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Educomp Solutions – Smart Class – Strong pipeline

March 23, 2010

Educomp team is well placed to meet strong demand for Smart Class implementation. Educomp’s guidance of implementing Smart Class in 2500 (FY11) schools implies installing hardware in ~50 schools per week. As EduSmart outsource nearly 50% of low end installation work to local vendors and given its ability to manage hardware installation at multiple schools concurrently, we believe the current team of 70 technicians can manage installations in nearly 80 schools per week. See minimal risk to implementation in FY11e.

The initial response to Educomp & EduSmart Smart Class advertisement has been extremely strong with school signs up exceeding 600 (vs. ~450 in 3Q) during the quarter and pipeline increasing to ~2000 (vs. 1500 in 3Q). While signs up remain robust, it expects nearly 500 schools to be implemented during 4Q, in line with its guidance. For FY11 management reiterated its guidance of adding 2500 schools. Strong pipeline provides upside risk to our assumptions for school sign up in FY11e.

Management highlighted that it intends to ramp up operations and would more than double its team strength over next one year. Educomp is also implementing ERP systems which will further strengthen hardware procurement, optimize inventory levels and improve service levels.

Educomp is expected to report an EPS of Rs 27.56 for FY 10 and Rs 45 for FY11. Bofa Merrill has a target of Rs 1,000 on the stock.

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