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Educating India – Making Money!!! Investment Opportunities in Education Sector in India
Frost & Sullivan, Dec 2010, Pages: 52
Frost & Sullivan's Financial Benchmarking and Analysis (FBA) service presents various trends and outlook for the investment in the Indian Educational Services Market. It is analyses the current state of education industry in India and the various implications of recent happenings. It is comprehensive study encompassing market statistics such as outlook, segmentation of the industry and favorable working models for participants. It also studies the various Market Drivers, Market Restraints and the various challenges faced by the market participants. The study also has a section on various Funding Deals and Mergers & Acquisitions.
This Frost & Sullivan research service titled Educating India – Making Money!!! Investment Opportunities in Education Sector in India encompasses information on market segmentation and growth potential of various segments. It discusses various working models adopted by key participants. It has a detailed analysis on the financing deals that have taken place from 2006 to 2010 in various segments of the market.
Market Overview
Education Emerges as Boom Sector for Canny Investors
The education sector in India can be divided into formal and non-formal segments. The formal segment refers to K-12 and higher education. Although the formal segment constitutes more than 80 percent of the market size, the opportunities to invest in this sector remain limited due to strict regulations that prevent the participants from distributing profits. The non-formal space is relatively small in size, but the low levels of regulations allow the participants to distribute profits. There have been close to 60 deals worth more than $640 million since 2006 in this sector. Out of these deals, there have been 21 deals amounting to $250 million in the first half of 2010 alone.
“Due to the innovative business models that have emerged in the education sector, investors can benefit from profits repatriated from subsidiaries,” notes the analyst of this research. “Emergence of these working models coupled with scalable and sustainable business opportunities have attracted private equity (PE) firms to this sector.” The increased interest of PE/VC in the education sector is because of high levels of profitability and freedom in pricing of services. In addition, stable cash flows unrelated to business cycles and low penetration of organized participants make this an attractive market. “This sector is expected to be driven by the increasing propensity of the middle class to spend on education,” adds the analyst. “The low penetration levels of education in India and the absence of adequate infrastructure have led to significant opportunities for investment into this sector.”
Relaxation of Regulatory Barriers Necessary to Create More Receptive Environment for Investors
The value of most of the deals in the sector is in the range of $20 million. The participation of investors has so far been low due to regulatory barriers in the formal education segment. “To facilitate PE investment in this sector, either regulations need to be relaxed or participants will have to adopt innovative models to distribute profits,” remarks the analyst. “Even though there have been only 5 exits, the exits have given 7.2x returns, making the sector a highly attractive option for investors.”
The deal size in the formal segment is higher than in the non-formal segment. The non-formal segment tends to be asset light in nature. It is not capital intensive and the operational leverage kicks in once the business achieves a considerable scale. The gestation period for such businesses is lower than those in the formal space. Investors in the formal segment (physical space) are expected to have a longer investment horizon of five to seven years to realize better valuation and higher exit multiples. “Currently, given the scale of operations, the education sector can be of significant interest to growth stage VCs, who usually have a longer time frame,” concludes the analyst. “Once the startups achieve a considerable scale in 2-3 years, the segment will be attractive to PE investors.”
Market Sectors
Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:
- Formal education
- Non-formal education
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