education outlook

7/28/2019 Education Outlook

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Indian Education

Sector Outlook(Insights on Schooling Segment)

www.technopak.comEducation

a quar ter ly report by technopak | Outlook July, 2012


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Author:

Aurobindo Saxena

Principal Consultant | [email protected] | +91-9891321279

Design & Development:

Bharat Kaushik

Sr. Manager-Design I [email protected] I +91-9811661493

Arvind Sundriyal,

Assistant Manager-Design I [email protected] I +91-9910493934

OVERVIEW OF INDIAN EDUCATION SECTOR

Educational Infrastructure | Key Segments | Schooling Segment | Challenges in the Schooling Segment01

ABOUT TECHNOPAK11

06EMERGING BUSINESS OPPORTUNITIES

Opportunity Assessment | Entry Strategy | K-12 Schools Indicative Economics


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Outlook July, 2012 | Indian Education Sector Outlook (Insights on Schooling Segment)

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Market OverviewIndia has the worlds largest population in the agebracket 5 to 24 years o about 450 million. It also hasaround 500 million in the 25 to 59 age bracket whichconstitutes the working population and is expectedto continuously increase even as the worlds workingpopulation ages and diminishes. Tis phenomenon willmake India a supplier o workorce to the entire world.In the wake o this reality, the Indian education systemshould thereore be able to produce a workorce whichis globally competitive and thus reap its demographicdividend.

Literacy in India is one o the key deterrents to socio-economic progress o the country. Te Indian literacyrate currently stands at 74% compared to 12% at theend o British rule in 1947. Although there has been asix old growth, the level is well below the world averageliteracy rate o 84%, and India currently has the largestilliterate population compared to any other nation inthe world. A quick look at Exhibit 1 below provides aninsight into the current literacy levels o Indians.

Tereore, as India moves ahead on the path oglobalization, it needs to overhaul its education systemto meet the uture demands.

Educational InrastructureTe size o our educational inrastructure can beassessed by the private and public spends on education.Te Indian private spend on education in 2011 wasestimated to be over USD 60 bilion across all segments(Schooling, Higher Education, Vocational and Ancillary)or approximately equal to 3% o our GDP. Te 11th veyear plan (2007-12) was termed as Indias educationalplan and placed the highest priority on education asa central instrument or achieving rapid and inclusivegrowth. At USD 54 billion, it constituted 20% o theplan.

During the nancial year 2011-12, the CentralGovernment allocated USD 8 billion to the Departmento School Education and Literacy itsel, which is themain department dealing with primary education inIndia. Yet, there exists a huge demand and supply gap,

which requires a sizable and sustainable public andprivate investment. Exhibit 2below provides an overviewo the current Indian educational inrastructure and theneed gap.

Another indicator o this widening gap is the numbero students going abroad or higher education, whichis estimated at over 0.2 million students and an annualspending o over USD 13 billion.

Key SegmentsTe Indian Education sector can be segmented underour broad heads, namely, Schooling, Higher Education,

Vocational Education & Skill Development andAncillary. Te Exhibit 3 below provides an overview othe various education segments and their respective sub-segments.

Schooling SegmentTe schooling segment covers the largest population oour society as compared to any other orm o education.Te segment is also the largest education segment valuedat USD 44 billion in 2011 and is expected to reach USD144 bn by the year 2020. Te market size o its varioussub-segments with growth rates and projections or theyear 2020 is mentioned in Exhibit 4.

Challenges in the Schooling SegmentWe are currently living in a time when the ormats inwhich societies have consumed education services are in

Overview o Indian

Education Sector the midst o a change. Tis change is the result o severalactors including the emergence o the knowledgeeconomy, the need or re-skilling and retraining,available o Internet or collaborative learning, the lowcost computing revolution and the breaking down obarriers to education mobility.

Tere is no debate on the act that we a re experiencing aerce pace o change in an increasingly global economy.Te challenge or schools was stated quite clearly by Jack

Welch, the CEO o General Electric when he said, Ithe rate o change inside an institution is less than therate o change outside, the end is in sight.

Schools that ignore the trends shaping tomorrow willcease to be relevant in the lives o their students, and

will quickly disappear. Tereore, we must transormall ormal institutions o learning, rom pre-K through

Level o Education Population, mn

Illiterate 432

Eligible Illiterate 274

C hi ld re n in th e a ge gr oup o 0-6 ye ar s 1 58

Literate 778

School up to 5th standard 234

School 6th to 9th standard 358

School 10th to 12th standard 108

Graduate and above 78

Total 1210

Exhibit 1:

Source: Technopak Analysis

Particulars TPK 2011 2020

Schooling CAGR $bn $bn

K-12 Schools (uition Fee Only) 14% 29 95

utoring 14% 8 26

Content (ext & Multimedia) 14% 3.5 11.5

Stationery 14% 2 6.5

Pre School 15% 1.5 5

Total 44 144

Exhibit 4:


Exhibit 3:


SchoolingK-12 Schools | Pre-schools | utoring | Content | Stationery

Higher EducationGraduation (General) | Graduation (Proessional)Post Graduation (General) | Post Graduation (Proessional)

Vocational Education & Skill DevelopmentFinishing School | I raining | Vocational raining | eacher raining

Ancillary Segmentsest Preparation | echnology Solution

Exhibit 2:

*includes colleges of national importance

Educational Inrastructure

Schools (K-12)1.3 mn

No. o Students:237mn

Annual Intake18 mn

AdditionalRequirement

200,000 Schools

AdditionalRequirement

Colleges: 35,000Universities: 700

AdditionalRequirement40mn seats

Govt1.04 mn

Private0.26 mn

Govt.8,000

Private25,023

II: 2,250Polytechnics:

8,350

IC7,200

Colleges: 33,023Universities* : 646

No. o Students:17mn

Annual Intake4.5 mn

Vocational rainingCenters~18,000

No. o Students:4.5 mn

Annual Intake1.8 mn

Te big question that crops

up is Are our schoolskeeping pace with thechanging times?


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college, in order to ensure that we are preparing studentsor their uture, not or their past.

Te challenge o transorming education in India cannotbe met by quick-x solutions or isolated reorms. Itcan only be accomplished with a clear, coherent andcoordinated vision o reorm. Te important thing tonote here is that anything we do today to x our schools

will take teen to twenty years to show signicantresults. Tereore, leaders o today will need to have clearunderstanding o how the world may be dierent 15 to20 years rom now.

It is evident that we are acing the challenge o anunderperorming education system. Interestingly, the

problem is not due to scarcity o unds. In the year2011, worlds government spent over USD 2 trillion oneducation. Despite increased spending, the quality oeducation has barely improved.

In the ollowing sections we assess the key challengesbeing aced by Indian schooling system.

Enrolment LevelsDespite having the largest Kindergarten to Grade 12 (K-12) population globally, India has a low enrolment ratein schools, especially at the senior secondary level. Teenrolment percentage has allen rom 113% at primaryto 81% at middle school and then to 31% at secondary& higher secondary levels. Low enrolment and highdrop-out rates are caused by low availability o schoolsin rural areas, low awareness, and prevalence o childlabour amongst lower income strata.

Te enrolment percentage is calculated as the ratio ototal numbers o students enrolled in specied grades tototal number o children in that age group.

At the primary level this is upwards o 100%, as evenchildren greater than 11 years o age are enrolled inGrades 1-5. Tis is largely a rural phenomenon prevalentin Govt. schools across the country.

Public School InrastructurePoor inrastructure in Govt. schools and lack o goodteachers have orced the Indian middle class to withdrawtheir children rom Govt. schools and enrol them inprivate schools. While private schools account or20% (.26 million) o the total number o schools (1.3

million), they provide education to more than 30% ostudents. Te increasing demand or quality education isalso backed by the willingness to pay or it.

Te rise o IB schools in India over the last ew years isone o the key evidences o this trend. Te rst IB sc hool

was authorized in 1976 (Te Kodaikanal InternationalSchool, amil Nadu). By 2001, there were 8 IB schoolsin India and in 2011 there were 84 authorized schools.Tis trend or better quality education, improved &

world class acilities and activities is going to see anaccelerated growth in the uture. We estimate thatby 2020, India will have close to 900 IB schools, asmentioned in Exhibit 6.

Capacity ConstraintsMetros like Delhi and Mumbai have very high landprices and almost no vacant education land parcels,thereby limiting capacity expansion. Te limited capacityin established quality schools has resulted in higher eesbeing charged by schools.

A state wise analysis on the need gap indicates a shortageo schools in Chandigarh, Kerala and Delhi/NCR. Inplaces like Delhi, this situation is expected to remainunchanged due to high land costs and unavailability onew school land parcels. Probably running schools inshits could address some o these issues.

346 mn children shouldbe in School

237 mn children are inschool

School Level

Eligible

(Mn)

Enrolled

(Mn)

Gap

(Mn)

Enrolled

percentage (%)

Grades 1-5(ages 6-11)

118 133 -15 113%


68 55 13 81%


160 49 111 31%

Total 346 237 109 68%

Exhibit 5:

Source: UNESCO Institute for Statistics, DISE, MHRD, Technopak Analysis

Te enrolment ratio drops to 81% ater primaryschooling and to 31% in grades 9 to 12

Te gap is because o a combination o children inschool, high drop-out ratios at dierent levels, andthe demand supply gap. Tese estimates includethe ormal and non-ormal education segments

Shortage o Trained TeachersTe education system in India suers rom a shortage otrained teachers and this has become a big concern orthe education sector. Te low pay scales and availabilityo jobs in sectors like BPO have contributed to thisshortall.

Te quality o education is dependent on the teachersand the quality o teaching. Tus in order to improvethe quality o education it is imperative to address theshortage o teachers as well as the quality o teachers andteacher training courses.

As a result o this, leading chains o schools are settingup in-house teacher training acilities.

As per our analysis, states like Bihar, Uttar Pradesh andJharkhand have an acute shortage o teachers. Smallerstates like Andaman & Nicobar Islands, ArunachalPradesh, Jammu & Kashmir, Himachal Pradesh,Lakshadweep and Sikkim have a much better studentteacher ratio.

Quality o EducationAs i the shortage o teachers was not sucient to degradethe quality o Indian education, most schools still ollowthe rote learning practices, which hamper the qualityo education severely. Tis is urther supplemented byineective assessment o students. Te overwhelmingacceptance o international boards like the IB andthe Cambridge, indicate that people are looking atalternative curriculums and pedagogies that lean towardspractical and applied learning rather than rote learning.

We estimate that Indiawill require 6.0mn moreteachers by 2020 to attainthe world average in

terms o student teacherratio. Tis would meana requirement to train0.75mn teachers p.a.,as against this the totalcapacity o all B.Ed.Colleges currently is only0.25mn p.a.

0

20

40

60

80

100

0

200

400

600

800

1000

NumberofIBSchools

Number of IB Schools

GrowthRate*(%)

Growth Rate(%)

1976

15

2 8

84

900

3027

15

1991 2001 2011 2020

Exhibit 6



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5 6

PISA 2009+Te OECD Programme or International Student

Assessment (PISA) is an international comparativesurvey o the knowledge and skills possessed by 15 year-olds in reading, mathematics and science. PISA seeks tomeasure how young adults have acquired the knowledgeand skills required to unction as successul members osociety. PISA is a regular, ongoing series o assessmentsthat are administered in participating countries everythree years. PISA provides a set o indicators that canbe tracked across time to assist in monitoring trends inthese educational outcomes.

Indias debut at the prestigious PISA saw the participartiono some sixteen thousand 15-year-olds rom schools inHimachal Pradesh and amil Nadu. Tey ranked nearthe bottom in all categories, outscoring only Kyrgyzstan.Ironically, ater such a disappointing perormance, theIndian administration decided not to take part in thenext cycle o PISA rankings.

Current RegulationsTe school segment is also moderately regulated. Someo the key regulations include:

Te school must be ormed as a rust or Society,even i it is a privately unded school.

Te surplus must be ploughed back or theimprovement o the school.

Te school must be established as a non-proprietaryentity without any direct control held by a amilyor individual.

A school is not allowed to pay out dividends.

Admissions cannot be granted on the basis o a nyorm o donations.

Te Right to Education Act requires even privateschools to ensure 25% reservation or children romdisadvantaged and weaker sections.

Annual Status o Education Report (ASER) 2011ASER is the largest annual survey o children in ruralIndia. Facilitated by Pratham, ASER is undertakenby local organizations and concerned citizens. ASER2011 reached 558 districts, 16,017 villages, 327,372households and 633,465 children. According to the

ASER Report 2011 the current education inrastructureis in a very bad shape. Some key highlights o the reportare as under:

Decline in Reading Levels: Nationally, readinglevels are estimated to have declined in many statesacross North India. Te All India gure or theproportion o children in Std V able to read a Std2 level text has dropped rom 53.7% in 2010 to48.2% in 2011. Such declines are not visible in thesouthern states.

Decline in Arithmetic Levels: Basic arithmeticlevels estimated in ASER 2011 also show a decline.For example, nationally, the proportion o Std IIIchildren able to solve a 2 digit subtraction problem

with borrowing has dropped rom 36.3% in 2010 to29.9% in 2011. Among Std V children, the ability

to do similar subtraction problems has droppedrom 70.9% in 2010 to 61.0% in 2011.

Decline in Attendance:At the All India level,childrens attendance shows a decline rom 73.4%in 2007 to 70.9% in 2011 in rural primary schools.

Multi-Grade classrooms: Nationally, or ruralgovernment primary schools, data suggests thatover hal o all classes visited are multi-grade. Forexample, all India Std 2 was sitting with one ormore other classes in 58.3% o Std 2 classes inprimary schools were sitting with another class. Tisgure is 53% or Std 4.

Emerging

BusinessOpportunitiesEducation, across the spectrum, can be a protable business, i operations are managed eciently. Indian Educationcompanies have been reporting substantial growth in the last 5 years with several new ventures mushrooming thick andast. Growth in the private education market has largely been a unction o Indias GDP and population growth coupled

with increasing household income and increasing demand or quality education.

In the ollowing section, we have discussed the various easible entry strategies into the education market or a newplayer.

Opportunity AssessmentWe have tried to create a set o lters which can be used by a new entrant to decide on which segment to enter in theschooling space. Each parameter has been given a weightage, based on our understanding. Based on these parametersand their respective weightages, each sub-segment is ranked on a scale o 0 to 4, where 0 is represented by a blank circleand 4 by a ully shaded circle. Te score and weights can be multiplied or each category and added to arrive at a totalscore or a sub-segment.

From the above quantitative analysis, K-12 schools emerge as the preerred choice or entering the space, ollowedby utoring and Content, Preschools and Stationery. Interestingly, all the sub-segments o the schooling space otherthan the K-12 segment have an asset light model and are also les s regulated. However, K-12 segment has tremendouspotential or a long term investor.

S. No. Weight Parameter K-12 Schools Tutoring Content Pre Schools Stationery

1 10 Market Opportunity

2 15 Regulation

3 20 Financial Metrics

4 15 International tie-up

5 15 Scalability

6 15 Operational Feasibility

7 10 Social Impact

Exhibit 7:



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A quick look at the ollowing Exhibit will provide an insightinto the advantages and disadvantages o the various entrystrategies.

echnically, one can a lso acquire an existing school and therebyenter the market. However, rom our experience this is a toughnut to crack or many reasons. Primarily, the question is aroundthe mode o payment, ollowed by valuations and then nallyturning around the school in terms o top line and brandimage. Te Browneld approach is also not very sc alable as theamount o initial investment is huge.

Currently, the private schools are being set up using a two-tier structure or investment with a management companyproviding various services to the trust and a separateinrastructure company providing the land & building to thetrust on lease.

Setting up schools is highly capital intensive. In order to improveeconomics, players are setting up schools in JVs with real estatedevelopers. Undertaking management contracts or existingor new schools is another model being used by private playersto capitalize on K-12 market potential. Some proessionallymanaged school chains are using a mix o ranchisee and ownedschools in order to scale up. Tough ranchisee model is lesscapital intensive and helps in aster ramp up, yet it requiressignicant eort in managing operations.

Besides a quantitative assessment we have also analysed variousschooling sub-segments or their respective positives andconcerns:

From our analysis K-12 segment emerges as the most promisingsegment or a new entrant to venture. However, specicassessments can be undertaken based on entrants needs andpreerences.

Entry StrategyBroadly, one can enter the K-12 segment either through aGreeneld (set up a new school) or a Browneld (acquire anexisting school) approach. In the Greeneld approach, there arechoices available in terms o setting up an own brand school orsetting up a ranchisee school or having a hybrid model wherehypothetically there can be three dierent partners one whoowns the land, a second constructs the inrastructure and athird manages the school.

Particulars Positives Concerns

Schools Segment

K-12 Schools(uition FeeOnly)

Recession proo Zero working capital Assured returns ater

the initial 3-5 years. Core segment o

education arget Audience has

high propensity tospend

High Investment Payback period o

8-10 years. 2-3 years to break

even Regulatory hurdles

impact the progress.

utoring

Low capitalrequirement

High margins High usage amongst

target audience

Unorganized andlocalized market

More people driventhan process driven

Content(ext &Multimedia)

Grows in sync withthe schools andenrolment

Low capitalrequirement

High Margins Low on regulations Highly scalable

Growth hindered byreuse o books andpiracy

Availability o onlineand ree content

Subject to changesin syllabus andregulations on price.

Stationery

More ocus onspending on expensiveitems.

Low regulations

Inventorymanagement

Low entry barrier

Pre School

arget Audience hashigh propensity tospend

Low on Regulations Anti-Recession Zero Working Capital Easy exit option

Likely to remainrestricted to urbanareas.

Low entry barrier Highly sensitive and

operational intensiveas target audienceconsists o children inthe age group o 2-5years.

Exhibit 8:


Exhibit 9:


Advantages Less lead time Assured cashfows

Disadvantages Pre established brand image Dicult to change the existing inrastructure and manpower Huge upront payouts & mode o payment

Advantages Faster rampup

Well laid out systems and processesDisadvantages Less Returns to individual partners

Advantages Faster ramp up Well laid out systems and processe

Disadvantages Substantial Roayalty payouts Strict operational norms

Advantages Own Brand No Royalty payments

Disadvantages Moderate ramp up Brand building takes time

Brownfeld

Greenfeld - JV

Greenfeld - Franchisee

Greenfeld - Own Brand

PreferenceContinuum

High

Low


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An important actor to be considered while setting up a Greeneld school is the act that schoolshave an academic cycle which typically starts in April in the North and June in the South. A schoolmust begin in these months only, based on its location. Further, admission process typically startsthree months beore this, by when the school inrastructure should be ready.

It is also important to highlight that the objective or setting up the school should ideally not bemaximizing returns on investment but the childs learning. A critical imperative actor or this isnot only the quality o teachers but also the student teacher ratio. Ideally, schools should restrictthe number o students in the early grad es to a maximum o 20 a nd 30 in the senior grades.

K-12 Schools Indicative EconomicsSchools can broadly be classied as International Schools (Oering IB/Cambridge curriculum),Premium schools and Masstige schools. Dening premium and Masstige schools is slightlysubjective as a Masstige school in ier 1 city may be a premium school or a ier 3 town/city. It isevident rom the above table that International schools require the maximum investment and also

has the potential to oer the most protable business proposition.

Te key disclaimer on the above numbers is that these are only indicative, easible business optionscan be worked out or any level o investment and ee combination. echnopak does not suggestthat schools cannot be set up below an investment level o $3mn or upwards o $20mn. It shouldalso not be construed that schools are not easible below an annual ee level o $600 p.a.

Having said that, the easibility study or a school in a particular location, based on the school type(day, week-boarding, residential) is important beore making a choice o school type. Based onour analysis, while all school types present great, albeit varied investment opportunity, the visionshould be to set up run a school which is an epitome o childs learning.

Schools in the 21st century will be required to be laced with a project-based curriculum or lieaimed at engaging students in addressing real-world problems, issues important to humanity,and questions that matter. Schools will be required to be designed dierently, placing equal ormore emphasis on the inormal learning spaces s o that it liberates the point o learning rom theconnes o our walls o the cla ssroom, and in the process, liberates the minds o those present inthe classroom as well.

Tis will be a dramatic departure rom the actory-model education o the past. It is abandonment,nally, o textbook-driven, teacher-centred, paper and pencil schooling. It means a new way ounderstanding the concept o knowledge, a new denition o the educated person.

Schools will go rom buildings to nerve centers, with walls that are porous and transparent,connecting teachers, students and the community to the wealth o knowledge that exists in the

world.

A school o tomorrow will thus ocus on ensuring that students and teachers understand thatthey must be prepared to engender a mindset that involves adaptability, fexibility; a mindsetthat embraces and does not ear constant change; a mindset in which they will view a uture oconstant change with wonder and awe, rather than concern.

Particulars School Type Investment (USD mn)

No. o Students Annual Fees(USD)

Returns

ier 1 International School Residential 15-20 1500 10,000-15,000 25%

ier 1 Premium School Day 8-10 1800 1,400-2,000 20%

ier 1 Masstige School Day 3-4 1800 700-800 18%

ier 2 and 3 Premium Day 4-10 1800 600 2,000 15 - 20%

Exhibit 10:


Schools will go rom buildings tonerve centers, with walls that areporous and transparent,connecting teachers,students andthe community

to the wealtho knowledgethat exists inthe world.


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About

echnopakIndias leading management consulting rm with more than 20 years o experience in working with organizationsacross consumer goods and services.

Founded on the principle o concept to commissioning, we partner our clients to identiy their maximum-valueopportunities, provide solutions to their key challenges and help them create a robust and high growth business models .

We have the ability to be the strategic advisors with customized solution during the ideation phase, implementationguide through start-up and a trusted advisor overall.

Drawing rom the extensive experience o more than 175 proessionals, echnopak ocuses on six major divisions,which are Fashion & extile, Retail & Consumer Goods, Healthcare, Education, Food & Agriculture and Leisure &ourism.

Our key services are:

Business Strategy. Assistance in developing value creating strategies based on consumer insights, competition mapping,

international benchmarking and client capabilities.

Start-Up Assistance. : Leveraging operations and industry expertise to commission the concept on turnkey basis.

Perormance Enhancement. Operations, industry & management o change expertise to enhance the perormanceand value o client operations and businesses.

Capital Advisory. Supporting business strategy and execution with comprehensive capital advisory in our industrieso ocus.

Consumer Insights. Holistic consumer & shopper understanding applied to oer implementable business solutions.


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T: +91-124-454 1111, F: +91-124-454 1198

Technopak Advisors Pvt. Ltd.

www.technopak.com

Enayet KabirAssociate Director

[email protected]

T: +91-9999034360

Aurobindo SaxenaPrincipal Consultant

[email protected]: +91-9891321279

For further dialogue, please contact:

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