A desk, a few chairs and Rs.4,000, all of which were duly organised in the verandah of a central Delhi home — this is how Career Launcher Educate (CLE), which was simply called Career Launcher at the time, started and remained for two years. “I did not have a business plan,” confesses Satya Narayanan R, then a 24-year-old IIM-B alumnus who started CL with his partner Gautam Puri. “But I knew that there was a market for MBA prep coaching.” He guessed right and, by 1998, the company had moved into a barsati.
In an indication of the company’s future, Narayanan turned his enterprise cash positive from the first year itself (gross revenue of Rs.2.5 lakh in FY97 grew four times to Rs.10 lakh the following year). Since then, Career Launcher has become CL Educate (CLE) and, after several rounds of PE funding, CLE is now synonymous with test-prep coaching, vocational training, schools (both playschools and secondary schools) and a fledgling B-school.
There are 225 CLE centres across 175 locations in India, with a staff-strength of 3,000 — 65% of them teachers, trainers and academicians. Besides founder and chairman Narayanan, the core management team includes half-a-dozen IIT-IIM alumni. This massive growth of a Rs.4,000 start-up is as clear an indication as any of the scope of the education sector in India: as on March 2012, CLE’s gross revenue (as per industry estimates) stood at Rs.180 crore.
Growing, growing… growing
In the first 10 years, CLE focused on test prep coaching for a gamut of sought-after courses: entrance exams for MBA, civil services, medical and engineering colleges, MCA, hotel management, law, BBA and bank probationary officer, besides state-level tests. It took to the franchisee route in 2000 to establish a pan-India presence.
Today, franchisees run 125 out of the 225 centres, and the remaining are company-owned and operated. Typically, franchisees pay a royalty in lieu of content, training and back-end system support from the head office. This is about 20-25% of the gross revenue collection from the centre. It can take up to two years for a franchisee to achieve operating cash breakeven on a base of 150-200 students, earning an average of about Rs.15,000-17,000 per student.
Courses on offer vary from centre to centre, depending on the demand by the students. A two-year IIT-JEE test preparation course costs around Rs.1.25 lakh, while the cost of a 12-month MBA prep course is about Rs.30,000-35,000. Career counselling sessions will set you back by Rs.2,000 while other module driven web-based courses are charged at Rs.99 per download.
Industry estimates suggest that the operating margins for test prep businesses range around 30-32% — they can be as low as 20% for vocational training courses whereas the mainstream school vertical can have margins of up to 40-42%. Among the three, the turnaround time for vocational training courses are the fastest. The school business is capital intensive, with a gestation period ranging anywhere from five to seven years.
CLE’s gross revenue grew at a scorching pace, from Rs.3.8 crore to Rs.97.8 crore between 2000 and 2008, which coincided with a general boom in management education, largely led by private colleges. Narayanan says that he could see that the boom would not last too long and, therefore, in 2006, decided to diversify into newer verticals such as vocational training and the K-12 segment. The rechristening signified the new phase. “For us, CL Educate was the platform that stands for our value system — transparency, innovation, openness and risk taking,” points out the 42-year-old Narayanan.
Around the same time, PE firms, too, were warming up to the long-term business potential of education in the country. So, between 2008 and 2011, CLE was able to raise around Rs.100 crore from Gaja Capital Partners, a PE fund that was active in the education space, and HDFC Ltd, for its Indus World School venture.
The bulk of these funds, along with some internal accruals as well as debt, was deployed in the new businesses in a phased manner. Gopal Jain, managing partner, Gaja Capital explains, “Its [Career Launcher’s] management bandwidth and focus on growth through ethical leadership were key drivers that appealed to us.”
Tough tests, good results
Operationally, the post-2006 period was the most challenging for the institute. This continued over 2008 to 2011, when several projects were starting up simultaneously. “Every day, we were learning new things,” points out Narayanan. “It was almost like starting all over again.”
Over the past five years, 21 Indus World Schools have come up across the country, the bulk of them in smaller towns such as Raipur, Aurangabad and Indore. There are four Indus Academy rural schools up and running in Andhra Pradesh, which target the bottom-of-the-pyramid market. The plan is to have over 80 such schools over the next five years.
Get, set, launch...
New verticals will account for a chunk of topline growth in the future
An entrepreneurship-focused B-school, the Indus World School of Business, operates out of Noida. On the vocational training front, CLE has set up industrial training institutes in Haryana, J&K and Jharkhand, many of which are being run in partnership with the state government and the corporate sector. There are also CLE skills schools in many tier 2 and 3 towns. In FY12, around 27,000 students received vocational training through these institutes. Narayanan sees all of them as only the first baby steps in the sector.
It is remarkable that Narayanan does not flinch when new opportunities arise even though the fledging new businesses consume most of management’s time. Last September, when Chennai-based Brilliant Tutorials, one of the oldest brands in the coaching space, faced problems in delivering its services to students in northern and eastern India, Narayanan offered CLE’s platform to service its students. What followed was a partnership between two competing institutes for markets in the north, east and west. “It was a win-win situation for both,” he explains with a smile.
“They could maintain their services in these markets, and it gave us 4,000-odd new students.” Similarly, last year, CLE bought out the majority stake in GK Publications, which specialises in the publication of test papers and test preparation books. “The deal has the potential to add around Rs.100 crore to our topline and about Rs.15 crore to our bottomline over the next five years,” says Narayanan, who believes the buy will strengthen CL Educate’s test prep business.
Over the next five to six years, Narayanan and his team expect the share of vocational training to account for 50% of CL Educate’s topline. They also expect test prep coaching, the company’s oldest and best-known educational service, will account for 25% of the gross revenue, a sharp drop from its current share of 55%. The rest will come from the mainstream education business — K-12 schools, playschools and B-schools.
To achieve Narayanan’s heady goals by 2018, another Rs.250 crore within the next two years is imperative. That may mean another round of PE funding or possibly an IPO. Narayanan insists he is open to both of these options.
Among all of these optimistic ambitions, there are two things that Narayanan warns against. Technology, he says, will change how education will be consumed. “Teachers will evolve to become mentors and coaches instead of spending time iterating the basics again and again,” he feels. And the other? He says simply: “We must not become over-confident.”