Analysis: Education to get boost on govt reform, PE funds

India's education sector is likely to see heavy investments from private equity funds over the next couple of years betting on increased government spending and as private players plan expansions, officials said.

The sector, pegged at USD 86 billion, is seeing fresh interest from foreigners and large funds who are pumping in money in services, technology and infrastructure, they added.

"The education market in India is roughly worth USD 50 billion in the private sector and all parts of the educational value chain are offering good investment opportunities," said Rajesh Singhal, managing partner of private equity firm Milestone Religare Investment Advisors Pvt Ltd.

"Private equity investment in the next two-three years should be in the range of USD 400-500 million and that should not be a difficult target at all," he added. Currently, investments are to the tune of USD 200-250 million, officials say.

Milestone Religare recently invested Rs 250 million in an Indian education service firm from its Rs 6 billion private equity fund that focusses on education and healthcare.

India needs to increase investment in education, health and infrastructure to lift its economic growth rate, which slowed to a six-year low of 6.7% in 2008/09 from 9% or more in the previous three years.

The resource gap identified by the Planning Commission stands at Rs 2,200 billion and the government plans a public-private partnership approach to bridge the gap.

Pearson, the world's leading player in the education segment, which recently joined hands with Educomp Solutions, said it was enthusiastic to fill that gap and expand footprints in Asia's third-biggest economy.

"India's education requirements are big and immediate and acting now will sustain growth," Khozem Merchant, president, Pearson India, told Reuters.

"It's also an opportunity to collaborate with the government on an unprecedented scale," he added.

Earnings in Indian education services firms is expected to grow 35.5% over the next 12 months, according to ThomsonReuters StarMine smart estimates, far outstripping the 14% growth forecast in the information technology sector.

Stake sale

To capture this high-growth potential, television broadcaster Zee Entertainment spun off its education arm while Aptech bought Maya Academy of Advanced Cinematic for 760 million rupees.

Steelmaker Usha Martin is also diversifying into education, aiming to create 200 schools in three years.

"We'll see lots of interests in pre-schools, vocational training, going forward. There will be lots of interesting IPOs in a couple of years," said Sandeep Aneja, managing director of Kaizen Management Advisory, an education-focussed PE firm.

Manipal Universal Learning, the corporate entity of India's largest private player in higher education - the Manipal Education Group, plans to raise Rs 5-10 billion through an IPO, according to media reports.

Yash Birla's Birla Shloka Edutech, valued at USD 12.8 million, last month raised nearly Rs 350 million by selling shares to fund acquisitions and bid for government projects.

However, experts feel the limited number of assets, which can deploy such large capital, along with tight regulations remain a key challenge.

"The higher education segment continues to be highly regulated. They have to be set up as non-profit organisations," said Milestone Religare's Singhal, adding it makes investments possible only in non-core services like IT and infra.