Educomp Solutions Ltd Management Discussions

MANAGEMENT DISCUSSIONS AND ANALYSIS

The Managements Discussion and Analysis ("MDA") focuses on significant factors that affected Educomp Solutions Limited from FY 2020-21 till date. It contains a review and analysis of the financial results for the relevant period, identifies business risks that the Company faces.

The Company had been facing significant challenges in servicing its debt obligations over the years and debt restructuring efforts could not succeed. The Honble NCLT, New Delhi, ("Adjudicating Authority") vide its order dated May 30, 2017, initiated corporate insolvency resolution process ("CIRP") of the Company in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 ("Code"). Thereafter, in accordance with the provisions of the Code, the powers of the Board stood suspended and Dr. Sanjeev Aggarwal was appointed as interim resolution professional of the Company. The IRP carried out his duties from May 30, 2017 till Mr. Mahender Khandelwal was appointed as Resolution Professional ("RP") vide the order of NCLT dated September 12, 2017 and took over the management of the affairs of the Company. Please refer to the discussion on revival plan of the Company for further details.

a) Industry structure and developments for FY 2020-21.

With a population of 1.38 Bn, India is soon expected to eclipse China; and reach the numero uno position, in terms of highest population in a country, by 2025. With 37.3% population of the country in the age group of 10-30 years, the Indian education sector provides numerous opportunities of growth. The Indian education industry was estimated at $117 Bn in FY20 and is expected to reach $225 Bn by FY25 (Source: IBEF). India has a multi-layered education system, with more than 260 Mn students enrolled across 1.6 Mn schools, 39,000 colleges catering to 27.5 Mn under-graduate and 4 Mn postgraduate students. The Indian education system is primarily divided into: 1) Formal Education and 2) Informal Education.

Formal Education includes schools governed by the CBSE, ICSE, State, and International Boards. India has one of the largest higher-education systems in the world. Higher education in India is governed by the UGC, comprising universities, colleges, and courses.

Informal Education includes pre-schools, coaching classes for competitive exams (Test preparation), multimedia schools, vocational training centers, and educational-material suppliers. India has an extremely large informal- education market. Right from the pre-primary market, which has low entry barriers—and hence, has a large number of players—to the test-preparation segment, which is an evergreen category in India that mainly focuses on grades and admissions to reputed graduate and post-graduate colleges. The test-preparation coaching institutes prepare students for various competitive exams on graduation: BBA, IPM, Hotel Management, Law, IITJEE, NEET; and post-graduation levels: CAT/XAT/SNAP for Masters in Business Administration (MBA); IBPS - entrance exam for various banking institutions; UPSC, GPSC, TNPSC - entrance exams for Civil Services at Union and State levels.

According to the Union Budget 2021-22, the Government has allocated 54,873.66 crore ($7.53 Bn) for school education and literacy programs. The Government of Indias target of Gross Enrolment Ratio (GER) of 50% by 2035 for higher education is expected to drive investments in the education space. It is also planning to promote the education sector to help increase the share of overall services sector in the GDP of the country.

The New Education Policy (NEP) focuses on early childhood care and education. It proposes to replace the 10+2 structure with a 5+3+3+4 curricular structure for ages 3-8, 8-11, 11-14, and 14-18 years, respectively.

A new National Assessment Center, PARAKH (Performance Assessment, Review, and Analysis of Knowledge for Holistic Development) will be established as a standard-setting body.

NEP offers multiple exit options and appropriate certification within the undergraduate education period; while an Academic Bank of Credit will be established for digitally storing academic credits earned from different institutes, so that these can be transferred and counted towards the final degree earned.

COVID Challenge & Growth Acceleration

Education was one of the most-affected sectors due to COVID. Education institutes, such as, schools, colleges, universities, and test-preparation centers were the first to shut down to control the rapid rise in COVID cases; and were the last to reopen, post limited relaxations in the lockdown measures. The sector continued to face challenges, as the consequent waves and variants of COVID kept reappearing. Consequently, for the most part of 2020-21, education institutes remained closed.

However, this led to a sudden surge in the EdTech segment, which saw a steep increase in the number of users. The key development drivers propelling EdTech in India are the capacity to serve a large audience at essentially lower costs (compared to traditional classroom learning), critical growth in Internet & smartphone infiltration across India, and steady rise in disposable income of Indian families.

Present-day classrooms have moved beyond the clunky computers that were once the norm; and are now tech- infused with tablets, interactive digital courses, and even AI that can take notes and record lectures for students, who are unable to attend due to illness, etc.

A lot of innovations have been tested within the Indian EdTech industry to balance the dynamics of teachers & students from a traditional classroom to a virtual one. Technology is turning teacher-driven education into a more teacher student arrangement. Smart classrooms are making teaching transparent and equivalent for every student in a way close to the genuine classroom-like experience.

b) Risks and areas of concerns

Due to financial crisis, as a result of business related issues faced by the Company arising out of the Companys inability to service its customers (schools) spread across the length and breadth of the country because of delinquencies by many customers. This coupled by delays in receiving money under government contracts lead to a situation where the Company was not able to services its debts leading the Bankers to take the Company to Corporate Debt Restructuring (CDR) in July 2013. The CDR of the Company was approved with effect from April 1 2013. However, CDR was not successful and the Company filed application for CIRP under Section 10 of Code on May 12, 2017. Pursuant to said application made by the Company, Adjudicating Authority, vide its order dated 30th May 2017, had ordered the commencement of CIRP in respect of the Company under the provisions of the Code. Thereafter, in accordance with Section 17 of the Code, the powers of the Board stood suspended and Dr. Sanjeev Aggarwal was appointed as interim resolution professional of the Company. The IRP carried out his duties from May 30, 2017 till Mahender Khandelwal was appointed as Resolution Professional ("RP") vide the order of NCLT dated September 12, 2017 and took over the management of the affairs of the Company. Pursuant to CIRP, Ebix Singapore Pte. Ltd.("Ebix"), Singapore submitted the resolution plan of the Company which was approved by the Committee of Creditors ("COC"), consisting of all bankers of the Company on February 17, 2018. Subsequent to submission of Resolution Plan with Adjudicating Authority for approval on March 07, 2018, application was filed by Ebix Singapore Pte. Ltd under Section 60(5) of the Code seeking withdrawal of their Resolution Plan. The Withdrawal Application matter (briefly explained in point -e) went all the way to Honble Supreme Court the EBIX Appeal against was dismissed. Presently, EBIXs plan approval application is pending before the NCLT.

In the worst case scenario, if the NCLT rejects the EBIX plan approval application and where no resolution is achieved then the Company may be liquidated upon the order of the Adjudicating Authority /Appellate Tribunal/subsequent appellate authority.

Financial Risk

The large debt burden and rising interest cost caused defaults in payment of its obligations leading to the Company being admitted under the CIRP on 30th May, 2017 vide an order of the Adjudicating Authority. In the event, any resolution of stressed assets of the Company is achieved, the capital structure and the associated risk profile of the Company is expected to significantly change and therefore at the moment, the management is not able to comment on the future capital structuring of the Company and the resultant change in the risk profile.

c) Opportunities and Outlook

Subject to the adjudication of the Adjudicating Authority and other appellate authorities in relation to the receipt and approval of any resolution plan and with the support of the resolution applicant submiffing such resolution plan, the Company may be in a position in terms of capacities, capabilities and customer relationships to capitalise on market opportunities. Approval of any resolution plan would enable the Company to progressively ramp up operations.

However, in the event, no resolution is achieved of stressed assets of the Company, the Company may be liquidated upon the order of the Adjudicating Authority /Appellate Tribunal/subsequent appellate authority. Further, for better explanation refer below to the point (e).

Internal control systems and their adequacy.

The Company has established Internal Financial Control System for ensuring the orderly and efficient conduct of the business including adherence to Companys Policies, the safeguarding of assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable Financial Statements.

As specified above the Company is present under CIRP w.e.f. May 30, 2017 and all the powers of the management are vested to the Interim Resolution Professional followed by the Resolution Professional. Resolution Professional, in accordance with the provisions of the code, is performing his best efforts to mitigate all risks associated with the company along with the internal financial control and internal control system.

d) Financial performance.

Financial performance (Standalone)

The total revenues of Educomp aggregated Rs. 14.73 million in FY21 as compared to Rs. 106.58 million in FY20.

In fiscal 2021, the Companys profit/(loss) before prior period items, exceptional items and taxes aggregated Rs. (505.98) million as against Rs (1,436.64) million in fiscal 2020.

In fiscal 2021, the Companys profit/(loss) after taxes, prior period, exceptional items and other comprehensive income aggregated Rs. (506.38) million as against Rs (1,510.14) million in fiscal 2020.

In fiscal 2021, the Companys earnings/(loss) per share (basic) is Rs (4.13) as against Rs (12.36) in fiscal 2020.

Financial performance summary (Consolidated)

In fiscal 2021, the total consolidated revenues of Educomp group aggregated Rs. 14.73 million as compared to Rs 108.20 million in fiscal 2020.

The consolidated profit/(loss) before taxes aggregated Rs (511.87) million in fiscal 2021 as against Rs (971.36) million In fiscal 2020.

In fiscal 2021, the Companys consolidated profit after taxes, prior period and minority interest aggregated Rs (512.14) million as against Rs (968.01) million in fiscal 2020.

In fiscal 2021, the Companys consolidated earnings/(loss) per share (basic) is Rs (4.18) as against Rs (7.79) in fiscal 2020.

Key Ratios (Standalone)

RATIO	FY21	FY20
EBIDTA/Net Sales	-3098.10%	-1283.92%
Profit/(loss) after Tax and prior period items/ Net Sales	-3435.03%	-1420.23%
Total Expenditure/ Net Sales	3535.03%	1447.95%
Cost of Goods Sold/ Net Sales	-	0.24%
Staff Cost/Net Sales	146.98%	65.63%
Selling, Distribution & Administration expenses (including Miscellaneous Expenses)/ Net Sales	3051.12%	1318.04%
Debtors Turnover	0.01	0.07
Inventory Turnover	5.99	43.33
Interest Coverage Ratio	-11.58	-38.44
Current Ratio	0.05	0.06
Debt Equity Ratio	-0.88	-0.89
Net Profit Margin (%)-	3435.03%	-1420.23%

Segment Results

Segment Revenue & Expenses (External)

(Rs in millions)

	For the year ended March 31, 2021			For the year ended March 31, 2020
	Revenue	Expenses	Results	Revenue	Expenses	Results
Higher Learning Solutions	-	-	-	-	-	-
School Learning Solutions	9.66	151.41	(141.75)	96.5 5	808.90	( 7 12.3 5)
K-12 Schools	-	-	-	-	-	-
Online, Supplementary & Global	-	-	-	0.06	9.04	(8.98)
Total	9.66	151.41	(141.75)	96.61	817.94	(721.33)

Cash Flows:

The cash generated/(used) from operations stands at Rs. (93.35) million as on March 31, 2021 as against Rs. 14.55 million as on March 31, 2020.

The cash generated/ (used) in on account of investing activities stands at by Rs. 2.62 million as on March 31, 2021 as against Rs. 7.94 million as on March 31, 2020.

The net cash generated/ (used) in financing activity were Rs. Nil as on March 31, 2021 as against Rs. Nil as on March 31, 2020.

e) Revival Plans for the Company and admission under the corporate insolvency resolution process defined under Insolvency and Bankruptcy Code, 2016

The Company was admitted under the CIR process in terms of the Code vide an order of Adjudicating Authority dated 30 May, 2017 ("Order").

Subsequently, the RP published Expression of Interest ("EoI") inviting resolution plans for the revival and restructuring of the Corporate Debtor. Further to the issuance of the EoI, the resolution plans were received from one Ebix Singapore Pte. Ltd. ("Ebix") and one Boundary Holdings SARL SPF. Pursuant to the discussions and deliberations with the CoC, the Resolution plan submitted by the Ebix was put to vote. Ebixs resolution plan, in terms of Section 30(4) of the Code, was finally approved by the CoC with 75.35% majority voting share on 22nd February 2018 including vote of Chhattisgarh State Electricity Board ("CSEB") whose vote was received subsequently due to a technical glitch. Pursuant thereto, the Resolution Professional submitted the Ebixs Resolution Plan for the approval of the Adjudicating Authority by way of an application under Section 30(6) and 31 of the Code (CA 195 of 2018) ("Plan Approval Application").

The future of the Company depends on the outcome of the pending Application for approval of Resolution Plan

C.A No. 195(PB) of 2018 before Bench II of the National Company Law Tribunal, New Delhi

f) Human Resources

The Company is having no new operations and servicing only to old customers and hence comprises of very limited staff. The Company had been operating with 43 employees during FY 2020-21.

Cautionary Statement

Statements in the Management Discussion and Analysis, describing the Companys objectives, projections and estimates may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may vary from those expressed or implied, depending upon economic conditions, Government policies and other incidental / related factors. Please also note that as mentioned elsewhere also the Company is in insolvency under IBC.