Subsidiary gets funding but Educomp may not benefit much

Private equity firm Kaizen and Bertelsmann, a global media company, will jointly invest Rs 22 crore in Authorgen, a subsidiary of Gurgaon-based Educomp Solutions . The investment will give the two entities a significant minority stake in Authorgen while Educomp's stake will be diluted into a minority.

Authorgen, an e-tutoring and online education company , operates WizIQ.com, a web-based platform for education service providers.

The funds, according and announcement by Educomp, will be used as growth capital and to upscale the wiziq.com website. According to the press release, over 150,000 teachers and two million learners currently use WizIQ's e-learning services.

The news of Kaizen's involvement in Authorgen is good considering that it is the first private equity fund to focus on India's $86 billion education sector. Kaizen, according to the release, invests in promising companies and focuses on adding significant value after the investment. Bertelsmann is an international media company whose core divisions encompass television, book publishing, magazine publishing, and services across 50 countries.

According to market observers, the amount is too little to have a significant impact and may help in routine running of the business, thereby reducing Educomp's burden.

However, the investment in Authorgen does not address Educomp's core challenge of improving its own stretched cash flows. Neither does it offer hope that the division will grow to match the company's mainstay, Smartclass Solutions, which offers digital, interactive whiteboards to schools for their classrooms.

The Educomp stock has been performing well below the benchmark index. Since January 15 it has declined further, falling from 141.15 to 128.65 on January 24.

In the past, Educomp has continuously sought to develop various digital platforms. For instance, it launched Mathguru.com in 2006 and also opened learning centres under learninghour.com to make the most of the tutoring market's potential. In 2007, it acquired Singapore-based Ask'n'learn Inc. AuthorGen Technologies was another acquisition (2007) in its inorganic growth agenda. It also bought Studyplaces from Info Edge in 2010. 

Subsequently Educomp transferred its shareholding in Authorgen and Educomp Learning Hour to its subsidiary, Educomp Online Supplemental Service, to consolidate its online business.