>Career Launcher plans to raise funds through stake sale

>Career Launcher India Ltd., which prepares students for competitive examinations, is considering selling stake to an overseas company or sell shares to the public for the first time to raise funds to expand into new business segments. The company is in initial discussions with global education companies and hasn’t decided on how much stake it wants to sell, Managing Director Nikhil Mahajan said in a telephone interview. It has hired a foreign investment bank for advising it on the stake sale. Mahajan declined to disclose its name.

Raising money through an initial public offer (IPO) is also an option and the company could finalize the mode of funding in the next two quarters, Mahajan said. Career Launcher helps students prepare for entrance exams, including those for admissions to management, law and engineering schools. Career Launcher had sales of Rs. 150 crore (Rs. 1.5 billion) in the year ended 31 March. The company runs around 175 test preparation centres and some 40 centres for vocational training courses. It owns 25% of the vocational centres; the rest are franchisees.

It will use the money it proposes to raise to enter new test-prep segments. It would also deploy part of it to further develop existing centres and towards domestic acquisitions. “Career Launcher’s distribution network is a great attraction for international players. It has great vehicles to access other education segments given their student access,” said Bharat Gulia, senior manager of business advisory services at Ernst & Young.
Gaja Capital Partners, Edelweiss Capital Ltd. and Granite Hill Capital Partners own 12% in Career Launcher while the owners hold about 83%, Mahajan said. Gaja Capital was the first to invest in the company in 2007. Earlier this year, Gaja, Edelweiss Capital and Granite Hill Capital Partners invested an additional Rs. 25 crore (Rs. 250 million) in the company. In January, HDFC Ltd. and Gaja had invested Rs. 50 crore (Rs. 500 million) in Indus World Schools, a unit of Career Launcher.

Private equity companies have invested a total of U$ 54 million (around Rs. 2.4 billion today) in local education services providers in 2010. With the education and publishing business shrinking in western economies, companies such as Pearson, Reed Elsevier, McGraw-Hill Co. might invest more in fast-growing emerging markets, wrote analysts Ankur Rudra and Subhashini Gurumurthy of Ambit Capital Pvt. Ltd. in an 18 January note. UK-based Pearson Plc increased its stake in online tutoring firm TutorVista to 76% earlier this year. Expect more niche acquisitions in this space, wrote the Ambit analysts.

Unlike schools that have to be run by trusts, the entrance exam coaching business has no restrictions. Investors are more comfortable when a company runs the business as they know the money will go into scaling up the business, said Narayanan Ramaswamy, head of education advisory at KPMG India. “Although gross margins are lower at around 10-15% in this segment, volumes can be high and it can leverage on fixed costs like infrastructure costs,” he said. “Gross margins are in the range of 30-50% in the school segment,” he said.

Source: Mint, April 22, 2011