Thursday, August 26, 2010

The Recession Proof Corner - Education Industry: Part I

Integrate 'The Change' Into the Traditional Format *

India’s $20 billion (Rs 93,401 crore) kindergarten-to-12 (K-12) education sector is anticipated to grow almost twice as fast as the economy itself. Coupled with this, globalization has influenced Education Industry in India creating a demand for schools with new formats.

Whereas on one side our education system is one of the best in the world, it still has lacunae, which need to be bridged. Dakshayini Kanna can relate to these gaps with her 25 years of experience in education industry in India. Dakshayini is a rare phenomenon in the primary education industry. She can be called a serial entrepreneur, whose experience has not been limited to classroom teaching, but she has been involved in setting up quite a few educational institutes from scratch. I had the opportunity to get inputs from Dakshayini Kanna about the opportunity which has spearheaded
in the K-12 segment of Indian Education System.
According to Dakshayini, in urban India, parents are ready to spend a lot to put their children in the best academic environment – such environment which grooms a child’s complete personality and blends the traditional format our education system with the best practices in the education system of the West.
She feels that, “Today's education should aim at increasing student's knowledge of the world, its demands, its people and its culture. This would be only possible by collaboration and dialogue between schools of different countries. Such efforts have been successful in higher education but such efforts are hardly visible at the school level. At TREAMIS we have tie-ups with two US schools - Morgan Park Academy and Lake Forest Academy, to facilitate exchange of students as well as development of pedagogy. This arrangement brings in a truly international perspective into our teaching.”
Moreover, PE funds are investing in for-profit institutions that follow international curricula such as international baccalaureate. An acute demand-supply gap has created a vast opportunity for players to exploit this space. Rajesh Singhal, managing partner in Milestone Religare Investment Advisors, said this huge demand might see about 10,000 new private schools coming up in two years. [The joint venture between Milestone group and Religare Enterprises invests in multiple verticals, including the education sector].
“We are already evaluating several opportunities in the K-12 segment,” said Singhal, whose company has so far invested Rs 25 crore in IMS, a company that provides test preparation services for GMAT, GRE, CAT and similar exams for professional courses, and Resonance Eduventures, a coaching institute.

According to Chennai-based Venture Intelligence, PE funds invested around Rs 825 crore in the Indian education sector during April-June this year [2010], accounting for 7 per cent of all PE investments in the country.

This includes Rs 50 crore invested by Sequoia Capital India and Song Investment Advisors in K-12 Techno Services, which manages a network of over 50 schools owned by Hyderabad-headquartered Gowtham Educational Institutions.
In another instance, Reliance Equity Advisors, the PE arm of Anil Ambani's Reliance Capital, has put in an undisclosed amount in Haryana-based Pathways World School.

While the major players in the K-12 segment include Educomp Solutions, Manipal K-12 Education, Everonn and Radcliffe School, there is a big need for players who can provide services on a pan-India level.
A scalable model is what attracts investors. “As of now there are very few players who cater on a national basis and thus, this gap has led to credible opportunities for more new players. Preferences for private schools and colleges are driving this sector,” said Meena Ganesh, founder and chief executive officer of Manipal K-12 Education.

Although some regional players like D Y Patil Schools and G D Goenka Schools have already started the process of becoming broadbased, it will require a large investment to eventually do so, according to Sandeep Aneja, managing director of Kaizen Private Equity, the country’s first education-focused PE fund.
With the education space taking off, investors can expect to recoup their money in 3-8 years, with an average internal rate of return of about 25 per cent CAGR.

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