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Ind-Ra: Policy Support, Private Sector Interest to Increase Reach & Quality of Education

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India Ratings and Research (Ind-Ra) believes the education sector has tremendous potential to grow due to the huge demand-supply gap. Presently, there is an additional requirement of 200,000 schools, 35,000 colleges, 700 universities, and 40 million seats in vocational training centres in India.

Ind-Ra estimates the market size of the education sector to reach around INR7,800bn in FY17 from INR6,423bn in FY16. Besides the expansion in the conventional public and private sector education systems in the form of schools and higher education institutes, the sector shall grow reasonably backed by the non-formal private education sector in the form of pre-schools, coaching institutes, vocational training centres etc. More international collaborations with education institutions along with joint ventures and merger and acquisitions with both foreign and domestic corporate players would further help the sector to grow.

 

The share of state private universities out of the total universities in India spiked to 29% in FY15 from around 3% in FY09 (Source: Ministry of Human Resource Development). Some private universities have even created a niche for themselves within a span of four to five years or even less on the back of efficient faculty, tie-ups with reputed international universities, less administrative intervention from the government, updated syllabi of courses, and state-of-the-art infrastructure. The agency believes that there is a significant incentive for opening up state private universities in the absence of any regulatory cap on the approved intake for students, which has a positive bearing on the functioning of such universities.

The rapid expansion of education sector in India, however, is accompanied by a high student-teacher ratio in both the school and higher education segments. This indicates that the supply of teachers is not keeping pace with the rise in student strength. Besides the quantity, there is a problem of qualified and skilled faculty. Thus, the quality of learning and academic standards have become an issue as reflected by the international rankings of Indian educational institutions. However, rising the government policy support in the form of a rise in budgetary allocations, setting up of boards to evaluate the standards of schools and colleges, teacher training initiatives among other things is a positive step towards augmenting the quality of education in both school and higher education.

Ind-Ra rated educational institutes include schools, higher educational institutes and coaching institutes. In FY16, Ind-Ra upgraded and affirmed the credit ratings of 25% and 64% educational institutes, respectively. It also downgraded the ratings of 11% of institutes due to liquidity issues and stressed operating performance.

Among Ind-Ra rated portfolio, a few non-investment grade educational institutions are facing stressed operating margins due to the regulated nature of tuition fee. However, Ind-Ra rated investment grade institutions are able to post reasonable year-on-year growth on the back of the introduction of new courses, a strong market position and increasing enrolment. Regulation on limiting the increase in tuition fee attempts to increase the access of education to the aspirants. However, many trusts/societies are facing challenges in the form of a depleting bottom line due to a high operating and maintenance cost.

Ind-Ra believes the implementation of Seventh Pay Commission would exert additional cost pressure on private institutions (including those in Ind-Ra's portfolio) but it shall kick in with a lag. The liquidity condition will continue to be affected by the delays in fee reimbursement by the government on account of the several government-run welfare schemes in selected regions. Ind-Ra, therefore, expects the working capital utilisation of educational institutions to remain high in FY17.

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First Published: May 10 2016 | 4:35 PM IST

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