What's behind the recent rally in education space?

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What's behind the recent rally in education space?

The rally in education stocks seems to be fizzling out as data suggests that delivery percentage in several stocks has dropped significantly.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Educomp Sol BSE | NSE 29/05/12 Are Mutual Funds betting on Educomp Sol? Other Stocks in this news Aptech | Zee Learn |

The rally in education stocks seems to be fizzling out as data suggests that delivery percentage in several stocks has dropped significantly.

For example, Everonn Education the delivery percentage was 3.2% yesterday as compared to its 10 day average of 25%.

Its delivery percentage is below 5% in the last 2 days even though the counter has gained 40% in that time period.

A similar trend can be seen in Educomp against its 10 day average of 11%, the stock saw a delivery percentage of only 7.5% yesterday. Even though the stock has gained 15% in a week, its delivery percentage for the last two days is below 10%.

The only exception to this was Aptech , which saw delivery based buying of 28% yesterday against its 10-day average of 25%. The delivery percentage has been inching up steadily and the stock has gained 30% in the last three days.

So what's buzzing? In an interview with CNBC-TV18, Sumeet Mehta, CEO, Zee Learn  and Praveen Chakravarthy, CEO- Investment Banking and Institutional Equities, Anand Rathi Financial Services, discuss the latest trends in the education sector and the road ahead.

Below is an excerpt of their discussion on CNBC-TV18. Also watch attached videos for full interview.

Q: We understand that you are venturing into the K-12 segment quite aggressively, which is touted as a very big growth factor going forward. Just take us through what sort of preliminary indications you have in terms of possible growth in the K-12 segment and how aggressive do you want to be within that segment?

Mehta: Yes, we are clear that the K-12 segment is a supply constrained market for quality schools. There are lots of schools available in the country, especially in the larger cities, however, there is a dearth of quality schools. Their estimates would say that about 25,000 quality K-12 schools required in the country.

Now, given our current strengths in preschool, we have been focusing on K-12 market because when the child emerges from preschool, he is definitely looking for a school. We are seeing very good uptake in the schools that we have setup. The basic thing, which differentiates our schools versus the rest, is the quality of innovation that we bring to school education.

So, I am quite bullish on the K-12 segment and all the schools that we have opened are getting very good uptakes from the parents.

Q: Take us through your K-12 plans, and more importantly, your animation training centers.

Mehta: Before I answer your question, I just want to touch upon what Praveen mentioned, because looking at education just from a economic or financial discourse might miss the overall perspective of human development. So while I agree there are policy risks on K-12, I think there is precedence in other countries whether it is charter school or whether it is public-private partnerships.

I believe private sector can actually play a huge role in boosting the supply of good quality schools. Now, when the good quality schools are setup they can be run as a private school or they can be run as a public school, but that I think is a latter term decision. Private sector can actually play a huge role in boosting supply. I think that's where some of the policy decisions are looking towards going.

Focusing on coaching classes or vocational misses the point that if at the initial stage whether it is preschool or school we do not have enough people who are in the school, gross enrollment ratio in India still is very low when it comes to the 8th, 9th, 10th standards. So if there are not enough children coming out of schools there are not going to be enough children who are going into those vocational courses and going into those coaching classes. We have got to fix that problem and I think there is positive intent from the government barring the last six-nine months. And that's where I think private players can actually play an important role in addition to opening their own schools which anyway is happening. Coming back to your question, Kidzee is the market leader in preschools.

We have over 900 preschools in the country and that has broken even as of last year. I think our schools business and our school solutions business which is coming up as a very interesting opportunity for us they are both in the investment phase. I think it will take them about a year or two for both of them to breakeven and start making positive contribution for us. However we are seeing a very exciting trend that schools initially, all the innovation in education was technology putting a white board or a computer and stuff. But now a lot of the schools are realizing that it's all about whether the child is learning and therefore products like Brain Cafe which is about getting children to understand science, there is a very high uptake.

We have signed around 200 schools in the last year with the Brain Cafe Science product. So I am very bullish about school solutions where we go and improve the quality of learning in schools rather than just an infrastructure intervention.