consulting opportunities in education sector

8/9/2019 Consulting Opportunities in EDUCATION SECTOR

1/22

- D R. R A J ES H KH A JU RI A

Consulting opportunities inEDUCATION SECTOR


2/22

Group Members

y 21 Mayank Panchori

y 22 Sandeep Mishra

y 23 Monica Motivarshay 24 Nikhil Muley

y 25 Saravanan Naicker


3/22

Introduction- IES

y Over-regulatedandunder-governed bestdescribesthelargestsectorin India -Education(IES). Ina failed publiceducationsystem,aspirations are meeting affluence andtakingprivate IES througha phaseof Price Discovery.

y Ourinvestmentthesisin IES restson 4Cs playerswith Credibility(managementintent & ability),Capital (builttolast), Creativity(to managethe

overregulatedenvironment) and Content (todifferentiateand buildannuity).


4/22

Introduction- IES (cont.)

y Indias well-capitalized publiceducationsystemhas failedmiserablyduetoremarkablyhighlevelofinefficiency(37% netenrolmentatschoollevel!).Thishasledtoa whopping $50bnannualspendonprivateeducation ($80bn by2012E). But whilemoneyattractsmoremoney,ithasironicallyeluded IES (just $180mof privateequitycapitalchase) a functionoflimitedvaluecreation

potential


5/22

IES-Factsheet

y Govt. spend (Centre + states) oneducation: $30bn;at 3.7% ofGDP,comparabletoglobalaverage;0.82% ascapitalexpenditure, 80% onteacherssalaries; >90% spend on K12 (kindergarten to 12th grade).

Centres budgetary allocation up 6x in 11th Plan periody Privatespendoneducation: 5% ofaverage HH

income (12% in USA, 15% in China). CAGRof 8.6%vs 3.2% inconsumption; 8% CAGR(growing fastestglobally)

y Network: ~1mschools,of which 75,000 (7%) areprivate 40% ofenrolled populationattendsprivateschools; 18,000 HEIs (largestglobally)


6/22

IES-Factsheet

y Regulatoryframework: K12 and HEIsrequiredtoberunasnot-for-profitinstitutessetup underaTrust/ Society;also,though 100% FDI allowedthrough automatic route, no rules/ regulations in place forforeign universities to be recognized under UGC (UniversityGrants Commission)


7/22

IES

y Private spending includes two segments:

Formal

Kg to 12th grade

Higher education

Non Formal

Pre school

Coaching Classes

Multimedia/IT

MHRD, boards/ ICSE/CBSE/ International

Boards

No governing orregulatory bodies


8/22

IES

y Spends on private education to increase to $80bn by 2012E

y While India has been proactive on liberalization, IES hasremained largely untouched by the reforms process. A

priority sector status does ensure fund flow to an extent,but the governments agenda of social inclusion hastrapped IES in a regulatory maze.


9/22

K12 segment

y All K12 institutes have to be affiliated to an education board either central boards like ICSE and CBSE or a state

board. While a few states confer on schools the right to actas profit-generating entities, educational boards stilldemand strict adherence to the not-for-profit structure.

y Of late, a trend has emerged wherein some schools havebeen seeking affiliationswith various international boardssuch as IGCSE (International General Certificate of

Secondary Education) and IB (International Baccalaureatefrom Geneva); in terms of operating structure, while theseschools can opt for either a not-for-profit trust or a for-profit company


10/22

HEIs (HigherEducation Institutes)

y At $6.5bn ($20bn including cash transactions of ~$1.5bnand the $13bn spend outside the country), HE is the secondlargest opportunity in IES. HEIs seeking recognition by theapex regulatory authority named UGC (UniversityGrants

Commission) also need to be run in the form of a trust/society. Technical education institutes find themselvesregulated under various professional councils as well e.g.

AICTE (All India Council for Technical Education) is the

regulating authority for engineering and MBA colleges.


11/22

Clearingtheairon RegulatoryAmbiguity

y Regulationsgoverningthe K12 space:TheCBSE/ ICSE and state board regulations stipulaterunning of a K12 institution ONLY as a trust or

society. Income from the trust is non-taxable but thereasonable surplus (not defined) can be used onlyfor development of the same institution and cannot

be distributed as dividends.


12/22

(cont.)

y Regulationsgoverningthe Higher & TechnicalEducationspace:The rules are more stringent here thanfor K12 as an HEI is simultaneously governed by a central

body (UniversityGrants Commission UGC) and a

regulatory body specific to the field of specialization offeredby the HEI (e.g. AICTE for engineering and medicalcolleges). The UGC stipulates that the Higher and TechnicalEducation institutions be run as a trust or society where allthe infrastructure and capital goods have to be on the books

of the university. AICTE further has its own set of rules wrtinfrastructure and curriculum in case an HEI fails tocomply with the same, it is blacklisted (110 universities

blacklisted as on date).


13/22

MULTIMEDIA IN K12: BEYOND CHALK &TALK

y Increasing need and awareness for quality education,willingness to spend in the K12 segment and an aggressivesupply (254% CAGR in schools over FY05-FY08 for SmartClass, Educomp Solutions Multimedia product for schools)

have created a market for a complementary teachingdelivery mechanism beyond the traditional black board(multimedia uses 2-D and 3-D images to explain conceptsto enhance effectiveness of teaching).

y It has estimated that the current nascent market at $70m

and expect it to grow swiftly (~60% CAGR) as less than 5%of private unaided schools have been tapped. With 75,000private schools (44,400 unaided), the market offers apotential in excess of $1.5bn.


14/22

Schoolsgettech-savvyfast!

y Private schools are working on evolving and improvingtheir teaching delivery mechanisms by going beyond thetraditional chalk & talk. Multimedia in schools uses digitaleducational content and infrastructure solutions as ateaching aid in classrooms by using audio and visuals

means across various subjects.y While implementation of such products adds to

differentiation and ability to charge higher fees by privateschools, the trend is gaining acceptability as the model doesnot require schools to invest any capex or incur operating/

maintenance expenses. With multimedia companiescharging students directly, some schools even get a revenueshare, which makes the proposition economically beneficialfor the latter.


15/22

Higher Education segment

y Indias private HEIs have grown to be a $6.5bn market(excluding $1.5bn-2bn capitation spends), with 12% CAGRestimated over FY08-12. Of late, private HEIs havemushroomed with the trend veering towards professional

courses with high payback potential (engineering, medicaland MBA colleges).

y Public spend on higher education has been graduallyreducing and rightly so as the focus of governments

globally is (and should be) on primary education. But thestrategy has resulted in India having one of the lowestpublic spends per student on higher education.


16/22

(cont.)

y However, more is necessarily not enough. Despite thespeed and extent of privatization in the segment, there stillexists a yawning demand-and-QUALITY supply gap whichis apparent in the high cash transactions (donations/

capitation fees) within quality institutes. This gives rise tothe need for more conventional as also alternative modes(such as distance learning) of disseminating highereducation.


17/22

Indiaalargelyuntrainednation

y Nearly 95% of the youth in the 15-25 years age groupformally learn a trade or acquire a skill/ competencyin most of the developed world. In contrast, only 5%

of Indias young labour force (19-24 years) isestimated to have acquired formal training.

y Low enrollments and high dropout rates throughoutthe education chain result in an inefficient supply of

workforce.


18/22

Grad Test Prep market mediumscalability

y At $1bn, the Grad Test Prep market accounts for 17%of the coaching class opportunity. The test prepmarket for entry into a graduation course is

dominated by the engineering segment (IIT-JEE,AIEEE and CET market together form 60% of thesegment), followed by the next most-covetedprofession of medical services (~23%).


19/22

Whatistheissue?Whatistheissue? Whatneedstochange?Whatneedstochange?

y Regulations require all

educational institutions(school or college) to berun as a trust or a society

y No dividends can be

distributed and the'reasonable surplus'needs to be ploughed

back into the system

y A structural change

required to allow for-profit schools andcolleges. Theregulatory bodies need

to act as only 'qualitycontrollers' and checkfly-by-night operators

IES- Structural Changes Required


20/22


y More than 75% of the

educational institutes(in Maharashtra) arerun by politicians. Lowpolitical will to realign

the 'not -for-profit'education system

y Strong political will to

realign educationpolicies

y Vested interests needto take a back-seat



21/22


y A large portion of

subsidized landdemarked for schools ishoarded and resold toschools at much higher

prices; High landprices make economicsunviable

y State development

authorities need to puta system in place toensure only genuine

bidders get land



22/22


y Even though 100% FDI

through the automaticroute is allowed since2000, no regulationsformulated for

recognizing foreignHEIs under UGC

y Clear regulations need

to be put in place forrecognition of foreignuniversities


consulting opportunities in education sector

Documents