Indian Education Sector - Prospects

Anup Gandhi

October 3, 2012

Agenda

• Overview of Indian Education Sector

• Public Education Dynamics

• Private Education Dynamics

• Role for Professionals

• Conclusion

OVERVIEW OF INDIAN EDUCATION OVERVIEW OF INDIAN EDUCATION

SECTOR

Education – Market at large

• Overall education spend in India estimated to be around US$ 90 billion in 2012 – Growth of 15%

per year since 2000.

• Households constitute 35% of the overall education spend – higher than compared to most

countries

• Cost of Education in India is one of the lowest in the world – less than 1/6th of Global Average

• The country has one of the largest education networks globally of about 1.2 million schools and

23,000 higher education institutes.

Indian Education Sector

Core Parallel Ancillary

Indian Education Sector - Anatomy

Primary Education

Secondary Education

Higher Secondary Education

Higher Education (Technical,

Medical etc.)

Post Graduation (Doctorate,

MBA etc.)

Pre-Schools

Coaching

Test Preparatory

Corporate Training

Vocational Training

ICT/Multimedia & Online

Content

Teacher Training

Books & Stationery

Management & ERP

K12

Denotes Public / Govt . Sector participation Denotes Private Sector participation

PUBLIC EDUCATION – DYNAMICS PUBLIC EDUCATION – DYNAMICS

AND OPPORTUNITIES

Public Education Dynamics

PUBLIC EDUCATION SYSTEM

(~USD 55 Billion)

GOVERNMENT

INSTITUTES

• Schools, Colleges and

GOVERNMENT /

PRIVATE AIDED

INSTITUTES

GOVERNMENT

PROGRAMMES

• Schools, Colleges and

other educational

institutes

• These constitute nearly

75% of Indian

Education System

• Slow down in

expansion

• Schools, Colleges and

Institutes run by

private agencies

receiving

land/building/grants

from Government

• Fees and Salary

Structure governed by

Public Sector norms

• Programmes like Sarva

Shiksha Abhiyan,

Minority Welfare etc

for spreading

education.

• Involves Public Private

Partnership for

execution

Public Education - Opportunities

Opportunities for Private Players

• Government Institutes: Private Enterprises being partnered by Government to run and manage

these institutes

• Government/Private Aided Institutes: Management Contracts being offered to private enterprises

• Government Programmes: As the same largely involve PPP structure private participation has the• Government Programmes: As the same largely involve PPP structure private participation has the

largest possibility in this segment

Bottlenecks

• Not for Profit Norms

• Ability of institutes to pay private enterprises such that costs are covered and margins made

• Long overdues and possible bad debt scenarios

PRIVATE EDUCATION – DYNAMICS PRIVATE EDUCATION – DYNAMICS

AND OPPORTUNITIES

Private Education Sector - Snapshot

Private Education Sector

(~USD 35 billion, 17%E

CAGR)

Formal Education

Segment

(~USD 23.5 billion, 15%E CAGR)

Non Formal Education

Segment

(~USD 11.5 billion, 18%E CAGR)

K-12 HEIsK-12

(USD 15 billion, 15%E

CAGR)

HEIs

(USD 8.5 billion, 18%E

CAGR)

Preschools

(USD 2billion, 35%E

CAGR)

Multimedia & ICT

(USD 1.3 billion, 55%E

CAGR)

Vocational Training

(USD 1.8 billion, 25%E

GAGR )

Coaching Classes

(USD 4.5 billion, 20%E

CAGR)

Books & Stationery

(USD 1.9 billion, 10%E

CAGR)

Education imparted to gain basic knowledge

• ~USD 23.5 billion, 70% of Total Market

• Highly Regulated

Education that provides additional skills &

knowledge to support the formal education. This

system runs parallel with formal education.

•

•

USD 11.5 billion, 30% of Total Market

Not Regulated

Formal Education Segment Non-Formal Education Segment

Market sizes estimated for 2012

Key Growth Enablers

• Increasing household spend: Growth in household spend on education is far exceeding growth in

public spend since 1990’s

• Urban households (26% of population) accounts for 57% of private spends.

• Affordability: Rising affordability and increased awareness for quality education resulting in

increased demand for education especially at technical and professional level

• Perceived quality gap in Public Education

• Infrastructural Bottlenecks in Public education system: Lack of infrastructural facilities especially

at higher and technical educational levels.

• Growing need for skilled manpower

Formal Education (K-12 and H-Ed)

• Market size: K12 education is estimated to be around 15 billion USD (growing at 15% CAGR), while

Higher Education (Technical and Professional) is estimated to be around 8.5 billion USD (growing at

around 18% CAGR)

K12 Education: Business Models

Asset Heavy K-12 Model Asset-Light K12 Model

Management company School trust Infra company

Land &

Building

Consulting / Content

Management company

K12 Education: Growth Enablers

• Increasing trend in students joining private schools as against public schools (288 students per

private school as against 132 students per public school – as per 2009-10 data)

• Perceived educational gap between Public and Private Schools

Management company School trust Infra company Management

Fees

Lease &

Rent

Holding company

School trust

Local partner

Consulting Royalty / Management fee

Land &

Building

Lease &

Rent

Formal Education (K-12 and H-Ed)

K12 Education Roadblocks

• Not for Profit clause making it inevitable for private enterprises to use innovative business models

• RTE Mandate making it compulsory for 25% seats to be given free to students from weaker

sections of the society

• Stipulated conditions on teaching and physical infrastructure making it expensive

• Capex Heavy Model with long gestation periods

• Possibility of fees being regulated

Conclusion

• New incumbents may find it difficult / unattractive to enter the segment

• Leaves scope for current players to enhance their positions

Key Players and their Corporate Status

Company Brand Listed PE Investment

Zee Learn Kidzee High & Mount Litrera Yes No

Educomp The Millennium Schools Yes Yes

N/A Ryan International N/A N/A

Formal Education (K-12 and H-Ed)

Higher Education: Business Models

• Classroom Based Model entailing heavy capex

• Distance Education with local partners operating as selling agents as well as conducting exams

Higher Education: Growth Enabler

• Lack of sufficient higher education (technical and professional) public institutes to cater demand

• Low Growth Enrolment Ratio (12-14%)

Higher Education: Roadblocks

• Capex Heavy Models

• Regulated sector

• Availability of Skilled Technical Faculties and Industry Slowdown

Key Players and their Corporate Status

Company Listed PE Investment

Manipal Education Group No Yes

Amity University No No

Lovely Professional

University

No No

Coaching Segment

Market

• USD 4.5 billion industry expected to touch the USD 8 billion mark by 2015

• Large fragmentation of players

Business Models (Industry is mainly characterized by low investment and high margins)

• Integrated Classroom Coaching (currently accounting for 80% of the total market)

• ICT based coaching using technology aids like V-SAT/VPN/Broad-Band

• Distance Learning (Learning and Assessment Management )• Distance Learning (Learning and Assessment Management )

Growth Enablers

• Increasing need for Grade Enhancement at K12 and need for coaching at test prep level

• Low investment and high rates of return

• No regulations governing the functioning of the Coaching Segment

• Increasing disposable household incomes coupled with nuclear families

Roadblocks

• Highly fragmented industry

• Teacher dependent to a large extent especially in niche areas like IIT-JEE and CA coaching

• Technology still not well developed across the country

Coaching Segment

Investor Friendly Segment

• Industry is mainly characterized by low investment and high margins

• Non-regulated and hence no restrictions on making profits

• Has attracted the largest interest from the investor community

• Total P/E Investment in Coaching Segment around USD 400 billion which is roughly 45% of the total

investment in the education sector

Key Players and their Corporate StatusKey Players and their Corporate Status

Company Listed PE Investment

Career Launcher No Yes

IMS No Yes

Career Point Yes Yes

MT Educare Yes Yes

Pre-School Segment

Market

• USD 2 billion industry estimated to grow at a CAGR of 35%

Business Model

• Day Care Facilities

• Pre-school training up to Sr. Kg in a classroom model

• Own Facilities vs. Franchisee Model

Growth Enablers

• RTE – with 25% seats getting blocked in integrated pre-school as a part of any existing K-12

demand for standalone pre-school centers is increasing

• Preparatory ground for interviews for children for gaining entry to K12 schools

• No regulations governing the functioning of the Coaching Segment

Roadblocks

• Increasing rentals in metros coupled with low asset turnover

• Unorganized institutions which are currently large in number due to low entry barrier

Key Listed Players

• Educomp, Tree House and Zee Learn

Vocational and ICT

Market

• Vocational market estimated to be USD 1.8 billion industry estimated to grow at a CAGR of 25%

• ICT/Multimedia market estimated to be USD 1.3 billion industry estimated to grow at CAGR of 55%

Growth Enablers - Vocational

• Gap in formal education vis-à-vis industry requirements (E.g. – IT sector)

• Low GER in Higher Education

Growth Enablers – ICT/Multimedia

• Insufficient pool of quality human resource

Roadblocks - Vocational

• Placement post certification

• Funding for consumer for availing these courses

Roadblocks – ICT/Multimedia

• Commodity Business

• Current infrastructure for technology insufficient

ROLE FOR PROFESSIONALSROLE FOR PROFESSIONALS

Opportunities for Professionals

• Assisting in the transition from an unstructured to a structured model for

smaller players

• Developing systems and processes and specific industry standards

• Major role in structuring mergers/acquisitions (Sector undergoing

consolidation)consolidation)

• Developing good Corporate Governance practices

• Part-time/Full time teaching

• Value creation

CONCLUSIONCONCLUSION

Conclusion

• Education – Nervous system of India’s future

• Growing pressure on Government to enhance the quality of Education

• Need for policies to be designed to not only encourage larger private sector

participation but at the same time ensure education is available to all. E.g. Tax

Soaps, Low cost funding for rural programsSoaps, Low cost funding for rural programs

• Large untapped potential to be addressed by professionals

• Potential to be the Export Driver for India

LIFE IS A CIRCLE

THANK YOUTHANK YOU

Reference to Research Reports issued by Anand Rathi, Technopak and PwC amongst others.