The Education Sector: Private Enterprises in Profitable Niches

6 09 2009

 Last week, I attended the e-India 2009 conference at Hyderabad. As a part of the event, there was an exhibition. One quick round of the exhibition and one cannot but see the large number of companies and start-ups in the digital learning space. Most of these companies are focused in providing computer and internet aided learning support to secondary school and coaching for IIT and other entrances. HCL Digischool, NIIT eGuru, topchalks, Learningmate, Edurite are some of the names I can recall seeing there.

It seems the success of Educomp whose share prices rule over Rs 4000, has triggered many start-ups in this space. The poor man’s Educomp, Everonn Systems, also had a big stall in the exhibition. The rush to enter this space is not unlike the boom computer education, seen in the ’90s, after the success of NIIT.

BusinessWorld reports that the private equity investors are also very keen to fund education ventures.

“From a sleepy segment, which was the bastion of bureaucrats and an obstinate government unwilling to loosen its grip, education seems to be transforming into a hot sector, luring entrepreneurs on the one hand and private equity (PE) funds on the other. In the past few months, at least four education companies have received equity funding from PE players adding up to about Rs 300 crore.

The biggest investment came from Matrix Partners India, which pumped in Rs 100 crore for a 16 per cent stake in Delhi-based FIITJEE, which prepares students for IIT entrance examinations. Franklin Templeton, another PE player, invested Rs 50 crore in Kota-based Career Point. Delhi-based Career Launcher received Rs 50 crore from Intel Capital. Helix Investments acquired a 30 per cent stake in Mumbai-based Mahesh Tutorials for Rs 60 crore. Helix put in another Rs 50 crore in Mumbai-based e-learning solutions provider LearningMate Solutions. A key reason why PE funds have invested in the coaching segment is that coaching institutes remain outside the purview of the regulatory framework because they do not provide degrees or certificates.”

The entrepreneurs and investors are finding niches in the education sector which is outside of the regulatory framework, where for-profit enterprises could be setup. Education is big business in India, but the government does not want to admit it. It is time the Minister of HRD, opens up education to private sector for for-profit enterprises. This will remove the hypocrisy surrounding the education business and allow good promoters to enter education without using questionable structures like not-for-profit trusts or societies to setup schools and colleges. So investment will come into the area  which needs huge investments rather than just the profitable niches.

- G. Mohan





The Amazing Story of Thyrocare Technologies

30 11 2008

Dr A.Velumani, the Founder of Thyrocare Technologies Ltd is a an outstanding technopreneur and a true visionary to boot. Born in a landless farmer’s family in Appanickenpatti Pudur, an obscure village near Coimbatore, Velumani was a brilliant student. He became the first graduate from his village. He went on to acquire a PhD in Thyroid Chemistry. He joined as a Scientist at Bhabha Atomic Research Centre (BARC), Mumbai. He served BARC for fourteen years, when he decided to do something on his own.

 

Velumani decided to pursue his dream, which got formed while he was a Ph.D student at Tata Memorial Hospital, Mumbai. He used to see people camping on the road outside the hospital at Parel. These were relatives of cancer patients who did not have accommodation. He desperately wanted to mitigate the sufferings of the patients and their relatives. Realising that he was not a doctor, he decided to offer medical diagnostics, something that he could do, as a service to patients without profiting at their expense.

 

The outcome of this decision was Thyrocare, which he set up in Mumbai in 1996. Thyrocare is today the world’s largest thyroid testing laboratory. It has a single world-class centralized laboratory in Thane which can handle 500,000 tests a day. The company specialises in immunodiagnostics, testing blood samples for thyroid disorders. Thyrocare decided to focus on preventive healthcare. In his own words, Dr Velumani explains the rationale

 

At any given point of time, 10 per cent of India’s population is in need of some medical care. Out of these, only one per cent are acutely sick people. The rest nine per cent are not even aware that they have some problem. The 40,000 diagnostic laboratories in our country are all fighting for that one per cent. Few are focusing on the nine per cent, which need preventive healthcare.

We are targeting this very nine per cent. We are planning to include some common tests like heamatology, serology and microbiology. They are important in providing preventive care support. Some high-end tests are also planned.

 

Thyrocare realized that if they had to provide high-quality diagnostics at a low cost, they needed scale. The company pursues a unique franchisee model to collect samples from across the country. It has over 550 franchisees in last count. All the franchisee needs is a small office, a PC with an Internet connection.

 

For the centralized testing facility to work efficiently, it worked extensively on its logistics system. The company can provide reports to 90% of the locations in India, within 24 hours. Transporting specimens or reports are very costly considering courier and air-cargo costs. But at Thyrocare, the cost of collecting a specimen at Adyar, Chennai, at 4 p.m. to reach Santa Cruz, Mumbai, at 11 p.m. by air-cargo would be as little as 30 paise only.

Thyrocare uses technology extensively. It was the first in the country to introduce barcoded serum vials. The results of lab tests are transmitted through e-mail, available at all franchisees ensuring the cost of report delivery as truly low.

Thyrocare’s logistics system is so well-respected in the industry, that Reliance Life Sciences has tied up with the company to get samples for DNA tests at their labs using Thyrocare’s logistics.

Thyrocare uses its partnership with pharmaceutical companies for marketing. In an innovative collaboration, Thyrocare offers Cadila, Sun Pharma, Dr Reddy’s, Glaxo etc tests from Thyrocare at 50% discount. These companies give them as complimentary coupons to doctors. The doctor in turn gives it to his patients, which helps in expanding the business for all.

Thyrocare has kept its promise of providing tests at an affordable cost. Dr Velumani says “In the 12 years since I started Thyrocare, the cost of everything — rentals, fuel and reagents — had skyrocketed; yet my customers are not paying a single paisa more than they did twelve years ago,”.“Initially, my competitors called me ‘crazy’ for the rates I charged. They waited for me to go bankrupt, but in vain.”

Thyrocare is a closely held company. It achieved a turnover of Rs 80 crore in 2007. Dr Velumani has huge ambitions for Thyrocare which is clearly reflected in his twin dreams

·         Thyrocare should serve 50% of the world’s population for 50% of their diagnostic needs at 50% of the cost.

·         Thyrocare should be the biggest client for the top 20 diagnostic manufacturing companies in the world.

May Dr Velumani’s breed increase! 

- G. Mohan

 

 

 





Urban Mobility: The Bicycle Option

14 07 2008

 

Paris has demonstrated how the traditional bicycle could be an interesting option for improving the urban mobility. In a project called VELIB (bicycle freedom), Paris has initiated a public bicycle rental program. This program will complete its first anniversary on July 15, this year.

 

In this program, there are 20,000 bicycles and 1450 automated stations, about one station every 300 m throughout the city centre. Each Vélib station is equipped with an automatic rental terminal and spots for 15-40 bicycles. Maps showing the station locations are available at all kiosks.

 

The rental terminals have a feature that allows to view the locations and numbers of available bicycles and free spots of the neighboring Velib stations. If a user arrives with a rented bicycle at a station without free spots, the terminal grants another 15 minutes of free rental time. Twenty vehicles are used at night to redistribute bicycles to high-demand stations.

 

Citizens can become a member of Velib by paying an annual subscription of 39 Euros (approximately Rs. 2600) or subscriptions can also be purchased by the day, week or year, at a price of, respectively, 1, 5, or 29 euros. With a subscription, bike rental is free for the first half hour of every individual trip; an unlimited number of such free trips can be made per day.

 

The system is financed by the JC Decaux (World No. 2 in outdoor advertising) advertising corporation, in return for Paris signing over the income from a substantial portion of on-street advertising.

 

The company paid start-up costs of about $115 million and employs the equivalent of about 285 people full time to operate the system and repair the bikes for 10 years. The city receives all revenue from the program as well as a fee of about $4.3 million a year. In return, JCDecaux receives exclusive control over 1,628 city-owned billboards; the city receives about half of that billboard space at no charge for public-interest advertising.

 

This system has been extremely well received by the citizens of Paris. Within one month of its launch, one million trips were clocked. Also, citizens have to often walk two stations, before they get a bicycle.

 

Interestingly, the world leader in outdoor advertising Clear Channel has financed a similar bicycle rental program in Washington DC. They have plans to launch similar programs in other cities in the US.

 

Outlook Business has reported that Pune, the number one bicycle city of India, is preparing to launch a bicycle rental program by end 2008.

 

Indian cities and towns are anything but bicycle friendly. Shouldn’t municipal bodies/ corporations and town planners in India do their damnedest now to find space for bicycle trails?

 

The power center of the outdoor media industry in India is now in the organized sector.Madison Outdoors, Street Culture, Laqshya, Times OOH, News Outdoor India, Percept OOH and JC Decaux India – are you listening?

 

- G. Mohan.





Crash Landing of Air Hostess Training Institutes

5 07 2008

The growth in aviation sector has created a brand new business – air hostess training. These institutes have mushroomed all over the country, more so in North India.

 

These institutes have been luring the youth to get a glamorous job in the fast growing aviation sector. The minimum eligibility for joining these courses is 10+2 and age between 17 to 24 years. With such a low entry criteria and prospect of a glamorous career, no wonder thousands are signing up. More so, in small towns, where job prospects otherwise are few.

 

Most of these institutes offer a one-year diploma in after higher secondary (+2), which prepares the candidates to become join the cabin crew of an airlines. The titles of the course are usually snazzed up to delude the impressionable youth. For example, the course at Frankfinn  is called “Aviation Hospitality and Travel Management.” The course content is a mix of soft skills, some industry specific skills like ticketing and reservation, some domain knowledge about aviation industry, followed by a project. These are typically part-time courses, two hours a days, 5 days a week. The annual fee ranges from Rs 1 to 1.25 lakh per student for the program. The course provides 100% placement assistance. Mark the word –  it is only assistance and not assured placement. But to be fair to them, many of their students have got placed in the various airlines and 5-star hotels. 

 

Frankfinn  is the market leader in India. Promoted by a Supreme Court advocate K.S.Kohli, Frankfinn has no French or Finnish connection.  It is headquartered in Mumbai and has over 115 centres across the length and breadth of the country. I spoke to one centre and I learnt that they have nine batches of 25 students running concurrently. Extrapolating the same, annual output would be probably in the region of 20,000 from across India. No wonder, Frankfinn claims to have a turnover of Rs 250 crore and has expressed an ambition of starting an airline  – Air Frankfinn. It has even leased an Airbus for training purposes.Currently it is a private limited company. It has proposed an IPO sometime soon.

 

Air Hostess Academy  is another national player. Promoted by a husband and wife team. Sapna Gupta is the public face of this institute which  has been in existence for over 10 years. Now it has a network of 35 centres with 8000 students.

 

Flying-Cats, a regional player from North-India, has all-India ambitions. It uses high profile Bollywood stars like Malaika Arora and Kareena Kapoor to promote the course. This institute has tied up with Annamalai University to offer a dual course. A BBA from Annamalai and Air Hostess training from Flying Cats.

 

Aptech, one of the leaders in Computer training also has entered this business recently through its Avalon Aviation Academy. They also offer a variety of diplomas in various aspects of aviation. They have a unique promise, 100 % job guarantee or 50% money back.

 

Kingfisher Training Academy has been promoted by Kingfisher Airlines. This academy started in Mumbai, but has now become operational in all metros. Besides, the one- year program, they offer a six-month program too.

 

A back of the envelope calculations tells me that this business would easily be training 40,000 students annually and generating Rs. 500 crore revenue for the promoters.

 

 

If the Indian aviation industry grows at 25% p.a, like it did till 2007-08 and it implements its aircraft acquisition plans, there will be 40,000 vacancies of cabin-crew jobs by the year 2010. Typically, such jobs pay Rs 15,000-Rs 16000 per month. During last two years alone, over 60,000-70,000 trained students from these institutes have been found waiting for placement. Some may be employed by the hospitality industry, but that is most likely a stop-gap job for most.

 

With the fuel prices going through the roof and the industry reeling under losses, many Indian airlines have cut down their flights. Laying off cabin-crew will follow. If the crude prices come down and the Indian aviation gets back to its growth path, there will be jobs for these aspirants. I do not expect more than one out of three to get an airline cabin-crew job.

 

A  violent shake-out is imminent. Readers may recall what happened to the IT training industry in 2001-02. The entry barriers to these businesses are low, so are exit barriers.

 

- G. Mohan.

 

 





Has the Time Come for Electric Bikes

6 06 2008

At a time when cutting fuel bills is on the top of everyone’s mind, the idea of electric two-wheelers is very appealing. The electric bikes claim that they give 50-70 km on one unit of power, effectively costing 10 paise per kilometer, as against over Rs. 1 per km for a petrol-driven bike. The price of the electric two wheelers is also much lower, around Rs 15,000 -35,000. Most state governments have exempted these vehicles from registration, licence and road taxes.

 

Pushing this proposition, a number of companies have entered the market. There are merchant importers, who import CKD kits from China usually, assemble it and sell it. There are small manufacturers who manufacture a few components, procure the rest and sell it through a local/regional distribution network. There are a few committed long term players who have a vision to expand this category and seek a national footprint. Hero Motors and Ultra Motors of UK had come together as a joint venture. Now the alliance has broken and they have entered the market separately. TVS has also launched a few electric two wheeler models. The most serious and focused player in this sector appears to be Electrotherm, an Ahmedabad based company.

 

The jury is out on whether  Indian market  sees electric two wheelers as a substitute for the conventional motorcycle. Its top speed is only 25 km/hr and it can go up to a maximum distance of 75 km per charge. It can carry a payload of 75 kg only, an adult and a child max. There are infrastructure issues like charging stations and service networks. The manufacturers are still refining their models to meet the expectations of a traditional motorcycle buyer.

 

- G. Mohan.





IIT JEE Coaching Factories

5 06 2008

The IIT JEE results have just been declared. Even if you are not connected to the IIT entrance exam in any way, you can not miss  the coaching classes blowing their trumpets

 

Deccan Chronicle carried a full page ad on the first and last page of two coaching classes- Narayana and Sri Chaitanya. The local FM channel in Hyderabad has a lady shrieking at the top of her voice about how the students of Sri Chaitanya have bagged the top All India ranks. Brilliant Tutorials has released a relatively small ad  claiming credit for the top ranker. Also, to caution the readers of the false claims of other tutorials mentions that Brilliant’s results are verified by AC Nielsen.

 

The ads are obviously aimed at the students to join tutorials. What started in a small way with Agrawal Classes and Brilliant Tutorials nearly 30 years ago has transformed into a  big  business today.

 

The Narayana Group is undoubtedly the biggest player in the tutorial business today. It is a fully integrated institution starting from schools, junior colleges, coaching centers to professional colleges. It has deep penetration inside Andhra Pradesh with 60 junior colleges in 14 locations. Narayana has also expanded nationally with IIT academies in Kota, New Delhi and seven other locations.

 

Narayana’s main offering is integrating the classroom IIT-JEE coaching with the junior college classes (Class XI and XII). Typically a one-year classroom course costs about Rs 50,000 per student. Narayana offers other products too. A crash course of 180 hours just before the JEE costs Rs 16000. It also offers a variety of correspondence course. A typical correspondence course is priced at Rs 45,000/- per annum. Online tests and mock IIT-JEE tests are other products. Narayana recently announced a 7- year IIT-JEE Olympiad course for students in Class VI.

 

The size of Narayana group can be estimated by the fact that it has a total of 174,000 students enrolled in various programs. The group mentions in its web-site that it has 15,000 employees. Its AP twin- Sri Chaitanya would not be far behind.

 

Bansal Classes, Kota is another big player in this business. It also has over 3000 students.

 

Resonance of Kota has now set up branches in Delhi, Kolkata, Lucknow , Bhopal, Jaipur and Nagpur. Career Point of Kota too has branched out to six more cities.

 

Pathfinders and Springboard Study Home are major players in Kolkata. The latter has branches in Asansol, and Siliguri as well. Yukti is big in Mumbai.

 

FIIT-JEE is another IIT JEE tutorial outfit. There are numerous other regional and local players like Vidya Mandir, Ramiah and Akash.   

 

In 2008, 311,258 candidates appeared for the IITJEE for 6,872 seats in IITs. Even if a quarter of the candidates who appear take some form of IITJEE coaching for 2 years, this would indicate a market size of nearly Rs 4.5 billion. The profitability is anybody’s guess.

 

In stark contrast to the above mentioned sweat shops, Ramanujan School of Mathematics (RSM) set up by Anand Kumar who once hawked Papad offers free coaching, food and boarding to poor student in Patna. Founded in 2003, this institute has already sent 142 students to the IIT.  The intake has always been restricted to just 30 students (that’s why the institute is popularly known as Super -30) most of them are from families which have never been to a college. This year all the students (all of 30) of RSM have cleared  IIT JEE. What a fantastic not-for-profit organization!

 

-  G. Mohan





Outsourcing Exit Interviews

25 05 2008
 
In the growing trend of HR outsourcing, add Exit Interviews. The Chennai headquartered Ma Foi Consultants has pioneered this trend in India and they are reporting 100 % growth every year.
 
Not surprisingly, Ma Foi’s clients are IT/BPO and financial services companies.These are the industries with large manpower and high attrition rates to justify outsourcing. Ma Foi uses a mix of on-line questionnaire and an offline interview process. The data drawn from the exit interviews are analysed and presented as recommendations. A neutral third party conducting the interview is stated as the key benefit.
 
With recruitment, selection, payroll, compensation, training and now exit interviews getting outsourced, is it exit time for the HR departments, as we know them ?
- G. Mohan
 




The Audacity of Odhavbhai

13 04 2008
Tucked in the inside pages of today’s Business Line is a small news item reproduced below:
     “Ajanta, the world famous clock maker, is planning to manufacture an electric car at its unit at Samkhiyali in Kutch district and market it a price lower than the Rs 1-lakh Nano. The group has already been manufacturing electric bikes and scooters under the ‘Oreva’ brand. The group would be producing almost 70 % of the parts in-house , which it says would help it roll out the car at a much cheaper price. The basic price of the car is expected to be as low as Rs 85,000.”
 
Odhavbhai R Patel, the man behind Ajanta clocks is a maverick businessman. His group has been a volume king in many diverse categories of products, the most well-known being clocks. After clocks, the group ventured into various brown goods like telephone handsets, calculators, electric iron, toasters etc  using  the ‘Orpat’ brand name.
Then it started a totally unrelated business by setting up one of the largest vitrified tile plant. The Oreva brand  of ceramic tiles is quite a success.
Mr. Patel then  extended  the Oreva brand name to yet another unrelated product category  – Compact fluorescent Lamps -  where it is giving a good fight to the biggies like Philips and Osram.
Now there will be Oreva brand of  electric two-wheelers and cars.   
 
The aspects that are common to all of Mr. Patel’s  businesse are :
 
- Operation headquarter remians in Kutch
- Irrespective of the category, Mr. Patel is always a price warrior . He lowers costs by using a mix of various strategies like economies of scale, sourcing from China and using subsidies given to units in Kutch
- Mr. Patel prefers to have common brand names Oreva and Orpat 
- all of Mr. Patel’s businesses are  closely held.
 
Tasting success in diverse low technology, low involvement  products like tiles and CFL bulbs is one thing, but manufacturing cars is quite another. If   Mr. Patel pulls the car venture off even in a limited way, it will be a huge achievement. 
- G. Mohan







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