Stiff learning curve

Ability of Edserv Softsystems to scale its business quickly will be critical if it is to fend-off competition and establish itself.

Edserv Softsystems, a Chennai-based company offering computer-based training and placement services plans to invest Rs 23 crore in creating and setting-up e-learning content and access centres across the country. Thus far, the company has signed on 70 franchisees that use the company’s software to offer services to candidates and plans to scale this to 200 post its IPO.

The company says that its model is an integrated one as it meets training as well as placement needs of job aspirants using an automated, centrally controlled, web-learning and assessment system. Edserv, which currently has 3,000 job postings on offer across sectors on its system and about 1,200 registered students, maps the student’s skill-sets to job requirements and trains them (usually in less than a week) in case there is a skill gap before placing them.

The company believes that this model is better than others as its training is specifically tailored to jobs that are currently open in comparison to generic training programmes. The company generates income from registration fee charged to job aspirants (Rs 700 – Rs 1,000), a placement fee (a month’s salary), training fees (Rs 8,000 on average), Rs 4-5 lakh franchisee fee for a three-year period and from customised corporate training (about Rs 1,000-Rs 2,000 per employee). With expansion, the company expects the proportion of franchisee payments to constitute about half of revenues

YET TO FIRE
in Rs crore	FY07	FY08	H1FY09
Net sales	0.18	3.94	4.19
Operating profit	0.06	3.22	2.21
Net profit	0.01	2.53	1.82
P/E @ Rs 55/Rs 60	-	-	5.74/6.26*

* based on annualised earnings of H1FY09

The company believes that with only 35 per cent of the one million engineers that pass out every year getting jobs, there is a huge opportunity to connect, train and place them. This, the company says, will require increase in access centres. While the company has about 22 centres across Tamil Nadu, it believes that Chennai alone needs about 100 centres to reach out to job seekers. 

The biggest challenge for the company will be on the scalability front as it not only has to expand its presence, but also ensure that its software is able to adapt to multiple content and user requests. While there is a danger that the company’s business model might be replicated by other bigger competitors, the management believes that it has a first mover advantage and it will be difficult for other companies to scale up quickly.

While the company is relatively small (sales of Rs 4 crore for half year ended September 2008), its revenue model and growth potential could help to improve its revenues at a fast clip. Its net margins are likely to settle at around the 25-30 per cent mark as it spends on developing content and investing in brand promotion. At the Rs 55-Rs 60 price band, the IPO is priced at 5.74-6.26 times its FY09 annualised earnings of Rs 9.58. While the IPO is not priced aggressively given its growth possibilities and unique proposition, the model is not tried and tested for multiple subjects, locations or redundancies. A risky bet.

Issue opens: February 5 
Issue closes: February 9