3 78.7 82.1 451.050.0 76.8 6.1 Other adjustments Net increase/(decrease) in cash Opening cash balance Closing cash balance 20.4 7.0 6.8 27.9 509.6 65.9 104.3 9.5 9.9 2.Sebi Registration No : INB 010996539 81 .6 39.8 (1. and min.4 150.3) 43.4 150.6 232.0 (22.8 314.1 751.9) 160.1 23.6 0.3) 35.0 25.4 14.5 202.7 (0.5 11.0 127.7 399.6 1.8 1.0 489.6 19.8 314.6 0.1 Cash Flow Statement Y/E March Profit before tax Depreciation Change in working capital Income taxes paid Cash from operations Change in Fixed assets Free cash flows Change in Investments FY2007 FY2008E FY2009E 24.0 (17.8 12.3 13.2 36.3 1. Depreciation Net Block Capital Work-in-progress Miscellaneous Expenditure Current Assets Less: Current Liabilities Net Current Assets Deferred Tax Asset (Net) Investments Total Assets 570.5 12.0 0. June 5.1 473.2) 21.0 98.3 36.5 9.1 671.6 25.4 399.9 15.7 25.0 25.2 284.7 1.0 75.0 (61.2) Change in Share capital Change in Debt (0.1 320.6 3.1 61.1 14.3 709.0 97.3 57.6 Balance Sheet (Consolidated) Y/E March SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders' Funds Loan Funds Minority Interest Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc.3 75.1 58.0 36.2 97.0 0. PAT % chg FY2007 FY2008E FY2009E 795. and Fin.0 18.9 25.8 0.7 77.8 Rs crore FY2010E 1.3 68.3 13.0 (19.7 439.0) 671.2 19.3 32.0 39.4 Rs crore FY2010E 127.3 58.3 12.4 15. 2008 January2008 For Private Circulation Only .8 444.6 26.194.1 21.5 33.7 210.4 0.6) 73.

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