Several leading test preparation companies are diversifying from the unregulated supplementary education segment to the formal school education space, perceiving improved market potential and a more sustainable business model.
Beyond being a logical extension of the education business, the government’s effort to cut students’ dependence on coaching centres to crack entrance exams for the Indian Institutes of Technology (IITs), the Indian Institutes of Management (IIMs) and medical colleges has fuelled the trend in a sector that’s becoming more corporate-like.
Satya Narayanan R, CEO and chairman of CL Educate Ltd (formerly Career Launcher), said his firm had so far invested about Rs. 250 crore in the school business. It’s now running a chain of 23 K-12 (kindergarten to class XII) schools across India and has plans to open nearly 80 more in the next four-five years, for which it will invest Rs. 800-1,000 crore.
“There is no doubt that test-prep as a vertical will grow, but schools are a much bigger market,” he said.
Housing Development Finance Corp. Ltd and Gaja Capital invested Rs. 50 crore in Indus World Schools, a unit of CL Educate last year.
According to a Crisil Research report, the tutorial business is expected to grow from Rs. 40,187 crore in 2010-11 to Rs. 75,629 crore in 2014-15. Satya Narayanan said that while test prep captures around 5 per cent of the total education market, the school segment occupies around 60 per cent.
Pramod Maheshwari, CEO of listed Career Point Ltd, another leading coaching outfit in the country, is also optimistic about business prospects.
“What we were doing through coaching is a supplementary job…then we went to integrate programs with schools. But there were differences between school managements and the coaching institute management. Finally, we have to evolve a holistic model to impact the students’ lives,” Mr. Maheshwari said.
“The second reason is the business reason. We know when a student comes to a coaching centre, it’s largely for two years, but in a school atmosphere, it’s 12 years. So, schools seem a more sustainable business. Looking at the demand for quality schools in India, it’s a natural progression for established players,” he added.
Career Point is running one school in Rajasthan and is set to open two more in the forthcoming academic session. “Thereon, we have plans to add five schools year-on-year,” he said. The company has “already invested Rs. 35 crore in the schools’ segment and more will be invested in due course”.