False story on Educomp titled ‘The Rise and Fall of Educomp’

Forbes have depicted the Educomp fall. They cannot decide the fate of a company on their own proofs.

Forbes has chosen to depict Educomp and in particular the selective use in titling the article. Far be it for any magazine to herald the birth or demise of companies, the stretch of Forbes effort was downright insulting, if not embarrassing in its overreach.

Forbes seems totally swayed with a controlled flair for reportage, not flights of fancy and reportage based on flimsy evidence. The Forbes journalist was definitely intended on drawing a poor picture of Educomp. The resultant story provides enough proof.

Even after agreeing to participate fully in the story at a short notice and after extensive interviews over video conferencing and over a total of close to three hours of spoken and then written exchanges, the tenor of the journalist's views did not alter. And hence went on spoiling the image of Educomp. From a first list of questions sent to Educomp, which led them to clearly expect an antagonistic view,  to subsequent follow up questions which were leading in the broadest sense, they found that  the journalist  had fitted in details to a predetermined template.

That there is an attempt to sensationalize the story is not only evident from the headlines and title of the article but the opening paragraph itself - it paints the exit of former CFO Ms Gulati as an act of intrigue and her divestment of shares earned through ESOPs as some sort of a conspiracy.   As a journalist in the financial sector, he should have known that all senior management use ESOPs to sell shares and create value.

The body of the story is no less riddled with faux pas.   As it can be seen clearly, the journalist has got his entire table of financials mixed up. He has used standalone financials in the table on page 38 of the article and has called them “Educomp’s balance sheet”, whereas he has spoken about the consolidated businesses of Educomp in the story.

The bias is obvious when you consider that the journalist has cocooned himself with Educomp without making reference to the challenges all players in the sector are facing. Even in the current challenging economic scenario in the country, he forgets to mention that it is Educomp that continues to lead in this space. Or that of the eight companies active in the education space, seven have noticed erosion in market value in the last fiscal which has ranged from 22% to 77%. Or that in spite of this sectoral stress, and an erosion of 67% Educomp has retained its position as the number one company by valuation. Or that while the entire education space has declined in terms of valuation, Educomp is still the most valued education company in India.

 As if that were not enough, the journalist breaks another cardinal rule. He chose to quote a competitor on Educomp speaking negatively about the company and management - an unheard of indiscretion, just illuminating the compromise of an unwritten code of conduct within business and between competitors, just to make an extreme negative point.

He finds fault with Educomp's ability to pay off its debt or restructure it. Hundreds of companies raised FCCB in 2007-08 as it was a popular instrument then. Most companies who had raised FCCB saw their share prices lower and most had to arrange for funding to payback their FCCBs. Educomp was one among those able to do, in full, and on its due date, and from such marquee investors. But he sees this as a matter of regret.

When the journalist is faced with the conundrum that if the company is such a bad bet why has it been able to secure funding from marquee investors over the last fiscal, his patience disintegrates and unable to find it within himself to give credit where it is due, he chooses to demean it by passing it off as a 'surprise' and attributing it to nobody in particular and a competitor to boot.

It is clearly not worth his interest to analyse why IFC would choose Educomp to make its debut investment in the education sector in India and he cannot explain why Educomp has attracted more private investment than any other player and continues to be the investment of choice for high caliber investor interest globally.

The journalist's attempts to sensationalize the story continued through the article. His use of "several high profile exits" can be noted well. Clearly the exit of one CFO and a company secretary over the company's lifetime since listing is hardly something stunning. What’s significant is that he has conveniently forgotten to mention high profile entries like Sanjay Jain (former CEO - Tulip Telecom) as Group CEO and Anand Ekambaram (former Head of Learning Business, HCL) to head Smartclass business among others in the last one year. But then the journalist is obviously not evaluating anything judiciously!

The journalist presents the difference in 50000 school seats versus 22000 students as some sort of anomaly without analysing the reason. In India, by law, one can only launch grades from K-5 initially and then have ramp up to K-12 grades in a few years. When the capacity is constructed, then obviously capacity is created for all possible grades (because its cost-effective), but students will come in over time, so it is only natural that a school wouldn’t have 100% capacity utilization instantly.

The attempt to tarnish Educomp's business model is clear. The journalist picks out one case from South India to create a scenario of failure in spite of admitting a quote from Educomp that this was a case of dispute and represents less that 1 percent of the scenario. It also does not seem to interest the journalist that Smart Class is the industry standard model, the largest selling digital education system in India and that over 15,000 schools employ it across India and that over 15 Lakh children are recipients of this delivery model. 

The journalist has not stopped at filing an erroneous and motivated report, he has also attempted to target Shantanu Prakash directly. An entire piece within the main story aims to raise question about his leadership ‘style’ and opinions of direct competitors is evident proof of the underlying personal nature of this entire effort.

 As a matter of fact, the first set of leading questions sent and the next lot of follow up queries were clearly designed to rake up doubts and provide motives to Educomp's corporate governance. It is good to note that the journalist could not find fault in that line of argument, based as they were on cold numbers and performance indicators.

Educomp retains the pole position among education companies in India. It remains a pioneer with considerable IP advantages. It is the market leader and its business model is now being followed by almost all competitors.  Educomp is the largest company in education in India on several metrics. It is number one in seven of its nine main verticals or leading the pack in others. It has the biggest customer base of any education company; it has trained more teachers than any other and it remains the largest education provider to the largest number of school children in the history of India – reaching over 32,000 schools and over 20 million learners and educators across the world, largest in the world for any education company.

The education business, like all businesses in India and even across the globe, is passing through turbulent market conditions. At such times, expansion strategies, growth targets and bottom lines all come under pressure. This is not an unusual phenomenon in the life of a business. Had the journalist wanted to understand the business, its potential, its challenges, and how Educomp is reorienting itself to face them, he would have been greatly benefited, and Forbes’ readers equally illumined. But since the die was cast and the intent to destroy credibility pre-determined, he could neither see value in what was shown and told to him.

 Its disappointing, to say the least that such a prestigious magazine could bring out biased article.