Even though the company says it is not seeing any pricing pressure, safeguarding the existing human resources is turning out to be a challenge. (Even though the company says it is not seeing any pricing pressure, safeguarding the existing human resources is turning out to be a challenge.)
Even though the company says it is not seeing any pricing pressure, safeguarding the existing human resources is turning out to be a challenge.
(Even though the company says it is not seeing any pricing pressure, safeguarding the existing human resources is turning out to be a challenge.)

Low enrolments continue to weigh on Career Point

Tutorial business will continue to play a determining role in the firm’s financial performance in the short term

Shares of tutorial services provider Career Point Ltd are on a downward spiral. Compared with a 5% fall in the BSE small cap index, the stock lost more than a third of its value over the past one year. The fall has coincided with the steady fall in enrolments at the company’s coaching centres. Enrolments during the last fiscal year fell 14% to 27,257, the biggest drop in 10 years.

Admissions were hit by uncertainty in examination patterns. With confusion prevailing in the key admission season of June-August, the company was not able to make good the enrolment losses. Compared with an average quarterly run-rate of 6,814, it added only 1,560 students in the last quarter. Hence, revenues from the tutorial business fell 11% in the March quarter. With the tutorial business having fixed employee costs, the poor enrolments or low revenue meant that operational performance was hit badly. Earnings before interest, tax, depreciation and amortization (Ebitda) shrank 24%. Ebitda margin contracted six percentage points to 37%.

The pain is less severe on a consolidated level. Revenue and operating profit fell by a smaller amount because of steady income stream from the formal education space. To de-risk revenues from the competitive tutorial business, the company is increasing its presence in the formal education space, schools and universities. Its two universities in Kota and Hamirpur completed their first academic session in 2012-13. Higher secondary schools at Jodhpur and Kota were started in the current fiscal year. The company leases the buildings and infrastructure and charges fees for the services it provides.

The front-end capital expenditure means there are limited charges to the revenues from the formal education space. As universities and schools add fresh academic years the management expects the revenues from this business to grow at a faster pace than the tutorial business.

That said, the tutorial business will continue to play a determining role in the company’s financial performance in the short term. The formal education space contributes a little over 10% of the company’s consolidated operating profits. While tutorials contribute the rest, the business environment continues to be challenging. High margins and low capital expenditure means that competition continues to be intense. Even though the company says it is not seeing any pricing pressure, safeguarding the existing human resources is turning out to be a challenge. Poaching of faculty is rampant.

While all this puts pressure on the management bandwidth, the current quarter is expected to remain muted due to seasonal factors. Admissions are expected to pick up only from June. With the confusion over admission process being cleared, the management is hoping to make good last year’s enrolment losses. That is easier said than done and investors would do well to wait for the improvement in enrolments.

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