The Indian Education Market – Scoring High Marks

India, with an estimated student population of 400 million, is one of the largest education and training markets in the world. Indian Middle class spending on education forms a large chunk of their expense. Government focus on improving the education system in India is only going to intensify. As the Government considers education, a key in sustaining economic development, education in India is witnessing increased government support with the budget having an increased allocation for education by 20 % to Rs 34, 400 crore (€5.4 bn) during FY 2009. Government is planning to spend 6 % of the GDP in next few years on education.

Private education market in India is assessed to be USD 40bn -50bn . The K-12 segment alone, which includes students from kindergarten to the age of 17, is estimated to be more than US$20 billion. The market for private colleges is appreciated at US$7 billion while tutoring is valued at US$5 billion. Other territories such as test preparation, pre-schooling and vocational training significance is US$1-2 billion each. Textbooks and stationery, educational CD-ROMs, multimedia content, child skill enhancement, e-learning, teacher training and finishing schools for the IT and the BPO sectors are some of the other noteworthy sectors .

Presently, the key players in this segment are NIIT Ltd, Everonn Systems India, Aptech Education, Educomp Solutions, Core Projects and there are other private players who are now venturing into this burgeoning market to tap the immense opportunities. The kindergarten to 12^th grade (K -12 ) along with vocational training segment offers an exciting opportunity for the private business houses.

These companies are seeing huge growth in terms of volume as well as value. For instance, Educomp has seen its revenue is up by 130.7%, EBIDTA by 97.4% and PAT is up 61.4% on consolidated basis despite the current global slowdown in Q3 of 2008-09. Although. NIIT Ltd has reported 60 % drop in its net profit for the third quarter of 2008-09, to Rs 5.5 crore but that has been mainly due to higher depreciation and forex losses incurred by an associate firm and is had seen increased profits in the previous quarter which shows a great potential.

India predominately is a service driven economy with services contributing over 60% of the GDP; hence there would always be a need to develop a reservoir of skilled human resource to meet demand and supply gap. Declining BPL (Below Poverty Line) rate and increasing per capita income of Indian households is a very optimistic harbinger to the increasing demand in the education sector. As increasing number of families enter the economic echelon wherein they can afford to send their children to private schools, tutorials centres, vocation training centres etc, demand for these institutions in a brick and click model would only increase with time. As the scalability of the business model involves replication of an existing model at a fresh location; thus the growth trajectory would be very fast and successful.

Education is one sector which has recently seen surge in interest by the private equity players and venture capital funds. As they assess a considerable demand and supply gap in this space that offers a promising opportunity for the existing companies to scale up their operation and the private companies to venture into this arena. It is also considered as a recession proof industry. There are investment already made by SAIF, Helix in the domestic education services companies like Mahesh Tutorials, Career launchers etc

Government initiatives like Sarv Siksha Abhiyan , Focus on girl education , free and compulsory education for all 6-14 year old ,comfortable access to schools for children would result in substantial increase in number of class rooms along with the new schools ,this would also open up opportunities for the Public Private Partnership for the private enterprises through build-own-operate-transfer (BOOT) model under the Sarva Shiksha Abhiyaan and ICT Schools programmes. This demonstrates both the scale of the challenge and also the massive opportunities that will arise for education suppliers over the coming years . Recently, the central government invited private participation in over 1,000 of its industrial training institutes and offered academic and financial autonomy to private players. Companies such as Tata, Larsen & Toubro, Educomp and Wipro have shown keen interest in participating in this initiative

The share prices of NIIT LTD , EDUCOMP Solution , Everon Systems ltd , Aptech Ltd , Core Projects have witnessed a remarkable surge in last few weeks.

The endeavour in the post is to highlight investment theme without employing arithmetic ,in case, any one requires detailed analysis of individual stocks would be glad to forward the same .At this moment , I am reminded of a Chinese proverb - If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people







DISCLAIMER
This blog should not be construed as investment advice, either on behalf of particular stocks or in regard to overall investment strategies. It is a site aimed at understanding competitive advantages and valuing businesses. The information provided here comes from publicly accessible sources, but errors in these sources and in transcription may occur. Any investment decisions you make should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.