Opportunities in education and key success factors

           

Given the favourable age and income demographics, CRISIL Research expects the education sector to witness robust growth in the medium term. This will open up a wide array of opportunities for players who can identify the right mix and capitalise on the same. Despite the strict regulatory environment, this sector offers a steady revenue stream in the long term.

In this chapter, we have tried to identify opportunities in both the K-12 and higher education segments. We will explore these themes in greater detail in our subsequent updates. We have also provided a list of key success factors for institutions in the sector.

Opportunities

·        Pre school segment - This is an unregulated segment wherein ‘for profit' institutions can be set up. In pre schooling, which is a recent phenomenon amongst urban parents, toddlers between the ages of 1.5 - 3.0 years are sent to playgroups or nurseries for informal learning to prepare them for school. With changing income demographics resulting in higher affordability, we expect pre school education to witness faster growth in the medium term. A large part of this segment is unorganised; however, the recent entry of players such as ZeeLearn, Educomp Roots to Wings, Kangaroo Kids, and Poddar Jumbo Kids has triggered the formation of a more organised market. As fees in this segment are not regulated, private players are free to determine the same (fees currently range from Rs 10,000-45,000 per annum) and earn healthy returns, with estimated RoCE of 40-50 per cent.

·        K-12 education - The K-12 segment has been witnessing a growing trend of schools seeking affiliation to international boards, especially in metros and larger cities. The International Baccalaureate and University of Cambridge are two such organisations which provide affiliation to schools around the world. These schools adopt the curriculum prescribed by these organisations, who offer certification. At present, there are around 150 IGCSE schools and nearly 60 IB schools in the country. Most of these schools also provide the ICSE/CBSE curricula; however, the infrastructure as well as fees charged differs as per the curriculum. The premium positioning enjoyed by international education allows the schools to charge higher fees for IGCSE and IB.

With increasing number of parents willing and able to spend higher money on children's education, IB/IGCSE schools offer a lucrative opportunity for investors.

·        Informal education - Informal education presents a gamut of opportunities ranging from coaching classes (K-12 to Higher education), test administration providers, information and communication technology (ICT) vendors, distance education and online education.

-        Coaching classes - Most of the coaching classes supplement formal education both in K-12 and higher education segments, for example, Chate Coaching Classes, Mahesh Tutorials etc. Some coaching classes, like IMS and Career Launcher, also provide preparatory guidance for graduation or post graduation tests. While the coaching classes market is largely unorganised, this segment offers considerable opportunities for entrepreneurs, given the often unsatisfactory quality of teaching in formal education and the prevailing trend of students attending tuitions in addition to formal schooling.

-        ICT - ICT refers to information and communication system and various other technological aids used in schools and colleges to facilitate learning and improve teaching quality. It encompasses hardware as well as software used in education. The increasing usage of ICT to improve efficiency and quality of education signifies huge opportunities for ICT vendors like NIIT, Educomp, Everonn etc.

-        Educational literature - Demand for educational literature, which includes books, CDs, software, has been on the rise over the last few years, with students opting for additional study material  along with prescribed text books. Players like Navneet Publications cater to this demand.

-        Online education - Online education has witnessed a boom in recent times with many educational institutions offering students the option of virtual learning. This gives institutions the opportunity to increase student intake without enhancing its infrastructure.

-        Test administration - With a number of competitive exams like SAT, TOEFL, GMAT, etc. being made accessible online, demand for test administrators has increased. Although this segment is still in the nascent stage in India, it is emerging in importance among ancillary services to education.

Key success factors

Although the sector holds tremendous potential, success in this segment is not easy to attain. Even after setting up an institute, certain risks persist, viz., inadequate enrolments, possibility of derecognition due to noncompliance of regulations etc; hence, it is important to identify the key success factors in this segment:

1.       Brand and reputation: Enrolment in an institution largely depends on its reputation, which is built over a long period of time and is a fallout of the institution's ability to deliver quality education, as reflected in high number of pass-outs and good placement records.

2.       Faculty: Experienced and popular faculty is instrumental in providing quality education, and thus, in building the reputation of the institute.

3.       Placement record: In case of professional courses such as engineering, MBA, etc., employment opportunities available to students post completion of the course play an important role in building the reputation of the college and future enrolment.

4.       Right mix of education: Institutions offering a wider variety of courses are likely to be more popular amongst students. For example, an engineering college which offers various options under the same roof is likely to witness higher enrolment. Newer courses, global affiliations, online education are the other factors that aid an institute's success.

5.       Reputation of promoters - The promoters' reputation also has a bearing on the enrolment and potential success of an institution, especially if they have an established presence in the segment, or have linkages which can enhance employment opportunities for students. Additionally, promoters who are financially strong and can support an institute in its early years have better chances of success later.