Business - Class Apart

For years, Mahesh Shetty aspired to shed the 'coaching class tag.' But he actually moved in the direction of making Mahesh Tutorials a professional, corporate entity, only after the untimely death of his close friend and accountant in 2005.
Idea"His death came as a shock to me," recalled Mahesh Shetty, 44, the founder. "We used to outsource the tutorials' accounts to him. When he passed away, I felt that without him, this business would shut down. I didn't want that to happen."By mid-2005, Shetty was certain he wanted to leave a legacy behind. After years in the industry, he had seen too many coaching classes folding up after their founders died. "Most coaching classes are built around one man - the founder or the teacher," he explained. "After this person dies, it simply winds up. I did not want that to happen. I wanted to become a big name in the education sector and get rid of the coaching class tag."In August 2006, he changed the name of his business from Mahesh Tutorials to MT Educare, to give it a more corporate ring. "I realised that intellectuals would join the company only if we functioned like a corporate house. Only then would people take us seriously."A math and statistics graduate, Shetty gave up teaching at his own classes three years ago to focus on the business. Today, it is clear Mahesh Tutorials has made that transition from small-time coaching class to education conglomerate. It started out in 1988 with just seven teachers and 400 students in a 300-square-feet room in Mulund. Today, it has 500 teachers, 30,000 students and 151 centres across India, 121 of which are located in Mumbai. In August last year, it became the first Indian coaching institution to attract foreign money, when Mauritius-based Helix Investments invested $12 million to fund the company's global expansion. Mahesh's assets are estimated at about Rs 210 crore. Looking to invest in the education sector, Helix Investments studied the coaching class industry in seven Indian cities - Mumbai, Hyderabad, Pune, Delhi, Bangalore, Kota and Chennai - before investing in Mahesh."Mahesh Tutorials has a large group of teachers who have been with them for 12 years simply because they've had the freedom to grow," said Cyrus Driver, Helix's managing director. "They have good processes, the best talent, the best salaries, teacher training programmes and good content upgradation. In most other companies, we found that the person who starts the set-up is very self-centred and won't allow others to grow."Mahesh's strong point is running tutorials for class 10, but it has several other divisions: it caters to commerce students from class 11 all the way to the CA exam; its science division prepares students to crack the class 12 exam, common entrance tests in Maharashtra, Karnataka, Gujarat, the IIT-Joint Entrance Examination and the All India Engineering Entrance Examination. It also coaches students to take exams for entering business school and going abroad, exams such as the CAT, GRE, GMAT and TOEFL.
BusinessIn order to execute his idea, Shetty had to get his 12 business partners to understand the need for a revamp. "My partners found it difficult to align with the idea," he recalled. "We were all directors," he said. "We could pick up profits whenever we wanted to. But today as a corporate firm, we cannot do that. Eventually, I lost three partners who felt their ownership and identity would be lost when Mahesh would be corporatised. It was a very tough call." Shetty feels bad that the trio lost the opportunity to make the company a brand, but knew he had to go ahead without them.After six months of brainstorming, Shetty hired Polymath Advisors to explain the plan to his remaining partners and begin executing it. The company was divided into departments for every academic area, such as science and commerce, and for business functions, such as human resources, finance and administration. The process took eight months. The company then hired professionals to head the academic divisions - doctors, engineers, professors, chartered accountants and from the industry."The system is very powerful," said Anish Thakker, accounts and finance teacher. His tutorial classes, with 800 students, joined Mahesh in October 2003 and the commerce division was born. "Today, Mahesh Tutorials does not depend on any one individual. Just like Infosys doesn't depend on Narayana Murthy and Reliance Industries didn't depend on Dhirubai Ambani, Mahesh Shetty too is not indispensable. That is corporate culture." Today, Mahesh has business heads for every section who are responsible for everything from opening new centres to hiring faculty, from deciding the marketing and advertising strategy to tracking the competition. When a business head senses that there is a potential to start a centre in a new locality, the idea is presented to an eight-member business development team. The team then visits the area, conducts a comprehensive survey and then decides.In the commerce and CA segment, Mahesh competes with Ideal Classes and J K Shah Classes, while for class 10 and 12 its rivals are Chate, Kalra Shukla and Agarwal Classes.
OperationsShetty attributes his success not to his own business acumen but to his teachers. "They are my USP," he said, smiling. "Between 1984 and 1988, the condition of teachers was pathetic. They were underpaid, and it was difficult to get good ones."He should know: during this period, he taught at Shetty's Academy, a coaching class in Mulund, before launching his own venture in 1988. "I wanted to develop a parallel education system with good teachers. I wanted to pay good salaries." Mahesh's best teachers take home Rs 15 lakh a year, while the average ones get Rs 5 to 6 lakh a year. The top management draws between Rs 15 and 20 lakh a year.At Mahesh, every subject has two heads. One head hires and trains new recruits, the other develops content, sets question papers and churns out model answer papers.New teachers undergo two-and-a-half months of training before they hit the floor every April. For the first two weeks, new recruits get one-on-one guidance about the nuances of the curriculum, blackboard training, voice modulation and pedagogy. After this, the subject head observes the new teacher and gives him or her feedback. If he or she is not up to the mark, the teacher goes through another round of training. "Every lecture is planned in detail. So every teacher takes the lecture in the same pattern, explaining concepts in a similar fashion. Even the colour of the chalks is pre-decided," said Anish Thakkar, accounts and finance teacher in the commerce division.The yearly fees for SSC tutorials are Rs 26,000, for ICSE Rs 45,000 and for CBSE Rs 20,000. These classes have about 50 students, while higher ones have about 70.Every year in November, students give their feedback about teachers. A teacher who scores below 60 per cent has to quit. Those with a 60 to 80 per cent rating have to be re-trained. Om Kale, a class 10 student, gives Mahesh's teachers a ringing endorsement. "They are extremely good," said the 16-year-old from Chembur. "They are open to answering as many questions that students raise. We could call them on their cell phones to clarify doubts before the exams. They never gave up on weaker students."
SuccessInitially, turning the coaching class into a corporate-style entity dented profits. The gross profit margin dropped to 17 per cent from 36 per cent as the company invested in hiring people and buying infrastructure. "That is the cost of setting up a brand," said Shetty. "I have no regrets."Helix Investments' Driver said the company was now poised to grow rapidly. "It is critical to raise funds. The company will grow 40 to 50 percent every year. It can expand in terms of infrastructure, technology and acquire companies quickly."In the financial year to March 2008, the company had a turnover of Rs 43.28 crore. This year, Shetty expects revenue to hit Rs 100 crore.Success did not come easily. Getting partners to support the makeover was hard; getting funds was harder. For one year, Shetty tried to attract venture capitalists, without success. His wealth advisors suggested Shetty go to the Middle East to look for investors. He did, but returned empty-handed. Financiers were reluctant to touch a coaching class.Back in Mumbai, Shetty decided to meet city-based international venture capital firms. Finally, three firms agreed to finance the venture. "We then had the luxury of picking one," he said. Shetty zeroed in on Mauritius-based Helix Investments. "They studied us closely. We found them pro-active and keen on helping us - and the education business - grow. They had faith in me," he said.Mahesh became the first coaching class to get $12 million in foreign direct investment. It's been a long haul. Shetty remembers how in 1988 at a bank, a manager got security guards to kick him out because Shetty had asked for a loan to start his own coaching class.Shetty had a paltry Rs 10,000, and needed Rs 6 lakh to buy a 300-square- feet shop in Mulund. It was family that he turned to. His father, who worked for the Reserve Bank of India, and homemaker mother, suggested he pawn his mother's gold jewellery. Shetty did and got Rs 40,000. Then, his grandfather lent him Rs 2.2 lakh on interest. But what really set the wheels in motion was Shetty's uncle's contribution of Rs 2.4 lakh, raised from friends. The remaining Rs 1 lakh, he got by way of students' fees. In six months, Shetty bought his second premise.
FutureListing the venture on the Bombay Stock Exchange next year is high on Shetty's agenda. The company is also expanding rapidly; it has already invested $8 million from Helix. "We are in the process of acquiring two large education companies outside Mumbai," said Shetty, declining to provide more details. "We are looking at setting up more centres in the Middle East." Shetty is also collaborating with education companies in the US and Europe for Math and English. "Depending on their requirements, we will send teachers from here to train faculty in those countries," said Shetty. The company has also spent Rs 10 crore on digital boards that will replace blackboards.Starting this year, the tutorial will offer online mock tests for various competitive examinations. The company is looking to buy three-dimensional software. "With such software, a child can understand the entire process of say, germination, in three dimensions, right from the time the seed grows underground," explained Shetty. Online teaching through virtual classrooms and 2D and 3D animated content will be available from 2009."By 2010, I want to cater to 60,000 students and raise my company's worth to Rs 500 crore," he said, smiling dreamily.