Analysis of Eruditus’ Potential Relocation to India from Singapore – Impacts for the EdTech Sector, IPO Plans, and Lessons for Investors
Source and Citation: News article from Economic Times published on Jan 22, 2024
Analysis for Layman
Eruditus, a prominent edtech unicorn based in Singapore and backed by Softbank, is contemplating moving its headquarters to India as it eyes a potential IPO on Indian stock exchanges. This mirrors a recent trend where Indian startups, initially incorporated internationally, are now considering a “reverse flip” by relocating their base back to India. The allure lies in India’s higher growth and robust investor sentiment, making local listings more attractive.
Eruditus reported an impressive 75% revenue growth in FY23, reaching $400 million, positioning itself as the second-largest edtech player in India after Byju’s. The company has engaged advisors to evaluate the relocation, necessitating changes in India’s Company Act and a relaxation of listing norms, which the founders have requested from the government.
The positive environment, with high multiples for new economy stocks, is a key driver encouraging this relocation. When ready, Eruditus may pursue a direct listing through the reverse merger route.
Impact on Retail Investors
For retail investors, the potential return of a major edtech player like Eruditus holds significant implications:
Positives:
- Expands the future IPO pipeline, providing an opportunity to participate in a high-growth sector.
- The strong growth and financial profile of Eruditus make it an attractive prospect when listed.
Considerations:
- Edtech still faces uncertainties post-pandemic, requiring assessment of sustainable post-COVID prospects.
- Regulatory oversight of the sector continues to evolve, impacting revenue models.
In summary, while timelines remain unclear, tracking Eruditus‘ shift is crucial because:
- The direct listing route may offer better pricing than IPOs.
- It presents a chance to diversify into globalized education services as the Indian opportunity matures.
Impact on Industries
EdTech:
Reinforces India as a core market with strong long-term growth potential despite near-term headwinds.
E-commerce & Fintech:
Opens cross-selling avenues with enrolled learners, such as payments and content purchases.
Education Services:
The online degrees space may witness increased innovation and products catering to working professionals.
Financial Services:
Attractive customer base for lending products like education loans, credit cards, and cross-selling insurance.
The shift signals long-term confidence in Indian edtech potential and enables ecosystem linkages between edtech and other new economy segments.
Long Term Benefits & Negatives
Positives:
- Strengthens the Indian edtech ecosystem, allowing it to incubate more global category leaders locally.
- Reinforces higher education as a key market within edtech, aligning with India’s demographics.
- Growth in working professionals upskilling also aids the white-collar job market.
Negatives:
- Too many large players can limit innovation, curtail smaller startups gaining scale.
- Overemphasis on degrees and credentials has limited linkage to on-ground job outcomes currently.
Nevertheless, enhanced global competitiveness of Indian higher edtech is a strategic benefit amid a maturing sector.
Short Term Benefits & Negatives
Benefits:
- Signals an improved environment for globalized startups considering Indian public markets entry.
Risks:
- Actual listing may take over 12 months given required regulatory changes on allowable corporate structures; uncertainty prevails.
- General investor sentiment on edtech remains cautious post-pandemic, making IPO timing crucial.
Thus, while indicative of India’s long-term potential, better clarity on policy changes is needed to ease domicile shifts and ensure sustainable post-COVID prospects before significant exposure.
Companies Impacted by Eruditus’ Potential India IPO
Indian Companies that Gain:
Byju’s (BYJU.NS): Eruditus, the second-largest edtech in India, listing might validate Byju’s dominance in the sector, potentially boosting investor confidence and attracting higher valuations.
Unacademy (UNAC) & Vedantu (VEDU): Increased focus on the Indian edtech market could spur investor interest in other listed players, leading to potential share price appreciation.
Education-focused VC firms & Angel investors: Increased liquidity and exit opportunities through IPOs could attract more investments to Indian edtech startups, benefiting venture capitalists and angel investors.
Indian investment banks & brokerages: Eruditus’ IPO and the reverse flip trend could generate substantial fees for Indian investment banks and brokerages involved in the process.
Indian technology & infrastructure companies: Increased demand for online education services might benefit Indian companies providing cloud computing, cybersecurity, and online learning platform solutions.
Indian Companies that Lose:
Traditional education providers: Increased competition from online education platforms like Eruditus might put pressure on enrollment and revenues of traditional universities and colleges.
Offline test preparation & coaching centers: Eruditus’ focus on professional and higher education could pose a threat to offline test preparation and coaching centers offering similar services.
Content creation & media companies: Eruditus’ potential in-house content development might decrease their reliance on external content creators and media companies, impacting their business.
Indian publishers & bookstores: Increased adoption of online learning resources could lead to lower demand for traditional textbooks and educational materials, impacting publishers and bookstores.
Job recruiters & placement agencies: Eruditus’ potential career guidance and placement services might compete with traditional job recruiters and placement agencies, affecting their market share.
Global Companies that Gain:
SoftBank (SFTBY): As a major investor in Eruditus, a successful IPO would generate significant returns for SoftBank, boosting its investor sentiment and potentially leading to higher share prices.
Global edtech & education technology companies: Increased interest in the Indian edtech market could benefit global players like Coursera, Udemy, and Blackboard, expanding their potential market reach.
Global investment banks & asset managers: Participation in Eruditus’ IPO and other potential reverse flips could generate substantial fees and investment opportunities for global financial institutions.
Cloud computing & online learning platform providers: Increased demand for online education infrastructure in India could benefit global companies like Amazon Web Services, Microsoft Azure, and Google Cloud, providing cloud computing and platform solutions.
International education consultants & placement agencies: Increased focus on professional and higher education in India might create opportunities for international education consultants and placement agencies catering to Indian students.
Global Companies that Lose:
US-listed Indian edtech companies: Increased focus on domestic listings might divert investor attention away from US-listed Indian edtech companies like Tal Education Group and iTutorGroup, potentially impacting their valuations.
Offline educational institutions with global presence: Increased competition from online platforms targeting Indian students might impact enrollment and revenue streams of offline universities and colleges with global campuses.
Global test preparation & coaching centers: Eruditus’ potential expansion in global markets could pose a threat to established international test preparation and coaching centers operating in similar segments.
Traditional textbook & educational material publishers: Increased adoption of online learning resources in India could negatively impact the global market share of traditional publishers and educational material providers.
Global job recruiters & placement agencies: Eruditus’ potential career guidance and placement services might compete with established global recruitment agencies, affecting their market share in India and potentially other regions.
Market Sentiment Impact:
Overall, the news of Eruditus’ potential India IPO is likely to be positive for the Indian stock market, particularly for edtech and education-related sectors. It could also boost investor confidence in the Indian IPO market and attract further investments in the future. However, some traditional players in education and related sectors might experience negative sentiment due to increased competition from online platforms. Global investors might also need to adjust their strategies with the emerging trend of reverse flips and increasing focus on domestic listings by Indian companies.
Please note: This analysis is based on the information provided in the news article and does not constitute financial advice. It is important to conduct your own research and due diligence before making any investment decisions.