Education is the key to unlocking and building lasting value in a robust economy. For any country to grow and prosper, a well-positioned educated young population is the fundamental requirement to meet the demands of an increasingly global economy and productive value creation. India has amongst the largest student population in the world and a low literacy level of 74. 04% (2011)1. According to census 2011 figures, over 35. 3% of the 1. 21 billion people are between the age group 0-14 years. Additionally, there is shortage of employable manpower in various industry segments.
In order to meet this existing and emergent demand, there is huge need of investments in the Indian education sector. Currently, education is primarily handled by the government through its infrastructure and budget outlays. But given the small budget outlays and complex regulatory structure, supply is lagging far behind the demand of education. Expenditure on Education as %age of GDP 6000 GDP in thousnad Crores 5000 3. 64 4000 3000 3. 36 2000 1000 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2,098 2,261 2,538 2,878 3,282 3,779 3. 51 3. 45 4,321 4,933 3.
81 3. 74 3. 80 3. 70 3. 60 3. 50 3. 40 % expendutire on education 3. 78 3. 78 3. 90 3. 30 3. 20 3. 10 Source: Ministry of Human resource and Development (MHRD), Government of India REGULATION India’s tightly controlled regulatory structure is the primary reason for shortage of quality education institutions. Being in “Concurrent list”, education is being governed by both Central and State government with huge variations amongst the state regulations. Currently, the government regulates who you can teach, what you can teach them and what you can charge them.
Some of the key bodies regulating education in India are:? Schooling o Department of School Education and Literacy – MHRD o Central Board of Secondary Education (CBSE) o Various State Boards o National Council of Educational Research and Training (NCERT) 1 Census of India, 2011 Page 3 A research report on Investment in Indian Education Sector ? Higher Education o Department of Higher Education – MHRD o University Grants Commission( UGC) o All India Council of Technical Education (AICTE) o Statutory Councils ? Medical Council of India (MCI) ? Bar Council of India (BCI) ?
National Council of Teacher Education (NCTE) Voluntary Education and Skill Development o National Council for Vocational Training (NCVT) o National Skill Development Corporation (NSDC) ? In order to overcome this overlapping nature of various governing bodies especially in higher education, government is planning to come up with National Commission for Higher Education and Research (NCHER). This commission would work as a single regulatory body which would determine, co-ordinate and maintain standards in promotion of higher education and research.
It will subsume regulatory bodies such as UGC, NCTE and AICTE, thus making the process more streamlined. KEY POLICY/ACT ? Foreign Educational Institutions(FEIs) o Allows FEIs to setup multi-disciplinary campuses and award degrees o Mandates FEIs to reinvest surplus from Indian operations o Mandates FEIs to invest at least 51% of capital expenditure required o Regulates the admission process, fee structure, period of operation of FEIs Right to Education o Makes access to primary education a fundamental right o Mandates 25% reservation for underprivileged students in schools?
BUDGET 2011 HIGHLIGHTS ? ? ? ? ? Allocated an amount of Rs 52,057 Crores for universalizing access to secondary education Allocated an amount of Rs 21,000 Crores for Sarva Shiksha Abhiyan Increased the total allocation by 24% over the previous year Lack in allocation of funds for Teacher improvement and training Lacked emphasis on the K-12 sector in terms of school improvement, quality control etc. EDUCATION IN INDIA Indian education sector has witnessed a series of changes in the last few years, which resulted in a significant increase in market size of the education industry.
With economic growth and enhanced technology it has become necessary to develop the Indian education sector. Funds are a major concern in the market to meet this demand. The government has taken many initiatives for the development of education infrastructure which needs to be supplemented led by private players. The government has also opened the doors for foreign universities by passing Foreign Educational Institution (Regulation of Entry and Operation) Bill, 2010, which will help in shaping the education industry structure specially pertaining of higher education in India.
A research report on Investment in Indian Education Sector About 185,000 Indians study overseas and spend USD 4 billion annually. This is almost 10% of the private spend on education, coming from a very small 0. 001% segment of the student population. A number of these students are now returning to India after completing their studies, as job markets in India are more attractive, especially in contrast to weak macro scenarios in the western markets. Entry of leading foreign institutions will enable some of this USD 4 billion spend to stay in India, and also provide a much needed boost to quality.
STRUCTURE Indian education system can be divided into formal and informal segments which are further divided into sub-segments. Formal education segment broadly comprises schools and higher education institutes. Schools often classified as K-12(Kindergarten to 12th) caters to ‘3-17 years’ age group. While higher education includes graduate, diploma, professional and post-graduation courses caters to ’18-22 years’ and above age group. On the other hand, informal education segment comprises of preschools, multimedia, ICT, vocational training, books and coaching classes.
This segment is free from regulation as opposed to highly regulated formal education segment. Schools (K-12) Formal Higher Education Preschools Indian Education System Multimedia ICT Non-formal Vocational training Books Coaching classes Page 5 A research report on Investment in Indian Education Sector INTERNATIONAL SCHOOLS India is home to several well acclaimed International Schools and is increasing rapidly. This demand has been fuelled by parents looking for a new system of education which is more interesting and less stressful.
Also, large number of NRIs resettling in India is also contributing to this demand. Being in India these schools have to adhere to certain requirements of the Indian national system irrespective of the examination system adopted by them. Most of the international schools opt for the International Baccalaureate (IB) Board. However, there are other examination systems like the General Certificate of Secondary Education (GCSE) and General Certificate of Education (GCE) examination systems which are also present. The IB is a recognized leader in the field of international education.
It is a non-profit, mission-driven foundation that offers three programs for students aged 3 to 19. ? ? ? Primary Years Programme (PYP) Middle Years Programme (MYP) Diploma Programme -For students aged 3 to 12 -For students aged 11 to 16 -For students aged 16 to 19 In India, most international schools offer IB Diploma Programme. In this students study six courses at higher level or standard level. Students must choose one subject from each of groups 1 to 5, thus ensuring breadth of experience in languages, social studies, experimental sciences and mathematics.
The sixth subject may be an arts subject chosen from group 6, or the student may choose another subject from groups 1 to 5. Additionally, the programme has three core requirements that are included to broaden the educational experience and challenge students to apply their knowledge and understanding. The “extended essay” is a requirement for students to engage in independent research through an in-depth study of a question relating to one of the subjects they are studying.
“Theory of knowledge” is a course designed to encourage each student to reflect on the nature of knowledge by critically examining different ways of knowing (perception, emotion, language and reason) and different kinds of knowledge (scientific, artistic, mathematical and historical). “Creativity, action, service” requires that students actively learn from the experience of doing real tasks beyond the classroom. Students can combine all three components or do activities related to each one of them separately. Some of the International Schools in India:? ? ? ? ? ? ? ? ? ? ?
? Aditya Birla World Academy-Mumbai American Embassy School- New Delhi Amity Global School-New Delhi D Y Patil International School-Mumbai and Nagpur Dhirubhai Ambani International SchoolMumbai GD Goenka World School-Gurgoan Indus International School-Bangalore, Hyderabad and Pune KiiT International School-Bhubaneswar Pathways School-Gurgoan, Noida and NewDelhi Stonehill International School-Bangalore Sharad Pawar International School-Pune Doon School -Dehradun Page 6 A research report on Investment in Indian Education Sector ANALYSIS OF VARIOUS SEGMENTS BASED ON KEY PARAMETERS.
Growth Prospect Yes Yes Yes Yes Yes Yes Yes No Regulated No Yes Yes No No No No No Scalable Yes Yes Yes Yes Yes No No No Possibility to Create Value Yes Yes Yes Yes No No No No Preschool Schools(K-12) Higher Education Multimedia ICT Coaching Classes Vocational Training Books GROWTH DRIVERS ? ?
Demographic advantage o As per Census 2011 ,35. 3% of the Indian population is under the age of 14 Increasing awareness o Increase in awareness towards education as a priority and essential tool for career growth o Increase in job opportunities and salaries offered making investment in education prudent Human Resource driven economy o Increase in the demand for an educated skilled workforce by services sector o Share of service sector in GDP increased from 30% in 1950 to 55% in 2007.
Technology aided delivery o Increase in penetration of technology resulting in virtual learning and education delivery New employment avenues o Newer employment avenues such as KPO, LPO, retail, aviation, animation etc. demanding highly skilled manpower ? ? ? INDUSTRY FORECAST SCHOOLING.
Segment Pre-School K-12 Tutorial Books Stationery Education CD-ROMs Multimedia in School Total 2008 1,200 21,000 5,000 1,700 1,380 120 25 30,425 CAGR 20%-25% 5%-10% 8%-13% 5%-10% 5%-10% 25%-30% 60%-70% 2013 3,500 30,800 8,000 2,400 2,000 390 320 47,410 CAGR 10%-15% 5%-10% 5%-10% 3%-8% 3%-8% 20%-25% 50%-60% 2018 5,800 43,200 11,800 3,000 2,600 1,100 3,300 70,800 (Figures in USD million) Page 7 A research report on Investment in Indian Education Sector HIGHER EDUCATION.
Segment Higher Education Preparatory Total 2008 6,700 1,600 30,425 CAGR 8%-13% 13%-18% 2013 11,200 3,200 47,410 CAGR 7%-12% 10%-15% 2018 18,100 5,900 70,800 (Figures in USD million) VOCATIONAL EDUCATION AND SKILL DEVELOPMENT Segment Child skill enhancement IT training E-learning Finishing school Vocational Teacher training Total 2008 740 195 45 25 1,500 15 2,520 CAGR 20%-25% 35%-45% 35%-45% 50%-60% 15%-20% 50%-60% 2013 2,200 1,050 240 235 3,100 140 6,965 CAGR 17%-22% 33%-38% 33%-38% 45%-55% 10%-15% 45%-55% 2018
5,600 4,700 1,100 1,800 6,200 1,100 20,500 (Figures in USD million) Source: Technopak report on India Education Sector INVESTMENT SCENARIO With an education network of more than one million schools and 20,000 higher-education institutes, the market size of the Indian education system is estimated at more than US$40 billion2 (2009). However, inadequate infrastructure has placed pressure on the sector’s overall development. Education sector is unable to cope with growing market demand and global competition due to constrained investments.
Increased private investment is imperative to expand infrastructure and provide greater access to quality education. Also, Government is planning to set up an education ? nance corporation with an investment of around US$4–5 billion, which aims to provide the education sector with long-term, low-cost ? nancing. PUBLIC PRIVATE PARTNERSHIP (PPP) PPP can provide the much needed finance to the education sector while serving as an efficient operating model. Establishing strong partnerships between private and public sector can achieve the growth.
POSSIBLE PPP STRUCTURE The educational institute (special purpose vehicle) is set up as a Society or Trust, as per applicable guidelines. The UGC, AICTE or some other central regulatory body approves norms and standards of the institute. The state provides applicable administrative and financial support to the institute. Capital outlays are met by an educational services entity which 2 E&Y’s Private Equity Round Up April-June 2010 Page 8 A research report on Investment in Indian Education Sector provides infrastructure.
The educational services entity charges a fee for use of facilities by the Society or Trust. Finally, the infrastructure facilities are transferred to the institute after a particular time period. Central Government State Government AICTE, UGC approvals Provision of grants Local approvals Land and utilities Trust/Society Service fees Infrastructure Service Provider Transfer of Infrastructure after prescribed time period Source:-2009 E & Y – EDGE 2009 report on Private Enterprise in Indian Higher Education KEY PLAYERS GLOBAL ? ? ? ? ? ? ? ? ? ? ? ? ? ?
Apollo Group (USA) Mcgraw-Hill (USA) Pearson Plc (England) Benesse Corp (Japan) Devry Inc (USA) ITT Educational (USA) Strayer Education (USA) New Oriental (China) Career Education (USA) Corinthian College (USA) Capella Education (USA) Raffles Education ( Singapore) Mega Study ( South Korea) SkillSoft ( USA) Page 9 A research report on Investment in Indian Education Sector INDIA FORMAL ? ? Preschool o Kidzee o Euro Kids Multimedia in private schools o Educomp o Everonn o NIIT Vocational Training o NIIT o Aptech o Frank Finn Coaching Classes o FIIT-JEE o TIME o Career Launcher Books o Tata Mcgraw Hill o John Wiley o Navneet Publications ?
INFORMAL K -12 (School) o Millennium Schools (Part of EduComp) o Kids Zee High o Billabong High (Part of Kangaroo Kids) o GEMS ( Dubai based) Higher Education o Manipal Education o Amity o IIPM o ICFAI ? ? ? ? MAJOR DEALS INVESTMENTS ? ? ? ? Rs10 billion investment plan from educational institutes in Haryana’s Rajiv Gandhi Educational City ( January’11) RS 28. 08 billion investment for setting up 20 IIITs under PPP route ( January’11) Everonn Rs 36 billion investment plan to setup 300 K-12 schools by 2015 (July’10) Educomp Rs 510 million contract to provide computer education in Bihar’s schools (May’10).
PRIVATE EQUITY DEALS Education sector has witnessed 29 PE deals (refer Exhibit 1), cumulatively worth US$381 million, between January 2006 and June 2010 (as per Private equity roundup April-June 2010 by Ernst and Young). The majority of these investments have been in for-pro? t corporate entities that are not subjected to any government regulations. In future, with increased government spending and expansion plans of private players, the potential for PE investments in the Indian education sector is significant. Additionally, sector’s less correlation with the broad economic growth makes it more attractive.
Page 10 A research report on Investment in Indian Education Sector SEGEMENT WISE BREAKUP OF PE INVESTMENTS IN TERMS OF NUMBER OF DEALS 9 8 7 6 5 4 3 2 1 0 3 3 1 2 2 1 1 1 1 1 2 1 1 2 Vocational Preschool K12 Education technology 4 College/University 3 Coaching 2006 2007 2008 Number of Deals 2009 2010 SEGMENT WISE BREAKUP OF PE INVESTMENTS IN TERMS OF DEAL VALUE 160 140 120 100 80 60 40 20 0 2006 2007 83 30 74 1 2008 43 2009 2010 12 13 10 37 5 9 23 Vocational 39 Preschool K12 Education technology College/University Coaching 67.
Deal Value ( US$ million) Sources: Asian Venture Capital Journal; Dow Jones Factiva; ISI Emerging Market MAJOR ISSUES ? ? ? ? ? Overregulated and under- governed Not for profit structure and all surplus needs to be reinvested High involvement of politicians in higher education industry with no willingness to change the existing structure High land prices and hoarding of land reserved for educational purposes for resale Fragmentation in the sector due to difficulties in achieving scale Page 11 A research report on Investment in Indian Education Sector.