Crisil Education Sector Report

8/10/2019 Crisil Education Sector Report

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CRISIL RESEARCH EDUCATIONAL SERVICES ANNUAL REVIEW A-i

Sections

Executive summary A-1

1.0 Outlook on higher education in India A-3

- Higher education to witness modest growth in the medium term A-3

2.0 Outlook on engineering education A-11

- Engineering enrolments to continue; students to witness employment

pressure in medium term A-11

3.0 Outlook on medical education in India A-17

- Shortage of doctors to persist due to dearth of medical colleges A-17

4.0 Investment potential in higher education and indicative profitability A-19

5.0 Opportuniti es in education and key success factors A-21

Boxs

1.0 Outlook on higher education in India

01 Regulatory reforms planned in the sector A-3

Figures


01 Government spend on higher education as a % of total

spend on education A-3

02 GER and number of institutions imparting higher education A-4

03 Growth in service GDP and corresponding rise in institutions A-4

04 Increase in enrolment A-4

05 Growth in GDP aids growth in higher education A-5

06 Indias GER in comparison to other countries A-5

07 Households in various income brackets in urban areas A-8

08 Households in various income brackets in rural areas A-8

09 Age demographics A-9

10 Growth in GDP leads to increase in employment A-9

11 Infrastructu re required to support growth in enrolment A-10

2.0 Outlook on engineering education

01 Stream-wise break-up of under graduate enrolment (1999-00) A-11

02 Stream-wise break-up of under graduate enrolment (2005-06) A-11

03 G rowth in number of engineering degree instituti ons and seats A-12

04 Growth in engineering seats from 1990 to 2001 A-12

05 Number of seats - 2008 vs 2001 A-12

Continued

Opinion June 2009


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A-ii CRISIL RESEARCH EDUCATIONAL SERVICES ANNUAL REVIEW

continued

Figures


06 Growth in IT/ITeS employees A-13

07 Yearly employee addition by IT/ITeS sector A-13

08 Projected employee addition by IT/ITeS A-14

09 Composition of employee addition by IT/ITeS A-14

10 Engineering graduates absorbed by IT/ITeS in relation to total

engineering graduates A-15

3.0 Outlook on medical education in India

01 Growth in intake capacity A-17

02 Growth in registered doctors A-18

Tables


01 Growth in number of allopathic doctors A-18

4.0 Investment potential in higher education and indicative profitability

01 Indicative profitability of higher educational institutions A-20


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A-2 CRISIL RESEARCH EDUCATIONAL SERVICES ANNUAL REVIEW

students who graduate over the next 2-3 years, enrolments will not be affected significantly in the medium term as

students enrolling in the next 1-2 years will graduate only after 4-5 years.

Lack of medical colleges to aggravate prevailing shortage of doctors

The number of doctors in India has increased moderately at a CAGR of around 4 per cent from approximately

495,000 in 1996-97 to 684,000in 2006-07. But the countrys doctor density is a dismal 0.6 as against the world

average doctor density of about 1.7. CRISIL Research expects the density to improve marginally to around 0.7 by

2012, and further to 0.8 by 2017 (which would entail investments worth Rs 150 billion over the next 5 years),

though it will remain low as compared to global standards. The acute shortage of doctors in the country is largely

the result of the stringent regulatory requirements (which include setting up of a hospital, specific land

requirements) which have pushed up the capital costs for setting up a medical college to Rs 1.5-2.5 billion. The

situation can be improved through infrastructure development, although this would require investments worth Rs

2,500 billion over the next 5 years.

Pre schooling segment offering viable prospects for private sector

Pre schooling offers a lucrative opportunity for investors as this segment is not regulated at present, and hence,

private players can determine their own fees and earn profits. As there are few organised players, the market is

very fragmented; however, brand consciousness is increasing gradually and well established companies can now

charge a premium for their services. CRISIL Research expects the pre schooling segment to witness faster growth

in the medium term on the back of rising affordability levels amongst the target population.

Higher education growth dependent on government reforms, greater private participation

In conclusion, the higher education segment in India holds tremendous potential for growth, and could prove to be

a viable investment avenue for the private sector. The current government has pledged its efforts to reform the

sector over the next 1 year by overhauling the regulatory framework and enabling access to education for all,

though the conversion of intention into accomplishment remains to be seen. But any substantial and long-term

improvement in infrastructure would be contingent on the government permitting educationists to earn adequate

returns on their capital, provided these are employed for further development of the sector (at present, returns

from an institution can only be utilised for its own development).


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CRISIL RESEARCH EDUCATIONAL SERVICES ANNUAL REVIEW A-3

In India, enrolments in higher education have been low due to inadequate infrastructure as well as the unevenreach of institutions across the country. The government has traditionally had an apathetic attitude towards this

segment, with primary education being accorded greater importance. While growth in higher education is linked

to that in elementary education, low public investments have made this segment increasingly dependent on the

private sector. However, the governments not for profit diktat continues to discourage private investments in

higher education.

Higher education to witness modest growth in the medium term

Low government focus translating into poor infrastructure

Public spending in higher education has largely been in the form of grants to a few institutions. This is in stark

contrast to elementary education, wherein the government has been directly involved in setting up and running

schools. Although government spend on education has been increasing over the years, the share of higher

education in the same has been on the decline.

Figure 1: Government spend on higher education as a % of total spend on education

0

5

10

15

20

2530

35

40

45

50

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(per cent)

Government spend on higher education

Source: Planning Commission

Consequently, infrastructure growth in the segment has been slow. Moreover, the reluctance of private entities toinvest in smaller towns and villages due to enrolment-related uncertainties has led to unequal access to higher

education, and hence, lower enrolment. The wide disparity in the number of institutions as well as the enrolment

in the K12 and higher education segments are indicative of the seriousness of the issues being faced by the latter

segment in India.



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Figure 2: GER and number of institutions imparting higher education

1,130,000

160,000

21,259

0 200,000 400,000 600,000 800,000 1,000,0001,200,000

Elementary

Secondary & Higher

secondary

Higher education

No of institutions (2005-06)

94.9

40.4

11.6

0.0 20.0 40.0 60.0 80.0 100.0

Elementary

Secondary & Higher

secondary

Higher education

GER % (2005-06)

Source: MHRD Source: MHRD

Note: Gross Enrolment Ratio is the total enrolment of pupil in grade or cycle or level of education, regardless of

age, expressed as percentage of the corresponding eligible official age-group population in a given school year.

Strong economic growth stimulates private participation

The strong economic growth in the last decade, led by the sharp spurt in services sector, resulted in an increase in

demand for skilled manpower, especially in service-oriented industries such as IT/ITES, financial services and

hospitality. This increase in employment opportunities for educated people translated into greater demand for

higher education.

The inability of the existing infrastructure to cope with this demand led to the emergence of the private sector in

higher education.

The number of institutes offering higher education increased at a CAGR of 8.5 cent from 6,000 in 1990-91 to

nearly 20,000 in 2005-06; enrolment over the same period grew at a CAGR of 8 per cent from 4 million to 14

million. In 2007-08, the number of institutes has been estimated at around 23,000, with enrolment being nearly 16

million. Nearly 75 per cent of these institutions are owned by private entities.

Figure 3: Growth in service GDP and

corresponding rise in institutions

Figure 4: Increase in enrolment

0

5,000

10,000

15,000

20,000

25,000

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2005-06

(Nos.)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

(Rs billion)

No of Institutions Service GDP (RHS)

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000

1947-

48

1950-

51

1960-

61

1970-

71

1980-

81

1990-

91

2000-

01

2005-

06

2006-

07 E

2007-

08 E

(Nos.)

0

2

4

6

8

10

12

14

16

18

(million)

No of Institutions Enrolment (RHS)

Source: MHRD and CRISIL Research Source: MHRD and CRISIL Research


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Factors constraining the segments growth

The low penetration of higher education in India can be attributed to various factors, some of which are:

Regulatory framework The segments governance is highly bureaucratic, with the involvement of a

multitude of bodies (Please refer to Part B for details). The governments resolution to disallow profiteering

from education (surplus generated by educational institutions cannot be withdrawn and has to be utilised for

the development of the institute) is one of the biggest roadblocks to the sectors growth. This is particularly

true of streams like medical education, wherein huge funds are required for infrastructure development.

Moreover, almost all other aspects of education like intake capacity, fees, courses etc. are also regulated, and

hence, private players dont have any incentive to invest in the sector.

Access Educational infrastructure in the country is skewed, with some regions having greater concentration

of institutions as compared to others. For example, professional colleges in rural areas account for only 20 per

cent of total colleges as opposed to nearly 60 per cent of total population in these areas. This has resulted in

inadequate access to higher education, particularly in the case of students in rural areas who have to travel to

towns and cities for the same.

Socio economic conditions- Socio economic barriers have resulted in lower enrolment in higher education,

especially in rural areas where discrimination based on gender and caste etc. is still prevalent. Additionally,

children are prompted to supplement the familys income by working on farms rather than attend schools and

colleges.

Availability of funds Due to the highly regulated environment in higher education and the not for profitnature of the sector, many private players exploit legal loopholes to earn returns on their investments, thereby

fostering bureaucracy and corruption. The substantial risk involved in earning profits through this mode has

made bankers wary of lending to educational institutions.

Quality - Quality of education remains a key concern in India with many institutions lacking adequate

infrastructure and facilities. Also, dearth of experienced and trained teaching faculty is another critical issue

for a number of institutions in this segment. Students graduating from such institutions are at a disadvantage

while seeking employment.


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Enrolment in higher education to witness steady growth in the medium term

CRISIL Research expects demand for higher education to grow at a steady pace in the medium term. Enrolment is

likely to increase at a CAGR of around 6.5 per cent from an estimated 16 million in 2007-08 to nearly 21 million

by 2012-13; GER would increase from around 12 per cent to 15 per cent during the same period on the back of

strong demand drivers which have been enumerated below:

Rising household income Affordability plays an important role in higher education as this segment is not

subsidized like school education and many streams especially professional education like medical and

engineering have high fee structures. Over the years, with average household income in India having

increased on the back of strong economic growth, affordability levels have improved considerably. This

transition of households from lower income to higher income bracket is forecast to continue, going forward.

By 2012-13, out of the total 69 million households in urban areas, nearly 52 million are expected belong to

the Rs 1-5 lakh income bracket (we believe this is the addressable income bracket that can afford higher

education) as compared to 21 million in 2001-02. During the same period, in rural areas, nearly 50 million

households are expected to be in the addressable income bracket as compared to 16 million in 2001-02

Figure 7: Households in various income

brackets in urban areas

Figure 8: Households in various income

brackets in rural areas

58.5

40.8

0.4

0.3

30.0

66.0

2.1

1.8

11.0

76.1

6.5

6.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

(per cent)

2001-02 2007-08 2012-13

Upto Rs 100,000 > Rs 100,000 upto Rs 500,000

> Rs 500,000 upto Rs 900,000 above Rs 900,000

87.3

12.4

0.20.1

78.9

20.4

0.4

0.3

69.5

28.9

0.90.7

0.0

20.0

40.0

60.0

80.0

100.0

(per cent)

2001-02 2007-08 2012-13

Upto Rs 100,000 > Rs 100,000 upto Rs 500,000

> Rs 500,000 upto Rs 900,000 above Rs 900,000

Source: CRISIL Research Source: CRISIL Research

Favourable age demographics Indias age demographics are very conducive to growth in higher education

as a large section of the populace is in the relevant age group (15-24). By 2016, nearly 50 per cent (117

million) of the total population in the educational age group (5-24) would belong to this category. This

coupled with favourable income demographics is expected to give a boost to the segment.


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Figure 11: Infrastructure required to support growth in enrolment

20,769

29,869

14.3

21.8

20,000

22,000

24,000

26,000

28,000

30,000

32,000

2005-06 2006-07 E 2007-08 E 2008-09 P 2009-10 P 2010-11 P 2011-12 P 2012-13 P

(nos.)

12

14

16

18

20

22

24

(million)

No of Institutions Enrolment (RHS)

Source: CRISIL Research

Methodology

We have projected growth in enrolments in higher education through the following methodology.

Regression

The analysis of growth in higher education involved the following stages:

Identification of key variables

Estimation of relationship between growth in higher education and economic/demographic

variables using time series data

Use of forecasts for economic/demographic values from CCER, CRISILs economic wing

Estimation of forecasts for growth in higher education

The regression revealed correlation between growth in enrolment, graduates and employed graduates and GDP;

hence, we used this method for projecting growth.

Stage-wise enrolment

We evaluated growth in enrolment by estimating stage-wise enrolment based on Census 2001 projected data for

population.


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Engineering colleges have been in existence in India since the British era. The first engineering college wasestablished in Uttar Pradesh in 1847 at Rourkee, for the training of Civil Engineers. In late 1880s, Victoria Jubilee

Technical Institute (now Veermata Jijabai Technological Institute) was started, which offered training in

Electrical, Mechanical and Textile Engineering. Over the years, there has been a tremendous increase in the

number of engineering institutions in the country.

Engineering enrolments to continue; students to witness employment pressure inmedium term

Preference for engineering education on the rise over the last decade

Indias job market had traditionally been dominated by the public sector until a decade ago, and hence, majority of

the students were inclined to join conventional streams like Bachelor of Arts, Commerce and Science. However,

over the last decade, steady economic growth fuelled rapid growth in infrastructure, technology and urbanisation

in the country, thereby pushing up demand for skilled manpower. The resultant growth in preference for technical

education pushed up the share of engineering enrolments in total enrolments from merely 5 per cent in 1999-2000

to 19 per cent in 2005-06.

Figure 1: Stream-wise break-up of under

graduate enrolment (1999-00)

Figure 2: Stream-wise break-up of under

graduate enrolment (2005-06)

B.A

50.5

B.Sc

19.4

B.Com

19.7

B.Ed./B.T.

1.7

Medical

3.7B.E./B.Sc.(Engg

)/B.Arch.

5.0

(Per cent)

Source: MHRD

B.Sc

17.6

B.A

41.5

B.Ed./B.T.

2.7

Medical

3.4B.E./B.Sc.(Engg

)/B.Arch.

18.6

B.Com

16.2

(Per cent)

Source: MHRD

IT/ITeS The key driver of growth in engineering education

The robust growth of the economy in the last decade was primarily driven by the services sector, especially

IT/ITeS. The huge spurt in IT/ITeS revenues from Rs 780 billion in 2002-03 to nearly Rs 2,575 billion in 2007-08

(around 27 per cent CAGR), led to a sharp increase in demand for technically skilled manpower, and therefore, for

technical courses. The evident potential of this segment attracted several private players and as a result, the

number of engineering colleges increased sharply from 838 in 2000-01 to 1668 in 2007-08, with corresponding

increase in intake capacity from 226,484 seats to 653,290 seats.



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Figure 3: Growth in number of engineering degree institutions and seats

800

1,000

1,200

1,400

1,600

1,800

2,000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

(nos)

200,000

300,000

400,000

500,000

600,000

700,000

800,000

(nos)

No of engineering institutes Seats (RHS)


Intake capacity in engineering increased at a CAGR of 19 per cent from 2001-2008 as compared to 10 per cent

from 1990-2001. This was mainly due to the huge spurt in demand for computer/IT engineering, which prompted

a large number of colleges to offer this course. Consequently, seats for computer/IT engineering nearly tripled

between 2001-2008 and accounted for nearly 41 per cent of the total seats in engineering in 2008-09.

Figure 4: Growth in engineering seats from 1990

to 2001

Figure 5: Number of seats - 2008 vs 2001

-

50,000

100,000

150,000

200,000

250,000

1990 1991 1992 1993 1994 1995 1996 1998 2001

Comp/IT Electrical Electronics Mechanical Others

CAGR 10 %

Source: Indiastat, CRISIL Research

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2001 2008

Comp/IT Electrical Electronics Mechanical Others

CAGR 19 %

Source: Indiastat, CRISIL Research

Majority of engineers absorbed by IT/ITeS sector

Recruitment in the IT/ITeS sector grew at a CAGR of 24 per cent from 670,000 in 2002-03 to 2,014,000 in 2007-

08. Nearly 70 per cent of these employees were absorbed by the IT sector, wherein technical qualifications were

preferred, resulting in greater employment of engineers.


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Figure 6: Growth in IT/ITeS employees

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 E

('000)

-

500

1,000

1,500

2,000

2,500

3,000

(Rs billion)

Total IT employees Total ITeS employees

IT/ITeS revenues (RHS)

Source: Nasscom & CRISIL Research

Nearly 50-55 per cent of the total recruitments every year in the IT/ITeS sector have been engineers. Of these,

around 35-40 per cent were computer/IT engineers, while 15-20 per cent were engineers from different streams. In

the last few years, almost 70 per cent of all engineering graduates have been employed by the IT/ITeS segment.

Figure 7: Yearly employee addition by IT/ITeS sector

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2003-04 2004-05 2005-06 2006-07 2007-08 E

(nos)

Non-engineering employees Addition of IT engineers Addition of non-IT engineers

Source: NASSCOM & CRISIL Research

Engineering graduates to be hit hard by slowdown in IT/ITeS

The economic slowdown is likely to cause a fall in revenues of the IT/ITeS sector, especially in 2008-09 and

2009-10. Accordingly, the sector is expected to witness lower recruitments and may add only around 1.5 million

employees over the next 5 years.


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Figure 8: Projected employee addition by IT/ITeS

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2007-08 E 2008-09P 2009-10P 2010-11P 2011-12P 2012-13P

(nos)

Total IT employees Total ITeS employees


The ITeS segment, which accounts for nearly 35 per cent of the total recruitments in the IT/ITeS sector, is forecast

to absorb fewer engineers as compared to the past few years, due to the lower costs involved in hiring general

graduates. Consequently, engineering graduates will account for around 40-42 per cent of the total recruitments in

IT/ITeS as against 50-55 per cent in the past.

Figure 9: Composition of employee addition by IT/ITeS

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2007-08 E 2008-09P 2009-10P 2010-11P 2011-12P 2012-13P

(nos)

Addition of IT engineers Addition of non-IT engineers Non-engineering employees


CRISIL Research expects the IT/ITeS segment to absorb around 0.62 million engineers over the next 5 years. In

absolute terms, the number of engineering graduates absorbed by IT/ITeS over the next 5 years would echo the

figures of the last 5 years (0.69 million). However, given the huge rise in intake capacity, around 2.05 million

graduates are expected to enter the job market over the next 5 years. As a result, students graduating over the next

2-3 years will have to face a very tough employment scenario.


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Figure 10: Engineering graduates absorbed by IT/ITeS in relation to total engineering graduates

-

100,000

200,000

300,000

400,000

500,000

600,000

2007-08 2008-09P 2009-10P 2010-11P 2011-12P 2012-13P

(nos.)

New engineers every year Engineers absorbed by IT/ITES


Computer/IT engineering graduates will find it difficult to gain alternative employment in core industries like

power, construction, etc. Therefore, they may either settle for jobs not matching their skill set or may opt for

further studies, thereby propelling growth in post graduate education.

Enrolment in engineering to grow; some colleges to witness lower enrolment

CRISIL Research believes that the slowdown in IT/ITeS employment will not affect enrolment in engineering

courses in the medium term. As students enrolling in the next 1-2 years will graduate only after 4-5 years, they are

less likely to be affected by the slowdown.

While reputed colleges will remain relatively untouched, colleges that do not have good placement records are

likely to face lower enrolments, given the current employment scenario.

As the RoCE of engineering colleges is low at 9-10 per cent, many colleges have been resorting to capitation fees

to earn higher returns. But the tightening of the regulatory environment in the sector could lead to streamlining of

the admission process in these colleges. Moreover, with supply expected to exceed demand in many regions,

lower rung colleges may be forced to reduce fees to attract more enrolments.


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The Medical Council of India (MCI) was formed in 1934 with an aim to establish uniform standards of medicaleducation (allopathy) in the country and to grant recognition of medical qualifications. Traditional Indian

medicine is regulated by the Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy

(AYUSH). Although AYUSH doctors are part of the medical fraternity, we have not included them while

projecting demand for doctors, as traditional medicine is not widely recognised globally. Furthermore, we believe

strong allopathic medicinal infrastructure is vital for Indias development in this arena.

Shortage of doctors to persist due to dearth of medical colleges

Stringent regulations restrict intake capacity of colleges

The number of medical colleges has augmented at a slow pace over the years. In 2008-09, only around 300

medical colleges imparting allopathic education were registered with MCI.

Figure 1: Growth in intake capacity

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

(no of seats)


The intake capacity of these colleges has increased from around 20,000 seats in 1998-99 to almost 45,000 seats in

2008-09. Nevertheless, the capacity remains low as compared with demand, as evident from the prevailing

shortage of doctors in the country. This is mainly because of the stringent regulatory environment in this stream,which has pushed up the capital costs for setting up a medical college. The conditions laid down by the MCI

include setting up of a hospital, land requirements of minimum 25 acres and fixed deposits worth Rs 45-95

million; also, the enrolments in this stream are regulated by the MCI, thereby restricting the number of

enrolments. All this has resulted in higher costs as compared to other streams. Private institutions account for only

45 per cent of total medical colleges as compared to 85 per cent in engineering stream.

Indias doctor density remains alarmingly inadequate

The number of doctors in India has increased moderately at a CAGR of around 4 per cent from approximately

495,000 in 1996-97 to 684,000in 2006-07.



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Figure 2: Growth in registered doctors

400,000

450,000

500,000

550,000

600,000

650,000

700,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(nos)

Source: India Stat and MCI

However, when compared with the countrys population of about 1.13 billion as of 2007, this growth translates

into a doctor density (defined as the number of doctors per 1000 population) of around 0.6. This implies that India

does not have even 1 doctor for every 1,000 people in the country. This is extremely unfavourable as compared

with the world average doctor density of about 1.7. Even China, with its huge population, has a doctor density of

about 1.5. The World Health Organization (WHO) has pegged the ideal density at 4 doctors per 1,000 people.

Doctor density to remain low in the medium term

CRISIL Research expects the intake capacity of medical colleges to increase by around 12,000 seats (around 80

institutions) over the next 5 years, aiding a marginal improvement in doctor density from around 0.6 in 2007 to

around 0.7 by 2012, and further to 0.8 by 2017. Thus, the doctor density will continue to be inadequate over the

medium term, unless medical education in the country is made more accessible and affordable. Currently, medical

fees range from Rs 10,000-40,000 per annum in government colleges, and Rs 100,000-4,00,000 per annum in

private colleges. Therefore, medical education, especially in private colleges, is quite unaffordable for majority of

the population, and any change in this situation would necessitate dedicated efforts by the government and other

concerned authorities.

Table 1: Growth in number of allopathic doctors

1997 2002 2007 2012 P 2017 P

Number of registered allopathic doctors 494,899 607,075 683,682 816,715 1,019,700

CAGR 4 2 4 5

Population ('000s) 949,878 1,045,547 1,128,521 1,208,116 1,283,600

Doctor density per '000 population 0.5 0.6 0.6 0.7 0.8


1,800 medical colleges required by 2012 to improve doctor density to 1 by 2017

The substantial demand-supply gap in this stream can be reduced through accelerated infrastructure development.

However, given the huge outlay involved in setting up a medical college (Rs 1.5-2.5 billion per college), this

segment would require investments worth nearly Rs 2,500 billion over the next 5 years to improve infrastructure.

To achieve doctor density of even 1 by 2017, India requires an additional 0.26 million doctors, signifying the need

for around 1,800 additional medical colleges by 2012.


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Huge investment potential in higher educationHigher education holds tremendous investment potential, especially for players capable of identifying the right

stream. As seen earlier, medical education and general graduation are two such streams wherein CRISIL Research

expects demand to exceed supply. Although engineering colleges may witness slightly sluggish demand in the

medium term, the streams popularity indicates considerable promise for players who have the ability to set up

institutes par excellence and/or enough funds to weather this sluggish period.

Investments to the tune of Rs 1,000 billion would be required to set up 9,000 institutes across streams to ensure

steady growth in this segment over the next 5 years. Moreover, investments are also needed to address the issue of

dismal infrastructure so as to bridge the gap between demand and supply in this segment.

Higher education institutions enjoying healthy operating margins

CRISIL Research has analysed the profitability levels of various types of institutes in higher education. Our

analysis has been based on the following assumptions:

The land required for each category has been taken as that stipulated by the concerned regulatory body

In case of a medical college, we have considered a hospital attached, with the profitability analysis of the

hospital being indicative in nature

We have assumed a debt equity ratio of 40:60

Interest rate has been assumed at 12 per cent

The age of the institutions has been taken as 5 years

Depreciation as per SLM @ 10 per cent

4.0 Investment potential in higher education and indicative profitability


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Table 1: Indicative profitability of higher educational institutions

Medical

Hospital College Engineering General Graduation

Capital Cost

Land as per regulations (Acres) 25 7.5 2.5Cost per acre (Rs million) 20 20 20

Cost of land (Rs million) 500 150 50

Area constructed (Acres) 2.5 2 1 0.5

Construction cost (Rs in million per acre) 35 35 35 35

Cost of construction 87.5 70 35 18

Total 657.5 185 68

Others 750 100 35 5

Total Cost (Rs million) 1507.5 220 73

Streams 1 4 1

Students Intake/Beds 300 150 240 800

Avg fees per student/revenue per bed (Rs million) 0.30 0.15 0.06 0.01

Annual Income 1 year 180 22.5 14.4 4.0

2 year 189 45.0 28.8 8.0

3 year 198 67.5 43.2 12.0

4 year 207 90.0 57.6

5 year 216 112.5

Total income (Rs million) 216 112.5 57.6 12.0

Expenses

Student Teacher Ratio 10 15 75

No of professors 75 64 32

Average salary per month 0.04 0.03 0.02

Salaries/Wages 43.2 31.5 19.2 5.8

Other expenses 97.2 25.8 12.8 1.2

Total expenses 140.4 57.3 32.0 6.9

OPBDIT (Rs million) 75.6 55.2 25.6 5.1

% 35 49 44 42

Depreciation

Gross Block 837.5 170 70 22.5

Net Block 503 102 42 14

Depreciation 50 10 4 1

PBIT (Rs million) 25.4 45.0 21.4 3.7

Interest

Debt:Equity (40:60) 403 28 9

Interest 48.4 3.4 1.1

PAT (Rs million) 22.0 22.2 4.0

% 6.7 38.6 33.2

ROCE % 4.7 9.7 5.1


At the operating level, all three types of colleges have healthy margins of 40-45 per cent. However, the

profitability of the sector is low as reflected in the low RoCE. The capital needed for a medical college is much

higher than that for a general graduation college or an engineering institution. Consequently, the RoCE for a

medical college (3.2 per cent) is much lower than that of engineering (9.7 per cent) or a general graduation college

(4.7 per cent). Engineering colleges enjoy better returns than general graduation colleges as the fees are higher.


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Given the favourable age and income demographics, CRISIL Research expects the education sector to witness

robust growth in the medium term. This will open up a wide array of opportunities for players who can identify

the right mix and capitalise on the same. Despite the strict regulatory environment, this sector offers a steady

revenue stream in the long term.

In this chapter, we have tried to identify opportunities in both the K-12 and higher education segments. We will

explore these themes in greater detail in our subsequent updates. We have also provided a list of key success

factors for institutions in the sector.

Opportunities

Pre school segment This is an unregulated segment wherein for profit institutions can be set up. In pre

schooling, which is a recent phenomenon amongst urban parents, toddlers between the ages of 1.5 3.0 years

are sent to playgroups or nurseries for informal learning to prepare them for school. With changing income

demographics resulting in higher affordability, we expect pre school education to witness faster growth in the

medium term. A large part of this segment is unorganised; however, the recent entry of players such as

ZeeLearn, Educomp Roots to Wings, Kangaroo Kids, and Poddar Jumbo Kids has triggered the formation of a

more organised market. As fees in this segment are not regulated, private players are free to determine the

same (fees currently range from Rs 10,000-45,000 per annum) and earn healthy returns, with estimated RoCE

of 40-50 per cent.

K-12 education The K-12segment has been witnessing a growing trend of schools seeking affiliation to

international boards, especially in metros and larger cities. The International Baccalaureate and University of

Cambridge are two such organisations which provide affiliation to schools around the world. These schools

adopt the curriculum prescribed by these organisations, who offer certification. At present, there are around

150 IGCSE schools and nearly 60 IB schools in the country. Most of these schools also provide the

ICSE/CBSE curricula; however, the infrastructure as well as fees charged differs as per the curriculum. The

premium positioning enjoyed by international education allows the schools to charge higher fees for IGCSE

and IB.

With increasing number of parents willing and able to spend higher money on childrens education, IB/IGCSE

schools offer a lucrative opportunity for investors.

Informal education Informal education presents a gamut of opportunities ranging from coaching classes

(K-12 to Higher education), test administration providers, information and communication technology (ICT)

vendors, distance education and online education.

Coaching classes Most of the coaching classes supplement formal education both in K-12 and higher

education segments, for example, Chate Coaching Classes, Mahesh Tutorials etc. Some coaching

classes, like IMS and Career Launcher, also provide preparatory guidance for graduation or postgraduation tests. While the coaching classes market is largely unorganised, this segment offers

5.0 Opportunities in education and key success factors


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considerable opportunities for entrepreneurs, given the often unsatisfactory quality of teaching in formal

education and the prevailing trend of students attending tuitions in addition to formal schooling.

ICT ICT refers to information and communication system and various other technological aids used in

schools and colleges to facilitate learning and improve teaching quality. It encompasses hardware as well

as software used in education. The increasing usage of ICT to improve efficiency and quality of

education signifies huge opportunities for ICT vendors like NIIT, Educomp, Everonn etc.

Educational literature Demand for educational literature, which includes books, CDs, software, has

been on the rise over the last few years, with students opting for additional study material along with

prescribed text books. Players like Navneet Publications cater to this demand.

Online education Online education has witnessed a boom in recent times with many educational

institutions offering students the option of virtual learning. This gives institutions the opportunity to

increase student intake without enhancing its infrastructure.

Test administration With a number of competitive exams like SAT, TOEFL, GMAT, etc. being made

accessible online, demand for test administrators has increased. Although this segment is still in the

nascent stage in India, it is emerging in importance among ancillary services to education.

Key success factors

Although the sector holds tremendous potential, success in this segment is not easy to attain. Even after setting up

an institute, certain risks persist, viz., inadequate enrolments, possibility of derecognition due to noncompliance of

regulations etc; hence, it is important to identify the key success factors in this segment:

1. Brand and reputation: Enrolment in an institution largely depends on its reputation, which is built over a

long period of time and is a fallout of the institutions ability to deliver quality education, as reflected in high

number of pass-outs and good placement records.

2. Faculty:Experienced and popular faculty is instrumental in providing quality education, and thus, in building

the reputation of the institute.

3. Placement record: In case of professional courses such as engineering, MBA, etc., employment

opportunities available to students post completion of the course play an important role in building thereputation of the college and future enrolment.

4. Right mix of education: Institutions offering a wider variety of courses are likely to be more popular

amongst students. For example, an engineering college which offers various options under the same roof is

likely to witness higher enrolment. Newer courses, global affiliations, online education are the other factors

that aid an institutes success.

5. Reputation of promoters The promoters reputation also has a bearing on the enrolment and potential

success of an institution, especially if they have an established presence in the segment, or have linkages

which can enhance employment opportunities for students. Additionally, promoters who are financially strongand can support an institute in its early years have better chances of success later.

Crisil Education Sector Report

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Transcript of Crisil Education Sector Report