India Education Sector Report

TM
Angel Broking
Service Truly Personalized
Education
Index
Executive Summary 2
Industry 4
Human Resources - Powering India’s competitiveness in Global Economy 5
Government initiatives to raise literacy rates in India 6
School Infrastructure – Not up to the mark 10
Public Private Partnership (PPP) – The way ahead 15
The role of private companies and educators 16
Indian IT Training Industry – Tracking the IT Industry with a lag 18
Corporate Training Market 23
Conclusion 24
Companies
Educomp Solutions 26
Everonn Systems India 46
NIIT Limited 60
January
June 5, 2008
30, 2008 For Private Circulation Only - Sebi Registration No : INB 010996539 1
TM
Angel Broking Industry Overview
Education
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:
z Increase the number of schools to provide access to a larger population,

z Improve infrastructure of existing and new schools by building more classrooms and
amenities,
z Increase enrolment rates and reduce dropout rates,
z Reduce gender inequality,
z Recruit more teachers and train them to impart education more effectively, and
z 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
June
January
5, 2008
TM
Education
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 MCap Target P/E (x) EV/EBITDA (x) RoE (%) RoCE(%)
Company Recos (Rs) (Rs cr) Price (Rs) FY08 FY09E FY10E FY08 FY09E FY10E FY08 FY09E FY10E FY08 FY09E FY10E
Educomp Buy 3,496 6,041 4,051 103.9 53.4 32.1 49.9 26.7 15.9 21.8 27.0 31.2 21.9 26.1 30.4
NIIT* Accumulate 109 1,797 123 25.0 17.4 12.5 20.4 13.5 9.2 21.3 25.9 29.6 9.9 14.7 19.7
Everonn Neutral 624 865 - 61.5 56.3 43.7 25.8 17.6 11.8 27.9 8.4 9.8 20.6 8.9 10.1
Source: Company, Angel Research; * For NIIT Limited, FY08 results have not yet been declared.
January
June 5, 2008
TM
Angel Broking
Education
Industry
June
January
5, 2008
TM
Education
Human Resources - Powering India’s competitiveness in Global Economy
India's GDP has been on a strong growth trajectory in the past couple of years. The country's GDP
has clocked a compounded rate (CAGR) GDP growth of around 8.5% over FY2003-08, growing at
over 8% in four of the five fiscals. In FY2007, India's GDP registered accelerated growth in at an
impressive 9.6%. In FY2008 also, GDP growth came in at 9%, which though slightly slower on a
yoy basis, still signals strong economic expansion.
Exhibit 1: India's GDP - On a strong growth trajectory

(%)
10
5
FY04 FY05 FY06 FY07 FY08
Source: Angel Research
The Services Sector has been the key component of this strong growth clocking robust
double-digit growth rates over the past few years. The Manufacturing Sector has also managed to
register decent growth rates in excess of 6-7% annually. But clearly, it has been the Services
Sector that has contributed the maximum to India’s economic growth and currently accounts for
over 55% of GDP. Sectors like IT-ITES, Hospitality, Tourism, Retail and Aviation have also clocked
robust growth and are expected to maintain the tempo going ahead as well.
The human resource-intensive Services Sector, as mentioned earlier, has been responsible for
such growth. It has been due mainly to its human resource base that India is getting its rightful
place in the sun in the global economy. The Services Sector has led the way forward, with bright
engineers, chartered accountants, architects and MBAs all contributing their share to the strong
growth being clocked by India.
However, it should be noted that all is not hunky-dory with all segments of the Indian economy.
Beneath the good growth numbers, lies a harsh and potentially lethal truth – the dismal condition
of the country’s education system. Even as young Indians today are enjoying prosperity of an
unprecedented magnitude, leading to increased consumerism, buying everything from FMCG
products, consumer durables, cars, mobile services to financial services, it is the sustainability of
this prosperity for future generations that is under a cloud.
January
June 5, 2008
TM
Education
A strong grassroots-level educational infrastructure, which helps in the creation of a well-rounded

human resource base, is important to sustain strong GDP growth rates going ahead. A resilient
education system would facilitate a steady supply of high quality personnel who would join the
workforce in future years. Thus, the educational system acts as the creator of a strong pipeline of
talent, enabling sustainable and inclusive economic growth.
Educating India's population - A humungous task
India has the largest student population in the world with over 13.5cr pupils in primary education
followed by China at over 12.1cr pupils at this level. India has the second-largest population in the
world of over 110cr people (1.1bn), with a literacy rate of 61% and ranks a disappointing 172nd on
this front. Educating such a large population is not only an expensive task but also a very difficult
one. This task is being handled primarily by the government through its school infrastructure and
large Budgetary outlays. In the last five years, the government has been focusing on the
Education Sector through increased fund allocations. In the current year also, the government
has increased the allocation by 20% from Rs28,674cr to Rs34,400cr. This amount would be spent
under various schemes like the Sarva Shiksha Abhiyan (SSA), the Mid-day meal scheme, Kasturba
Gandhi Balika Vidyalaya and teacher's education. The allocation for SSA is Rs13,100cr, the
Mid-day meal scheme would be provided Rs8,000cr and Rs4,554cr would be allocated to
secondary education. In the current Five-Year Plan period, the focus of SSA would shift from
access and infrastructure to enhancing retention and improving the quality of learning. (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, it introduced
the Right to Education Bill 2005. This Bill seeks to guarantee elementary education to every child
between the age of 6 and 14 years. It also states that every child in the specified age gets
enrolment in a school in the vicinity of their domicile. The Bill promotes the usage of regional
language as the medium of education by stating that as far as possible, a child should be
instructed in his/her mother tongue at least for the first five years of the elementary stage.
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. SSA was undertaken
in the Eleventh Five-year Plan. SSA is an action plan whereby the government would incorporate
the following:
June
January
5, 2008
TM
Education
z Increase the availability of schools (capacity creation) through opening of new schools and
construction of new classes;
z Improve the standards of education (quality of learning) by enhancing the skill levels of
teachers, recruiting more teachers, providing better courseware and syllabus;
z Attract more students to schools by implementation of the Mid-day meal scheme, which will
help provide better nutrition levels to children, and
z Create an environment more conducive to imparting better education to every one who needs
to be educated.
SSA - Progress against key targets
The government has set aggressive targets for enhancing the resources available to provide
education. The targets include setting up new schools, increasing the number of classes and
teachers, and providing training to the existing teachers. The performance against the targets can
be gauged from Exhibit 2.
Exhibit 2: SSA - Performance round-up

Item Target Achievement upto % Achievement
Opening of New Schools 1,57,967 1,29,893 82%
Teachers appointed 7,72,345 5,87,388 76%
Construction of Comp* IP* Comp* IP*
a. School Buildings 1,20,629 71,143 31,587 58% 85%
b. Additional classrooms 3,29,690 1,55,814 1,70,225 47% 99%
Enrolment in EGS/AIE Centers 87,00,000 63,00,000 71%
Children receiving free textbooks 6.14cr 5.35cr 87%
Functional Academic Resource Centers
Block level 7,422 7,201 97%
Cluster level 70,735 66,140 94%
Teachers trained 30,53,285 23,47,017 77%
Source: Ministry of Human Resource Development (MHRD); * Completed and In-Progress
There has been significant growth in infrastructure, but the implementation process has been slow
and a huge gap still remains. The very nature of this mission is to complete the task of improving
the literacy levels of India in a time-bound manner. 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. As quality and equity are two main thrust areas of SSA, 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, there is a shortfall of
approximately 1.25lakh upper primary schools in India. The demand for upper primary school
would be greater than the demand for primary schools.
January
June 5, 2008
TM
Education
Kasturba Gandhi Balika Vidyalayas
India faces discrimination in the field of education based on the gender of the child. The parents
are more interested in getting their male children educated rather than the female children. This
has led to a lower literacy rate among females compared to males. In a country where we have a
dismal literacy rate vis-a-vis world standards, this discrimination based on the gender paints an
even worse picture. The gender disparity at the primary levels is reasonably low and has been
decreasing consistently. It is quite high at the upper primary level. Such disparity at the higher
level has been declining but at a slower pace. The government is trying to reduce this anomaly
and has set up approximately 800 Kasturba Gandhi Balika Vidyalayas. Also, as part of the SSA,
an additional 410 such vidyalayas are to be set up in educationally backward areas. This move
should help in improving the educational levels for females in India.
Exhibit 3: Gender disparity in Education (%)

Level 2002-03 2003-04 2004-05 2005-06
Primary (Grades I-IV) 5.5 5.1 5.1 4.2
Upper Primary (Grades V-VIII) 10.7 9.4 8.9 8.8
Elementary (Grades I-VIII) 6.8 6.2 6.1 5.4
Source: DISE
Mid-day meal scheme
As per certain responses from The Mid-day meal scheme was introduced in India in 1925 by the Madras Municipal Corporation
the teachers at schools in for disadvantaged children. It was later undertaken by the states of Gujarat, Kerala and Tamil
Rajasthan, the Scheme has Nadu and the union territory of Pondicherry. The Scheme states that a hungry child will not be able
boosted enrolments and to cope up with studies and would subsequently drop out of the school. Even if the child continues
enhanced school attendance with school, he/she would lag behind. Hence, to improve the standard of education, to attract
levels more children to schools and reduce the drop out rates, the government started the Mid-day meal
scheme in India for children of class I-IV in the government-run schools. To support this scheme,
the government provides free food grains to the schools along with transportation in the form of
subsidy, cost of cooking and provision of essential infrastructure for cooking. As per certain
responses from the teachers at schools in Rajasthan, the Scheme has boosted enrolments and
enhanced school attendance levels. In the recent Budget speech, 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 step would cover additional 2.5cr children taking the
total children under its coverage to 13.9cr.
Funding of education schemes – Implementation of Education Cess
A significant 44% of the total The government has imposed an Education cess on income tax to fund its various programs,
allocation of Rs34,400cr for the which target to improve the quality and reach of education in India. This cess is used to fund
Education Sector programs like the SSA. Through the collection of Education cess, Rs8,500-9,000cr was raised in
FY2007. We estimate Rs14,000-15,000cr to be collected during FY2008, a significant 44% of the
June
January
5, 2008
TM
Education
total allocation of Rs34,400cr for the Education Sector. 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. Collection
of Education cess will also help in keeping the cost of education in India low at all levels including
schools and colleges, 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.
Access to Education
In terms of habitations, nearly The first step towards building the base for a well-rounded human resource pool is undoubtedly
87% had access to primary the creation of infrastructure for providing access to elementary education. In this regard, the
schooling facilities within a government’s performance has been reasonable. As per the All-India School Education Survey
vicinity of one kilometer conducted by the government (Ministry of Human Resource Development) through the National
Council of Educational Research and Training (NCERT), 98.5% 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. In terms of habitations, nearly 87% had access to
primary schooling facilities within a vicinity of one kilometer. During the Tenth Plan, over 0.13mn
primary schools were sanctioned and it is estimated that over 96% of habitations have a primary
school within a vicinity of one km.
Exhibit 4: Access to Primary education - Good coverage

1986 1993 2002-03
Rural population 593.6mn 659.7mn 742.5mn
Population served by primary schools* 560.6mn 618.5mn 731.6mn
Percentage (%) 94.5 93.8 98.5
Rural habitations 0.98mn 1.06mn 1.23mn
Habitations served by primary schools* 0.82mn 0.88mn 1.07mn
Percentage (%) 83.8 83.4 87.0
Source: MHRD, Angel Research; * Population / habitations having access to primary schools within a vicinity of
one kilometer
Evidently, over the years, the percentage of rural population having access to primary schooling
facilities has increased, reflecting good progress. However, it should be noted that the progress
on providing facilities in the upper primary grades (Grades V-VIII) has not been quite as
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, it is still far from satisfactory. In
terms of population coverage also, even as the percentage population having access to these
facilities within a range of three km stood at over 86% in 2002-03, it was still much lower than the
percentage of population having access to primary schooling facilities.
January
June 5, 2008
TM
Education
Exhibit 5: Access to Upper Primary education - Not satisfactory

1986 1993 2002-03
Rural population 593.6mn 659.7mn 742.5mn
Population served by upper primary schools* 498.4mn 560.8mn 639.6mn
Percentage (%) 84.0 85.0 86.1
Rural habitations 0.98mn 1.06mn 1.23mn
Habitations served by upper primary schools* 0.73mn 0.81mn 0.96mn
Percentage (%) 74.0 76.2 78.1
Source: MHRD, Angel Research; * Population / habitations having access to upper primary schools within a vicinity
of 3 kilometers
Therefore, in terms of access to primary and upper primary educational facilities, the progress on
the upper primary front has not been satisfactory, even as access to primary education in terms of
percentage population coverage seems to be satisfactory. Going ahead, there is a need to add
more upper primary schools to bring down the ratio of primary to upper primary schools. This ratio
stood at 2.5:1 at the end of 2005-06, vis-à-vis the 2:1 norm specified in the SSA.
Exhibit 6: Primary-Upper Primary ratio - Work yet to be done

Year Primary schools (P) Upper primary schools (UP) P:UP
1999-2000 6,41,695 1,98,004 3.2
2000-2001 6,38,738 2,06,269 3.1
2001-2002 6,64,041 2,19,626 3.0
2002-2003 6,51,382 2,45,274 2.7
2003-2004 7,10,471 2,62,649 2.7
2004-2005 7,67,520 2,74,731 2.8
Source: MHRD, Angel Research
School Infrastructure – Not up to the mark
There was a shortage of over Information collected through the District Information System for Educaion (DISE) suggests that
6lakh class rooms during 3% of the primary schools and 2.4% of upper primary schools did not have any building in
2006-07 2005-06. Further, there is a severe shortage of classrooms in schools where the school building is
present. There was a shortage of over 6lakh class rooms during 2006-07. In 2005-06, a significant
44.6% of primary schools and 15.3% of upper primary schools did not have any toilet at all. Similar
proportion of schools, both in the primary and upper primary stages, did not have any boundary
wall. Drinking water facilities were not available in 15.1% primary and 4.8% upper primary schools.
These are very important issues and call for adequate attention to ensure availability of the
required physical infrastructure in the schooling system. Such lack of facilities would consequently
hamper both enrolments as well as the quality of education.
June
January
5, 2008
TM
Education
Exhibit 7: Schools without basic facilities

% schools without Primary Upper Primary
facilities like 2004-05 2005-06 2004-05 2005-06
Building 3.5 3.0 2.8 2.4
Toilets 51.4 44.6 16.8 15.3
Boundary walls 50.4 50.8 15.7 16.5
Drinking water 16.3 15.1 4.7 4.8
Source: DISE data
Enrolments – Good growth
While capacity creation is the first step needed to drive the process of development of quality
human resources, the actual enrolment of students and consequent effective utilisation of that
infrastructure is a reflection of the actual coverage of the education system. Student enrolments
have grown at a good rate of 3.2% CAGR over 1999-2000 to 2004-05 for primary enrolments, and
3.9% for upper primary enrolments.
Exhibit 8: Student enrolments

Year Primary enrolments (Mn) Upper primary enrolments (Mn)
1999-2000 113.6 42.1
2000-2001 113.8 42.8
2001-2002 113.9 44.8
2002-2003 122.4 46.9
2003-2004 128.3 48.7
2004-2005 131.7 51.7
Enrolment ratios – Rapidly on the rise
GERs for the total elementary A key ratio for assessing the actual extent of access of children is the enrolment ratio. The Gross
system have been on the rise, Enrolment Ratio (GER) is defined as the ratio of gross enrolment of students to the proportion of
hitting nearly 95% in 2004-05 total children in the relevant age group. It is over 100% in some cases on account of cases of
repeaters and some children being either over-aged or under-aged. It is clear that the GER for
upper primary grades is far less satisfactory than that for primary grades, reflecting yet again the
pressing need for capacity creation in the upper primary segment. Overall GERs for the total
elementary system have been on the rise, hitting nearly 95% in 2004-05.
January
June 5, 2008
TM
Education
Exhibit 9: GERs - Scope for significant improvement at the Upper Primary level
Year Primary Upper Primary Elementary
GER (%) GER (%) (Grades I-VIII)
1999-2000 94.9 58.8 81.3
2000-2001 96.8 65.3 86.8
2001-2002 93.0 69.6 85.6
2002-2003 95.6 56.3 81.1
2003-2004 98.3 62.5 84.9
2004-2005 108.6 70.5 94.2
‘Out-of-school’ children have Net Enrolment Ratio (NER) is calculated as a percentage of net enrolment of children of the right
fallen significantly from 44mn age group to the total children in the relevant age group, implying the extent of access of children
in 2000-01 to 7mn in 2006-07 in the target age group. In 2003-04, 16% of the children in the Primary grades were under or
over-aged, whereas the figure for Upper Primary stood at 23%. This improved slightly to 14% and
20% respectively in 2004-05. Thus, adjusting for these figures, the NER stood at 82.5% in
2003-04 for the Primary section, whereas for the Upper Primary section, the figure stood at less
than 40%, an extremely disappointing performance. In 2004-05, the respective figures improved
to 94.3% and 50.7%. This clearly reflects the urgency with which the government needs to take
focused measures to improve these metrics at the Upper Primary level. However, 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, which we believe is partly a result of focused efforts taken by the
government to provide increased access to education and higher enrolments.
Dropout rates – A measure of the real effectiveness of the system
A significant 50% of children While the importance of capacity creation and student intake as the building blocks for
exit the mainstream sustainable development is clearly evident, the true test of the effectiveness of the Education
educational system over time System lies in the student dropout rates. Dropout rate is defined as the proportion of children that
cease to remain enrolled in the schooling system. Even as the overall dropout rates have been
consistently witnessing a declining trend over the years, the overall level is still very high – over
28% in 2004-05 for primary and a high 50% for the entire elementary education system, indicating
that a significant number of children exit the mainstream educational system over time after
enrolment in Grade I. This, we believe, is a matter of serious concern and can be a major reason
for the government failing to achieve ‘inclusive growth’, leading to increasing social unrest, given
the exclusion of these people from the economic prosperity of the country.
June
January
5, 2008
TM
Education
Exhibit 10: Dropout rates

Year Class I-V (%) Class I-VIII (%)
1999-2000 40.3 54.5
2000-2001 40.7 53.7
2001-2002 39.0 54.6
2002-2003 34.9 52.8
2003-2004 31.5 52.3
2004-2005 28.5 50.4
Performance of students – A metric to gauge quality of education imparted
The quality of education provided also needs to be gauged, especially for a country like India
where literacy rates are far from satisfactory. Pertinently, ‘quality’ is a highly subjective term and
therefore, generally difficult to assess, unlike access to education, where the coverage of schools
can be used as a parameter to judge this metric. We have used the NCERT’s periodical survey
(every 2-3 years) to explain the quality of education in India.
Exhibit 11: Average marks achieved by students (%)

Class States covered Mathematics Language Science Social science
Class III 29 58.3 63.1 NA NA
Class V 27 46.5 58.6 NA 50.3
Class VII 10 29.9 53.0 36.0 33.0
Class VIII 17 38.5 52.5 40.5 45.0
Sample survey: NCERT
Education companies like It can be observed that the achievement levels of students are low across subjects. Clearly, this is
Educomp, Everonn and NIIT the reason that the government is taking initiatives to improve the quality of education. The
have an opportunity to improve initiatives include recruitment of new teachers, re-skilling the existing teachers to be more
the total quality of education in effective in imparting education, providing better infrastructure to schools and providing better
India through Public-Private content for education. This is where education companies like Educomp, Everonn and NIIT have
Partnerships 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.
Teacher capacity
Along with the creation of capacity, the number of teachers also has to keep pace, ensuring the
delivery of education to students. The total number of teachers rose from 1.9mn in 1999-2000 to
2.3mn in 2004-05 for the Primary section, while for Upper Primary, the respective figures stood at
1.3mn and 1.4mn.
January
June 5, 2008
TM
Education
Exhibit 12: Number of Teachers

Year Primary ('000) Upper Primary ('000)
1999-2000 1,919 1,298
2000-2001 1,896 1,308
2001-2002 1,928 1,468
2002-2003 1,913 1,581
2003-2004 2,093 1,602
2004-2005 2,310 1,439
Teacher-Student ratio – Not satisfactory
Pertinently, just the number of teachers and educational institutions do not necessarily mean
much by themselves. These figures need to be looked at in totality, in conjunction with the number
of students. Hence, the student-teacher ratio can be used to judge the adequacy of capacity.
The national teacher-student The national teacher-student ratio for Primary education has increased from 1:43 in 1999-2000 to
ratio for Primary education has 1:46 in 2004-2005. This ratio for the Upper Primary reduced from 1:38 in 1999-2000 to 1:35 in
increased from 1:43 in 2004-2005. Though these figures are at a national level and hide regional disparities, it is
1999-2000 to 1:46 in 2004-2005 apparent that the increase at the Primary level is not a factor to be enthusiastic about, as this
would lead to less attention of a teacher per student. In the opposite case, the decrease of
students per teacher in the Upper Primary grades is a positive.
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, MHRD
The teacher-student ratio for Secondary education in India is higher than that in countries like
China, the UK, US, Germany and France (Refer Exhibit 14). This typically impacts the quality of
teaching, as each teacher would have less time to devote to a student.
June
January
5, 2008
TM
Education
Exhibit 14: Teacher-Student ratio - Secondary schools

Country Teacher-Student ratio
India 1:18
Bangladesh 1:43
Pakistan 1:28
United Kingdom 1:17
China 1:16
Germany 1:15
Sweden 1:15
US 1:15
Japan 1:14
Argentina 1:14
France 1:12
Switzerland 1:11
Source: Nationmaster, Angel Research
Hence, there exists significant scope for improvement in the Teacher-Student ratio across the
Primary, Upper Primary and Secondary schools, given its importance and key role in leading to
sustained, equitable and inclusive growth going ahead.
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, the government is exploring new ways to achieve its
targets, such as the public-private partnership (PPP) route. The first step is to improve the quality
of education by getting content and certain school infrastructure designed and implemented by
private companies. 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. Thus, the companies that provide an end-to-end solution including setting
up the infrastructure, systems integration, teacher training, content development and learning
delivery are likely to be beneficiaries of these partnerships.
India faces a backlog of The ownership of private schools is not allowed except under a trust format. Currently, India faces
2,00,000 schools to a backlog of approximately 2,00,000 schools to accommodate students and provide easy access
accommodate students and to education for all children. This shortage of schools may lead to the government opening up
provide easy access to owning of schools to private players, thereby enabling them to make profits by legitimate means.
education for all children In such a scenario, the ownership of schools would become easier and may lead to more schools
being opened up, thereby improving access to education. 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., Educomp, Everonn or NIIT.
January
June 5, 2008
TM
Education
The role of private companies and educators
Private schools – Meeting the demand for quality and access to a great extent
There are approximately 50,000 private schools in India. A majority of these schools are present in
the urban pockets and cater to more affluent classes. 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, facilities and courseware. Similarly, they expect
better academic achievements from their children. 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. Thus, the new products using
multimedia-based platforms to enhance the quality of education and equip the educators to a
better extent are being sought.
Quality education requires teacher training
Most of the government’s In India, as many as 54% of the Primary schools (4.17lakh) have only one or two teachers. The
teacher training programs have number of primary schools with three or less teachers is a staggering 71.5% (5.49lakh). Most of
been designed for mono-grade the government’s teacher training programs have been designed for mono-grade teaching
teaching situations situations. Wherever training programs on multi-grade issues have been held, they provide some
learning organisation ideas, but not a comprehensive guideline for teachers who have to teach
the entire curriculum to five classes. A significant 31% of Primary schools in the country have
enrolments less than 60. These schools would have actual student attendance of 40-50 students
only, spread over five classes. The key to effective teaching-learning practice in such schools is
multi-level teaching using group and self-learning materials. There have been several
experiments in the country for such school situations. What is required is systematic work for
appropriate materials and teacher training for ‘small school’ situations.
The issues of teachers’ competence, teaching at Upper Primary levels in subjects like
Mathematics, Science and English needs to be addressed. For the Upper Primary stage, linkage
with Secondary/Higher Secondary schools and good subject teachers could prove useful for
upgrading skills of Upper Primary teachers. In several states and union territories, as part of the
initiatives of the respective governments, a 20 days’ training program is being implemented in a
routine manner.
Most teachers do not have There is a large backlog of teachers who have been recruited, but have not received induction
a pre-service training training. This means that teachers, most of whom do not have a pre-service training qualification
qualification and begin begin teaching in schools without any orientation. In some states, 7-15 days’ training is imparted
teaching in schools without to these new teachers along with regular in-service training of teachers. This is not adequate, as
any orientation the new teachers need a different orientation with an overview of the Primary curriculum,
textbooks and teaching methods. This aspect needs greater attention, since large teacher
recruitments are taking place in several states.
June
January
5, 2008
TM
Education
Thus, the need for teacher training stems from the significant impact it has on the overall quality of
education imparted to students. Not only does capacity need to be created (ie., the sheer number
of teachers needs to be adequate), but the quality of education imparted also has to be monitored,
through teacher training, apart from providing better quality courseware and material and
implementing IT-based education.
Apart from the government- There are approximately five million teachers in India. There is also a requirement of a substantial
provided training, companies number of additional teachers to sustain the growth level in the field of education. All the fresh
like Educomp also provide recruits would have to be imparted induction training and the existing teachers would have to be
professional training to these provided with orientation to upgrade their teaching techniques or re-skill them to impart better
teachers as a part of their joint quality education. Apart from the government-provided training, companies like Educomp also
ventures provide professional training to these teachers as a part of their joint ventures.
Demand for education in regional language
As per the Right to Education Bill 2005, it is the intent of the government to provide education to
children in their mother tongue or the appropriate regional languages. The motivation of the
government is due to the fact that the child would understand instructions easily in his/her mother
tongue and thus, the quality of education would be better. In the computer literacy initiative that is
being undertaken by the state governments, there is a clear mandate to the education companies
to develop and provide the education content in regional languages. 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.
Need for Multimedia-based education in schools
Companies like Educomp and One of the innovative ways to teach students is through the use of multimedia. Multimedia helps
Everonn provide various the child to understand the instructions and courseware better thereby enhancing the quality of
products that enhance the instructions by explaining the content graphically wherever needed. Companies like Educomp
capabilities of teachers and Everonn provide various products that enhance the capabilities of teachers and help students
understand the courseware better, leading to a significant improvement in the quality of education
imparted. Out of the 50,000 private schools in India, 10-12,000 charge a fee of over Rs1,000 per
month per student. These schools are the immediately addressable market for such courseware.
Demand for Post-school mentoring - Hampered by low broadband penetration
Individual children do not get A lot of students to get better quality of education take the help of Post-school mentoring. This
sufficient attention from the need also arises from the fact that individual children do not get sufficient attention from the
school teachers due to the school teachers due to the large class sizes, more specifically in urban areas. The demand for
large class sizes, more post-school mentoring has led to the development of several innovative products such as virtual
specifically in urban areas class rooms and coaching through broadband connections. These products are currently not very
popular, as India has very low penetration of broadband services (a mere 0.32%), which are
necessary to access these products. With the increase of broadband connectivity, the popularity
January
June 5, 2008
TM
Education
of these products is expected to increase. These products are expected to directly compete with
the existing providers of such services, which forms approximately two-thirds of the education
budgets of regular Indian middle class families, 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 The story of the phenomenal growth of India's Mobile Telecommunications Sector is well-known.
subscribers at the end of Mobile subscribers at the end of April 2008 stood at over 264mn, with monthly net additions
April 2008 stood at a mere crossing the 8mn-mark for the last six months in succession. Heightened competition, expansion
4.01mn, implying a broadband of coverage area, a continuous fall in minimum subscription costs and ever-increasing affordability
penetration of a miserable and have been the key factors driving this phenomenal growth. However, in complete contrast to the
pitiable 0.35% Mobile Telephony Sector is the Broadband Sector. The growth of broadband internet access
connections (access speeds in excess of 256kbps) has been pathetic, to say the least. The total
number of broadband subscribers at the end of April 2008 stood at a mere 4.01mn, implying a
broadband penetration of a miserable and pitiable 0.35%.
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, 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. To get an idea about how
much India is lagging on the broadband front, it should be noted that the targeted number of
broadband subscribers by the end of 2007 was nine million, and the figure achieved at the end of
April 2008 was not even half of this target. The target for 2010 is 20mn, implying monthly net adds
of around 0.5mn from May 2008 till end-2010. However, rather than achieving these figures on a
monthly basis, the current quarterly rate of broadband net adds is barely higher than this figure.
Thus, 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.
Poor broadband penetration The poor broadband penetration will prove to be a challenge to the development of various
will prove to be a hindrance to internet-based products of companies like Educomp like Mathguru.com. The focus of these
the development of various products is to bring quality education products at home and being accessible at any time.
internet-based products
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. Major Indian software companies
like TCS and Infosys were the pioneers of the now-famed ‘Global Delivery Model’ (GDM), which
emphasises execution excellence from any part of the globe 24/7, along with a strong focus on
process excellence. 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, forcing incumbents like IBM, Accenture, EDS and CSC to change their business
strategies and move towards this model, or ‘offshoring’ as it is called in popular parlance.
June
January
5, 2008
TM
Education
The Indian IT-ITES Export The Indian IT-ITES Export Sector has grown at a rapid rate over the past few years, hitting a size
Sector has grown at a CAGR of US $40.3bn in FY2008, up from just US $7.7bn in FY2002, recording a CAGR of around 32% in
of 32% during FY2002-08 this period. This has been driven by ever-increasing acceptance of offshoring by global
corporations looking to cut costs and add value to their businesses. In terms of employment, the
Sector employed over 1.6mn personnel in FY2007, up from just 0.52mn in FY2002, recording a
CAGR of over 25%. In FY2008, the Sector is expected to have directly employed nearly two
million personnel, a growth of 23% (3,75,000) over FY2007.
Exhibit 15: Indian IT-ITES revenues and employment - Strong growth

(US$ bn) IT-ITES Exports Direct employment (RHS) (Mn)
45 2.0
36 1.6
27 1.2
18 0.8
9 0.4
0 0.0
FY02 FY03 FY04 FY05 FY06 FY07 FY08
Source: NASSCOM, Angel Research
The Indian IT Training Sector As is well-known, the Software and BPO Sectors are highly people-intensive. Human resources
plays the role of a supplier of are the major ‘raw materials’ that drive growth in these Sectors. Therefore, to grow on a
critical ‘raw materials’ to the sustainable basis, quality manpower is critical for the industry. Thus, it follows that a business that
IT Sector trains personnel for IT careers is also likely to do well if the IT Sector does well. The Indian IT
Training Sector plays the role of a supplier of critical ‘raw materials’ (read human resources) to the
IT Sector. The training industry provides computer literacy to school students, 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.
Indian IT Training Industry Latest figures show that Indian IT Training Industry revenues hit Rs2,135cr in FY2007, up 46%
revenues hit Rs2,135cr in from Rs1,453cr in FY2006 (Source: Dataquest). The growth rate of 46% was also much higher
FY2007, up 46% from than the growth of around 14% recorded in FY2006. Thus, growth has accelerated in the industry,
Rs1,453cr in FY2006 aided by the strong growth of the Indian IT Industry. It should be noted that post the dot com bust,
industry revenues collapsed dramatically, de-growing at a CAGR of nearly 24% over FY2001-04,
with revenues in FY2004 under 45% of FY2001 revenues. However, FY2005 onwards, industry
revenues started picking up again, as the Indian offshoring story started to play out in full
measure.
January
June 5, 2008
TM
Education
Exhibit 16: Indian IT Training Industry - Back on a strong growth path

(Rs cr)
A collapse in industry
3,000 revenues following the dot
com bust Start of the recovery after the dot com
bust, with growth accelerating
significantly in FY07
2,400
1,800
1,200
600
0
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
Source: Dataquest, Angel Research
In terms of revenues, it was NIIT that maintained its position at the top, posting Rs795cr in
revenues in FY2007. This was considerably higher than the second-ranked player, Aptech, which
posted revenues of Rs190cr. However, it should also be noted that NIIT is a diversified company
having a presence in several segments apart from retail, such as government institutional
business, corporate training and newer initiatives like financial services training and management
education. If we take only the revenues pertaining to retail training, the company recorded Rs247cr,
which is still nearly double that of Aptech, which recorded Rs125cr as retail revenues. Even in this,
China and rest of the world revenues are included for both companies. However, given that Aptech’s
marketshare in China stood at over 32%, more than 4x that of NIIT’s marketshare (7.6%), if we
exclude China, NIIT’s retail training revenues are over double those of Aptech. These two players
clearly dominate the market, with the players following them recording much lower revenues.
Exhibit 17: Indian IT Training Market - Dominated by NIIT and Aptech (Rs cr)
Company FY2006 revenues FY2007 revenues
NIIT 450 795
Aptech 121 190
Jetking Infotrain 63 87
Siemens 34 44
CMS Computers 15 23
SQL Star 16 15
MAAC 5 19
New Horizon - 16
Educomp - 28
Source: Dataquest, Angel Research
June
January
5, 2008
TM
Education
As per NASSCOM, there will be a requirement for 2.3mn IT professionals by 2010. There will be a
shortage of quality trained personnel required by the IT Industry of 5,00,000 by that year. This is
even as the country enrolls nearly 10mn students annually in its colleges and institutes of higher
education. A total of 4,95,000 technical graduates, 2.3mn other graduates and over 3,00,000
post-graduates are produced each year from the system.
The total number of Given that the annual requirement of the IT Industry stands in the region of 4,00,000 and that the
graduates passing out from the industry can also recruit science, commerce, arts and other graduates who are certified in IT
system is not a constraint to courses provided by companies like NIIT and Aptech, it is clear that the total number of
growth - it is the quality of graduates passing out from the system is not a constraint to growth. It is the quality of personnel
personnel that requires that requires attention. Around 25% of the total graduates passing out of the system are actually
attention ‘industry-ready’, reflecting the urgent need to create more intimate linkages between academia
and industry. This reflects strong growth potential ahead for the IT Training Industry, given its
ever-increasing relevance for the IT Sector.
Substantial manpower requirements of varied sectors – Significant opportunity
India’s working population As per United Nations (UN) population statistics, India’s population is estimated to touch 1.5bn by
would reach a huge 700mn by 2030, making it the world’s most populous country. India’s working population, defined as people
2030 and account for almost aged between 25 - 59 years, would reach a huge 700mn by 2030 and account for almost half of
half of India’s total population India’s total population. 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, resulting in a greater number of smaller nuclear families. These statistics reflect the likely
strong GDP growth rates expected going ahead.
The phenomenal success story of India’s Software Sector is well-known. To sustain this growth,
as mentioned earlier, there will be a significant requirement for quality manpower at various
levels, from entry-level programmers/coders, middle management level personnel and project
managers right up to senior-level management personnel. Thus, there is a strong growth
opportunity in this space.
However, the Indian IT Sector is currently facing several challenges, which are likely to persist for
some time to come. These include wage inflation, higher attrition rates, a shortage of quality
trained personnel, Rupee appreciation (in spite of the current depreciation on account of record
crude prices), a likely end to the tax holiday under the Software Technology Parks of India (STPI)
scheme post-FY2010 and above all, the current turmoil in the US economy, given as it forms by
far the largest part of most IT companies' businesses. With the recent stunning collapse of Bear
Stearns, the fifth-largest investment bank in the US, comes the clearest sign yet that the US
economy is in trouble and that this pain is unlikely to subside in a hurry. It seems likely at the
moment that more companies may report such losses on their sub-prime exposure, with total
losses estimated in a wide range, from US $285bn (S&P) to US $600bn (UBS). Therefore, going
ahead, uncertainty lurks in the US and this could spell trouble for the Indian IT Industry, leading to
possible slower growth also for the IT Training Industry.
January
June 5, 2008
TM
Education
Manpower needs across Companies like NIIT, in an effort to make a transition from being just IT training companies, are
sectors are fairly substantial, beginning to leverage their knowledge base in IT to expand into talent development in other
including BFSI, Retail, sectors also. Given likely strong GDP growth expected over the next few years, manpower needs
Aviation, Hospitality, Research across sectors are fairly substantial. These include Banking, Financial Services and Insurance
and Development (R&D) and (BFSI), Retail, Aviation, Hospitality, Research and Development (R&D) in sectors like
Telecom Pharmaceutical and Bio-technology and Telecom, apart from IT.
Consequently, to sustain higher GDP growth rates, these sectors, which are part of the broader
Services Sector that has been the cornerstone of India’s growth over the past few years, require
significant numbers of quality personnel. A shortage of manpower in these sectors, apart from IT,
could have serious repercussions on the country’s economic growth and this is a very real threat
that, if not effectively addressed, has the potential to derail the economy.
There is a strong opportunity Thus, there is a strong opportunity for companies involved in training and developing talent for
for companies involved in these industries. Take the Indian BFSI sector for example. There are around 321mn citizens in the
training and developing talent paid work force category in India (Source: IFBI). Out of this, a mere 2.5% are active investors in
for India’s Services Sector equity, either directly or through mutual funds. Majority of the investible surplus goes into banks
and post office deposits. There is huge potential for growth here. Only 32.8% of them hold at least
one insurance policy. Thus, insurance policy penetration is very low. Also, most of the insurance
policies taken are more for tax savings rather than for any scientific evaluation of needs versus
financial situations. Thus, there is significant scope for growth in these industries.
The domestic Retail Banking Driven by strong economic growth, ever-increasing affluence, greater savings, investments and
Market is expected to hit a spending power, the need for financial intermediation has never been more pronounced. The
significant US $16.5bn by 2010 domestic Retail Banking Market is expanding at a rapid rate, with annual revenues expected to hit
a significant US $16.5bn by 2010 (Source: McKinsey study). While the overall Banking industry is
growing at 20%, New Private Sector banks like ICICI Bank, HDFC Bank and Axis Bank are
growing even faster. India's Banking Sector could potentially generate 7.5% of GDP and employ
as many as 1.5mn people going ahead (Source: IFBI), leading to significant manpower needs.
The Insurance Sector is another high growth area. With the entry of private players into the life
insurance business a few years ago, breaking the monopoly of the Life Insurance Corporation of
India (LIC), the market opened up and has since expanded more rapidly. Private players like ICICI
Prudential have grabbed a significant chunk of the incremental marketshare, leading to LIC’s
share rapidly declining. Going ahead, private players are expected to continue to gain marketshare.
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, there is significant scope for growth.
The General Insurance Sector also has many private players like ICICI Lombard and Bajaj Allianz.
This segment is slated to grow to a size of US $7.3bn (Rs29,000cr) this year, an annual growth
rate of 15%. Private Sector players have clocked a strong premium growth of 27%. This growth
coincides with the growing affluence of the Indian middle class and an expansion phase of Indian
June
January
5, 2008
TM
Education
corporations. A growing consumer class, rising insurance awareness, increased investments and
enlarged infrastructure spending provide a strong platform for premium expansion. Foreign
insurance majors are also making a beeline for the Indian insurance market. That is because India
is turning into one of the top markets in Asia. Thus, this sector will also need quality personnel in
several functions like finance, sales, actuaries, customer service, and middle and senior
management, leading to a strong opportunity in training of professionals in this field.
Over the longer-term, India is Further, the growth and development of the Indian financial markets is well-known. Along with
expected to continue on a high strong economic growth, the financial markets have also kept pace, with the introduction of a
growth trajectory, leading to number of new and innovative products like mutual funds, ULIPs, commodities, art and so on.
strong manpower demand for This has significantly increased the choice of options for investors. Over the longer-term, India is
financial market professionals expected to continue on a high growth trajectory, leading to greater affluence and the need for
and for Financial Planners proper financial planning and advice. Given this scenario, there is likely to be strong manpower
demand for financial market professionals and for Financial Planners.
Industries like Hospitality, Aviation and Retail are also likely to witness significant manpower
demand going ahead. Therefore, the opportunity for businesses ‘providing critical raw materials to
India’s Services Sector’ is fairly immense, given the criticality of scarce human resources to the
Indian economy in general and these industries in particular.
Corporate Training Market
The current Education System The current Education System does not address the needs of many industries. Many kinds of soft
does not address the needs of skills (ie., English speaking, computer literacy, financial knowledge and skills) are lacking in the
many industries pass out from these institutions. For this reason, companies in many industries prefer to train
people at the time of induction, get them trained through specialised training institutions or absorb
candidates from institutions that provide such specialised training. NIIT and Everonn provide such
specialised courses to candidates through their short and medium-term courses. In several cases,
the companies use the platform provided by these education companies to provide training to
their fresh recruits as well as existing employees.
Spending on corporate On the other hand, the estimated size of the North American corporate training market is in the
training is expected to rise by region of US $45.9bn, of which delivery services account for the maximum share of the pie of US
7% until 2010, with training $21.6bn, while content development accounts for US $16.3bn. Going ahead, spending on
outsourcing expected to grow corporate training is expected to rise by around 7% per annum until 2010 (Source: IDC), with
by nearly 25% over the same training outsourcing expected to grow by a considerably faster rate of nearly 25% per annum over
period the same period. Thus, there exists good scope for growth in this business, which is relevant for
NIIT, given that it derives most of its corporate business revenues from the US.
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, there is an ever-increasing need for skilled, English-speaking
human resources. India has one of the largest English-speaking workforces. However, it should
January
June 5, 2008
TM
Education
The estimated market size for be noted that often, fluency in English is an issue. This is particularly a problem in industries like
English language training is BPO, which require extensive interaction with customers of foreign corporations. Consequently,
around 10.5mn students and in as is the case in industries like IT, the problem is not of quantity but of quality. This has led to a
revenue terms, this is expected significant addressable market for English language training. The estimated market size is around
to hit Rs800cr in three years 10.5mn students. Companies like NIIT and Everonn are attempting to tap this growing market
through their innovative products. NIIT has estimated a market size of around Rs800cr in three
years and expects to capture around 10% of the market.
Conclusion
With the strong growth expected in the Indian economy going ahead, it is clear that human
resources will be the key competitive advantage that the country has to sustain this robust growth.
Thus, 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. With the Government showing a clear
willingness to engage the private sector in accomplishing the daunting task of educating India's
13.5cr students, there are thus significant opportunities to tap for companies like Educomp
Solutions, Everonn Systems India and NIIT Limited, both in the Government schools and Private
schools businesses. With burgeoning demand for skilled human resources also in sectors like
Financial Services, there exist significant opportunities for growth in the Corporate Training
business as well. 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, are enthused about the growth
prospects of companies serving this space.
June
January
5, 2008
TM
Angel Broking
Education
Companies
January
June 5, 2008
TM
Angel Broking JainSolutions
Educomp Irrigation
Initiating Coverage
BUY The ‘Star’ at Pole Position

Educomp Solutions, the fastest-growing education solutions company in India, is a leader in
Price Rs3,496
providing end-to end solutions to government and private schools. The company now has
Target Price Rs4,051
plans to venture into new businesses of education, organically as well as inorganically in its
Investment Period 12 Months attempt to increase its addressable market and have a presence in new geographies. On the
back of these initiatives we estimate the company's Top-line and Bottom-line to grow at CAGRs
Stock Info of 76% and 67% over FY2008-10E, respectively. We Initiate Coverage on the stock, with a
Sector Education Buy recommendation and DCF-based Target Price of Rs4,051.
Market Cap (Rs cr) 6,041 Leader in SmartClass, ICT Segments: Educomp has embarked on strong growth path
owing to its leadership position and bright prospects of its key business segments. At the end
Beta 1.05
of FY2008, Educomp had 933 private schools under its coverage, with an addressable
52 Week High / Low 5,650/1,706 market of 12,000 schools for its SmartClass business. We expect Educomp's SmartClass
revenues to grow at a CAGR of 70% over FY2008-10E. The Instruction and Computing
Avg Daily Volume 79481
Technologies (ICT) segment is the second-largest contributor to its overall revenues. Around
Face Value (Rs) 10 6,000 government schools were serviced by the company's ICT business at the end of FY2008,
which is the largest count in this segment v/s competitors . With an addressable market of
BSE Sensex 15,770
9,50,000 schools, the growth potential is substantial for Educomp and its peers.
Well-developed content: Strong content development is the backbone of Educomp's
Nifty 4,677
product offerings. The company currently has a team of 400 professionals working on the
development and improvement of content. Apart from this, the company also has entered into
BSE Code 532696 a tie-up with Discovery and Eureka for providing multimedia content for education. It currently
has a library of content for children from grade 6-12 mostly for Mathematics and Sciences.
NSE Code EDUCOMP Educomp has over 16,000 modules of content, in over 1,00,000 pages and 10 languages.
Reuters Code EDSO.BO Strong sales team: Educomp has a strong sales team of 120 people and is planning to
Bloomberg Code EDSL IN increase it to 170 people by the end of FY2009. A strong sales team results in good
conversion of prospective clients. Educomp has so far achieved it sales targets due to its
aggressive sales team apart from its strong content development capabilities. This will
Shareholding Pattern (%)
enable the company to achieve 70% CAGR in its SmartClass business.
Promoters 56.0
Key Financials
MF / Banks / Indian FIs 2.6
Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E
FII / NRIs / OCBs 33.0 Net Sales 106.6 262.1 483.8 811.2
% chg 103.8 145.9 84.6 67.7
Indian Public / Others 8.4
EBITDA Margin (%) 47.0 47.6 48.1 48.3
Net Profit 28.7 70.1 117.9 196.5
Abs. 3m 1yr 3yr* % chg 105.8 144.5 68.3 66.7
Sensex (%) (4.7) 8.5 68.2 Diluted EPS (Rs) 17.9 35.2 68.4 113.9
P/E (x) 204 103.9 53.4 32.1
Educomp (%) (9.9) 88.7 1,125.1
RoE (%) 25.0 21.8 27.0 31.2
* Since listing on January 13, 2006
RoCE (%) 22.7 21.9 26.1 30.4
Sulabh Agrawal
P/BV (x) 54.9 19.6 14.4 10.0
Tel: 022 - 4040 3800 Ext: 346 EV/Sales (x) 58.4 23.7 12.9 7.7
E-mail: sulabh.agrawal@angeltrade.com EV/EBITDA (x) 124.2 49.9 26.7 15.9
Source: Company, Angel Research
June
January
5, 2008
TM
Angel Broking Educomp Solutions
Education
Company Background
Educomp Solutions, incorporated in 1994, has grown to become one of the largest
technology-driven innovative education companies in India. With an employee base of over 3,000
professionals, Educomp currently serves approximately 6mn learners and educators across India,
USA and Singapore. Educomp has 11 offices in India, 1 each in the US, Canada, Sri Lanka and
Singapore. The company has a sales presence in over 57 locations. Educomp works closely with
schools to implement innovative models to create and deliver content to enhance student learning
experience. The company went public on January 13, 2006, with an Issue price of Rs125 per
share and a total Issue size of 40lakh shares.
Educomp is India’s leading Educomp is India's leading Kindergarten to class 12 (K-12) Education Company and has, over the
K-12 Education Company years, pioneered various initiatives in the e-education space. Notable among them are the
'teacher-led' content system called SmartClass that has dramatically improved learning
effectiveness in classrooms, development of India's largest K-12 content library, with over 15,000
modules of rich 3D content that is aligned to Indian as well as international learning standards,
India's first structured pre-school learning system, Roots 2 Wings, online learning initiatives like
mathguru.com and pioneering Education Process Outsourcing in India through the Learning Hour
platform, which has emerged as a benchmark for many similar initiatives.
The current client base of PPP Educomp has a track record of implementing large-scale Public-Private-Partnership (PPP) projects.
projects is over 6,000 schools The company works closely with various State and Central Government agencies, the IT and HRD
including large projects from Ministries and the governments of other countries. These educational programs also involve
state governments across-the-board education infrastructure implementation, teacher training and content
development projects. The current client base of PPP projects is over 6,000 schools including
large projects from the governments of Assam, Chattisgarh, Orissa, Karnataka, Uttar Pradesh,
Tripura, Gujarat, and West Bengal. Educomp today works with over 7,000 schools across India,
the US and Singapore. In the US, the company's presence is via its fully owned subsidiary, Edumatics
Corporation, based in Ventura, California.
Business Overview
SmartClass (Private schools)
SmartClass, a private schools initiative, accounts for the largest part of Educomp's revenue pie,
with approximately half the of revenues during FY2008 coming from this business. Educomp is the
leader in this segment. This business entails providing multimedia-based education (primarily for
Mathematics and Sciences) and infrastructure to children of the contracted private schools. Educomp
provides the schools computers, LAN networking and Plasma screens for the classrooms, with the
intent of replacing the blackboard to a large extent. After the hardware is installed, the content for
teaching the children is provided to the schools and teachers are trained to use the hardware and
content. Educomp has managed to create one of the largest content libraries in this field, with
approximately 400 content developers currently working on developing this content and around
January
June 5, 2008
TM
Education
16,000 modules of content being available. This content is available in a variety of regional
languages as well.
Around 10-12,000 schools Currently, there are approximately 50,000 private schools in India. Out of these, about 10-12,000
charge fees of over Rs1,000 per charge fees of over Rs1,000 per month per student. Such schools make up the immediate
month per student, which make addressable market for Educomp. At the end of FY2008, Educomp was providing services to 933
up the immediate addressable private schools. All the company's contracts with the schools are unique and normally operate
market for Educomp under the Build-Own-Operate-Transfer (BOOT) method over an average period of five years. The
infrastructure is either purchased by the school directly or provided by Educomp, which amortises
it over the period of the contract as per the terms of the contract. At the end of the contract, the
infrastructure is transferred to the schools and the content is withdrawn as Educomp holds the
copyrights for the same. However, the school has the option to renew the contract and continue to
use the content.
Educomp provides content on subjects like Mathematics, Science, English, History and
Geography to schools from primary to secondary levels (K-12). The students move through the
various classes and learn new topics in various subjects across the grades. This has been
visually presented below in Exhibit 1.
Exhibit 1: Progress through the grades
June
January
5, 2008
TM
Education
The students used to these methods of studying would appreciate the ease of learning that they
provide. It can thus be seen that Educomp's revenues have strong visibility, stability and
predictability, given their recurring nature. We believe that going ahead, even after the expiry of
the contracts with the schools, given the execution excellence shown by Educomp and its strong
content library, the contracts are more likely than not to be renewed.
Exhibit 2: SmartClass - Revenue Profile

FY2007 FY2008 FY2009E FY2010E
Number of SmartClass schools 331 933 1,700 2,700
YoY Growth (%) 264 182 82 59
Students per class 45 45 45 45
Classes per school 15 19 24 27
Revenue per student (Rs per month) 175 150 145 140
Revenue per class (Rs per month) 12,265 8,868 6,525 6,300
Revenue per school (Rs per month) 1,83,976 1,68,489 1,56,600 1,70,100
Annual revenue per school 22,07,716 20,21,867 18,79,200 20,41,200
Total SmartClass Revenue (Rs cr) 46.6 127.8 247.4 449.1
YoY Growth (%) 126 174 94 82
As % of total revenue 49 49 51 55
EBIT Margin (%) 58 50 50
EBIT (Rs cr) 74.1 123.7 224.5
SmartClass revenues Educomp had tie-ups with 933 private schools in its SmartClass business at the end of FY2008.
accounted for 49% of total With approximately 45 students per class and an average of 19 classes per school, SmartClass
revenues in the period FY2008 revenues for FY2007 stood at Rs127.8cr. SmartClass revenues during FY2008 stood at Rs127.8cr
and accounted for 49% of total revenues. The average number of classes per school is
increasing, as programs are being implemented in larger schools. This is expected to increase the
revenue per school going ahead. Educomp currently charges Rs150 per student per month for
providing its services. We estimate SmartClass revenues to hit Rs247cr in FY2009E. We expect
Educomp to grow its SmartClass revenues at an outstanding CAGR of 87% over FY2008-10E.
The SmartClass business would be primarily driven by strong sales initiatives, superior quality of
content and a huge addressable market. 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. It clearly reflects the good quality of education being imparted by SmartClass.
January
June 5, 2008
TM
Education
The SmartClass business The SmartClass business clocks EBIT Margins of approximately 58%. A large part of the
clocks EBIT Margins of expenses are towards content development. Pertinently, with content being homogenous across
approximately 58% schools, content development costs per school would reduce as more schools get added. Such
operating leverage we believe will improve Margins going ahead. However, 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.
Exhibit 3: Growth of SmartClass business

Nos. (%)
Number of Smart class schools Growth (RHS)
3,200 300
240
2,400
180
1,600
120
800
60
0 0
FY2007 FY2008 FY2009E FY2010E
ICT (Government schools)
ICT is Educomp's initiative at getting government schools under its fold. The state governments
typically float tenders for a certain number of schools to provide infrastructure and content to the
students of those schools. These contracts are procured through competitive bidding and are on
a BOOT basis. Post bagging the contract, it normally takes 40-45 days to set up the infrastructure
and start providing the training at these schools. At the end of the contract, the ownership of
infrastructure shifts to the respective school. Thereafter, the state government has the option to
renew the contract for providing the remaining education services to the schools.
Educomp currently has Educomp currently has partnerships with 10 state governments and provides content in ten
partnerships with 10 state different regional languages. The company has developed extensive content for this business
governments and provides and provides instructions and content in regional languages wherever stipulated by the contract.
content in ten different regional It also provides IT education and infrastructure to the government schools along with providing
languages full-time instructors at the school. Educomp provides multi-media education software and
courseware to the students in regional languages.
June
January
5, 2008
TM
Education
This business segment is the second-largest contributor to the company's overall revenues. ICT
accounted for 36% of Educomp's FY2008 revenues. Educomp provided services to over 6,000
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 29,000 schools for tendering in
FY2009. Further, with 9,50,000 existing government schools in India, 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.
Exhibit 4: ICT - Revenue Profile

FY2007 FY2008 FY2009E FY2010E
Number of ICT schools 2,808 6,004 12,000 18,500
YoY Growth (%) 358 114 100 54
Revenue per school (Rs per month) 14,699 17,651 16,500 15,500
Revenue per school (Rs per year) 1,76,390 2,11,813 1,98,000 1,86,000
Total ICT Revenue (Rs cr) 30.2 93.3 178.2 283.7
YoY Growth (%) 90 209 91 59
EBIT (Rs cr) 27.3 49.9 79.4
There are 9.5lakh government At the end of FY2008, Educomp was providing services to 6004 government schools. The
schools in India, of which just average revenue realisation per school was Rs2,11,813 per year. However, we believe going
3% have included ICT and ahead, the average realisation per school per annum would decline as this business is procured
equivalent programs in their through competitive bidding via tenders and the lowest-cost bidder generally wins the contract.
curriculum Nonetheless, 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. Till date, approximately 30,000 schools have
been included in the ICT comparative programs. The total number of government schools in India
are approximately 9,50,000, of which a mere 3% have included ICT and equivalent programs in
their curriculum. As for Educomp, it is the leader in ICT and education, has considerable
experience in the competitive bidding process and has developed regional content as required by
state governments. Thus, we expect it to achieve high growth over the next few years.
On a conservative basis, we estimate this business to record a CAGR of 74% in Top-line over
FY2008-10E. EBIT Margins stood at 29% in FY2008. We expect Educomp to maintain its Margins
in this business, given that the market potential is substantial and the players would not need to
undercut each other to increase their business. Further, with Educomp being the largest player, it
enjoys a competitive edge apart from being the most profitable player in the business.
January
June 5, 2008
TM
Education
Exhibit 5: Growth of ICT business

Nos. (%)
Number of ICT schools Growth (RHS)
20,000 400
18,000
16,000 320
14,000
12,000 240
10,000
8,000 160
6,000
4,000 80
2,000
0 0
FY2007 FY2008 FY2009E FY2010E
Professional Development (Teacher Training)
Educomp has tied up with three companies (computer manufacturer, software and chip) namely
Intel, Microsoft and Wipro. These tie-ups are towards providing training and upgrading the skills of
the teachers in India. There are approximately five million teachers in India and a majority of them
lack the training to teach. Hence, Educomp, through its Teacher Training initiative, provides the
required training to the teachers apart from refurbishing their skills. The teachers have to undergo
training over a two-week period. Educomp's partners in the business compensate it for providing
this service. Educomp is currently the largest teachers' trainer in India having trained over 3,00,000
teachers during FY2008. This business contributed around 10% to the company's total revenues
during FY2008.
Exhibit 6: Professional Development

FY2007 FY2008 FY2009E FY2010E
Total number of teachers trained 1,10,000 3,05,570 3,81,963 4,58,355
YoY Growth (%) 47 178 25 20
Revenue for training each teacher (Rs) 1595 839 800 800
Total Prof. Development Revenue (Rs cr) 17.5 25.6 30.6 36.7
YoY Growth (%) 43 46 19 20
EBIT (Rs cr) 15.7 17.7 20.9
June
January
5, 2008
TM
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. Teachers' training earns approximately 61% EBIT Margins for Educomp. We
estimate revenues from Professional training to grow at a CAGR of 20% over FY2008-10E.
Retail Tutoring and websites - Limited by low broadband penetration
Mathguru.com is an online A major part of the expense connected to education for a middle class Indian family is money
portal for mathematics and spent on individual coaching of children. To tap this market, Educomp has set up two websites
guides on NCERT books study viz., 'mathguru.com' and 'learninghour.com', which caters to the students' needs after school.
for grade 6 to 12 students Mathguru.com is an online portal for Mathematics and guides on NCERT books study for grade 6
to 12 students. Learninghour.com provides retail online tutoring to children in India, the US and the
Middle East on all curricular subjects and tests preps with services. The websites can be
accessed by subscribing to them. The charges for mathguru.com are approximately Rs1,800 per
student per annum. Broadband web connection is a vital and limiting factor to access these
web-sites. Currently, broadband penetration is very low (0.35%) in the country. However, in
Budget 2008-09, customs duty on import of equipment for providing broadband services has been
lifted, which we believe will lower the costs of setting up infrastructure for providing these services.
This would in turn help increase the penetration of internet services and lend a boost to
subscriptions of web-based learning portals.
Exhibit 7: Web-based Retail Tutoring and Subscriptions

FY2008 FY2009E FY2010E
Subscriptions 85,339 1,53,610 2,61,137
YoY Growth (%) 0 80 70
Revenue per subscription (Rs) 1,800 1,800 1,600
Total Subscription Revenues (Rs cr) 15.4 27.6 41.8
YoY Growth (%) 0 80 51
As % of total revenue 6 6 5
EBIT (Rs cr) 8.7 12.4 15.0
Approximately 33% of the Approximately 33% of the monthly income of the 300mn-strong Indian middle class is spent on the
monthly income of the education of their children. One-third of this amount is spent on school education while the
300mn-strong Indian middle balance two-thirds is spent outside the school for private tutoring. Educomp is accessing this
class is spent on the education market through its retail tutoring initiatives. This product would have an advantage over private
of their children coaching, as it would be available 24 hours a day as per the convenience of the individual student.
The student would not have to leave his/her home as well and travel to receive the coaching.
Educomp has a strong content development team that designs content for these websites. We
believe that with higher internet and broadband access and penetration in India, the market for
portals like mathguru.com would increase. We estimate that revenues from this product would
grow at a strong 65% CAGR over FY2008-10E even as EBIT Margins decline marginally.
January
June 5, 2008
TM
Education
New Business prospects
The Budget for FY2008-09 has provided Rs650cr for setting up of 6,000 high-tech government
schools. Details are awaited, but we believe that companies like Educomp would be the prime
service providers to these high-tech schools. Also, 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.
Educomp provides consultancy to schools with respect to general management and designing
and providing courseware. It has developed 40 books, which provide better understanding to
children about their courseware and helps them in improving their academic performance. Educomp
is also in the process of setting up 100 new schools in the next 2-3 years. It has already set 3
schools and admissions are in progress in 2 more schools. These schools have a total student
population of 6,000 students. These schools would either be owned by Educomp or by joint ven-
ture (JV) partners and would be entirely managed by Educomp.
Own School business ('Roots 2 Wings', 'Millennium Schools')
In this business format, Educomp owns and manages the schools. Roots 2 Wings are
neighborhood schools for kindergarten-aged children. Millennium Schools are brick-and-mortar
schools that educate children right from kindergarten to Grade 12 (K-12) at the school level. The
company expects to have (own or manage) 25 schools by the end of FY2009 and 100 such
schools by FY2010.
These schools would be managed and/or owned by two subsidiaries viz., Educomp Infrastructure
(EI) and Educomp School Management Limited (ESML). Educomp holds 75% stake in both the
companies. EI would own the building and infrastructure of the schools while ESML will provide
the services to the schools. Educomp has entered into tie-ups with DLF, Ansal and several other
smaller builders for setting up 60 schools in the Millennium School format, 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. Management and maintenance would be handled by Educomp.
In these cases, EI would not come into the picture.
The schools would be set up and expanded in three phases. In the first phase, school classes
from Kindergarten to Grade 7 would be set up. In the second phase, classes would be extended
upto Grade 10, and upto Grade 12 in the third phase. Full strength of these schools is expected to
be 2,500 students per school post completion of all the three phases. The schools would be
charging fees of approximately Rs35-40,000 per student per year and a one-time admission fee of
about Rs35,000. We have currently not built in revenues and profits from this business into our
projections.
JV with China-based Raffles
Educomp has entered into a 50:50 JV with Raffles which is a leading education services provider
in China. China is world's second largest education market by number of school aged student after
June
January
5, 2008
TM
Education
India. The JV would be used to sell entire range of Educomp's products to K12 students. Through
this JV, Educomp would be able to reach over one million Chinese schools, thus enhancing the
addressable market size tremendously. Further the JV would bring to India the entire range of
Raffles professional development programs and courses. This would provide a meaningful
education alternative to student graduating from high schools in India. Under the terms of the JV,
the existing Raffles Design Institute in Mumbai will be merged into the JV operations. We have not
factored in the revenue and profit resulting from this JV as it is in a very nascent stage of
development.
Export of services and content
Exports account for Under the SmartClass business, Educomp also sells content and services to schools in foreign
approximately 10% of countries (mainly in the US and Middle East). This segment accounts for approximately 10% of
Educomp’s overall revenues Educomp's overall revenue and profits. Educomp is also on the look-out for opportunities in other
and profits geographies to expand its market. Generally, education content is similar across countries and
has to be modified slightly to make it adaptable to the respective students. Thus, 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. Educomp has
considerable expertise in the development of content and selling to new customers across various
regions. We believe the company has strong potential for growth for export of its content to
existing and new destinations.
Tutoring Business
Educomp is planning to launch tutoring business through ThreeBrix. In this business, Educomp
would be providing its SmartClass content to students through its leased centers. 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. The estimated market size for this
product is Rs530cr. As this business would be run through leased centers, the capex requirement
would be low. Currently Educomp is testing this product and we have not factored this business
into our model.
Strategic acquisitions
Educomp is making several strategic acquisitions to broaden its product offerings and
geographical reach thereby increasing its addressable market size. The company has acquired
four companies in the recent past.
Educomp acquired 76% stake Educomp acquired 76% stake in ThreeBrix, which is a domestic home tutoring company. It owns
in ThreeBrix, which is a the online tutoring portal called The Learning Hour and Threebrix.com, which is expected to
domestic home tutoring strengthen the company's online tutoring platform. The Learning Hour is India's first tutoring
company web-site to have full audio-video conferencing along with standard tutoring whiteboard
functionality. The portal is used by school students in the Middle East and helps school students
with test preparation and application assistance.
January
June 5, 2008
TM
Education
Educomp also acquired a 51% strategic stake in AuthorGen Technologies Pvt. Ltd, which has
helped consolidate its position in online tutoring with access to key technology competence,
student-teacher marketplace models, and Web 2.0 platforms for online learning. Their leading
portal wiziq.com connects students and teachers from around the world with capabilities to run on
any web browser and on any operating system. Educomp has also acquired a 70% stake in
Toronto-based Savvica, which owns the website savvica.com. Savvica is an education technology
company that aims to improve education through lowering barriers to entry into online teaching
and learning.
In the Asia-Pacific (APAC) region, Educomp recently acquired the Singapore-based ASKnLearn
Inc. ASKnLearn is a premier pan-Asian provider of education solutions and services that caters to
over 120 educational institutions in Singapore, China, Thailand, Japan and Brunei.
It has also recently acquired 51% stake in Learning.com for which it has paid US $24.5mn.
Learning.com currently has access to 2 million students spread across 800 school districts in US.
This acquisition gives Educomp a presence in US, which is the largest education market in the
world by value.
While we have not factored these acquisitions into our assumptions, we believe these
acquisitions will help Educomp increase its addressable market size, apart from expanding its
geographical presence and client base.
June
January
5, 2008
TM
Education
Investment Arguments
Leadership position in the SmartClass and ICT businesses
Educomp enjoys leadership position in its flagship business, SmartClass. It extended its services
to 933 private schools at the end of FY2008 under this business segment and has an addressable
market of approximately 12,000 schools. Educomp is also a leader in the ICT business and
provides services to 6,000 government schools, which is the largest count in this segment
vis-à-vis competitors like Everonn and NIIT. With an addressable market of 9,50,000 schools,
business prospects of this segment are strong. Educomp also leads in the Professional
development for teachers, which has a potential market size of 5mn teachers. This leadership
position and abundant availability of new business in the target segments point to strong growth
prospects for Educomp.
Well-developed content and initiatives to develop it further
Educomp lays stress on good quality content development. The company currently has a team of
400 professionals working on development and improvement of content. It also has a library of
content for children from grades 6 - 12 mostly for Mathematics and Sciences. Educomp has over
16,000 modules of content or over 1,00,000 pages in 10 languages. Remarkably, children of the
SmartClass program have shown an improvement in marks achieved in examinations, which
adequately justifies the good quality of education imparted.
This is homogenous content and can be used for teaching children anywhere in the world, with
minor modifications. we believe that developing such comprehensive and quality content would
be quite difficult for competition and would act as an entry barrier. Thus, well-developed content
development is the backbone of Educomp's product offerings.
New business of Internet-based education expected to record robust growth
The new business of retailing through the internet has strong business potential, as almost
two-thirds of the education spending by an average Indian middle class family is in the space of
post-school mentoring, with which this product is competing. We believe that acceptability of this
product would increase as penetration of broadband services increase in India.
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. Customs duty on broadband service providing
equipment has been removed. This would result in broadband becoming cheaper and thus
increase access to these products. Thus, there exists immense potential for Educomp to increase
the subscriber base of its education portals in turn recording strong growth in revenues and
profitability.
January
June 5, 2008
TM
Education
Strong sales team
Educomp has a large sales team that is regularly beefed up by fresh recruitments. Its strong sales
team has been successful in achieving high levels of conversion of prospective clients.
Growth through organic as well as inorganic routes: Educomp is taking several initiatives to
expand its product offerings. The company recently launched its websites for retail tutoring of
children. It is also planning to open brick-and-mortar schools through joint ventures. Apart from
this, it is also making acquisitions to gain access to new businesses and customer bases. Thus,
Educomp is taking several strategic initiatives to increase its business opportunities in the space
of Education.
Strategic acquisitions: Educomp is making several strategic acquisitions to broaden its product
offerings and geographical reach thereby increasing its addressable market size. The company
has acquired stake in four companies and entered into a JV with Raffles in the recent past.
Strong growth aided by government initiatives, 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, and higher
spending by the Indian middle class on education. On its part, the government is laying emphasis
on improving literacy levels by enhancing the reach and quality of education. It has been
constantly increasing its Budget allocation on Education apart from imposing a cess on Income
Tax to provide for such increased allocations. 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. Thus, assuming that the government
continues to increase its allocation on education and Indians strive to provide better education to
their children, Educomp's revenues are expected to continue to grow at a strong pace going
ahead.
Exhibit 8: Revenue and Revenue Growth

(Rs cr) (%)
Revenue Growth (RHS)
960 150
720 125
480 100
240 75
0 50
FY2007 FY2008 FY2009E FY2010E
June
January
5, 2008
TM
Education
Concerns
Execution risks: Educomp is in a phase of exponential growth. However, any delays in

implementation of its contracts would result in loss of revenue, profitability and the faith enjoyed by
its customers. This would have consequences on the future growth and profitability of the
company, leading to a possible downgrade in the premium valuations currently being enjoyed by it
on the bourses.
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. We have
assumed that these contracts would be renewed as and when they expire for providing services to
these schools. Non-renewal of these contracts would erode future revenues and profits and
consequently, reduce revenue and profit growth.
High debtor days: Educomp generally raises its bills to Government schools at the end of each
quarter. Bills to Private schools are also raised on a quarterly basis. The bills raised for
Government schools take a longer time to be cleared. Hence, the total number of debtor days was
high at approximately 160 days at the end of FY2008. We expect the number of debtor days to
reduce due to a change in product mix, along with a fall in the proportion of revenues from the
Government schools business.
Change in government’s outlook towards Education: We have assumed future growth based
on current growth patterns and visibility of addressable markets. A large part of Educomp's r
evenue is derived from government schools. Any change in the Government's policies towards
education in India may have serious repercussions on Educomp's business.
Lack of growth in broadband connectivity: India has low broadband penetration (a mere 0.35%).
We expect it to grow faster going ahead due to removal of customs duty on import of equipment
for providing internet services. We believe that failure to increase broadband penetration would
have negative consequences for Educomp, leading to slower growth.
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. If the
company is unable to raise these funds to meet its capital requirements, it may impact its
expansion plans adversely.
Financials
Robust Top-line growth: In FY2008, Educomp recorded a robust Top-line growth of 146% to
Rs262.1cr (Rs106.6cr). Going ahead, we estimate Educomp to clock a strong CAGR growth of
76% in Revenues over FY2008-10E. This growth will be driven primarily by strong sales, large
addressable market, strong existing product line and innovative new products. The reduction in
our estimated growth rate is primarily due to the base effect. We believe the company's
acquisitions strategy to increase its target market will also go a long way in enhancing its Top-line.
January
June 5, 2008
TM
Education
Pertinently, we have not factored in Revenues and Earnings from the company's Millennium Schools,
Roots 2 Wings, ThreeBrix and Raffles initiatives. However the success of these products and JV's
would provide an additional upside to our estimates.
Margins sustainable over long-term: Educomp has a healthy revenue mix in terms of the
proportion of its various products in total revenue. Its SmartClass business enjoys 58% EBIT,
Professional Development has 61% EBIT and Retail (Tutoring and subscription) has 56% EBIT.
Compared to this, its ICT business enjoys 29% Margin, which though relatively low compared to
its other products, is still quite good. Educomp has a mild shift in product mix towards its Smart
class from its ICT business. We believe that with the shift in product mix towards SmartClass, 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. The blended EBIT margin of the
company after factoring in the unallocated expenses is 41%. However, we have conservatively
estimated EBIT Margins to reduce to around 36% over FY2008-10E.
Exhibit 9: EBIT Margins

(Rs cr) (%)
EBIT EBIT Margin (RHS)
360 50.0
270 45.0
180 40.0
90 35.0
0 30.0
FY2007 FY2008 FY2009E FY2010E
Bottom-line to grow at a scorching pace: Educomp registered a strong 106% and 144% yoy
growth in Bottom-line amounting to Rs28.7cr. and Rs70.1cr. FY2008, during FY2007 and FY2008,
respectively. We have conservatively estimated Educomp's bottom-line to grow at a CAGR of
67% over FY2008-10E. 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.
June
January
5, 2008
TM
Education
Exhibit 10: Net profit and Profit growth

(Rs cr) Net profit Profit growth (RHS) (%)
240 180
144
160
108
72
80
36
0 0
FY2007 FY2008 FY2009E FY2010E
Capital Raising Initiatives
FCCB Issue: Educomp issued FCCBs amounting to US $80mn in FY2008. We expect the
conversion option to be fully exercised. The Bonds would mature and would be fully convertible
upto July 2012. The conversion ratio is 13.8076 shares for every US $1,000 amounting to a total
dilution of 1.1lakh shares and conversion value is approximately Rs2,900 per share assuming US
$1 = Rs40. We are assuming full conversion of the issue and are building it into our model as fully
converted FY2009 onwards.
GDR issue: Educomp recently announced that it would be raising US$250mn through GDR
issue. This amounts to Rs1,000cr assuming US$1 = Rs40. Information on pricing, usage of
proceeds and other details of the issue are still awaited. This would provide Educomp with cash to
manage its capital need for new products like Millennium Schools and Roots 2 Wings, apart from
expansion of its SmartClass and ICT products. 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.
January
June 5, 2008
TM
Education
Outlook and Valuation
India has a population of over 110cr, with a student population of a massive 13.5cr, the largest in
the world. The total population grows by 1% (1cr) every year and as a result, the student
population is also increasing by the same amount. India has a poor literacy rate and to counter
this, the Government has embarked upon an ambitious drive to improve quality and accessibility
through the Public-Private Partnership route. Educomp, with its SmartClass, ICT and
Professional Development for Teachers products is the front-runner in the education industry,
well-positioned to leverage the growth opportunity and would remain the fastest-growing
company in this space.
Given the likelihood of Educomp generating strong free cash flows going ahead, we believe that
DCF is the best way of capturing this growth. Our model captures most of the concerns present in
the market. We have arrived at a DCF-based fair value for the company of Rs4,051. Thus, we
Initiate Coverage on Educomp Solutions with a ‘Buy’ recommendation. We have applied a
weighted average cost of capital (WACC) of 13% and assumed a Terminal growth rate of 6%. The
6% growth rate is deserved by Educomp due to the high growth orbit in which the company is
present.
June
January
5, 2008
TM
Education
Exhibit 11: Discounted Cash Flow Model

Projected Cash Flow (Rs cr)
Y/ E March (Rs cr) FY08 FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E Terminal
EBIT 107 176 294 459 619 805 1,014 1,237 1,472 1,707 1,878
Growth rate 132 65 66 56 35 30 26 22 19 16 10 6.0
Less: Tax (33) (58) (97) (151) (204) (265) (334) (407) (485) (562) (619)
% tax rate (30.8) (32.9) (32.9) (32.9) (32.9) (32.9) (32.9) (32.9) (32.9) (32.9) (32.9)
Operating Cashflow 74 118 197 308 415 539 680 829 987 1,145 1,259
Add: Depreciation 32 71 113 170 211 215 239 260 277 310 345
Gross Cashflow 107 190 310 478 626 754 919 1,089 1,263 1,455 1,604
Less: Change in Net wkg. cap. (62) (87) (101) (131) (120) (126) (131) (136) (141) (146) (148)
% chg 199 41.4 15.5 29.6 (8.6) 5.0 4.0 4.0 4.0 3.0 2.0
Less: Capex (69) (190) (207) (213) (204) (209) (213) (217) (221) (226) (230)
% chg 6 173.8 9.0 3.3 (4.2) 2.0 2.0 2.0 2.0 2.0 2.0
Free cashflow to the firm (FCFF) (25) (87) 2 133 301 420 575 736 901 1,084 1,226
0 1 2 3 4 5 6 7 8 9 10
Discounted FCFF (25) (77) 2 91 182 223 269 304 328 347 346
Terminal value 4,909
Risk-free rate 8.25 Sensitivity Analysis

Risk Premium 5.00 WACC Terminal Growth Rate
Beta for the stock 1.05 4,051 3.0 4.0 5.0 6.0 7.0 8.0 9.0
Cost of Equity 13.5 10.5 5,077 5,675 6,491 7,671 9,531 12,893 20,814
11.5 4,284 4,705 5,256 6,008 7,097 8,812 11,912
Cost of Debt 10.0
12.5 3,669 3,976 4,364 4,873 5,567 6,571 8,153
Debt 18
13.5 3,180 3,409 3,692 4,051 4,521 5,162 6,089
Equity 6,300
14.5 2,784 2,959 3,170 3,432 3,763 4,197 4,790
Tax rate 0.3
15.5 2,458 2,594 2,755 2,951 3,193 3,499 3,900
WACC 13.5
16.5 2,186 2,292 2,418 2,567 2,748 2,972 3,256
Enterprise Value 6,925
Less: Debt 18
Add: Cash 96
DCF value of equity 7,003
No. of equity shares 1.73
DCF value/ share 4,051
Source: Company; Angel Research
January
June 5, 2008
TM
Education
Profit and Loss Account Rs crore Balance Sheet Rs crore

Y/E March FY2007 FY2008 FY2009E FY2010E Y/E March FY2007 FY2008E FY2009E FY2010E
Net sales 106.6 262.1 483.8 811.2 SOURCES OF FUNDS
% chg 103.8 145.9 84.6 67.7 Equity Share Capital 16.0 17.3 17.3 17.3
Reserves& Surplus 103.9 309.0 424.2 618.0
Total Expenditure 56.5 137.3 251.1 419.7
Shareholders Funds 119.9 326.4 441.5 635.3
EBITDA 50.1 124.8 232.7 391.5 Total Loans 17.5 17.5 17.5 17.5
(% of Net Sales) 47.0 47.6 48.1 48.3 Deffered Tax Liability 5.7 5.7 5.7 5.7
Total Liabilities 143.1 349.6 464.8 658.5
Depreciation & Amortization 9.4 32.3 71.2 112.6
APPLICATION OF FUNDS
Interest 1.3 4.2 0.5 0.5 Gross Block 93.6 170.4 360.0 566.5
Other Income 5.6 14.8 15.0 15.0 Less: Acc. Depreciation 21.8 54.1 125.4 238.0
Net Block 71.8 116.3 234.6 328.5
PBT 45.0 103.1 176.0 293.3
Capital Work-in-Progress 7.6 0.0 0.0 0.0
(% of Net Sales) 42.2 39.3 36.4 36.2
Investments 28.1 28.1 28.1 28.1
Tax 16.3 33.0 58.1 96.8 Current Assets 160.3 239.8 247.6 381.4
(% of PBT) 36.3 32.0 33.0 33.0 Current liabilities 17.7 34.7 45.6 79.5
Net Current Assets 142.7 205.2 202.0 301.9
PAT 28.7 70.1 117.9 196.5
Miscellaneous Exp. 0.1 0.0 0.0 0.0
% chg 105.8 144.5 68.3 66.7 Total Assets 250.2 349.6 464.8 658.5
Cash Flow Statement Rs crore Key Ratios

Y/E March FY2007 FY2008E FY2009E FY2010E Y/E March FY2007 FY2008 FY2009E FY2010E
Core PBT 39.4 88.3 161.0 278.3 Per Share Data (Rs)
Other income 5.6 14.8 15.0 15.0 Diluted EPS 17.9 35.2 68.4 113.9
Diluted Cash EPS 23.8 51.4 109.7 179.3
DPS 1.7 1.6 1.6 1.6
Change in Working Capital (19.3) (61.9) (87.5) (101.0)
Book Value 71.8 161.2 253.0 365.4
Direct taxes paid (16.9) (33.0) (58.1) (96.8) Operating Ratios
Cash Flow from Operations 18.1 40.5 101.6 208.1 Inventory (days) 21.0 25.7 19.9 22.0
Inc./ (Dec.) in Fixed Assets 65.4 69.2 189.6 206.5 Debtors (days) 160.6 160.6 158.2 150.0
Creditor (days) 46.3 64.2 51.1 60.0
Free Cash Flow (47.3) (28.8) (87.9) 1.6
Debt / Equity (x) 1.1 0.1 0.0 0.0
Inc./ (Dec.) in Investments 27.2 0.0 0.0 0.0
Return Ratios (%)
Issue of Equity 0.0 32.0 0.0 0.0 RoE 25.0 21.8 27.0 31.2
Inc./(Dec.) in loans 117.1 0.0 0.0 0.0 RoCE 22.7 21.9 26.1 30.4
Dividend Paid (Incl. Tax) (2.7) (2.7) (2.7) (2.7) RoIC (Pre tax) 35.0 43.0 38.4 45.3
Others/Extra ordinary items (1.1) 0 0 0 Dividend Payout (%) 9.5 3.9 2.3 1.4
Valuation Ratios (x)
Cash Flow from Financing 86.0 29.3 (2.7) (2.7)
P/E 203.8 103.9 53.4 32.1
Inc./(Dec.) in Cash 38.7 0.5 (90.6) (1.1)
P/BV 54.9 19.6 14.4 10.0
Opening Cash balances 59.8 98.6 99.1 8.4 EV / Sales 58.4 23.7 12.9 7.7
Closing Cash balances 98.6 99.1 8.4 7.3 EV / EBITDA 124.2 49.9 26.7 15.9
Note: All figures are given on a standalone basis; The Balance Sheet and Cash Flow data is estimated.
June
January
5, 2008
TM
Angel Broking
Education
This page has been intentionally left blank
January
June 5, 2008
TM
Angel Broking Jain Irrigation
Everonn Systems
Initiating Coverage
NEUTRAL ‘Vitel’ innovations

Everonn Systems is a pioneer in the Government Schools business and has several
Price Rs624
innovative products in its ViTELS business. It has a strong focus on developing partnerships
Target Price - with corporate and educational institutions for providing solutions in the field of training and
Investment Period - 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
Stock Info during FY2008-10E. Our DCF-based value for the stock is Rs623. Thus, even as we are
Sector Education positive on the company's growth prospects going ahead, we Initiate Coverage on the
stock, with a 'Neutral' recommendation.
Market Cap (Rs cr) 865
IEIS- Highly scalable business: Everonn is a pioneer in the Institutional
Beta 0.80 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
52 Week High / Low 1,236/245
and can tap a huge addressable market size of 950,000 Government schools, 29,000 of
Avg Daily Volume 422926 which are expected to be opened for tendering over the next year.
Face Value (Rs) 10 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.
BSE Sensex 15,770
Content forms the backbone of its initiatives to provide education services to various
Nifty 4,677 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.
BSE Code 532876
We believe that the spending on education would remain inelastic in India and Everonn would
NSE Code EVERONN not face any economic downturn. Thus we estimate Everonn's revenues to increase at a 52%
CAGR over the period FY2008-10E.
Reuters Code EVSI.BO
High dependence on Government business and High debtor days: The IEIS
Bloomberg Code ESIL IN
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
Shareholding Pattern (%) product Everonn has very high debtors at 170 days of revenue. This position is not likely to
Promoters 31.1 improve substantially in future if high focus on IEIS business is maintained.
Key Financials
Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E
FII / NRIs / OCBs 25.7 Net Sales 43.0 92.1 139.7 213.5
% chg 39.2 113.9 51.8 52.8
Net Profit 4.1 14.1 17.9 23.1
% chg 0.9 244.7 27.6 28.9
Abs. 3m 1yr* 3yr Diluted EPS (Rs) 4.0 10.1 11.1 14.3
Sensex (%) (4.7) 5.6 - EBITDA Margin (%) 41.5 37.2 36.0 35.0
P/E (x) 157.3 61.5 56.3 43.7
Everonn (%) (11.4) 30.5 -
RoE (%) 11.2 27.9 8.4 9.8
* Since listing on August 1, 2007
RoCE (%) 10.7 20.6 8.9 10.1
Sulabh Agrawal
P/BV (x) 23.7 17.2 4.1 3.7
Tel: 022 - 4040 3800 Ext: 346 EV/Sales (x) 20.5 9.6 6.3 4.1
E-mail: sulabh.agrawal@angeltrade.com EV/EBITDA (x) 49.5 25.8 17.6 11.8
June
January
5, 2008
TM
Angel Broking Everonn Systems
Education
Company background
Everonn has set up Virtual and Everonn, incorporated in 1987, is one of the pioneers in computer education at schools and
Interactive Learning classroom colleges, and has partnered various state governments to bridge the 'digital divide'. The company
networks across India, has set up Virtual and Interactive Learning classroom networks across India, delivering quality
delivering quality and and affordable education. Everonn is a fully integrated Knowledge Management, Education and
affordable education Training Company offering a range of services, including:
z Creating educational and training content that is globally relevant,

z Designing and executing large learning initiatives, and
z 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 Everonn's Institutional Education and IT Infrastructure Services (IEIS) business includes
entered into with the state imparting computer literacy to students at government schools. In this business, companies
governments in the Build-Own- participate in competitive bidding through tenders and the contracts are awarded to the lowest
Operate-Transfer (BOOT) bidder. The contracts are mostly entered into with the state governments in the
format, with a tenure of 3-5 Build-Own-Operate-Transfer (BOOT) format, with a tenure of 3-5 years. Depending on the
years 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
January
June 5, 2008
TM
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 We believe this business would continue to grow at a strong pace, primarily due to increased
to clock a CAGR growth of over spending by the government and the entry barriers in the business. We estimate the IEIS
53% in Revenues 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 The computer lab set up in government schools to impart IT-based education currently costs
bids for 29,000 schools would approximately Rs2.4 - 2.5lakh. Management estimates that bids for 29,000 schools would be
be invited for availing the
invited for availing the services of this product and Everonn would be able to win bids for 4,000
services of this product
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 FY2008 FY2009E FY2010E
Government Schools 1,919 3,164 5,221 7,831
YoY growth (%) 83 65 65 50
Revenue per school (Rs per month) 16,448 17,575 17,000 16,000
Revenue per school (Rs per year) 1,97,373 2,10,899 2,04,000 1,92,000
Total IEIS Revenue (Rs cr) 29.3 53.6 85.5 125.3
YoY growth (%) 83 60 47
EBITDA margin (%) 45 33 32 31
EBITDA (Rs cr) 13.2 17.7 27.4 38.8
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.
June
January
5, 2008
TM
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
Everonn has set up the virtual The number of students availing the programme and receiving the instructions can be increased
classroom infrastructure with through the use of technology and the same faculty simultaneously links up with the students at
410 partner institutions and multiple locations. There is virtually no capacity constraint, as there is no limit on the number of
intends to raise this to 1,000 by connections that can be created. Everonn, to expand its span of providing services, is increasing
end-FY2010 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.
January
June 5, 2008
TM
Education
Institutional initiative is where Everonn provides instructions to students at various partner

institutions (schools and colleges). The courses are curriculum as well as non-curriculum based.
In the curriculum-based subjects, usually instructions are given on school or college-based
subjects like mathematics and sciences. The non-curriculum based subjects include English
speaking, vocational training and courses related to the employability of students post getting
their college degrees. However, under this initiative, 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. 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, but we believe that further new schools
would be enrolled only in the 'I School' format.
Retail initiative is where Everonn coaches students at remote locations for competitive and
entrance examinations like the CET, PMT and JEE. Here, the company has been constantly
upgrading its product portfolio through in-house development of new course material, starting new
courses and acquiring existing infrastructure. Everonn has entered into a partnership with
Toppers at Patna, which used to provide coaching for JEE. Under this partnership, Everonn has
gained access to the superior content developed by the coaching class and its teaching faculty.
Everonn currently has 50 Everonn currently has 50 professionals working on development and improvement of content for
professional working on products to be offered across the ViTELS platform. Everonn intends to strengthen its content
development and improvement development team as and when required. Apart from this, Everonn has recently added to its
of content for products to be content library through its acquisitions and tie-ups. Content forms the backbone of its initiatives to
offered across the ViTELS provide education services to various institutions and the company is constantly developing new
platform products and content to address a larger market. As product offerings increase, the addressable
market increases.
The programs under each initiative last between one or two weeks to six months. Similarly, the
fees charged also vary from course to course from Rs1,000 to Rs25,000 per student per course.
Everonn is currently working on increasing the number of partner institutions, is developing new
courses, improving its current courseware and promoting sale of higher-end courses.
Currently, Everonn derives Currently, Everonn derives 41% of its revenues from the ViTELS business. This business model is
41% of its revenues from the highly scalable and we expect the company to record strong growth in this segment going ahead.
ViTELS business We estimate the business to record CAGR growth of 18% to hit Rs52.1cr in Topline in FY2010E
v/s Rs13.7cr in FY2007. This growth is expected on the back of an increase in the number of
partner institutions and higher revenue per partner institution, which would be achieved with the
number of courses increasing. However this growth would be subdued compared to the past due
to Everonn’s shift in focus to ‘I School’ business. Currently, revenues from the ViTELS business
are lumpy and higher revenues are recorded during non-examination quarters. Going ahead, we
believe such seasonality would diminish as the company's product portfolio improves.
Nonetheless, as per our conservative estimates this business would report range-bound EBITDA
Margins of 45%.
June
January
5, 2008
TM
Education
Exhibit 3: ViTELS Revenue Profile

FY2007 FY2008 FY2009E FY2010E
Partner institutions 197 410 512.5 625
YoY growth (%) 108 25 22
Average revenue per partner (Rs) 697,701 915,610 915,610 915,610
YoY growth (%) 31 0 0
Total ViTELS Revenue (Rs cr) 13.7 37.5 42.2 52.1
EBITDA Margin (%) 34 47 45 43
EBITDA (Rs cr) 4.7 17.6 19.0 22.4
'I School' - A Smart product line
Everonn has recently introduced a new product called 'I School', which is on similar lines as Smart
class by Educomp. In this initiative, all the classes of the school would be provided with LAN
connectivity and a screen. In the previous ViTELS format, 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. 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. In the
new 'I School' format, all the students of the member school would take part in program and all the
classes would be equipped with the necessary infrastructure. The students would not have to
move between classes in order to access instructions.
In this new program, the students would be able to access multimedia education content in their
class room assisted by the teacher. In certain core topics, a teacher from Everonn would be able
to link up with the class remotely through VSAT and give specialized lectures. Further more, Everonn
has plans to use the infrastructure at the schools after school hours in order to provide coaching
classes. Before the onset of this program, a similar product was being provided under the ViTELS
platform. The target of the same was under achieved by 100 schools. The management claims
that the target was under achieved due to the change of product and platform. 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.
Everonn has content library for students in class 7 to class 12 under this program. This content
comprises of 6,500 animations and bank of 50,000 questions. Apart from this, all the books of
certain state boards are electronically available. The acquisition of education arm of Aban Lloyd
provided Everonn with a large chunk of this content. Apart from this, one of its subsidiarys,
Education Resources Pvt. Ltd. would be instrumental in providing and updating the content in
future.
January
June 5, 2008
TM
Education
Everonn expects to realize revenue of Rs180 per student per month from this product and an
average of 1,000 students per school. In the previous ViTELS format, the realization per student
was Rs114 per month for an average of 225 students per school. Thus, this product would provide
a boost to the revenue of Everonn. 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. 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.
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. Everonn has given a target of 650-700 schools by the end of FY2009
and is confident about the success of the product.
However, 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. 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.
Exhibit 4: 'I School' Revenue Profile

FY2009E FY2010E
Number of schools 150 375
YoY growth (%) 150
Students per School 750 750
Total number of students 1,12,500 2,81,250
Revenue per student per month (Rs) 150 145
Revenue per student per year (Rs) 1,800 1,740
Total I School Revenues (Rs cr) 10.1 34.3
As % of total revenue 7 16
EBITDA margin (%) 35 37
EBITDA (Rs cr) 4 13
New Business opportunities

Everonn recently entered into Everonn is currently working on expanding its product offerings in the field of providing coaching
a tie-up with Toppers Tutorials, for competitive and entrance examinations. Towards this, Everonn recently entered into a tie-up
which has been conducting with Toppers Tutorials, Patna, which had been conducting coaching classes for the JEE
coaching classes for the JEE examinations. Toppers Tutorials has a good reputation and an excellent turnaround ratio. With
examinations this tie-up, Everonn has gained access to Toppers' content and faculty and the lectures are now
delivered using ViTELS' platform at Chennai. The company is also in process of initiating a tie -up
with Sonefe for providing CA coaching and medical examination coaching.
Everonn recently also acquired a license to set up 15 prometric centers to conduct the GMAT,
SAT, TOEFL and other similar examinations. It intends to increase the number of these centers to
29 over next one year. More clarity on this business would develop later as work on the same is
still progressing.
June
January
5, 2008
TM
Education
Investment Argument
IEIS and ViTELS - 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. The company has the ability to bid for and win large-sized government contracts. It
currently caters to over 3,164 government schools. We believe that with a substantial
addressable market of 9,50,000 schools, Everonn would not face any problems in growing this
business at a fast clip over the next few years. The company's management expects to add 4,000
schools to its IEIS business during FY2009E.
ViTELS, Everonn's VSAT-based short and medium-duration courses provided with the help of
partner institutions, is a highly scalable business as there are no capacity constraints. Everonn is
constantly expanding its product offerings and entering into tie-ups with more institutions to
increase its penetration and reach. Through the VSAT links, instructions can be simultaneously
delivered at multiple locations, which would bring down the cost of delivering a lecture. This
business earns EBITDA Margins of over 40%. Everonn is also taking steps to expand its product
offerings and reach, which would in turn result in Margins of this business improving. However, on
a conservative basis, we have estimated Margins of this business to rule constant going ahead.
Focus on content development - 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. 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. It intends to strengthen its content
development team. Everonn has also made a few acquisitions, which has resulted in additions to
its content library and team.
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 government intends to improve the overall literacy
levels in India. Further, the Indian middle class spends a major portion of its earnings on the
education of its children by way of school fees, supplies, uniforms and private coaching. We
believe that the spending on education will remain inelastic in India and thus Everonn is unlikely to
face any economic downturn.
Tie-ups and acquisitions
Everonn has acquired the education business of Aban Offshore, which is expected to provide
access to content and a full team to Everonn. 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.
January
June 5, 2008
TM
Education
Concerns
Fresh capital infusion requirement: Everonn had raised Rs50cr through its IPO during FY2007,
most of which has been deployed in the business for expansion purposes. Everonn, in order to
grow, needs further cash infusion. In order to fund its growth, Everonn is intends to raise Rs167cr
for its expansion purposes by preferential allotment of equity shares and warrants to FII's and
promoters. The subscription amount of Equity shares is Rs91cr and the accruals from allotment of
warrants is Rs76.5cr, 10% of which is payable on warrant allocation. The infusion of this fresh
capital would help in the growth plans of Everonn, however this would also lead to near-term
pressure on EPS.
High dependence on the government business: The IEIS business contributes a substantial
59% the Everonn's current overall revenues. Hence, any dilution in the government's focus on the
Education Sector could negatively impact Everonn.
Acceptability of ViTELS platform: In this business, a virtual classroom is created with the
student and faculty present at different locations. Though the entire interaction is real-time, the
acceptability of the product may be hindered due to the geographical divide.
High debtor days: Everonn had high debtor days of 170 at the end of FY2008. 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. We believe that such high debtor days will more-or-less
continue for Everonn, which will inevitably keep the company requiring high levels of working
capital.
Financials
Everonn posted a 115% yoy growth in Top-line to Rs92.8cr in FY2008. Going ahead, 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, 'I School'. Blended
EBITDA Margins stood at 37% in FY2008. However, going forward, we estimate EBITDA Margins
to decline marginally. Net Profit stood at Rs14.1cr in FY2008, and we estimate it to grow at a
strong CAGR of 28% over FY2008-10E.
June
January
5, 2008
TM
Education
Exhibit 5: Revenue and Revenue growth

(Rs cr) Revenue Growth (RHS) (%)
250 128
114
200
100
150
86
72
100
58
50
44
0 30
FY2007 FY2008 FY2009E FY2010E
Exhibit 6: EBITDA Margins

(Rs cr) EBITDA Margin (RHS) (%)
100 44
80 42
60 40
40 38
20 36
0 34
FY2007 FY2008 FY2009E FY2010E
Everonn currently requires Rs150cr to meet its capex requirements, a part of which would be
utilised to beef up its content development team. Content is the backbone of all the company's
initiatives. Hence, Everonn is constantly developing new products so that its content enjoys a
competitive edge over peers.
We expect the company to start providing services to 2,057 new government schools in FY2009E.
This would, lead to further capital requirements of approximately Rs52cr. Apart from this, the new
product, 'I School', would also require capital investment. We have assumed a capex expenditure
of approximately 12 lakhs per 'I School' amounting to approximately Rs17cr for 150 schools
during FY2009E. The company has announced preferential allotment of Shares and Warrants to
FII's and Promoter's amounting to Rs167cr. We have factored in the receipt of cash and
consecutive increase of number of shares fully into our model. However, this increase in number
of shares would dent the EPS growth of the company substantially.
January
June 5, 2008
TM
Education
Everonn has proved itself to be a highly innovative company with unique offerings through its
ViTELS platform. The company is a dominant player in the Southern markets. However, Everonn
relies very heavily on its IEIS business, which is working capital-intensive. The company would
continuously need fresh capital inflows to fund its ambitious expansion plans and support its
working capital requirements.
We believe that DCF would be the best way to capture the growth and value of the company. Our
DCF-based fair value for the company is Rs623. Thus, we Initiate Coverage on Everonn
Systems with a Neutral recommendation. Our model captures most of the concerns present in
the market. We have applied weighted average cost of capital (WACC) of 13% and assumed a
Terminal growth rate of 6%. The WACC is on the lower side due to a healthy debt equity ratio of
0.5 and attractive rate of interest enjoyed by the company.
June
January
5, 2008
TM
Education
Exhibit 7: Discounted Cash Flow Model

Projected Cash Flow (Rs cr)
Y/ E March (Rs cr) FY08 FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E Terminal
EBIT 25 32 40 51 68 94 129 174 216 253 276
Growth rate 206.1 25.4 25.2 28.3 32.8 38.8 38.1 34.8 24.0 17.0 9.0 6.0
Less: Tax (8) (10) (12) (16) (22) (32) (45) (60) (75) (88) (96)
% tax rate (31.2) (30.5) (31.4) (32.2) (32.9) (33.9) (34.5) (34.7) (34.7) (34.7) (34.7)
Operating Cashflow 17 22 27 34 45 62 85 114 141 165 180
Add: Depreciation 10 19 35 50 59 64 66 67 100 111 122
Gross Cashflow 27 41 62 84 105 126 150 181 241 276 302
Less: Change in Net working capital (8) (10) (18) (6) 3 (8) (17) (22) (26) (29) (34)
% chg (35.7) 23.7 81.6 (65.4) (145.2) (406.0) 100.0 31.8 15.0 14.5 14.0
Less: Capex (19) (73) (96) (98) (83) (70) (73) (72) (74) (77) (79)
% chg 46.2 291.5 32.2 1.7 (14.6) (15.5) 3.3 (0.9) 3.0 3.0 3.0
Free cashflow to the firm (FCFF) 1 (42) (52) (20) 24 47 61 87 141 170 190
0 1 2 3 4 5 6 7 8 9 10
Discounted FCFF 1 (37) (40) (14) 15 25 29 37 53 57 56
Terminal value 846
Sensitivity Analysis
Risk-free rate 8.25
WACC Terminal Growth Rate
Risk Premium 6.00
623 3.0 4.0 5.0 6.0 7.0 8.0 9.0
Beta for the stock 0.80
10.0 801 919 1,085 1,333 1,747 2,575 5,058
Cost of Equity 13.1
11.0 654 736 845 998 1,227 1,609 2,372
Cost of Debt 11.0
12.0 543 601 677 777 918 1,130 1,482
Debt 24
13.0 455 499 553 623 715 845 1,040
Equity 865 14.0 386 418 458 508 573 658 779
Tax rate 0.3 15.0 329 354 384 421 468 527 606
WACC 13.0 16.0 282 302 325 353 387 430 485
Enterprise Value 1,027
Less: Debt 24
Add: Cash 4
DCF value of equity 1,007
No. of equity shares 1.62
DCF value/ share 623

Source: Company; Angel Research
January
June 5, 2008
TM
Education
Profit and Loss Account Rs crore Balance Sheet Rs crore

Y/E March FY2007 FY2008 FY2009E FY2010E Y/E March FY2007 FY2008E FY2009E FY2010E
Net sales 43.0 92.1 139.7 213.5 SOURCES OF FUNDS
Reserves& Surplus 26.2 36.5 196.3 219.3
Total Expenditure 25.2 57.8 89.4 138.8
Shareholders Funds 36.5 50.4 212.5 235.4
EBITDA 17.9 34.3 50.3 74.7 Total Loans 23.5 34.0 34.0 34.0
(% of Net Sales) 41.5 37.2 36.0 35.0 Deferred Tax Liability 5.4 5.4 5.4 5.4
Total Liabilities 65.5 89.8 251.9 274.9
Interest 2.3 3.3 4.1 4.1 Gross Block 56.2 74.8 147.4 243.5
Other Income 0.0 0.7 0.0 0.0 Less: Acc. Depreciation 19.7 29.4 48.1 83.1
Net Block 36.5 45.3 99.4 160.4
PBT 5.9 21.9 27.6 35.6
Capital Work-in-Progress 0.0 0.0 0.0 0.0
(% of Net Sales) 13.7 23.8 19.8 16.7
Investments 0.0 0.0 0.0 0.0
Tax 1.8 7.9 9.7 12.4 Current Assets 38.4 61.6 173.0 144.1
(% of PBT) 31.0 35.9 35.0 35.0 Current liabilities 9.4 17.2 20.4 29.6
Net Current Assets 29.0 44.5 152.6 114.5
PAT 4.1 14.1 17.9 23.1
Miscellaneous Exp. 0.0 0.0 0.0 0.0
% chg 0.9 244.7 27.6 28.9 Total Assets 65.5 89.8 251.9 274.9

Y/E March FY2007 FY2008E FY2009E FY2010E Y/E March FY2007 FY2008 FY2009E FY2010E
Core PBT 5.9 21.2 27.6 35.6 Per Share Data (Rs)
Other income 0.0 0.7 0.0 0.0 Diluted EPS 4.0 10.1 11.1 14.3
Diluted Cash EPS 13.3 17.2 22.6 36.0
DPS 0.2 0.1 0.1 0.1
Change in Working Capital (8.6) (7.9) (9.8) (17.7)
Book Value 35.5 36.4 131.3 145.5
Direct taxes paid (0.7) (7.9) (9.7) (12.4) Operating Ratios
Cash Flow from Operations 6.2 15.9 26.8 40.5 Inventory (days) 3.7 4.8 5.3 5.0
Inc./ (Dec.) in Fixed Assets 12.7 18.6 72.6 96.1 Debtors (days) 237.1 169.5 145.2 140.0
Creditor (days) 65.4 77.4 63.4 65.0
Free Cash Flow (6.5) (2.7) (45.8) (55.6)
Debt / Equity (x) 0.6 0.7 0.2 0.1
Inc./ (Dec.) in Investments 0.0 0.0 0.0 0.0
Return Ratios (%)
Issue of Equity 13.7 0.0 144.4 0.0 RoE 11.2 27.9 8.4 9.8
Inc./(Dec.) in loans (3.3) 10.5 0.0 0.0 RoCE 10.7 20.6 8.9 10.1
Dividend Paid (Incl. Tax) (0.2) (0.2) (0.2) (0.2) RoIC (Pre-tax) 14.8 33.8 23.2 18.4
Others/Extra ordinary items (2.4) 0 0 0 Dividend Payout 4.7 1.4 1.1 0.8
Valuation Ratios (x)
Cash Flow from Financing 7.8 10.3 144.2 (0.2)
P/E 157.3 61.5 56.3 43.7
Inc./(Dec.) in Cash 1.3 7.6 98.4 (55.8)
P/BV 23.7 17.2 4.1 3.7
Opening Cash balances 3.0 4.2 11.8 110.2 EV/Sales 20.5 9.6 6.3 4.1
Closing Cash balances 4.2 11.8 110.2 54.4 EV/EBITDA 49.5 25.8 17.6 11.8
Note: All figures are given on a standalone basis; The Balance Sheet and Cash Flow data is estimated.
June
January
5, 2008
TM
Angel Broking
Education
This page has been intentionally left blank
January
June 5, 2008
TM
Angel Broking Jain
NIITIrrigation
Limited
Initiating Coverage
ACCUMULATE The 'globe' is its oyster!

NIIT Limited is India's largest IT training company, having a pre-eminent position in the
Price Rs109
Indian retail training segment. In recent times, the company has diversified its business model,
Target Price Rs123 moving into newer verticals by leveraging its strengths in IT. With a presence across the
Investment Period 12 Months chain of IT learners as also expansion into newer verticals like financial services, the
company is positioning itself as a 'Global Talent Development Corporation', serving the
Stock Info burgeoning manpower needs of varied sectors including IT, given the strong economic growth
Sector Education expected and the manpower required to sustain strong GDP growth. We expect NIIT to record
CAGRs of 21.5% and 36.4% in Topline and Bottomline respectively, over FY2007-10E. At
Market Cap (Rs cr) 1,797 the CMP, the stock is trading at 12.5x FY2010E EPS. We Initiate Coverage on the stock,
Beta 0.60 with an Accumulate recommendation and 12-month Target Price of Rs123.
The shift to a 'Global Talent Development Corporation': NIIT has taken a slew of
52 Week High / Low 172/85
strategic initiatives, leading to a shift in its business mix. From being a mainly IT-focussed
Avg Daily Volume 290796 training company, it has now positioned itself as a 'Global Talent Development Corporation'.
In line with this, NIIT has introduced new business initiatives in financial services and
Face Value (Rs) 2
management education apart from re-jigging its existing business portfolio to align with
market realities. As a result, the company is now in a strong position to capitalise on the huge
BSE Sensex 15,770
manpower requirements of varied industries and act as a 'supplier of talent across sectors'
Nifty 4,677
owing to which NIIT's addressable market has also increased substantially.
Scalability of new businesses: NIIT's new businesses, financial services training and
technology-led management education enjoy high operating leverage. These businesses
BSE Code 500304
record higher Margins with higher capacity utilisation. Thus, as they gain greater acceptance,
NSE Code NIITLTD profitability is likely to improve. We have modeled for 15% Margins in FY2010E
vis-à-vis operating losses of 125% in FY2007.
Reuters Code NIIT.BO
Strong position in the domestic IT training market: NIIT is the market leader in the
Bloomberg Code NIIT IN domestic IT training market. This business has grown at a CAGR of 37% over FY2005-07
and, with higher capacity utilisation, has improved Margins significantly. We expect this
Shareholding Pattern (%) business to continue to grow at a decent rate along with good profitability, going ahead.
Promoters 30.1
Key Financials
Y/E March (Rs cr) FY2007 FY2008E FY2009E FY2010E
FII / NRIs / OCBs 44.3 Net Sales 795 998 1,194 1,427
% chg 76.4 25.5 19.7 19.4
EBITDA Margin (%) 9.7 9.9 12.0 14.2
Net Profits 57 73 104 146
Abs. 3m 1yr 3yr % chg 38.6 26.6 43.8 39.6
Sensex (%) (4.7) 8.5 133.5 Diluted EPS (Rs) 3.4 4.4 6.3 8.8
P/E (x) 31.6 25.0 17.4 12.5
NIIT (%) (3.5) (17.6) 325.0
P/BV (x) 5.8 5.0 4.1 3.3
RoE (%) 19.7 21.3 25.9 29.6
Harit Shah
RoCE (%) 6.3 9.9 14.7 19.7
Tel: 022 - 4040 3800 Ext: 345 EV/Sales (x) 2.5 2.0 1.6 1.3
E-mail: harit.shah@angeltrade.com EV/EBITDA (x) 25.7 20.4 13.5 9.2
June
January
5, 2008
TM
Angel Broking NIIT Limited
Education
Company Background
NIIT is India’s largest IT NIIT Limited is India’s largest IT training company and has the largest network of centres (own and
training company franchisee) across the country. The company provides IT education and training to students and
professionals. It’s training programmes cover the entire spectrum of learners, 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.
NIIT’s business segments are fairly diverse and can be divided as follows:
NIIT is the market leader in Individual Learning Solutions (ILS) – NIIT is the market leader in the Indian Retail IT training
the Indian retail IT training market, recording Net Revenues of Rs247cr in FY2007. This business is segregated into two
market parts – ‘Careers’ and ‘Non-careers’. In the ‘Careers’ segment, NIIT delivers IT training to
graduates and under-graduates who are looking to make a career in IT. Its flagship program,
GNIIT, enables students to get up-to-date on the latest technologies and skill sets in the industry.
In the ‘Non-careers’, or Re-skilling segment, 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 company trains over 5,00,000 learners each year, with an alumni base
exceeding 3mn. At the end of 9MFY2008, NIIT’s ILS net revenues hit Rs234cr, clocking a strong
yoy growth of 30%.
In its SLS business, NIIT caters School Learning Solutions (SLS) - NIIT‘s SLS business segment caters to the computer
to the computer education education requirements of school children studying in government and private schools in India.
requirements of school There are 9,50,000 government schools and 50,000 private schools in the country catering to the
children studying in the education requirements of over 200mn students. Hence, the market size is fairly significant. In the
government and private government schools segment, through a tendering process the company bids for contracts and
schools in India after securing a contract, it works with the concerned state governments towards setting up the
infrastructure. NIIT also designs and develops the courseware and textbooks in many Indian
languages. NIIT, at the end of 3QFY2008, was working with 3,828 government schools in its
Government schools business. On the other hand, the estimated market size for private schools is
50,000 schools. At the end of December 2007, NIIT served around 940 private schools. In
9MFY2008, SLS net revenues hit Rs63cr.
The CLS business contributed Corporate Learning Solutions (CLS) - NIIT provides content development, learning
the maximum to NIIT’s net management solutions and training delivery services to its clients in its CLS business. The
revenues in 9MFY2008 company has a strong focus on the US, which has further increased with the acquisition of
Element-K, a leading provider of learning solutions in North America. Going ahead, spending on
corporate training is expected to rise by around 7% per annum until 2010 as per IDC, with training
outsourcing expected to grow by a considerably faster rate of nearly 25% per annum over the
same period. In 9MFY2008, the CLS business clocked net revenues of Rs418cr, recording yoy
growth of 43%, aided by the acquisition of Element-K. This business contributed the maximum to
NIIT’s net revenues.
January
June 5, 2008
TM
Education
NIIT has leveraged its New Businesses - Over the past two years, NIIT has made conscious attempts to expand and
experience in IT to venture into diversify its business portfolio away from purely IT training. The company has leveraged its
newer verticals like financial extensive experience in IT to expand into newer verticals and business segments. NIIT has
services and management commenced training courses in the Banking, Financial Services and Insurance (BFSI) vertical
education through the Institute of Finance, Banking and Insurance (IFBI), a joint venture with private banking
major, ICICI Bank, in which NIIT holds an 81% stake. The company offers courses like Retail
Banking, Insurance and Financial Services launched in partnership with industry majors like ICICI
Bank, ICICI Prudential and ICICI Securities. The company has also tied up with Infosys to offer
training on its Finacle software product. NIIT has also signed up HDFC Bank and Yes Bank,
reflecting the ever-increasing acceptance that IFBI is getting from the industry.
NIIT has also started a technology-led management training initiative called NIIT Imperia. NIIT
Imperia offers long and short-term programmes in general and functional management to working
executives. NIIT provides the platform for the delivery of quality management education, while its
partners, including three IIMs, provide content, teaching and certification. In the period 9MFY2008,
the new businesses clocked a robust yoy growth of 416% in net revenues, which hit Rs20cr.
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). 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. It is well-known that the IT Industry is people-intensive and that human resources
are the key ‘raw material’ driving its growth. The total direct employment in the IT-ITES Industry
was estimated at nearly 2mn in FY008. This reflects a strong CAGR growth of over 25% since
FY2002. In terms of revenues, the Sector has grown from a mere US $7.7bn in exports in FY2002
to US $40.3bn in FY2008, reflecting a CAGR growth of around 32%. Thus, the strong growth of
this industry has been the key enabler to NIIT’s own growth over the past few years.
The ILS business has seen its India-based gross revenues (system-wide revenues, SWR) clock a
CAGR growth of over 41% over FY2005-07. Overall ILS net revenues, which include China
revenues and Rest of the World (Vietnam, Ghana, Egypt, Yemen and Sri Lanka, among others)
have grown at a CAGR of 36.7% over the same period. This compares favourably with the growth
of around 33% recorded by the Indian IT-ITES Export Sector over the mentioned period. The ILS
business has, in fact, accounted for over 51% of NIIT’s incremental revenues over FY2005-07 on
a gross basis and nearly 29% on a net basis, reflecting the key contribution that it has made in this
time-frame.
Even as the ILS Business’ contribution to revenues has been significant, its contribution to
profitability has been even more pronounced. It should be noted that the ILS business is
characterised by strong operating leverage. The proportion of fixed costs – rent, electricity, staff
costs – is typically high. As capacity utilisation of a centre reaches a particular level, the centre
June
January
5, 2008
TM
Education
breaks-even at the operating level. Any rise in capacity utilisation over and above the break-even
level leads to strong Margin expansion, (as there are no additional costs involved to earn those
higher Margins), which flows straight through to the pre-tax profits (PBT).
NIIT operates its ILS business through a hub-and-spoke model. Its centres are typically a mix of its
own centres and franchisee-owned centres. NIIT, at the end of December 31, 2007, had a total of
473 India retail centres, of which 52 centres were self owned (11%). However, these centres
accounted for around 40% of the total capacity in terms of seat-years. Thus, all the major, high
revenue-potential centres with higher capacity in major cities are typically owned by NIIT, while the
other centres generally located in smaller cities and towns are franchisee centres, enabling deeper
expansion into the interiors of the country. NIIT earns a revenue share in the region of
25-40% from the franchisees for use of its brand name, course material and so on.
While the levels of capacity utilisation required for break-even differ for each centre, given their
differing capacities, location, profitability and cost structures, average capacity utilisation required
for break-even levels is around 35-36%. NIIT was able to achieve this level in FY2005, when it
reported a marginally negative EBITDA Margin of 0.2%. However, as capacity utilisation levels
rose, Margins for the business soared. In FY2006 and FY2007, capacity utilisation levels hit 46%
and 54% respectively, leading to Margins of 7.7% and 17.6%. For 9MFY2008, Margins have
already hit 20% on the back of strong enrolments and increased capacity utilisation of 55% on
enhanced capacity, reflecting the strong traction being witnessed by the business.
In terms of incremental EBITDA contribution, the ILS business’ contribution was an astonishing
116% and 159% in FY2006 and FY2007, respectively. This can be attributed to the strong
improvement in profitability of the ILS business on account of operating leverage and higher
capacity utilisation, and poor performance of the SLS business, which recorded lower Margins
due to the restructuring of the business with a greater focus on the Private Schools business. 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.
January
June 5, 2008
TM
Education
Exhibit 1: ILS business - Driving growth and profitability

(Rs cr) FY2005 FY2006 FY2007
System-wide Revenues (SWR) 320 391 566
% chg 22.3 44.6
Contribution to Total SWR (%) 50.3 58.0 50.7
Contribution to Incremental SWR (%) 184.5 39.5
Net Revenues 132 167 247
% chg 26.3 47.9
Contribution to Total Net Revenue (%) 33.2 37.1 31.1
Contribution to Incremental Net Revenue (%) 66.5 23.2
EBITDA (0) 13 43
% chg 239.1
EBITDA Margins (%) (0.2) 7.7 17.6
Contribution to Total EBITDA (%) (0.6) 21.2 56.1
Contribution to Incremental EBITDA (%) 115.9 158.5
Capacity utilisation (%) 38 46 54
Exhibit 2: ILS business capacity utilisation and EBITDA Margins - Strong correlation
(%) (%)
EBITDA Margins Capacity utilisation (RHS)
30 70
24
62
18
54
12
46
6
38
0
1QFY06 2QFY06 3QFY06 4QFY06 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08
(6) 30
We expect NIIT’s ILS business to record strong growth going ahead. In terms of its
contribution to SWR, we expect it to decline from over 50% in FY2007 to 47% in FY2010. However,
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, which will lead to the contribution of CLS SWR to total
SWR rising significantly. However, over FY2008-10E, we expect the contribution of ILS SWR to the
total to continue to rise by over 400bp. We expect ILS SWR to clock a CAGR growth of nearly 25%
over FY2007-10E, as compared to the 27.9% CAGR growth expected in total SWR over this period.
June
January
5, 2008
TM
Education
On the other hand, we expect the contribution of ILS net revenues to the total to rise from 31.1%
in FY2007 to 37.0% in FY2010, given the impressive 28.8% CAGR growth expected in these
revenues over FY2007-10E, as compared with the 21.5% CAGR growth expected in total net
revenues over the same period.
In terms of operating profitability, we expect the total contribution of ILS EBITDA to rise from
56.1% in FY2007 to 57.4% in FY2010. However, it should be noted that in FY2008 itself, we
expect the contribution of ILS EBITDA to surge to over 64% of total EBITDA, mainly on account of
the impressive growth in the fiscal due to higher capacity utilisation and strong growth in
enrolments. Thus, 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, mainly CLS and New
Businesses. We expect ILS EBITDA to clock a 38.8% CAGR growth over FY2007-10E, vis-à-vis a
total EBITDA CAGR growth of 37.7% over the same period.
Exhibit 3: ILS business projections

(Rs cr) FY2007 FY2008E FY2009E FY2010E
System-wide Revenues (SWR) 566 721 890 1,099
% chg 44.6 27.5 23.4 23.5
Contribution to Total SWR (%) 50.7 43.0 44.8 47.1
Net Revenues 247 317 409 527
% chg 47.9 28.4 29.0 28.9
Contribution to Total Net Revenue (%) 31.1 31.8 34.3 37.0
EBITDA 43 63 86 116
% chg 239.1 46.2 35.5 35.0
EBITDA Margins (%) 17.6 20.0 21.0 22.0
Contribution to Total EBITDA (%) 56.1 64.4 59.9 57.4
Number of seat-years 164,584 194,120 224,770 259,610
Capacity utilisation (%) 54 56 60 65
Seat-years utilised 88,875 108,707 134,862 168,746
Revenues per utilised seat-year (Rs) 27,792 29,181 30,349 31,259
% chg 7.2 5.0 4.0 3.0
January
June 5, 2008
TM
Education
School Learning Solutions - 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. There are 9,50,000 government
schools and 50,000 private schools in the country catering to the education requirements of over
200mn students. Therefore, the market size is fairly significant.
In the government schools segment, the company typically bids through a tendering process and
after securing a particular contract for a certain number of schools, works with the concerned
state governments towards setting up infrastructure, systems integration, managing the set-up,
education delivery and teacher training. NIIT also designs and develops courseware and
textbooks in many Indian languages. With the government strongly focusing on IT and IT-enabled
education in the country, there is significant scope for growth in this business. NIIT, at
the end of 3QFY2008, was working with 3,828 government schools in its Government schools
business.
After winning a contract, NIIT generally makes upfront investments in setting up the infrastructure
of the school. On an average, around 30% of the total contract value is required for upfront
investments. Thus, this is a highly capex-intensive business. In terms of revenues, NIIT on an
average earns Rs15,000 per school per month. Going ahead, given the intense competition and
the government typically awarding tenders to the lowest bidders, we expect this to taper down.
The receivable days are also on the higher side in this business, given that the government
machinery typically creaks along at its own pace and takes its time to pay back.
From FY2007 onwards, due to a significant receivables problem, NIIT shifted its focus away from
government schools towards private schools. The estimated market size for private schools is
50,000 schools. At the end of December 2007, NIIT served around 940 private schools. Thus,
there exists strong scope for growth going ahead.
Exhibit 4: SLS Business revenues - In restructuring mode

(Rs cr) Government schools Private schools
100
80
60
40
20
0
FY06 FY07
June
January
5, 2008
TM
Education
However, with the government clear in its intentions to engage the private sector to leverage the
use of IT in the Education Sector, NIIT is looking at re-focusing on this business as well. This far
in 9MFY2008, SLS revenues have grown by a marginal 2% yoy compared to the substantial 28%
yoy fall in FY2007, while EBITDA Margins have increased by over 200bp, reflecting the increased
focus on profitability. Going ahead, NIIT expects this business segment to revert to a higher growth
path, with the restructuring being more or less complete.
Exhibit 5: SLS Business - Focus on profitability

(Rs cr) SLS revenues EBITDA margins (RHS) (%)
120 20
96 16
72 12
48 8
24 4
0 0
FY06 FY07 9MFY08
Nonetheless, in spite of an improved performance expected going ahead, it should be noted that
at the current juncture, given the relatively subdued growth in this business, the segment’s
contribution to overall revenues – SWR and net - and EBITDA is expected to decline going ahead.
We expect the contribution of SLS SWR to the total SWR to decline from 7.4% in FY2007 to 6%
in FY2010, given the slower (albeit decent) 19% CAGR growth expected in SLS SWR over
FY2007-10E, vis-à-vis a significantly higher 27.9% CAGR growth expected in total SWR in the
mentioned period.
On the other hand, we expect the contribution of SLS net revenues to the total to decline from
10.7% in FY2007 to 9.6% in FY2010, given the slower (albeit decent) 17.5% CAGR growth
expected in these revenues over FY2007-10E compared with a 21.5% CAGR growth expected in
total net revenues over the same period.
In terms of operating profitability, we expect the total contribution of SLS EBITDA to fall from
12.7% in FY2007 to 8.8% in FY2010. This is on account of the expected fall in the Margins of the
segment due to intense competition, leading to an EBITDA CAGR growth of 22.1% over
FY2007-10E, vis-à-vis a considerably higher total EBITDA CAGR growth of 37.7% over the same
period.
January
June 5, 2008
TM
Education
Exhibit 6: SLS business projections

System-wide Revenues (SWR) 86 88 115 140
% chg (27.1) 1.8 31.7 21.5
Net Revenues 85 86 113 137
% chg (27.9) 1.3 31.7 21.5
Government schools revenues 61 58 75 90
% chg (37.3) (5.0) 29.1 20.6
Number of schools 3,006 3,900 5,200 6,000
Average revenues per school per month (Rs) 14,665 13,931 13,653 13,380
% chg - (5.0) (2.0) (2.0)
Private schools revenues 24 28 38 47
% chg 16.0 17.9 36.8 23.1
Number of schools 806 950 1,300 1,600
EBITDA 10 12 15 18
% chg (54.0) 22.6 27.0 17.0
EBITDA Margins (%) 11.6 14.0 13.5 13.0
Corporate Learning Solutions - Acquisition of Element-K
In July 2006, NIIT acquired Element-K, a leading provider of learning solutions in North America.
Element-K has the world’s second-largest content library, offers over 3,500 courses in the US and
Canada and hosts a learning platform. With this acquisition, NIIT significantly increased its size
and the combined entity is amongst the world’s leading global providers of comprehensive
learning solutions. The company’s (NIIT) global reach and complementary learning solutions
provide a good fit with Element-K’s extensive content library, marquee clients in the US and Canada
and well-respected brand name in that region.
June
January
5, 2008
TM
Education
Exhibit 7: CLS Business - Inorganic push*

(Rs cr) CLS revenues EBITDA margins (RHS) (%)
450 20
360 16
270 12
180 8
90 4
0 0
FY05 FY06 FY07 9MFY08
Source: Company, Angel Research; * The spike in 9MFY2008 revenues is because of the acquisition of
Element-K.
NIIT offers content development, learning management solutions and training delivery services to
its clients in its CLS business. The company has a strong focus on the US, which has increased
further with the acquisition of Element-K. The estimated size of the North American corporate
training market is US $45.9bn, of which delivery services account for the maximum pie of US
$21.6bn, while content development accounts for a size of US $16.3bn. Going ahead, spending
on corporate training is expected to rise by around 7% until 2010 as per IDC, with training outsourcing
expected to grow at a considerably faster rate of nearly 25% over the same period.
Exhibit 8: North American Corporate Training Market
Consulting
Facilities US$ 0.7bn Fulfillment
US$ 0.4bn US$ 0.9bn
Outsourcing
Services Assessment /
US$ 1.2bn Testing
Segments
US$ 0.4bn
Delivery Services
US$ 21.6bn
Technologies Colleges / Content

US$ 1.2bn Universities Development
US$ 2.2bn US$ 16.3bn
Source: Company presentation
January
June 5, 2008
TM
Education
NIIT also partners with industry majors like Microsoft, Intel, IBM and Symantec to provide training
to professionals on their platforms. The company provides corporate training services in several
verticals such as technology, BFSI, retail and publishing. NIIT also has a Learning Management
Solution (platform) called CLiKS. Along with Element-K, NIIT’s strategy is to grow its content
library subscription-based business, provide end-to-end solutions and grow more profitably by
off-shoring some of Element-K’s work to India. In fact, the company has managed to make
Element-K more profitable. At the time of acquisition, Element-K recorded negative margins
compared to a low-to-mid-single digit range that it is clocking currently.
Post the acquisition of Element-K, the CLS business is the second-largest contributor to NIIT’s
gross revenues (SWR) and the largest contributor to net revenues, with revenue share of around
41% and 57% respectively, in FY2007 (56.8% to net revenues in 9MFY2008).
We expect the segment’s contribution to overall revenues – SWR and net - and EBITDA to
decline going ahead, due mainly to considerably higher growth being witnessed by other
business segments of the company, namely ILS and New Businesses. We expect the contribution
of CLS SWR to the total SWR to decline from nearly 50% in FY2008 to 41.5% in FY2010, given
the considerably slower 6.6% CAGR growth expected in CLS SWR over FY2008-10E v/s the
substantially higher 17.9% CAGR growth expected in total SWR over this period.
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. In FY2007, the
financials of Element-K were consolidated with those of NIIT for a period of 8 months. Thus, the
full consolidation of Element-K with NIIT will provide a kicker to CLS revenues in FY2008E.
Pertinently, the integration of Element-K with NIIT is well on track. Over FY2007-10E, we expect
CLS SWR to grow at a CAGR of 15.5% vis-à-vis a 27.9% CAGR growth in total SWR.
On the other hand, we expect the contribution of CLS net revenues to the total to fall from 57% in
FY2007 to 46.4% in FY2010, given the slower 13.2% CAGR growth expected in these
revenues over FY2007-10E, as compared with a 21.5% CAGR growth expected in total net
revenues over the same period.
In terms of operating profitability, we expect the total contribution of CLS EBITDA to fall
significantly from 45.9% in FY2007 to 26.3% in FY2010. 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. In fact,
EBITDA, on an absolute basis, is expected to be lower by around 24% yoy in FY2008. However,
we expect EBITDA to witness decent growth over FY2008-10E.
We estimate a CLS EBITDA CAGR fall of 1.7% over FY2007-10E mainly due to the significant fall
in FY2008E. However, over FY2008-10E, we expect CLS EBITDA CAGR growth of around 19%.
This is compared to overall EBITDA CAGR growth of 37.7% over FY2007-10E and 43.2% over
FY2008-10E.
June
January
5, 2008
TM
Education
Exhibit 9: CLS business projections

% chg 171.3 35.5 7.2 6.1
Net Revenues 456 569 615 661
% chg 174.4 24.8 8.0 7.6
EBITDA 36 27 39 53
% chg 35.5 (24.2) 46.7 34.6
EBITDA Margins (%) 7.8 4.7 6.4 8.0
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), a
leading provider of English Language and Communication Training, headquartered in Noida. Evolv
has a total of around 160 employees including 98 trainers, and has a presence across major cities
in India such as New Delhi, Mumbai, Bangalore, Chennai, Kolkata and Chandigarh. The company
also has an international presence in the Philippines and Pakistan. Evolv provides training
services to marquee clients across the IT-ITES, Banking, Insurance, Telecom, Real Estate,
Healthcare and Travel industry segments, among others. The company has developed over 50
specialised courses and a library of modules for providing training in the English Language and
Communication domain. The courses include Accent Neutralization, Fluency and Expression,
Cross Cultural Communication, Presentation Skills, Business Writing Assertive Communication
and Conversational Skills, among others.
Evolv counts among its clients, marquee names such as Accenture, Cognizant, Deutsche Bank,
HP, Oracle, Prudential, TCS, HDFC Bank, ICICI Bank, SRL Ranbaxy, Airtel and Unitech. NIIT’s
CLS business, which offers integrated learning solutions to companies in the IT-ITES, Banking,
Insurance, Telecom and Retail sectors, will be boosted significantly through the acquisition of
Evolv, whose expertise in English language training will provide greater penetration into existing
and potential markets on account of a wider range of solutions. NIIT estimates that this market
could touch a size of Rs800cr in three years’ time and expects to corner 10% of the market.
New Businesses – Powering broader areas of the new economy
NIIT in September 2006 ventured into newer terrain, with the launch of two key new businesses –
financial services training and management education. This was yet another step towards
achieving its vision of becoming a ‘Global Talent Development Corporation’, as opposed to being
perceived purely as an IT training company.
January
June 5, 2008
TM
Education
Financial Services Training
To mark its entry into training for the Financial Services Sector, NIIT launched the Institute of
Finance, Banking and Insurance (IFBI) in partnership with ICICI Bank, India’s largest private
sector bank, with NIIT holding 81% equity, while the balance 19% is held by ICICI Bank. This
Institute caters to the needs of the exponentially-growing Banking, Financial Services and
Insurance (BFSI) sectors in India and overseas markets.
IFBI commenced admissions in October 2006 and has recorded cumulative enrolments of over
7,400 until December 31, 2007. Its first offering was a six-month full-time programme, the Post
Graduate Diploma in Banking Operations (PGDBO), which focusses on grooming entry-level
professionals for the Banking industry. The launch of IFBI leverages NIIT’s reach and expertise in
distributed non-formal education and harnesses the domain expertise of ICICI Bank, enabling
NIIT to move into growing areas of the knowledge economy.
ICICI Bank has supported IFBI in designing the curriculum, developing the course content, and
offering laboratory and Internship sites to students. NIIT’s key strength areas lie in content
development and delivery of the content through its platforms, which it is looking to leverage to
drive growth in these businesses.
NIIT currently offers numerous courses in the BFSI domain, namely Retail Banking, under which
it trains budding finance professionals in areas like core banking, technology and CRM,
Insurance, which it has launched in partnership with ICICI Prudential, and Financial Services
program, launched in partnership with ICICI Securities (I-Sec). NIIT has also tied up with Infosys
to offer training on its Finacle software product. Thus, through in-depth broad course content,
effective content delivery and partnerships, NIIT is looking to drive strong growth in this business
going forward. NIIT has also signed up HDFC Bank and Yes Bank and is in talks with other banks
also, reflecting the ever-increasing acceptance that IFBI is getting from the industry.
Management Education
NIIT also marked its entry into the field of technology-enabled management education, with the
launch of a new institute, NIIT Imperia. The institute has set up Centres for Advanced Learning
that offer programs from the Indian Institutes of Management (IIM) Ahmedabad, Kolkata and Indore,
to working executives, using Synchronous Learning Technology (SLT). SLT enables remote
classrooms to be connected live with the faculty teaching at institutes. The usage of broadband
with two-way audio-video, and special software, replicates face-to-face teaching.
NIIT Imperia offers long and short-term programs in general and functional management to
working executives. While the content, teaching and certification is from one of the IIMs, the
technology, synchronous classrooms across the country and management of the distributed
education system is provided by NIIT. Thus, NIIT provides the platform for the delivery of quality
management education. The company has integrated its Learning Management and e-learning
systems with this technology, and implements and manages the overall student experience.
June
January
5, 2008
TM
Education
NIIT Imperia Education Centers are located in New Delhi, Mumbai, Kolkata, Bangalore, Hyderabad,
Chennai, Bhubaneswar, Nagpur, Chandigarh, Vizag, 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, nor does it call for the creation of additional infrastructure in the
management institute.
Given the strong 8-9% annual growth in India’s economy, the need for well-trained professional
managers is significant and NIIT, through NIIT Imperia, 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, international business, sales & marketing, and
family-owned businesses and entrepreneurship. NIIT has also signed up two new partners for
Imperia, that is, Indian Institute of Foreign Trade (IIFT), New Delhi and Institute of Management
Technology (IMT), Ghaziabad. 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.
Consequently, on account of the scorching growth in this business, the segment’s contribution to
overall revenues – SWR and net - and EBITDA is expected to increase more significantly going
ahead. We expect the contribution of New Businesses SWR to the total SWR to rise from under
1% in FY2007 to 5.4% in FY2010, given the outstanding 132% CAGR growth expected in these
revenues over FY2007-10E, vis-à-vis a 27.9% CAGR growth expected in total SWR over this
period.
On the other hand, we expect the contribution of New Businesses’ net revenues to the total to rise
from under 1% in FY2007 to over 7% in FY2010, given the strong 140% CAGR growth expected
in these revenues over FY2007-10E, as compared with the 21.5% CAGR growth expected in total
net revenues over the same period.
In terms of operating profitability, we expect the total contribution of New Businesses EBITDA to
the total to rise from a negative 12% in FY2007 to 7.5% in FY2010. This is on account of the
strong improvement expected in segmental Margins due to higher enrolments and operating
leverage. We expect absolute EBITDA to improve from a loss of Rs9cr in FY2007 to Rs15cr in
FY2010. Thus, the impressive growth in the Margins of the New Businesses is a strong lever for
NIIT’s overall Margin expansion expected over FY2007-10E.
January
June 5, 2008
TM
Education
Exhibit 10: New Businesses projections

% chg 237.3 116.3 70.6
Net Revenues 7 26 57 101
% chg 250.0 125.0 75.0
EBITDA (9) (4) 3 15
% chg 425.0
EBITDA Margins (%) (124.7) (15.0) 5.0 15.0
Contribution to Total EBITDA (%) (11.8) (3.9) 2.0 7.5
Investment Arguments
Shift from pure-play training NIIT has traditionally been known and perceived as an IT training company. The company is
to becoming a ‘Global Talent India’s largest IT training company and has the largest network of centres (own and franchisee)
Development Corporation’ across the country. NIIT provides IT education and training to students and professionals. The
company’s training programs cover the entire spectrum of learners, from the young people
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.
However, over the past nearly two years, NIIT has made conscious attempts to change its
perception from merely being an IT training company to becoming a ‘Global Talent Development
Corporation’. Towards this, 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. It has leveraged its extensive
experience in the IT vertical to expand into newer verticals and business segments.
A change in the business mix
While the ILS business continues to remain a key part of NIIT’s overall business portfolio, the
company has also re-jigged its strategy to drive higher growth rates along with better profitability.
The company’s business portfolio has seen a notable shift. While the ILS business’ contribution to
SWR and net revenues has fallen slightly, going ahead, given the strong growth it is seeing, the
contribution is expected to increase to 47.1% and 37% respectively in FY2010E from FY2008E
levels of around 43% and 32%. On the other hand, the School Learning Solutions (SLS) business
has witnessed a significant decline in contribution, as NIIT has re-aligned its business strategy for
this segment to focus more on Private schools. The Corporate Learning Solutions (CLS) segment
has seen the maximum increase in its contribution, however, aided by the acquisition of
Element-K. NIIT has also commenced newer businesses in verticals like BFSI and
June
January
5, 2008
TM
Education
technology-enabled management education, leveraging its knowledge in IT to expand to these

verticals and tap the market for the requirement of skilled personnel in these businesses, given
the burgeoning growth they are witnessing.
Going ahead, in terms of business segments, we estimate NIIT’s SLS business to clock a 17.5%
CAGR growth over FY2007-10E, with the Private Schools business expected to clock a CAGR of
around nearly 26% in the mentioned period. Nonetheless, we have been conservative on the
profitability front and expect EBITDA Margins to decline by 50bp each year over FY2008-10E.
We expect NIIT’s CLS business to clock a 13.2% CAGR over FY2007-10E driven by the
increased adoption of training outsourcing and strong growth in the content library of Element-K.
In terms of EBITDA Margins, we expect these to increase over FY2007-10E after a dip in FY2008E
on account of Rupee appreciation. We estimate Margins to rise by 150-160bp annually over
FY2008-10E, after a 306bp yoy decline in Margins in FY2008E.
NIIT’s New Businesses are expected to be the major growth driver going ahead. 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. We have been slightly conservative on the profitability front and
expect EBITDA Margins in this business to hit 15% levels by FY2010, as against management
expectations of a 20-25% range. This is vis-à-vis operating losses of 125% in FY2007. It should
be noted that this segment has already reported EBITDA break-even in 3QFY2008 and we expect
continued improvement on this parameter.
Thus, 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. We are enthused by the company’s vision,
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.
Strong position in the ILS NIIT’s key growth driver over the past couple of years has been its retail training business - ILS.
business 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. It is well-known that the IT Industry is
people-intensive and that human resources are the key ‘raw materials’ driving its growth. Direct
employment in the IT-ITES Industry was estimated at nearly 2mn in FY008, reflecting a CAGR
growth of over 25% since FY2002. In terms of revenues, the sector has grown from US $7.7bn in
exports in FY2002 to US $40.3bn in FY2008, reflecting a CAGR growth of 32%. Thus, the strong
growth of this industry has been the key enabler to NIIT’s own growth over the past few years.
The ILS business has seen its India-based gross revenues (SWR) clock a CAGR growth of over
41% over FY2005-07. Overall, ILS net revenues have grown at a CAGR of 36.7% over the same
period. This compares favourably with the growth of around 33% recorded by the Indian IT-ITES
Export Sector over the mentioned period.
January
June 5, 2008
TM
Education
Even as the ILS Business’ contribution to revenues has been significant, its contribution to
profitability has been even more pronounced driven mainly by higher capacity utilisation which,
given the high fixed-cost nature of the business has led to strong operating leverage, driving
higher Margins. NIIT achieved EBITDA break-even in the ILS business in FY2005 at around 38%
capacity utilisation. However, in FY2006 and FY2007, capacity utilisation levels hit 46% and 54%
leading to Margins of 7.7% and 17.6%, respectively. During 9MFY2008, Margins have already hit
20%, reflecting the strong traction being witnessed by the business.
Going ahead, we expect NIIT’s ILS business to clock a 29% CAGR growth over FY2007-10E. We
expect strong growth in domestic revenues as also in the company’s Chinese operations and
ROW, aided by expansion into newer geographies. Higher capacity utilisation and fee increases
are also expected to drive Top-line.
On the other hand, we expect EBITDA Margins in this business to continue to expand mainly on
the back of higher capacity utilisation. With capacity utilisation expected to hit 65% by FY2010E,
we have modeled for a steady 100bp annual increase in Margins over FY2008-10E, after a strong
243bp yoy increase in FY2008E.
Well-hedged business NIIT, through the strategic initiatives taken by it in the recent past, has been able to move closer to
portfolio its vision of becoming a ‘Global Talent Development Corporation’. A positive impact of these
strategic initiatives has been diversification of its business portfolio, thereby reducing the
dependence purely on the IT Sector. As is well-known, the current operating environment is
indeed a fairly difficult one for IT companies and they face multiple headwinds, namely a
recession in the key US economy, Rupee appreciation (in spite of the current depreciation on
account of record crude prices), wage inflation, 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. Hence, to succeed in this challenging environment, the key for IT
companies (apart from hedging and higher utilisation rates, which are short-term measures) is to
improve productivity, change the business mix in favour of higher value-added services like
consulting, and take long-term non-linear growth initiatives (not headcount-based growth) like
platform-based BPO. These initiatives are likely to lead to a slow down in headcount addition
going ahead. Consequently, such an event would have ramifications on NIIT’s growth, since it
typically tracks growth in the Indian IT Industry with a lag effect.
However, since NIIT’s business portfolio is more diversified, with close to 80% of net revenues in
FY2008E likely to come from avenues other than the Indian IT Industry, 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.
Well-positioned to capture the On account of having built a well-diversified business portfolio over the past couple of years, NIIT
opportunity due to the talent is well-positioned to leverage on the opportunity for providing skilled manpower to meet the
war among industries; burgeoning needs of varied industries apart from IT. On account of the strong 8-9% GDP growth
“Challenges = Opportunities” recorded by the Indian economy, the manpower needs across industries are quite significant.
June
January
5, 2008
TM
Education
Sectors like Telecom, BFSI and Retail are on high growth trajectories and hence require
significant manpower to sustain growth going ahead. This gives a significant growth opportunity
for NIIT to leverage. Going ahead, it could also consider entering newer verticals like Retail, which
will further drive growth. Thus, 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 The newer businesses launched by NIIT have recorded operating-level break-even in 3QFY2008.
businesses Going ahead, there exists significant scope for strong Margin expansion, given the high operating
leverage enjoyed by them. These businesses record higher Margins with higher capacity utilisation,
in much the same manner as the ILS business. Thus, as IFBI and Imperia gain greater
acceptance and newer enrolments flow in, profitability is likely to improve significantly. In fact,
management expects EBITDA Margins to hit a range of 20-25% by FY2010, even as we have
factored in a more conservative 15%.
Concerns
High US exposure NIIT has significant exposure to the US market through its CLS business. Around 57% of its
revenues are expected to come from the CLS business in FY2008, most of which are derived from
the US. 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). In fact, in FY2008 this far, its CLS
business has been adversely impacted by the strong Rupee, with Rs44.3cr being wiped off the
Topline (as much as 15%) and Rs7.7cr being shaved off the EBITDA (119bp) during 9MFY2008.
Thus, continued Rupee appreciation is likely to continue to impact NIIT adversely. Further, if the
US recession was to lead to cuts in training outsourcing budgets, the company would likely be
negatively impacted and growth would slow substantially.
Significant exposure to the While NIIT’s strategic initiatives over the past two years have enabled it to expand its business
Indian retail training market portfolio beyond IT training, it still derives over 50% of gross revenues from this business and
nearly 34% from India-based training revenues. On a net basis, over 30% of its revenues are
derived from the ILS business. Currently, the Indian IT Sector is going through a difficult period,
with multiple headwinds such as a US recession, Rupee appreciation (in spite of the current
depreciation on account of record crude prices), wage inflation, high attrition rates and a likely end
to the STPI tax holiday post-FY2010, all impacting the performance of these companies. In case
a significant slowdown was to ensue in the IT sector, it could result in a likely toning down of hiring
plans by these companies. This would adversely impact NIIT, given its fairly high exposure to this
segment. Considering that this business has been the star performer over the past two years for
NIIT, a slowdown would likely lead to lower growth rates for the company going forward and could
lead to downside risks to our projections.
Growth at the cost of NIIT acquired Element-K in 2006 to expand its business portfolio in the CLS business. While this
profitability? acquisition was a fairly large one and added a significant chunk of revenues to NIIT, on the
profitability front, the company saw a fall. In the organic CLS business pre-acquisition of
January
June 5, 2008
TM
Education
Element-K, EBITDA Margins ranged between 14-16%. However, after the acquisition,
consolidated segment Margins and overall Margins took a hit, since Element-K was loss-making
at the time. On an organic basis, CLS Margins stood at nearly 15% in FY2007. After consolidation
with Element-K, which recorded Margins of under 3%, segmental Margins stood at below 8%
levels, a decline of nearly 700bp.
Exhibit 11: Acquisition impact - Growth at the cost of profitability?

(FY2007) CLS standalone CLS consolidated Chg (bps)
EBITDA Margins (%) 14.8 7.8 (698)
Thus, it is clear that in the quest for growth, given the consolidation in this business globally, NIIT
had to sacrifice Margins. It should be noted that NIIT has done a good job in increasing the
Margins of the standalone Element-K since acquiring it, due in part to offshoring some of
Element-K’s work to India. Nonetheless, given the steep difference in Margins, overall Margins
were always likely to get adversely impacted. In FY2008, matters have worsened on account of
the Rupee appreciation (in spite of the current depreciation on account of record crude prices).
Going ahead, if NIIT takes similar decisions to ‘buy’ growth at the cost of profitability, it may further
impact profitability, which is a risk to our Margin expansion call.
High debtor days, capex The Government schools business is characterised by a high number of debtor days. This is not
intensity of Government surprising given that the government machinery works at its own pace. This was the main reason
schools business why NIIT has shifted its focus towards the more profitable Private schools business over the past
couple of years. The business is also characterised by higher capex intensity, as the company
has to make upfront investments in infrastructure, systems integration and so on after winning the
contract. Therefore, there would be a need for significant financial resources to execute such
projects. Apart from these factors, significant execution risks also exist. Thus, these factors could
lead to cash constraints going ahead along with slower growth.
June
January
5, 2008
TM
Education
We expect the Indian economy to continue on a strong growth path over the next few years, given
favourable demographics, resulting in a ‘demographic dividend’ with a significant proportion of the
population joining the workforce, capital investments, increasing affluence and the growth of the
great ‘Indian middle class’, leading to strong growth in consumption demand and a policy of
‘continuation’ being followed with respect to the reforms process. This will consequently lead to a
huge requirement for talented manpower to sustain growth.
In view of this, 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,
improving the quality of education and retaining children in the education system to ensure that
they remain in the mainstream. This is the key factor that is likely to lead to a strong pipeline of
talented human resources joining the workforce in future, enabling the economy to sustain
strong growth.
Apart from this, manpower demand will continue to increase in sectors like IT, BFSI, Telecom,
Retail, Aviation and Hospitality, leading to a significant business opportunity for training and
developing talent for these sectors. Consequently, we believe there is strong visibility of growth for
companies that act as ‘suppliers of talent to the Indian Services Sector’, given that it is this sector
that is likely to lead the growth of the Indian economy over the next many years.
The Corporate Training market is also likely to grow at a decent clip, driven by an increase in
training outsourcing, strong partnerships with industry majors, growth and development of content
library and strong demand for such services from major Indian and global corporates.
We believe NIIT is in a strong position to tap these markets with its diversified business portfolio.
There is strong visibility of growth for the company, especially in its new businesses like financial
services training and management education, as well as in the SLS business, even as the other
segments of the company also seem set to grow at a decent rate, along with a largely positive bias
on Margins. We estimate a 21.5% CAGR growth in Top-line and 36.4% CAGR growth in
Bottom-line over FY2007-10E, along with a 442bp expansion in Margins over the mentioned
period.
At the CMP of Rs109, the stock trades at a P/E of 12.5x FY2010E EPS. We are enthused by the
strategic initiatives being taken by the management to drive strong growth in future. We Initiate
Coverage on the stock, with an Accumulate recommendation and 12-month Target Price of
Rs123.
January
June 5, 2008
TM
Education
Exhibit 12: Sales Growth

(Rs cr)
1,500
1,260
1,020
780
540
300
FY05 FY06 FY07 FY08E FY09E FY10E
Exhibit 13: EBITDA Margins

(%)
17
15
13
11
7
Exhibit 14: Net Profits

(Rs cr)
150
126
102
78
54
30
June
January
5, 2008
TM
Education
Profit and Loss Account (Consolidated) Rs crore Balance Sheet (Consolidated) Rs crore
Y/E March FY2007 FY2008E FY2009E FY2010E Y/E March FY2007 FY2008E FY2009E FY2010E
Net Sales 795.1 997.6 1,194.5 1,426.6 SOURCES OF FUNDS
Total Expenditure 717.7 899.0 1,050.9 1,224.5 Reserves & Surplus 294.8 332.9 406.7 509.7
Shareholders' Funds 314.5 365.8 439.6 542.7
EBITDA 77.5 98.5 143.5 202.1
Loan Funds 269.8 252.7 232.8 210.1
% of Net Sales 9.7 9.9 12.0 14.2 Minority Interest 0.4 (0.3) (1.0) (1.7)
Other Income 6.8 15.0 14.3 14.3 Total Liabilities 584.7 618.3 671.5 751.1
Depreciation & Amortisation 47.3 52.0 58.8 68.1
Gross Block 570.2 627.4 709.5 822.1
Int. and Fin. Charges (Net) 12.4 25.3 23.3 21.0 Less: Acc. Depreciation 198.9 250.9 309.7 377.8
PBT 24.6 36.2 75.8 127.2 Net Block 371.3 376.5 399.8 444.3
Capital Work-in-progress 13.4 13.4 13.4 13.4
% of Net Sales 3.1 3.6 6.3 8.9
Miscellaneous Expenditure 0.1 0.1 0.1 0.1
Tax 0.4 0.0 11.4 25.4
Current Assets 451.1 473.8 588.4 714.0
Effective Tax Rate (%) 1.5 0.0 15.0 20.0 Less: Current Liabilities 320.3 314.7 399..3 489.8
Profit in assoc. and min. int. 33.1 36.3 39.9 43.8 Net Current Assets 130.8 159.1 189.1 224.2
Deferred Tax Asset (Net) 8.1 8.1 8.1 8.1
PAT 57.3 72.6 104.3 145.6
Investments 61.1 61.1 61.1 61.1
% chg 38.6 26.6 43.8 39.6 Total Assets 584.7 618.3 671.5 751.1

Y/E March FY2007 FY2008E FY2009E FY2010E Y/E March FY2007 FY2008E FY2009E FY2010E
Profit before tax 24.6 36.2 75.8 127.2 Per Share Data (Rs)
Depreciation 47.3 52.0 58.8 68.1 Diluted EPS 3.4 4.4 6.3 8.8
Change in working capital 78.7 (61.9) 27.5 23.0 Cash EPS 6.3 7.5 9.8 12.9
Income taxes paid 0.4 0.0 11.4 25.4 DPS 1.0 1.1 1.6 2.2
Book value per share 18.9 22.0 26.4 32.6
Cash from operations 150.2 26.3 150.7 192.9
Operating Ratios (%)
Change in Fixed assets 284.4 57.2 82.1 112.6
Sales growth 76.4 25.5 19.7 19.4
Free cash flows (134.2) (30.9) 68.6 80.3
EBITDA Margins 9.7 9.9 12.0 14.2
Change in Investments 21.2 0.0 0.0 0.0
Net Profit Margins 7.2 7.3 8.7 10.2
Cash from investing activities (21.2) 0.0 0.0 0.0
Return Ratios (%)
Change in Share capital (0.9) 0.0 0.0 0.0
RoE 19.7 21.3 25.9 29.6
Change in Debt 160.8 (17.1) (19.9) (22.7) RoCE 6.3 9.9 14.7 19.7
Dividend and dividend tax paid 16.7 21.2 30.5 42.6 Dividend payout 24.9 25.0 25.0 25.0
Cash from financing activities 143.1 (38.3) (50.4) (65.3) Valuation Ratios (x)
Other adjustments 20.8 35.6 39.2 43.1 P/E 31.6 25.0 17.4 12.5
Net increase/(decrease) in cash 8.6 (33.6) 57.4 58.2 P/BV 5.8 5.0 4.1 3.3
Opening cash balance 65.0 73.6 40.0 97.4 Sales/GFA 1.4 1.6 1.7 1.7
Closing cash balance 73.6 40.0 97.4 155.6 EV/EBITDA 25.7 20.4 13.5 9.2
Note: All figures are given on a consolidated basis.
January
June 5, 2008
TM
Angel Broking
Education
Fund Management & Investment Advisory 022 - 4040 3800 / 2835 9600)
(
P. Phani Sekhar Fund Manager - (PMS) phani.sekhar@angeltrade.com
Devang Mehta AVP - Invesment Advisory devang.mehta@angeltrade.com
Research Team 022 - 4040 3800 / 2835 9600)
(
Hitesh Agrawal Head - Research, Cement hitesh.agrawal@angeltrade.com
Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com
Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com
Harit Shah IT, Telecom harit.shah@angeltrade.com
Rohit Nagraj Oil & Gas rohit.nagraj@angeltrade.com
Pawan Burde Metals & Mining pawan.burde@angeltrade.com
Vaibhav Agrawal Banking vaibhav.agrawal@angeltrade.com
Girish Solanki Mid-cap, Power girish.solanki@angeltrade.com
Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com
Anand Shah FMCG , Media anand.shah@angeltrade.com
Sulabh Agrawal Mid-cap sulabh.agrawal@angeltrade.com
Puneet Bambha PMS puneet.bambha@angeltrade.com
Amit Bagaria PMS amit.bagaria@angeltrade.com
Akshat Vyas Research Associate (Pharmaceutical) akshat.vyas@angeltrade.com
Jaydeep Mavani Research Associate (Automobile) jaydeep.mavani@angeltrade.com
Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com
Richa Chandak Research Associate (Banking) richa.chandak@angeltrade.com
Neha Soni Research Associate (Infra, Real Estate) neha.soni@angeltrade.com
Shweta Boob Research Associate (FMCG , Media) shweta.boob@angeltrade.com
V Srinivasan Research Associate (Mid-cap, Power) v.srinivasan@angeltrade.com
Neha Idnany Research Associate - (PMS) neha.idnany@angeltrade.com
Aniruddha Mate Research Associate - (PMS) aniruddha.mate@angeltrade.com
Sandeep Wagle Chief Technical Analyst sandeep@angeltrade.com
Ajit Joshi AVP Technical Advisory Services ajit.joshi@angeltrade.com
Milan Sanghvi Sr. Technical Advisor milan.sanghvi@angeltrade.com
Nitin Kunte Technical Advisor nitin.kunte@angeltrade.com
Brijesh Ail Technical Analyst brijesh@angeltrade.com
Vaishnavi Jagtap Technical Analyst vaishnavi.jagtap@angeltrade.com
Siddharth Bhamre Fund Manager - Derivatives & Equities siddarth.bhamre@angeltrade.com
Commodities Research Team
Amar Singh Research Head (Commodities) amar.singh@angeltrade.com
Samson P Sr. Technical Analyst samsonp@angeltrade.com
Anuj Gupta Sr. Technical Analyst anuj.gupta@angeltrade.com
Girish Patki Sr. Technical Analyst girish.patki@angeltrade.com
Commodities Research Team (Fundamentals)
Badruddin Sr. Research Analyst (Agri) badruddin@angeltrade.com
Mandar Pote Research Analyst (Energy) mandar.pote@angeltrade.com
Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com
Bharat Patil Production bharat.patil@angeltrade.com
Research & Investment Advisory: Acme Plaza, 3rd Floor ‘A’ wing, M.V. Road, Opp Sangam Cinema, Andheri (E), Mumbai - 400 059
Disclaimer
This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose
possession this document may come are required to observe these restrictions.
Opinion expressed is our current opinion as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject
to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true and are for general guidance only. While
every effort is made to ensure the accuracy and completeness of information contained, the company takes no guarantee and assumes no liability for any errors or omissions of the information. No
one can use the information as the basis for any claim, demand or cause of action.
Recipients of this material should rely on their own investigations and take their own professional advice. Each recipient of this document should make such investigations as it deems necessary to
arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult their own advisors to
determine the merits and risks of such an investment. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain
transactions - futures, options and other derivatives as well as non-investment grade securities - involve substantial risks and are not suitable for all investors. Reports based on technical analysis
centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's
fundamentals.
We do not undertake to advise you as to any change of our views expressed in this document. While we would endeavor to update the information herein on a reasonable basis, Angel Broking, its
subsidiaries and associated companies, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons
that may prevent Angel Broking and affiliates from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change
without notice. Angel Broking Limited and affiliates, including the analyst who has issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy
or sell the securities of the companies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential
conflict of interest with respect to company/ies mentioned herein or inconsistent with any recommendation and related information and opinions.
Angel Broking Limited and affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the
companies referred to in this report, as on the date of this report or in the past.
Ratings (Returns) : Buy (Upside > 15%) Accumulate (Upside upto 15%) Neutral (5 to -5%)
Reduce (Downside upto 15%) Sell (Downside > 15%)
June
January
5, 2008

India Education Sector Report

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

India Education Sector Report

Hochgeladen von

Copyright:

Verfügbare Formate

TM

Human Resources - Powering India’s competitiveness in Global Economy 5

Government initiatives to raise literacy rates in India 6

School Infrastructure – Not up to the mark 10

Public Private Partnership (PPP) – The way ahead 15

The role of private companies and educators 16

Indian IT Training Industry – Tracking the IT Industry with a lag 18

Corporate Training Market 23

Everonn Systems India 46

z Increase the number of schools to provide access to a larger population,

Human Resources - Powering India’s competitiveness in Global Economy

Exhibit 1: India's GDP - On a strong growth trajectory

Source: Angel Research

A strong grassroots-level educational infrastructure, which helps in the creation of a well-rounded

Educating India's population - A humungous task

Intent/focus of the Government

Government initiatives to raise literacy rates in India

Sarva Shiksha Abhiyan (SSA)

SSA - Progress against key targets

Exhibit 2: SSA - Performance round-up

Kasturba Gandhi Balika Vidyalayas

Exhibit 3: Gender disparity in Education (%)

Mid-day meal scheme

Funding of education schemes – Implementation of Education Cess

Exhibit 4: Access to Primary education - Good coverage

Exhibit 5: Access to Upper Primary education - Not satisfactory

Exhibit 6: Primary-Upper Primary ratio - Work yet to be done

School Infrastructure – Not up to the mark

Exhibit 7: Schools without basic facilities

Enrolments – Good growth

Exhibit 8: Student enrolments

Enrolment ratios – Rapidly on the rise

Dropout rates – A measure of the real effectiveness of the system

Exhibit 10: Dropout rates

Performance of students – A metric to gauge quality of education imparted

Exhibit 11: Average marks achieved by students (%)

Exhibit 12: Number of Teachers

Teacher-Student ratio – Not satisfactory

Exhibit 13: Teacher-Student ratio

Source: SES, MHRD

Exhibit 14: Teacher-Student ratio - Secondary schools

Public Private Partnership (PPP) – The way ahead

The role of private companies and educators

Quality education requires teacher training

Demand for education in regional language

Need for Multimedia-based education in schools

Demand for Post-school mentoring - Hampered by low broadband penetration

Indian Broadband Market – Poor penetration hinders growth of IT-enabled education

Exhibit 15: Indian IT-ITES revenues and employment - Strong growth

Source: NASSCOM, Angel Research

Exhibit 16: Indian IT Training Industry - Back on a strong growth path

Source: Dataquest, Angel Research

Substantial manpower requirements of varied sectors – Significant opportunity

Corporate Training Market

English Language Training – Need to integrate with the Global Economy

BUY The ‘Star’ at Pole Position

SmartClass (Private schools)

Exhibit 1: Progress through the grades

Source: Company, Angel Research

Exhibit 2: SmartClass - Revenue Profile

Exhibit 3: Growth of SmartClass business

Source: Company, Angel Research

ICT (Government schools)