Educomp to spend Rs 2,000 cr in schools

New Delhi-based e-learning company Educomp Solutions has worked on a novel business model under which it will invest over Rs 2,000 crore (Rs 20 billion) to "enable" setting up around 150 schools over the next four years.

Under this model, Educomp will earn its return on investment by providing intellectual property (IP) for the schools through its Educomp School Management programme and leasing infrastructure through its subsidiary Educomp Infrastructure.

Due to regulatory constraints, both subsidiaries are under a trust run by Educomp that provides school affiliation with the Central Board of Secondary Education (CBSE).

Said Shantanu Prakash, managing director, Educomp: "We want to set up five to seven schools by June 2008. By June 2009, we should have over 25 schools."

The schools will not necessarily be run under the Educomp brand name, he said, adding: "The schools that we have currently set up are co-branded with the Padma Sheshadri Bal Bhawan."

Educomp already has two schools that are operational in Bangalore and Chennai, and plans to open the third unit next month.

The average investment in each of the schools ranges between Rs 12 crore (Rs 120 million) and Rs 14 crore (Rs 140 milllion), and the schools are expected to be set up in eight to nine months. Educomp Infrastructure will provide the land and building on lease.

This leasing model is expected to fetch the company annuity returns between 19 and 21 per cent. The company also offers a model whereby a school which already has land can opt for the IP only.

"The setting up of the schools will be enabled by Educomp, both in terms of capital needs as well as IP. We are targeting schools from mid-market India, which typically charge fees between Rs 3,000 and Rs 3,500. Since these are greenfield projects, we have already started buying land to facilitate this project," said Prakash.

The Educomp School Management owns the IP for Educomp's Learning Leadership System. It will license this IP to schools.

"India needs schools, and parents have the capacity to pay. The top brands have no scale. There is no proper IP and infrastructure. That's where we step in to provide a tailor-made solution to schools," he explained.

He added that around 80 per cent of the funds for the project would be raised through debt, while 20 per cent would be funded through internal accruals.

The company has around Rs 265 crore (Rs 2.65 billion), of which Rs 210 crore (Rs 2.10 billion) has been raised through debt.

"This capital should suffice till 2008, beyond which we will resort to the same means of raising capital," Prakash said. The Educomp stock is priced at Rs 3,276 on the Bombay Stock Exchange.

Incorporated in 1994, Educomp employs nearly 2,000 people. It has developed  India's largest K-12 (Kindergarten to Class 12)  content library with over 12,000 modules of 3D content.

Educomp currently has nearly 6,000 public-private partnership school projects, with several state governments.