NIIT vs. Educomp: The numbers - Views on News from Equitymaster

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NIIT vs. Educomp: The numbers

Mar 24, 2011

In the previous article we have talked about the businesses of NIIT Ltd and Educomp Ltd. In this article we will compare NIIT and Educomp Ltd on the basis of some important numbers related to their business performance and highlight their strengths and weaknesses in these areas. Revenues

The consolidated revenues of NIITgrew at an average rate of 25% (compounded annual growth rate or CAGR) from FY05 to FY10. During the same period, Educompís revenues grew by a whopping 99% (CAGR).

In terms of growth rate, Educomp appears to be a clear winner.

Data source: CMIE Prowess

What kept the difference in their growth rate so high for all these years? One reason is the lower base of Educomp. However, it has still continued to grow at a much stronger rate as compared to NIIT. This can be attributed to their difference in their customer focus. Educomp offers product based learning solutions targeted primarily at schools. The company has developed a very good learning solution, Smart Class. Smart Class is a comprehensive solution, comprised of multimedia, 3D contents and a digital content library covering all subjects across kindergarten to class 12th. It helps in enhancing the quality of education with the help of technology and commands a market leadership position. And this product has got a huge untapped market of private as well as government schools. All these have helped Educomp in gaining a larger customer base that is growing rapidly.

On the other hand NIITís business is mainly training based which is closely related to overall growth in the economy and the job scenario in the country. This in turn is dependant on the overall economic scenario. So the number of people aspiring to have vocational training or management education doesnít necessarily grow at high rates consistently. Hence growth of NIIT is not as high as that of Educomp.

Operating Profit

The operating profit (Earnings before Interest, Taxes, Depreciation and Amortization or EBITDA) of NIIT grew at an average rate of 26% (CAGR) from FY05 to FY10. On the other hand, Educompís operating profits grew by a massive 101% (CAGR) during the same period.

Even on margin front, Educomp is way ahead of NIIT. Average operating margins for the last six years stand at 47.8% for Educomp as compared to 10.8% for NIIT.

Data source: CMIE Prowess

Educomp commands a higher margin due to higher operating leverage. (Operating leverage means that the company employs a higher proportion of fixed costs and a lower proportion of variable costs for its products and services. So cost for manufacturing products or servicing customers goes down on per unit basis with a growth in volume.) Therefore, as the customer base for Educomp increases, the costs get spread over a larger base thereby bring the per customer cost down. Additional revenues directly translate to higher margins. On the other hand, NIIT needs to bear higher operating costs in imparting training to a larger customer base as costs are directly proportional to the number of customers.

Net Profit

Profit after tax (PAT) of NIIT grew at an average rate of 14% (CAGR) from FY05 to FY10. Educompís net profits grew by a huge 110% (CAGR) during the same period.

NIIT could not translate its growth in top line into a growth at the bottom-line. The main reason for that was higher depreciation and interest cost.

Data source: CMIE Prowess

Net margins have remained very high for Educomp as compared to NIIT. Average margins for Educomp have been around 24% (from FY05 to FY10), while the same has been 7% for NIIT. While Educomp has been able to translate its stellar operating performance into higher margins, NIIT has been unable to do so due to its higher depreciation and interest charges.

Hence on the basis of growth rates as well as margins, Educomp appears to be on the top as compared to NIIT. In the next and last article in this series, we shall explore the balance sheet strength as well as valuations for the two companies.

NIIT vs. Educomp Series - Previous article | Next | All Articles

Equitymaster requests your view! Post a comment on "NIIT vs. Educomp: The numbers". Click here!

5 Responses to "NIIT vs. Educomp: The numbers"

Vibhu Goel

Apr 6, 2011

WE ARE AWAITING THE FINAL ARTICLE , PLEASE PUBLISH

Like 

Deepak Jain

Apr 4, 2011

we are still awaiting the final article covering Balance Sheet details.Why this delay?

Like 

Deepak Jain

Mar 28, 2011

When is last article coming?

Like 

tushar

Mar 25, 2011

liked both the articles in the series......waiting for the next one for more comparisons....defintely both companies are doing well but educomp seems to have upper hand.....

Like 

B H Doshi

Mar 24, 2011

Like you clear cut analysis and the ending giving clear signal or verdict for even a lay person to understand. On Net Margin Educomp is higher and the area they are targeting will have much higher growth in next 3 years as lots of emphasis given to education and modern methodology to teach young India. Good report as always no bull, just plain talk. I like it.

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Equitymaster requests your view! Post a comment on "NIIT vs. Educomp: The numbers". Click here!

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