>EDUCOMP SOLUTIONS LIMITED (MERRILL LYNCH)

Smart Class –on track to achieve guidance
Post meeting with senior management team at Educomp & EduSmart (third party vendor) we retain our Buy rating on the stock. We believe the initial response to 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. Forecast strong earnings CAGR of 42% over FY10-12E.

EduSmart- well placed to meet higher school signups
Our interaction with EduSmart management, reveal that the 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.

Plans to enhance team strength at EduSmart
Besides 70 technicians the team includes eight zonal managers and ten regional managers and caters to hardware implementation in over 128 cities. 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.

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