How Indian education companies tanked due to unsustainable business models

Shantanu Prakash was flying high in 2009. The founder and chairman of education tech firm Educomp Solutions debuted on the Forbes India Rich List that year with a net worth of $920 million. Eight years later, he’s barely worth $10 million and the company is in a shambles. Prakash, 52, is looking to revive Educomp, which is saddled with $320 million in debt. The company says it is seeking to restructure under the country’s Insolvency & Bankruptcy Code.

The Gurugram company, founded in 1994 by the Indian Institute of Management grad, made it to Forbes Asia’s Best Under A Billion (BUB) list in 2008 and 2011, buoyed by its flagship product SmartClass. It rolled out digital multimedia lessons to thousands of schools across the country. Educomp says it still reaches 4 million students and 75,000 classrooms.

A 2008 Forbes Asia story on the then $1.4 billion (market cap) company mentioned the enormous “execution risk” that Educomp faced because of the high valuations. (The share price was 48 times expected earnings for that year.)

The company got into trouble when it ventured into asset-heavy segments like providing computers to government schools and setting up brick-and-mortar K–12 schools.

Educomp began procuring computers for schools under a build-own-operate-and-transfer model. The company paid for the hardware upfront by taking on debt and planned to collect the money over five years. But from 2010 to 2014, it was slammed with large-scale delinquencies, mostly in tier 2 and tier 3 cities.