Management Discussion and Analysis
The economic environment remained weak and was much lower than anticipated at the startof the year. The global economy grew by 3.2% during the year 2012, against the growth of3.8% and 5.2% during the year 2011 and 2010, respectively. During the financial year2012-13, Indian economic growth slowed to a decade low of 5.0% against 6.2% and 9.3%during the financial year 2011-12 and 2010-11, respectively.
The year saw continued decline in all domestic macro-economic variables includingrecord high current account deficit. The INR lost strength due to continued weakness anddepreciated to a record low of 60.72 against USD, a depreciation of 20% from 50.876 inApril 2012.
Over the last couple of decades, the success of Indian IT industry at a global levelhas attracted huge global interest. India, today, is known as the knowledge capital. Forit to live up to this name and to replicate the success it achieved in technology to othersectors, it would need to create a scalable world-class educational system. There is astrong correlation between country's education system and its economic development. A goodeducation system sets a firm foundation in the early years, helping industries to benefitfrom the world-class talent to compete globally. Zee identified India's need forworld-class education institutes more than a decade back and made a direct foray into theclassroom through its Kidzee brand. Today, with over 1250 centers across India, Kidzee hasbecome one of the largest pre-school networks in Asia.
Given the scale of Indian education system, with approximately 450 million enrolledstudents, almost one and a half times the US population and government's budgetconstraints, there is a limited impact that the government can make directly to thesector. In the budget presented during the fiscal, the government has allocated Rs. 658.67billion to education, an increase of 17% over the last year. The space left unattended bythe government has been picked up by the private sector. Over the last few years, therehas been a visible increase of the private companies in the sector. As per a report on thesector by a brokerage house IL&FS, private education revenues are estimated at USD 30billion in 2012 and are expected to grow at 19% and reach USD 45 billion by 2015.
Other factors like poor quality of existing government facilities, rising per capitaincome, increased realisation of the financial and social benefits associated with higheducation system have also been instrumental for the high growth of the sector. Withineducation space, due to perceived quality gaps in public education, there has been agrowing preference for private schools.
Key Market Segments
As the name suggest, Pre-schools are targeted at kids in the age bracket of 1.5 3.5 years. The segment is broadly categorised into Play School, Daycare Centres, Nurseriesand Crches. Pre-schools are not part of formal education system and hence and are lessregulated. The growing realisation of the benefits of early education, along withincreasing proportion of working women and increasing affordability have resulted in highdemand of the segment. Low funding requirements, high availability of talent atcompetitive price, limited working hours and fast growing demand have resulted in stronginterest from private companies in the sector.
The literacy level in India remains one of the lowest among the developing countries.Realising the need to fast track it, the government over the last few years has increasedits budgeted expenditure towards education and has initiated number of elementaryeducation programs like Sarva Shiksha Abhiyan (SSA) and mid day meal scheme among others.The government has set a target of 100% Gross Enrollment Ratio (GER) by the end of its12th five year from an estimated GER of 64% and 76% in 2005-06 and 2010-11, respectively(Source Crisil report).
Indian education system also suffers from exceptionally high dropouts and the GER inhigher education was at The segment has lately witnessed increasing interest fromorganised sectors and as per a report from Gyan Analytics, published in the year 2012; theshare of organised sector is expected to increase to 25% by the year 2015 from the current17%. The report expects the Pre-school segment revenues to increase at a CAGR of 27.33%from USD 750 million in 2011 to USD 3.24 billion by 2017.
The increasing awareness of the benefits of preschooling has resulted in high demandfor Pre-school especially from smaller town and cities.
18.8% in 2011. The government plans to improve it to 30% by the end of the 12th fiveyear plan period (FY'17) (Source: Fitch).
Even though K-12 is extremely regulated, high level of synergies between Pre-school andK-12 have driven many private companies into the sector. The share of private institutionin total enrolment is expected to increase to 47% in 2015-16 from 36% and 42% in 2005-06and 2010-11, respectively.
The lacuna in the quality of formal education has been picked up by supplementaleducation. Other factors like rising disposable incomes, increasing education spends,working parents and a well thought through outcome based course structure have beeninstrumental for the growth in demand for School Solution business.
India has world's second largest working age population, yet many of the vacancies gounfilled in need of the desired candidate. With a near double digit growth during the lastdecade, the demand for skilled resources has increased manifold. The high proportion ofschool drop-
With a strong focus on improving human capital, Zee Learn has crafted contemporaryeducational services and solutions to provide world-class learning environment in India.Through a mix of franchisee, partnership, self-managed institutes and school managementservices, the Company serves specific education needs of both children & adults in theage bracket of 1.5 to 24 years. Over the last decade, the Company has created distinct andstrong brand identity in each of its focused segment, viz. Kidzee in Pre-school, MountLitera Zee School (MLZS) in K-12, Braincaf in School Solution, Zee Institute of CreativeArt (ZICA) & Zee Institute of Media Arts (ZIMA) in vocational training in Media &Design. Zee Learn is an ISO 9001:2008 certified Company for design and development ofvarious educational content up to 8th standard and deployment through multiple deliverymechanisms.
This financial year saw your company undertaking new initiatives in its Kidzee centre,Mount Litera Zee Schools (MLZS) and BrainCaf to deliver its educational
School Solution Strives to bridge the learning gap between the desired and actual. Asper a report on the sector from Anand Rathi, a leading brokerage house, the SchoolSolution business is estimated to have a revenue of USD 4.5 billion in 2012 and isexpected to grow at a CAGR of 21.1% to USD 8 billion.
out along with rising impact of technology in almost all industries has expanded thedemand of vocational training in India. Vocational training bridges the gap betweentheoretical classroom training and real work environment through its job-specific skilltraining.
philosophy, which helped us reaching to wider students' base. Kidzee consolidated itsleadership position in the preschool segment by adding 325 pre-schools and serving over73,800 children the highest for any preschool chain in the country. During thecurrent year in the K-12 space, the company added 30 new MLZS under the franchisee routeand has 6 schools under School Management Contracts and is now serving over 14,500students. On the back of significant investments in content, branding and delivery, thecompany surged forward to become one of the key players in the K-12 space. During FY13 thecompany's school solution program BrainCaf Science' has undergone a Business Modelchange to make the program more effective and profitable and already has 95 schools underthis New Business Model. BrainCaf which focuses on conceptual understanding of sciencehas touched the lives of over 91,000 students during FY13. Your company has started toprovide management services to and sale of Television content to India's first edutainmentTV channel for children 'ZeeQ' which will contribute to the profitable growth of theCompany. The company's existing business in animation (ZICA) & film/TV training (ZIMA)continued to grow with 32 institutes and over 2400 students enrolled.
The following section provides a snapshot on each of its focused education businesssegments:
Pre-school Kidzee & Mount Litera International School
Kidzee is by far the largest and most well-known brand in Pre-school education inIndia. With over 1250 centers, Kidzee is nearly double the size of its nearest competitor.During the fiscal 2012-13, Kidzee completed its first decade of providing world-classeducational solution for Early Childhood Development and Education (ECDE) domain. Kidzee,through its presence in over 350 cities, is setting a strong learning foundation fornearly 73,800 children during FY 13 and helping India achieve its potential.
Maintaining its strong growth momentum, during the fiscal 2012-13, the enrolment inKidzee grew by an impressive 22.4% and 325 new centers were added to its network. Throughits well-researched and focused learning methodology called 'iLLUME', Kidzee helps parentsand teachers to identify the unique potential in each child and help them discover theirstrengths. Since its inception in 2003, Kidzee has developed strong learning foundation inover 2,70,000 children. Kidzee operates through a mix of franchisee and company ownedcenters. To ensure consistent learning environment and implementation of high qualitystandards, Kidzee conducts regular audits across all its franchisee centers.
Regular teacher training is critical for a classroom to have a conducive learningenvironment. Through regular training of its teachers, Kidzee help them to leveragecontemporary teaching aids. To ensure the programs' relevance, Kidzee continuously updatesits teaching programs. During the fiscal, Kidzee academic team trained over 2,800 teachersacross Kidzee centres in India.
To tap the growing aspiration of global standards school education amongst parents, ZeeLearn has launched international standard Pre-school by the name of Mount Litera WorldPre-school (MLWP). MLWP pedagogy is based on constructivism-based global curriculum andoperates through company owned modern learning centers.
K-12 - Mount Litera Zee School (MLZS)
Mount Litera Zee School (MLZS) is one of the fastest and most coveted school in India.Over a short span of time, Zee Learn through a mix of franchise and company managed schoolhas established over 140 schools across India. During the year under review, 9 new schoolsgot operational taking the number of current operational schools to 61 in India. Thenumber of students enrolled during the year increased much faster by 87.8% to 14,582,thereby, leading to considerable improvement in the capacity utilization across itsschools. MLZS added 30 new MLZS franchisee across India during the fiscal.
To provide a learning edge to its students, MLZS has developed a proprietary pedagogyfor its K-12 schools called Litera Octave. Litera Octave integrates various componentssuch as content, infrastructure, class room design, assessment and systems that impact thechild during his/her learning and development in school.
An event to brainstorm on how to prepare children for an unknown future. Theparticipants included mix of policy makers, educationists and students. Recommendationsfrom the summit were compiled and presented in the form of a coffee table book to theEducation Ministry at the Central Government and Chairman, CBSE. MLZS internalised therecommendations across its 61 schools bringing immediate benefit to its students.
Over the year MLZS has conducted series of events and undertaken initiatives that hashelped it to gain recognition and established it as a thought leader in school educationspace.
A few of such initiatives have been briefly discussed below: for spreading awareness ofinnovative and inclusive educational practices. The Torch of Learning housed a typicalLitera Class and toured 44 cities across the country in 110 days. The lesson plandemonstrations brought to life the best practices of catering to the learning style ofevery child and encouraging every child to perform their best in a technology-enabledlearning environment.
An annual national level festival with myriad activities based on our Emerging StudentProfile (ESP). Students from various Mount Litera Zee School participated in a nationallevel competition to cater to his/her interest and talent while also getting the relevantexposure and networking platform to meet fellow students from other Mount Litera ZeeSchools. The online platform gave students the exposure to online competitions, which iswhat the world is moving towards. The offline events were held at the school level, zonallevel and national level.
Vocational Training in Media & Design
India is fast emerging as a global hub of many industries. Media and Design is one suchindustry where India has huge competitive advantage over other countries. Raising Indiantalent to global standards is one of the biggest challenges for India to reach the covetedposition. In line with its objective to improve Human Capital via quality education anddevelopment, Zee Learn provides Vocational Training courses in Media, Design and Animationthrough Zee Institute of Creative Art (ZICA) and Zee Institute of Media Arts (ZIMA). A fewof these courses are in affiliation with Himgiri Zee University and Annamalai University.
ZICA has been the first institute in India to provide full-fledged vocational trainingin 2D Animation, 3D Animation, Visual Effects & Gaming, covering the stages ofvisualization, preproduction, production and post-production. During the seventeen year ofits existence, the institute has developed a few of the brightest talents in the world ofanimation.
ZICA has 31 centers spread across 16 cities including Mumbai, Delhi, Bangalore,Hyderabad, Pune, Lucknow, Chandigarh, Bhubaneswar and Ahmedabad, including one self-ownedcenter. During the year, ZICA added one more operational center. The number of studentsenrolled in ZICA, during the fiscal, increased by an impressive 65% to 1960.
ZIMA is amongst the most sought after names in the field of Media and Film Making. Theinstitute provides globally-accepted standards of media education in the field of filmmaking, direction, acting, voicing & TV presentation, screenwriting, production, adfilm making, cinematography, sound engineering, editing, autodesk smoke & flame andother related fields.
ZIMA offers 2 to 24 months courses including diploma courses in film making, direction,advertising film making, cinematography, executive production for film and television,editing, acting, voicing and television presentation and sound and writing.
The institute leverages the strong foundation and learning of Zee Network. ZIMA'sstate-of-the-art center provides cutting-edge technology, a rich wealth of teachingfaculty and diverse, updated and relevant courseware to suit individual talents andindustry demands. During the fiscal, the number of students enrolled in ZIMA increased byimpressive 30% to 450.
Zee Learn in collaboration with Gakken J. Holdings Company Limited, Japan,("Gakken"), has developed a customised science module for India calledBrainCaf. BrainCaf helps students to identify innovative ways to practically applytheir learning. BrainCaf supplements regular curriculum through activity based hands-onprograms. In a short span of two years, BrainCaf has been implemented in over 14 statesincluding Andhra Pradesh, Chattisargh, Delhi & NCR, Gujarat, Haryana, Karnataka,Kerala, Maharashtra, Madhya Pradesh,
Punjab, Rajasthan, Tamil Nadu, Uttrakhand and Uttar Pradesh. During Fy13 BrainCafScience has under gone a model change to improve profitability and efficiency. Zeelearnhas already signed 95 schools under the new model in FY13.
Leveraging its unique research-based pedagogy, QuarC, BrainCaf helps its student todevelop independent thought process, thereby, equipping them to actively participate inthe process of knowledge creation and not just be a mute audience.
To take the thought process to the next level, BrainCaf provided a platform to testbudding ideas. The Company during the fiscal conducted an Interschool Science Competitionat National Level called Budding Scientist Contest. The contest generated wide appeal and9040 students from over 224 schools enrolled in this innovation contest.
During the fiscal, Zee Entertainment Enterprises Limited (ZEE) launched a dedicated24-hour edutainment channel for children called ZeeQ. ZEE has entered into an agreementwith Zee Learn for sourcing the channel content, specifically procured, designed andproduced for the channel. Zee Learn would also be involved in channel management, contentacquisition, content production, editing and quality control.
Low barriers to entry
a. Risk: Education sector's High growth and resilience across economic cycles can lurenumber of new players with high balance sheet strength.
b. Mitigation Plan: The Company has gained sufficient reach, experience and createddistinct brands in each of its focus segment that would help it differentiate its serviceofferings
a. Risk: The risk that a process, product or technology used or produced by a companyfor profit will become obsolete, and is no longer competitive in the marketplace.
The channel would cater to children across all age groups. It provides huge platform toZee Learn to bring its innovative and engaging content to the fore. By leveraging thepotential of DTH, Zee Learn would reach out to millions of children.
b. Mitigation Plan: Zee Learn has been keeping itself abreast with the latesttechnological changes in the industry to implement the same in its operations to keepitself ahead of the competition.
Interest Rate Risk
a. Risk: An increase in interest rate could increase the Company's borrowing costs withrespect to its existing obligations or new loans, which could adversely affect theCompany's financial condition and results of operations
b. Mitigation Plan: Companys borrowings cost is at fixed interest rates and theCompany does not hedge its interest rate exposure. The finance team closely monitors theoverall level of debt and interest coverage ratio to ensure optimal mix for any newfunding
a. Risk: The Company's success to a large part depends on the abilities and continuedservices of its senior management, as well as other skilled personnel. The Company'ssenior management is particularly important to its business because of their experienceand knowledge of the industry. The loss or non-availability to the Company of any of itssenior management could have significant adverse effect.
b. Mitigation Plan:The Company's HR policy & compensation levels are in line withthe industry levels to enable the
Company to retain talent. Further, the management continuously reviews its talent poolfor upgrading.
a. Risk: K-12 schools are under regulatory scrutiny and with Right to Education Act,there are headwinds of change, which will shift some of the fee burden on the 'paying'students. The Company relies on intellectual property rights and proprietary rights, whichmay not be adequately protected under current laws. Further, in view of the kind ofbusiness in which the Company is, it may be subjected to defamation suits, which may haveadverse effects on its business.
b. Mitigation Plan:Regulatory enactments are monitored regularly and the Company shallconstantly monitor and if need be adapt its business model from time-to-time according tothe needs. Further, all necessary legal vetting is done by the management to ensure thatIntellectual Property rights relating to content have requisite protection.
Financial 2013 Compared to Financial 2012
Our total income increased by 63% to Rs.. 1,007.01 million in FY'13 from Rs..619.12million in FY'12 largely due to increase in course fee and royalty income to Rs..277.79million from Rs..177.33 million. An increase in the sale of educational goods andequipment to Rs..395.28 million from Rs.. 264.08 million was also registered during theyear. This increase is attributed to increase in number of students being serviced at theKidzee centres, MLZS, youth vocation institutes and also to the new Kidzee and MLZSfranchisees signed during the year. The Company also added new stream of revenue throughsale of television content, which added Rs..109.67million during FY'13.
Our total expenditure increased by 35% to Rs..1,205.99 million in FY'13 from Rs..893.23million in FY'12, primarily due to a corresponding increase in cost of material sold andincrease in operational expenses, employee benefit expenses and depreciation/amortisationexpenses.
Cost of Goods Sold and Operational Expenses
Cost of goods sold and operational expenses increased by 101% to Rs..340.00 million inFY'13 from Rs..169.06 million in FY'12, this is mainly because of increase in sale ofeducational goods and equipment and also on account of cost of television content, whichwas not there in FY'12.
Employee Benefits Expense
Employee benefits expense increased by 32% to Rs..331.09 million in FY'13 fromRs..251.61 million in FY'12, mainly due to setting up of full channel sales team for rapidexpansion of BrainCaf and entire product vertical team for television content.
Other expenses increased by 2% to Rs..414.28 million in FY'13 from Rs..406.88 millionin FY'12, mainly due to increase in expenses related to legal & professional, rentsand rent escalation, repairs and maintenance at our corporate office, ZICA and ZIMAcentres and travelling cost. There was a reduction in marketing, advertising and publicityspending by Company to the tune of Rs..64.3 million.
Finance costs increased by 59% to Rs..56.41 million in FY'13 from Rs..35.47 million inFY'12 on account of interest on term loan raised by the Company during the year.
Depreciation and Amortisation Expenses
Depreciation and amortisation expenses increased by 113% to Rs..64.20 million in FY'13from Rs..30.21 million in FY'12, due to amortisation cost of BrainCaf' Kits andeducational content.
Loss after Tax
Loss after tax decreased to Rs.. 212.24 million in FY'13 from a loss of Rs..275.79million in FY'12, due to higher revenue and corresponding contribution to margins andlower cost incurred as compared to % of sales.
The share capital increased marginally by Rs..0.27 million from Rs..262. 74 million asat March 31, 2012, to Rs..263.01 million March 31, 2013, on account of issuance of shareunder Employee Stock Option scheme.
Reserve and Surplus
The reserve and surplus as at March 31, 2013, saw a reduction of Rs..205. 98 millionfrom Rs..1,139.91 million as at March 31, 2012, to Rs..933.93 million as at March 31,2013, largely on account of operational losses incurred during the FY'13.
Long-term borrowings saw a reduction of Rs..9.32 million from Rs..584.32 million as atMarch 31, 2012, to Rs..575.00 million as at March 31, 2013, on account of repayment ofdebenture to the tune of Rs..125 million and repayment of IDCs to the tune of Rs..9.32million. Also Rs..50 million term loan is classified under short-term loan due to itsmaturity in next the 12 months. This year also witnessed an increase in term loan to thetune of Rs..175 million.
Long-term provisions saw an increase of Rs..2.62 million from Rs..9.58 million as atMarch 31, 2012, to Rs..12.20 million as at March 31, 2013, on account of increase ingratuity and leave encashment provisions.
Current liabilities saw an increase of Rs..790.03 million from Rs..773.08 million as atMarch 31, 2012, to Rs.. 1,563.11 million as at March 31, 2013, mainly on account ofincrease in current maturities of long-term borrowing that increased from Rs..125.00million to Rs..175.00 million , net increase in ICDs received during the year ofRs..644.73 million, increase in unearned revenue of Rs..29.98 million and net increase inadvance from customers by Rs..31.14 million.
Fixed assets saw a net increase of Rs..138.09 million fromRs.. 305.52 million as atMarch 31, 2012, to Rs..443.62 million as at March 31, 2013, on account of increase intraining equipment, computers and accessories, software, contents and interest ondebenture capitalised.
Non-current investments increased by Rs..1,060.00 million from Rs..0.10 million as atMarch 31, 2012, to Rs..1,060.10 million as at March 31, 2013, on account of sharesapplication money in its wholly owned subsidiary Digital Venture Private Limited (DVPL)converted into share capital.
Long-term loans and advance
Long-term loans and advances saw an decrease of Rs.. 301.25 million from Rs..1,179.48million as at March 31, 2012, to Rs..878.23 million as at March 31, 2013, on account ofrefund of Security deposit of Rs..150 million from DVPL, Rs..50 million share applicationmoney converted into shares of DVPL, ICD to DVPL of Rs..106.00 million have now becomeshort-term ICD.
Current assets saw a decrease of Rs..279.49 million from Rs..1,248.98 million as atMarch 31, 2012, to Rs..969.49 million as at March 31, 2013, largely on account of Rs..1010.00 million share application money converted into shares of DVPL. We also saw anincrease in ICD to DVPL increased by Rs..604.73 million, increase lease deposit, tradereceivable and fixed deposits now falling under short-term liquid assets.
The Company has in place adequate internal control systems, commensurate with its sizeand nature of operations so as to ensure smoothness of operations and compliance withapplicable legislation. The Company has a well-defined system of management reporting andperiodic review of business to ensure timely decision-making. A structured process by thename of 'Initiative Review Meetings' happens on a monthly basis, where newprojects/initiatives are presented and the Corporate Cell vet the projects for feasibilityand strategic fit for the organisation. Internal audit is conducted by professionallyqualified financial personnel, which conducts periodic audits/review to maintain a propersystem of checks and control.
The management information system (MIS) forms an integral part of the Company's controlmechanism. All operating parameters are monitored and controlled. Any material change inthe business outlook is reported to the Board. Material deviations from the annualplanning and budgeting, if any, are reported to the Board on quarterly basis.
Material development in Human Resources/Industrial Relations
In line with the purpose of Zee Learn Limited, the Company continues to invest in itshuman resources.
Talent pool of the Company is comprised of talent from across industries. While hiring,we look for people who have the best interests of the child at heart as we believe indoing what is right for the child.
It is essential to note that most of our attrition is non-regrettable in nature and asa Company we have been able to hold to our talent pool. Several initiatives have beentaken to combat attrition by investing in learning and development programs for employees,competitive compensation, creating a compelling work environment, empowering employees atall levels, as well as a well-structured reward and recognition mechanism. We have donevarious training programs, both behavioural and functional, and also rolled outinitiatives like Employee of the Month (EOM) and annual awards function JOSH.
We compete in a dynamic environment and evolving industry in which values are definedat each turn by Company's most important asset: The Human Capital. Last year, we at ZeeLearn Limited rolled out a process to continuously track employees aspirations and theircareer goals through an internal intranet based application known as My Career @ My ZeeLearn. This process is integrated with the Company's performance management system.Through this process, the Company is able to envision and enable employees in achievingtheir desired career goals. This year, we successfully completed the second cycle and haveformed all KRAs in advance, we have also launched the career paths for our employees.
The Company continues to engage employees through several initiatives. One of the mostprominent and structured initiatives adopted is through Q12 employee engagement survey.This survey enables supervisors and team leads to gauge the engagement index of theirteam. The engagement areas in this survey include role clarity, alignment to mission andpurpose, opportunities to learn and grow, materials and equipment required to perform,recognition and progress discussion etc. We are proud to share that our employeesatisfaction index is amongst the best in the industry. We have also started knowledgesession to generate new ideas and have made the monthly employee meet The OpenForum more interactive.