Thursday, September 06, 2012

Everonn's Centum buy to prop up corporate training business

For 54-year-old Sunny Varkey, the reclusive Indian-origin education entrepreneur who made it big in the then schools-starved Gulf, the recent purchase of Bharti group's Centum Learning is yet another shot at commercial success in his country of birth, something that's eluded him all along.

In over three decades, Varkey transformed a small family-run business into what's now the Dubai-based Global Education Management Systems, an over $1-billion multi-national that runs 65 schools across the world. However, GEMS hasn't really taken off in India.

Late last year, Varkey took what seemed like a huge gamble in India by buying a controlling stake in scam-hit Everonn at a huge premium, targeting the online education space in contrast to the brick-and-mortar variety that he is used to. Everonn continues to make losses nine months later. Last month, Everonn bought Centum Learning from the founders of the Bharti group in an acquisition seen as an attempt to prop up the Chennai-based company with the relatively higher margin corporate training business.

But with the online education space losing sheen in the last one year or so and corporate governance concerns still being relevant, the challenge for Varkey is steep. "The corporate training business is a high margin business than the government school business," said Sujan Hajra, analyst at Anand Rathi. "Here, there are no delays like the government business. Also the training is for a specific need and specific period and it is a matter of urgency for corporates. So you tend to have pricing power as well."

An element of premium has always been associated with his business. Varkey's parents, Mariamma and KS Varkey, both school teachers, opened a school in Dubai in the late 1960s even as their son did his schooling in India. Not long after Varkey finished his A-levels at Bembridge College on the Isle of Wight, he was expanding his family's education business in Dubai. The opportunity at that time was that there were no schools for higher education in Dubai. The expats market looked lucrative. He delivered education under the different syllabuses - Indian, US and the British - to different categories of customers. Varkey's global profile got a boost with global leaders like Bill Clinton and Tony Blair associating with him on not-for-profit projects. And, as someone who was a vendor to GEMS in Dubai said, Varkey is close to the ruling family there, understandable as his parents were their tutors.

While he has been often praised for the quality of education at GEMS, he has also been criticised for the high fee he charges. A parent of a former student recalled the debate there about Varkey. "They are a delight because of the quality they deliver. The only controversial part is the fee structure," says S. Meenakumari, who is now settled in Chennai.

K. Kumar of the Indian Community Welfare Committee in Dubai, who has known Varkey for four decades, disagrees. "Critics should remember that quality education does not come free of cost. One of the reasons for his success is getting quality teachers," he says. Even those parents who threatened to pull their children out of GEMS, Kumar said, couldn't do so because they were unable to find the quality elsewhere.

In India, GEMS had to face vastly different conditions, says a former officer of the company in Gurgaon. It isn't clear how Varkey, a Padma Shri awardee, wants to develop the brick-and-mortar education business in India. A 2010 press release said GEMS would manage over 100 schools in India over the next few years. This is, interestingly, what the group said way back in 2004 too. Rakesh Sharma, a Director of Everonn and CEO of GEMS Education India, did not reply to email questions. Varkey could not be reached for comment.

Indeed, premium was the tag given to online education space not long ago. But by the time Varkey entered the space last year, it was battling challenges. At Everonn, its founder Kishore was accused of bribing an income tax official. Varkey's investment of Rs. 4 billion, which included a huge premium on the existing price, came at a time when investor confidence was at the lowest ebb for a company that was not long ago a darling for marketmen. His open offer was an opportunity for weary investors to exit. Before long, analysts stopped coverage of the company. An official of the fund New Vernon India had said that while GEMS has a very good reputation in Dubai, there was lack of clarity over how things were going to be set right in Everonn. New Vernon, which had over a 5 per cent stake in September 2011, cashed in on the open offer.

How Centum would help Everonn is the question. Financial filings of Centum show it incurred a loss after tax of over Rs. 190 million on Rs. 715 million of revenues for the year ended March 2011. It isn't clear if it turned around the next year. What is clearer is what Centum brings to the table: over 70 per cent of its business was from Bharti group companies. Varkey would hope that would be good enough to turn around his struggling India-centric, online business.

Source: The Economic Times, September 6, 2012

No comments:

Post a Comment

Blog Archive