Private investments in education

Julie Mercer (Head of Education at Deloitte) speaking at Education Investment Conclave 2013 There has always been an element of emotion associated with education in India. In a society steeped in the “guru-discipline” tradition, the idea of treating this as a business and making profits out of it has been viewed with suspicion. As a result, investments in this space have been predominantly aimed at the niche segments rather than the mainstream. Indian education owes its attractiveness as an investment option to the boom spawned by the information technology sector in the early nineties. Consequently, the opportunities in harnessing technology towards addressing education needs of the foreign markets started acquiring prominence. This twinning of technology and education has continued to this day with most of the organised investments happening in the technology-led domains. As India's burgeoning infrastructure constraints shackle physical growth, the reliance on technology is expected to grow even further. Since 2005, there have been close to 100 deals that have taken place in this sector with a value of over US$700 million1. Sector profiles Pre-schools and day care centres The size of pre-schooling in India is expected to be between US$500 million to US$750 million at present, according to various industry sources. While the industry is dominated by the unorganised market, there are around 10-chains that constitute the organised segment and had received investments in the past. Growing urbanisation and attendant characteristics like the nuclear family and working parents have largely been the drivers for growth for this segment. Online and technology-based learning Riding on the information technology boom in the nineties, a lot of technology-based education companies were set up. These companies offered online learning and facilitated creation of modern education content medium for students and teachers in countries which were facing physical challenges for growth and were looking at alternate delivery mechanisms. Coaching centre Coaching centres and the test preparation space in India has always been seen as a proxy for investing into the K-12 and higher education sector in India. In a stiff competition at the school and higher education level, test preparation and coaching centres have emerged as an attractive option for parents to enrol their children in. Vocational and corporate training While the country's engineering and management colleges churn out over two million students annually, repeatedly industry body reports and think-tanks have stated that the vast majority are not readily employable. Additionally, in a country of 1.2 billion people, not everyone is able to access the mainstream HEIs. A significant portion of them join vocational institutes that are aimed at enhancing employability. Private investments in this segment have therefore boomed in recent years. Success stories MT Educare MT Educare, is an education conglomerate with interests in classroom tutorials, coaching for common entrances tests for study in India and abroad. The company received equity funding from Helix Investments in 2007 at a reported valuation of US$40 million and went on to an IPO at a valuation of US$70 million in 2012. Excelsoft Founded in 2000, this Mysore-based company provides products and services in the e-learning space and has strong platform-based revenues. In 2002, UTI Ventures acquired a 35.5 per cent stake in the company which was then in its infancy. Over a span of six years, the company grew to be an exceedingly nimble and profitable corporation with clients across schools, universities and the corporate sector. In among the biggest exits ever for a VC investor, UTI Ventures reportedly made a 50x return on its investment when it sold its stake to DE Shaw in 2008. Themes for the future It is quite difficult to predict an investment theme for the future. Ultimately, any company that is led by a strong management with a continued focus on its core business will continue to grow. However, it would be pertinent to identify the key challenges currently facing this sector and perhaps question some of the assumptions that had been made about five or six years ago. One key assumption that is now being challenged is the infinite nature of purchasing power in this sector. While pricing can be relatively inelastic compared to other industries, these would continue to be driven by results. A parent would want to see tangible benefits from a new learning environment before paying additional fees. Similarly, while skill enhancement and certifications are helpful in a challenging job market, these would still need to be backed by strong evidence of greater employment opportunities. Against this backdrop, we have identified two major themes for the future.

360-degree content creation and deployment With evolving methods in imparting content and innovations in pedagogy, educators in India and abroad are looking at new means of developing content. The industry is moving out of the conventional textbook medium towards an integrated learning environment spanning multiple domains like games, multimedia aids and online sources etc. The concept of virtual integrated learning is also an emerging area where students around the world access teaching resources and material from any part of the world. Additionally, it addresses the physical constraints posed by infrastructure and provides a readily scalable model. Consolidation in the coaching centre space The coaching sector market has been dominated by regional players who are strong in the respective state syllabus and coaching students for success in the same. This is expected to change as a result of recent reforms introduced in the sector giving more weightage to the school examinations and the central government pushing towards a common entrance examination for each stream. With a lot of these coaching institutes being funded by investors who would be looking at returns soon, the space is poised for a consolidation. For example, MT Educare recently acquired Lakshya education, a competitor with strength in the IIT-entrance coaching space and a large presence in the north. P N Sudarshan is Senior Director and BalajiLakshmanan a Manager in the financial advisory practice of Deloitte Touche Tohmatsu India.

The above article was published in India Inc′s Print edition of India Investment Journal launched on October 2013 in conjunction with Education Investment Conclave.
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