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Education Has Investment Potential But Returns Will Be Slow & Gradual

23 December, 2011

Education as a business segment is still evolving in India even though it is a multi-billion-dollar field in this country and institutional investors need to be more patient while betting on the sector that comes tagged with long gestation period, according to the panellists at the VCCircle Education Investment Summit, held in Delhi on Dec 21.

The second edition of the education investment event that sought to scan the industry and find out what lies ahead in the Indian education ecosystem, drew a packed gathering of around 300 participants – ranging from new-age education service entrepreneurs to private equity investors and bankers.

According to Shantanu Prakash, chairman & managing director of India’s most valued public-listed education services firm Educomp Solutions Ltd, opportunities worth $60 billion are here in India but people need to discover the modes of profit. “One can’t really earn profit by running traditional schools. Perhaps it can be only earned through B-schools and coaching classes,” he said.

Surely, the opportunities are huge and some institutional investors have already smelt it. During 2010-11, over 30 private equity deals to the tune of $250 million were sealed in the country, according to the data compiled by VCCedge, the financial research platform of VCCircle. Although investors have been concerned about achieving scale and getting attractive profit margins, unique business models across various sub-sectors have promised significant returns for private equity and venture capital funds. Incidentally, India is the second largest spender in the education sector.

Nonetheless, challenges would remain in this space, as speakers on the first panel, moderated by Luis Miranda (chairman, board of advisors at Centre for Civil Society and former chief of IDFC Private Equity), pointed out.

According to Anand Sudarshan, managing director and CEO of Manipal Education, building the infrastructure for higher education is not as easy within the country as it is outside India.

Taking about education as an investment sector, he noted, “The so-called glamour quotient is very low here, compared to other sectors like FMCG, banking or the emerging e-commerce industry.”

According to him, it is common knowledge that the return timeframe is not the same, compared to other sectors. “The return horizon has to be long. And one need to scale up so that the organisation may be made public (a listed company),” he added.

While attracting institutional investors is certainly difficult, Educomp’s Prakash had a word of advice for entrepreneurs. “They need to burn their own pockets first before approaching VCs and PE firms. Investing on their own would help them understand the mindset of other investors,” he explained.

“In order to venture into a successful and convincing education business model, one needs to have a clear value proposition which would be uniquely different and would lead to the clear path of profitability,” added Sudarshan. Also, one should be surrounded by ‘good people’ who are zealous, passionate and can add value to the enterprise.

Another key problem is that there are fewer public-listed education companies in India and subsequently, very few can opt for ‘big fundraising’ via the public route. Moreover, investors here are more concerned about short-terms goals and quarterly returns. Such an approach, according to Prakash, does not help in this ‘dormant and slow investment field.’

However, the VCCircle Summit concluded on a note of high optimism that in spite so many roadblocks and problems, the ‘still-maturing’ education sector will march ahead and reach its goal.


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Education Has Investment Potential But Returns Will Be Slow & Gradual

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