Educational Institutions - Private: ICRA Management Consulting Services Limited

Industry Risk Scoring (3rd Update, 2012-13)
Educational Institutions-Private
ICRA Management Consulting Services Limited
IMaCS Research & Analytics
EDUCATIONAL INSTITUTIONS - PRIVATE

(3rd UPDATE, 2012-13)
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Contacts: Vineet Nigam Programme Leader (Research & Analytics) E-mail: vineet.nigam@imacs.in Telephone: +91 120 4515831
Disclaimer
This report has been prepared by IMaCS for the exclusive and private use of the Bank. The report provides content and analytical inputs for the risk-scoring model being used by the Bank, with the risk scoring scale and the respective definitions being customised as per the Banks requirement. The industry risk scoring provided is indicative of the risk with respect to the industry on an aggregate basis. The risk pertaining to the individual players within the industry may vary from the risk implied by the industry risk score. All information contained herein has been obtained by IMaCS from sources believed by it to be accurate and reasonable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and IMaCS in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion and IMaCS shall not be liable for any losses incurred by users from any use of this report or its contents. In the course of work, IMaCS may have received information from companies being rated or graded. However, this report does not contain any confidential information obtained by IMaCS in the process of rating or grading. This report contains data/information available only in the public domain or available through secondary sources. Opinions expressed in this report are not an indication of any prospective rating/grading of any instruments to be issued by any entity operating in the industries for which the risk scores have been assigned.
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TABLE OF CONTENTS
RECENT DEVELOPMENTS ........................................................................................................................... 4 PFCE AND FDI ................................................................................................................................................ 4 UNION BUDGET ............................................................................................................................................... 4 EDUCATION SECTOR .......................................................................................................................................... 4 REVIEW OF LATEST FINANCIALS ................................................................................................................ 7 OUTLOOK .................................................................................................................................................. 8 RISK SCORING............................................................................................................................................ 9
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RECENT DEVELOPMENTS
P FCE an d FDI
The private final consumption expenditure at current prices on education increased from Rs. 530.8 billion in 2009-10 to Rs. 579.6 billion in 2010-11 and at constant prices it increased from Rs. 365.5 billion to Rs. 361.7 billion during this period. Government has allowed 100% FDI in the education sector under the automatic route. FDI inflow in the education industry in the past 12 years, from April 2000 - March 2012 was Rs. 24 billion, which is about 0.3% of the FDI inflow during the period. PFCE on Educat ion
(Rs. billion) FY PFCE at current prices PFCE at constant prices 2005 325.6 325.6 2006 367.6 352.8 2007 408.0 366.3 2008 445.4 376.3 2009 486.2 376.4 2010 530.8 365.5 2011 579.6 361.7
U ni o n Bud get
The Union Budget, 2012- 13, made the fol lowing provi sions for the e ducation sector: For the year 2012-13, Rs. 255 billion has been provided for RTE-SSA representing an increase of 21.7% over the year 2011-12 th 6,000 schools have been proposed to be set up at block level as model schools in the XII Plan For Rashtriya Madhyamik Shiksha Abhiyan (RMSA), Rs. 31 billion have been provided, which is an increase of 29% over the budget estimates of 2011-12 A Credit Guarantee Fund has been proposed to set up to ensure better flow of credit to students
E ducat i on S ect or
There has been a significant improvement in the proportion of literates in the last decade. As per the 2011 Census, literates constitute 74% of the total population aged seven and above as compared to 65% in 2001. On the other hand illiterates form 26% of the total population in 2011 as compared to 35% in 2001. Lit erac y R ate in Indi a
(Percentage) Census Year 1951 1961 1971 1981 1991 2001 2011 Persons 18.3 28.3 34.4 43.5 52.2 64.8 74.0 Males 27.1 40.4 45.9 56.3 64.1 75.2 82.1 Females 8.8 15.3 21.9 29.7 39.2 53.6 65.4 Male-Female Gap in Literacy Rate 18.3 25.1 24.0 26.6 24.9 21.6 16.7
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Literacy rates for 1951, 1961 and 1971 Census relate to population aged five years and above and for 1981, 1991, 2001 and 2011 Census relate to the population aged seven years and above Despite a good education system, the gap between the curriculum taught and that required by the industry, particularly, in the new and growth sectors, has prompted many industry players to train new recruits every year. There is scope for investment in education centres that impart industry specific courses in the IT, biotechnology, engineering and other hi-tech sectors. Many Indian and international companies have already started focusing on investing in such institutions. Though, the regional differences are indeed striking, there has been a significant reduction in inequalities in educational attainments across gender, population segments by castes, income levels and the rural-urban divide. Looking forward, the supply of educational institutions and the required manpower depends upon changes in the current education system, the rate at which it takes place, and the time, space and field of operation. At present there are a total of 546 universities in India, out of which 94 are private universities. Out of the total 10,129 technical institutions approved by the AICTE up to 2010-11, 8,633 were unaided private institutions in the country. During the last three years, 56 private universities were established by the state governments. Apart from this, three institutions (self-financed) of higher education have been declared as deemed to be universities under Section 3 of the UGC Act, 1956. There are 3,184 AICTE approved private engineering colleges in the country. Uni ver sitie s in In dia State -wise
(As of August 2011) State Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Central Universities 3 1 2 1 1 1 1 1 2 1 1 1 2 1 2 1 1 1 State Universities 30 4 14 10 1 18 10 4 6 7 20 10 15 19 Deemed Universities 7 1 2 2 5 2 15 2 3 21 Private Universities 1 3 9 5 11 1 2 3 7 1 2 Total 40 2 7 17 14 1 30 21 16 8 11 38 13 23 41 2 8 2 3
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State Orissa Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal Chandigarh Delhi Puducherry Total India
Central Universities 1 1 1 1 2 1 4 1 1 5 1 43
State Universities 12 7 14 24 23 5 20 1 5 279
Deemed Universities 2 2 8 29 10 4 1 1 12 1 130
Private Universities 1 3 18 4 1 16 6 94
Total 16 13 41 5 55 2 53 16 22 2 22 2 546
Pri vate Universiti es Estab lishe d during 2008 -2010

State 2008 Punjab Rajasthan Jharkhand Sikkim Uttar Pradesh Meghalaya Total 2009 Himachal Pradesh Rajasthan Assam Uttar Pradesh Gujarat Meghalaya Nagaland Total 2010 Himachal Pradesh Rajasthan Haryana 2 4 3 6 2 1 1 4 3 1 18 1 10 1 1 2 2 17 Number of Private Universities
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State Madhya Pradesh Orissa Karnataka Uttar Pradesh Punjab Total
Number of Private Universities 2 1 2 6 1 21
The private sector in India has been responsible for setting up some first rate institutions for higher education in the country. These are as follows: Pri vate S ector Parti cipation in Hig her Education Indian Institute of Science (IISc), Bangalore and Tata Institute of Fundamental Research (TIFR), Mumbai were established by J.N. Tata with the vision and aim of advancing the scientific capabilities of the country. The Santiniketan, presently Viswa-Bharati University, was founded by Nobel Laureate Rabindranath Tagore in the early 1900s. The management school, Xavier Labour Relations Institute (XLRI) was founded in 1949 by Fr Quinn Enright in Jamshedpur. The Birla Institute of Technology & Science (BITS), Pilani, founded by G.D. Birla, was started in the early 1900s as a small school that grew to become an engineering institution. At present, BITS has campuses in Goa, Hyderabad, and Dubai. The Birla Education Trust is considered to be one of the biggest educational trusts in the private sector in the country. The Tata Institute of Social Sciences (TISS) was established in 1936, as the Sir Dorabji Tata Graduate School of Social Work. It was the first school of social work in India and in 1944 was renamed as TISS. In 1964 it was recognized as a deemed university by UGC. The International Institute of Information Technology (IIIT), Hyderabad is an autonomous, selfsupporting institution with national and international IT companies being involved in its academic programmes through their corporate schools on the campus. Vidyanagari in Baramati offers courses from primary education to masters degree. The Trust runs a Law College, Engineering College, Biotechnology College, and an Institute of Information Technology.
REVIEW OF LATEST FINANCIALS

The financials of educational institutions are not available. Indias education sector is evolving and new niches have emerged in the past few years. Vocational training, finishing schools, child-skill enhancement and e-learning are all recent phenomena. Due to these emerging segments, the market is expected to undergo significant change over the next five years. Growth is expected to be driven by the willingness of the middle class to spend on education and entry of more aggressive private entrepreneurs. Policy planners are also beginning to emphasize private-public partnerships and that is expected to bring about a critical change in the way profitability is viewed in the education system. As mentioned above, IT/ICT is another key area where the EI/PEI is expected to expand. The GOI has been funding this area under the Sarva Shiksha Abhiyaan and ICT@Schools programmes.
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The infrastructure in a majority of the 950,000 government run schools is in a very poor state and needs urgent upgrades. Private-public initiatives hold promise for such upgrades. Currently, there are a handful of private players in the industry and there is a nascent organised effort in the secondary and senior secondary market. Private participation is diffused with only a few players having a national presence despite the significant market opportunity for growth. The rise of organised private initiative in education is a definite development that could happen over the next five to ten years.
OUTLOOK
Period Short-Term (<1 year) Medium-Term (1-3 years) Outlook Positive Positive
According to a recently released report on Indian Education, private education and training is a market of an estimated value of Rs. 1,600 billion with an average annual growth potential of 16% in the next five years. There are an estimated 142 million of the 361 million school-age children that do not attend classes. With a growing middle class, the scope for increase in organized private sector participation provides a high growth business opportunity. Making education a profitable high-growth business is an emerging long-term investment theme. Corporate initiatives are increasingly targeting this segment with the objective of tapping its willingness to th spend more on education. The private-sector education segment is nearly as big as the combined 11 Plan period annual budget for power, roads, airports, ports and telecoms. Private spend on education is also estimated to be five times the Union Budget outlay for education.
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RISK SCORING
Scoring of Risk Parameters Industry Characteristics Importance to Economy Cyclicality Sensitivity to Govt. Policies Growth Potential/Outlook Total Competitive Forces Extent of Competition among domestic/international players Barriers to Entry Bargaining Power of Buyers Fluctuations in Demand-Supply Gap Total Industry Financials ROCE Op. Margin Earnings Stability Total Overall Industry Risk Scoring Industry Characteristics Competitive Forces Industry Financials Total 4.29 4.00 3.33 1 1 1 3 4.29 4.00 3.33 11.62 Score 5 6 3 4 Weight 1 0.5 1 1 3.5 Score x Weight 5 3 3 4 15 Score
4.29
3 3 5 5
1 1 1 1 4 1 1 1 3
3 3 5 5 16 3 3 4 10
4.00
3 3 4
3.33
3.87
Definition of Scores
Score 6 5 4 3 2 1 Meaning Extremely positive position with minimum risk over the medium term. Very high level of sustainability. Positive position with marginal risk over the medium term. High level of sustainability. Positive to moderate position with limited risk over the medium term. Moderate position with stable or marginally negative outlook over the medium term. High level of risk with a negative outlook. Highest level of risk with an extremely negative outlook
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Industry Risk Scoring (3rd Update, 2012-13)

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IMaCS Research & Analytics