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Lunch with BS: Shantanu Prakash

RoE, RoCE and a lot more 'R's

Sunil Jain  |  New Delhi 

Shantanu Prakash

Reading, ’Riting and ’Rithmetic can’t flourish if you ignore the other ‘R’s.

Over 2 million children in 2,200 private schools across the country use his ‘Smartclass’ every day; 4 lakh kids so far are registered with online tutorial site WiZiQ; 4 lakh teachers have been trained just this year in skills they would have learnt if they had done a basic BEd; 14,000 computer labs have been built in government schools … If you’re looking for confirmation that Human Resource Development Minister is on the right track while saying the law will be changed to allow for-profit firms to enter the education business, Shantanu Prakash’s Educomp Solutions Limited’s success provides enough of this, writes Sunil Jain.

Much is known about 15-year old Educomp and its success — Revenues are up from Rs 112 crore in 2006-07 to Rs 517 crore in 2008-09; (RoI) from 12.92 to 16.04 per cent in the same period; (RoCE) from 28.5 to 27.8 per cent; Return on Net Worth (RoNW) from 24.1 to 35.6 per cent. So I really want to meet Prakash for his take on whether Sibal’s bitten off more than he can chew while making Class 10 exams optional; on whether we even need to have regulators like the All India Council For Technical Education (AICTE) for education [think of the Indian School of Business (ISB)which is doing well without an accreditation]; on what’s wrong with the not-for-profit model if it allows people like him to expand the way they have; and yes, does Prakash’s move to bricks-and-mortar schools suggest the current model of computer-aided teaching tools (that’s the for which parents in these 2,200 schools pay Educomp Rs 150 per month) is flagging?

We’re lunching at Olive Beach, the still-trendy Mediterranean food joint at Chanakya Puri. We’re sitting outside, partly since the weather ’s just started getting nice and partly because, like most other restaurants, there’s a gaggle of kitty-party women inside — for a long while, only women stream in, prompting Prakash to say that we’re the only men in the place, apart from the stewards of course.

While we’re cutting the freshly-baked bread that’s served on the side and deciding on orders, we speak of what looks like a very well-planned march from to pre-schools (400-plus Eurokids and 170 Roots-to-Wings), online tutoring, bricks-and-mortar schools (23 with 16,000 students), high-end vocational education with Raffles University, a distance education tie-up with the Pearson Group of the UK (it owns Penguin and the Financial Times). We joke about the title of the book, Stay Hungry Stay Foolish, by Rashmi Bansal on 25 IIM Ahmedabad (IIM-A) graduates like Prakash and Naukri’s Sanjeev Bikhchandani who decided to venture out on their own — a friend’s wife, Prakash tells me, thought it was a new dieting book! (Disclosure: I almost bought Chicken Soup for the Mother’s Soul so I could make soup for my son.) Prakash refuses to get drawn by my comment that IIMs are just a fancy recruitment process and don’t really add much value — the fact that IIM-A is, after all these years, celebrating just 25 graduates getting into their own ventures, I suppose, does tell a certain kind of story.

Prakash, to get his CV out of the way, began life as a businessman, much to the dismay of his father, a SAIL officer who, like so many others, wanted his son to study for the IAS. Began, in the sense, he schooled at the Delhi Public School in Mathura Road, went to Shri Ram College of Commerce (SRCC) and then to IIM-A and, immediately after, joined an SRCC colleague in the education-aids business — if you schooled in Delhi, chances are the skeleton you examined in the biology lab was sold by Prakash.

Our orders finally arrive (a Bruschetta followed by a Contadina pizza for him and a Caesar’s salad followed by a sea bass for me) and after a bite, Prakash smothers his pizza with Tabasco — it’s unlikely it’s that bad, so presumably he just ordered wrongly. I don’t do the same with my fish, the flavouring’s delicate, subtle. Sipping his Diet Coke (after all the cheese, keeping a watch on calories is probably par for the course), Prakash says this is around the time CBSE introduced computers as a curriculum — so he left his friend, borrowed money at high rates and started buying computers to install in schools, the growth was slow but steady and, most important, profitable. This is where, Prakash says, he learnt the most valuable lesson in business — sell to consumers who can get others to pay! The schools got the computers free (the same applies to the Smartclass), and this made them look hi-tech and attractive to parents who paid Prakash separately. The rest then followed and, today, with 400 people just developing education content, in ten Indian languages, Prakash says, he has the largest team doing such work in the world.

As for whether the distance education model is flagging, Prakash points to how its share in his revenues (65 per cent at the moment) is rising — just 2,200 of the 75,000 private schools have his Smartclasses and just 14,000 of the 925,000 government schools are covered by his computer labs, an indication of how much more scope there is. So why the 23 bricks-and-mortar schools (apart from the pre-schools) and plans to go to 150 by 2012? According to a CLSA brokerage report, Prakash says, Indians spend $25 billion (Rs 112,500 crore) a year on education till Class 12 and another $5.5 billion on tutoring — needless to say, he wants to be part of this great business where, to quote him, demand outstrips supply by a huge margin and the business is cash-flow negative.

To understand why for-profit is so important, you need to understand Educomp’s model for bricks and mortar. The school has to be run by a not-for-profit trust, that’s the law. So while the trust runs the school, Educomp is a vendor to the trust. Educomp buys the land and sets up the building (in a new school), provides the course material and so on and then charges the trust for its service. The trust gets to retain its profit, but Educomp has created a business model through which it is able to profit as an education vendor — it then uses this profit to attract investors and keep its model going. Obviously, a for-profit model where investors can invest directly is a better one, but what’s wrong with the not-for-profit one, I ask. Before answering, Prakash points out that while the trust model doesn’t pay any taxes, his model converts this into a for-tax model since Educomp pays taxes on the income it earns as an education service provider to the trust. That important clarification out of the way, Prakash says there’s no problem with the existing not-for-profit model, provided you don’t want to expand fast. The money lies with the trust, and that’s it. If, on the other hand, you want to expand, you need equity funding … only for-profit can deliver that. We have a discussion on venture capitalists (VCs) that’s not fit to print here, none of which, Prakash insists, applies to his VC who brings a lot of ideas to the table and actually understands business.

Which brings us to Sibal. Isn’t it foolish to abolish the Class 10, and eventually class 12, boards since the boards provide a neutral way in which to judge a student’s ability; if the tension over the Class 12 board is to be replaced with the tension over a college entrance exam, what’s the difference? Since I’m convinced I’m right, Prakash says that even if you accept the argument that Sibal is getting a few things wrong, the important thing is that he is moving in an area where policy has been static for decades. You mean it’s like putting a spec of dirt in an oyster, the shake-up it causes produces a pearl? Exactly, Prakash seizes upon that. But why have regulators, why not let parents and students decide which school/college is the best, I persist. I mock Sibal’s latest plan to set up 2,500 schools on a public-private-partnership (PPP) basis which are to be regulated by the government — another layer of bureaucracy!

Yes, and no. Obviously choice is important, says Prakash, but schools/colleges, like ISB, are free to decide if they want to align to a certain standard. Aligning to a CBSE, or even an AICTE, allows parents/students to know they can expect a certain standard, that’s all — yes, if the government said CBSE/AICTE was the only standard and everyone had to adhere to it, that would have been a problem. But surely, prescribing 100 square feet of balcony space outside each classroom, or some such number, as the Delhi government does, I ask, is stupid? Even the Sheraton prescribes standards, Prakash counters. The standards can be changed if they’re out of whack, but there’s nothing wrong with standards or regulations, he insists, what’s wrong is the licensing that most state governments carry out — you require an “essentiality” certificate before you commence and that means the usual palm-greasing.

With all this emphasis on learning, does Prakash still read, considering he fondly recalls his father’s big treats were books? Not that much, he admits, struggling to recall the name of the last book he read. Perhaps when he starts adult education courses? Re-Kindle, so to speak.

First Published: Tue, November 17 2009. 00:41 IST
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