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TiE Delhi Education & Training Special Interest Group - Knowledge Series and Round Table Discussion 23rd May, 2014
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Taking the leap Education and Training
TiE Knowledge Series
Narayanan Ramaswamy, KPMG
May, 2014
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
India – the most happening place for Education Around 60% of India’s population is under 30 years of age and is expected to last several years giving it a
demographic dividend
Source: Census Projections
560 million consumers in age group
20- 49 expected by 2015
5th largest consumer market by 2025
Average Household disposable
income increasing at CAGR of 5.3%
till 2025
17.8 19.3
10.6 8.6
4.5
21.7 20.2
10.5 10
5
0
5
10
15
20
25
India China Europe LatinAmerica
USA
Po
pu
lati
on
%
Contribution to World's population
2011
2025
673.9 740.3
792.5 832.2
98.5 118.1 143.2 173.2
346.9 340.3 336.9 327
2011 2016 2021 2026
Increase in the working age population (in mn)
Working population (19-59 years) Old Population (>60 yrs)
Children population (0-14 yrs)
1
2
3
40-49
12%
30-39
15%
0-9
19%
20-29
17%
10-19
19%
60+
9%50-59
9%
Source: KPMG Analysis
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Higher Education and
Vocational Education
focus of reforms
Most number of bills
pending in parliament!!
Attractive margins
considering volumes
and propensity of
people to pay for
Education
Growth rates of 10 to
15% expected over the
next decade
Over 95% is held by
the unorganized sector,
with few large players
Investment requirement
of approx. USD 100 BN
by 2015-16 to meet
expected demand *
Combined market size
of more than 450 mn
students and USD 50
BN per annum*
One of the
largest services
market
Huge
Demand-Supply
Mismatch
Robust growth
rates expected
Largely
fragmented
industry
Higher
rate of returns
Opening up of
regulatory
environment
Source: CSFB Report; CLSA Report; KPMG Analysis
One of the largest service sector industries in India with strong growth drivers
India Education – A Macro View
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Can this elephant dance?
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Overall Education services are spread across segments...
Industry
Curriculum Content Delivery Training Assessment Certification
Supplemental services – Infrastructure, Funding
K12 (Schooling)
Higher Education (PG)
Higher Education (UG)
Higher Education (PhD)
Vocational Education
Indian Education
Service
Providers (Transport,
Equipment
etc.)
Consumer
s /
Students
85% enrolment 10% to HE
13% with class 10 qual
10% with +2 qual for VE Negligible numbers
1% to PG courses
0.1% of UG enrolment
Eco-system providers (Real Estate, ICT etc. )
Enablers (Tutorials, Test-preps etc.)
1
2
3
4
Pre-School
5 6
7
8
9
10 11
A B C E D F
G
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
Education Industry Snapshot…
Education
Industry
Pre-school
K-12
Higher Edu.
Vocational Edu.
Education
Services
Test Prep/
Coaching
Education Sector in India
48%
13%11%
28%
19%
15%
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Pre-school education K-12 Higher Education Vocational Education Education Services Coaching
Mark
et
Siz
e (
US
D B
illio
n)
0%
10%
20%
30%
40%
50%
60%
Gro
wth
Rate
(C
AG
R)
Revenues (2008E) Revenues (2012E) Growth rate
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Segment Profile
Nature of Industry
Industry &
Competitive
Structure
Future Outlook
• Largely fragmented with a few large
players,
• Innovative pre-school models
• Expansion largely through Franchise model
• Less capital intensive
• Unregulated, space
• Currently low penetration levels (1%)
• Market will see increasing share of
organized players
• New players will focus on penetrating Tier-
2 and Tier-3 locations
• Higher growth rate expected in the next 2-
3 years
• Innovative models will emerge and some of
them will extend into K-12
Pre-school
Key Risks
• Target audience is limited to 3 Km radius
• Increasing real estate (lease) costs
• Economics is challenging as a stand-alone
unit
• Largely fragmented market with very few
national/ regional players
• Large corporate have entered the segment
and are planning for pan-India presence
• Capital intensive
• Regulated market – Schools need to be
run by not-for-profit Trust/ Society
• Long term annuity based business
• Emergence of new Chain of schools from
large players – focused on quality and
value based education
• Higher spend on SSA (Govt. outsourcing
for universal primary and secondary
education) to continue and better PPP
models will evolve
• For-profit schools will emerge in select
regions (with International curriculum)
K-12
• Regulatory restriction in case of CBSE/
ICSE schools
• Schools to be run by not for-profit Trust
• Rising land price leads to high Capex and
low ROCE
• Largely fragmented with a very few large
players who are expanding within India
and abroad
• 77% of HEI are Privately managed
• Capital intensive
• Regulated – Need to be run by not-for-
profit Trust/ Society/ Section 25 company
• Tightly linked wit industry and research
• Innovative models emerging to unlock
value from higher education
• Corporate entering formal higher education
for niche talent development
• Govt. is looking a PPP model to promote
Institutes of national importance,
innovation universities etc.
• Plans to open higher education to Foreign
Education providers
Higher Education
• Regulated - All HEI should be run by not-
for profit Trust
• Large Political involvement
• Very Capital intensive
• Time to build brand equity (min 6 yrs)
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Segment Profile
Nature of Industry
Industry &
Competitive
Structure
Future Outlook
• Fragmented industry. Currently dominated
by Government
• Big push by govt., through NSDA, NSDC,
SSC formation in the past 5 years
• Lack of national standards, framework
affecting the acceptance wit corporate
• Large players/ Corporate entering private
vocational education /finishing school
• IT and language training markets are
crowded
• Less capital intensive,
• Strongly tied to the industry needs and
employment
• Large PPP opportunities in pipeline. This
space will also see Organized play in
coming years
• Greater focus on penetration of vocational
education in Tier-2 and Tier-3 locations
• Branded vocational education will emerge
to produce skilled workforce for services
and manufacturing industry
Vocational Education
Key Risks
• Sector slowdown will affect employment
and hence attractiveness
• Availability of skilled trainers and
technology
• Corporate training have lower margins and
revenues are lumpy in nature
• Huge Govt. Outsourcing contracts in
Primary and secondary education
• Multimedia in schools have been fairly
successful and gaining momentum
• Online learning and revenues from online
channels seen as a potential opportunity
• Capital intensive, People intensive,
Consumer Facing
• Service providers will focus on higher
margins and an organized services play
will emerge for the education sector
• Online channels will evolve to provide
greater flexibility and better margins
• Service Providers will slowly transition from
value chain player to full service provider
Education Services
• Large upfront investment
• Duplication of content
• L1 bids in Govt. tenders leading to
commoditization of services & low margins
• Long receivables cycles in case of Govt.
contracts
• School content regulated by bodies such
as NCERT
• Fragmented
• Highly competitive
• People centric
• Largely regional
• Scale difficult to achieve unless process
driven
• Online assessment have changed the
business and operating model in some
areas.
• Grow at a slower pace than other
segments and the segment is likely to
witness consolidation
Test Prep/ Coaching
• Person centric
• Problems in scaling up
• Content duplication
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
Business Concept Estimate of Capital
Expenditure Range*
Estimate of Revenue
Range at steady state
Estimates of
Margins (%)
US-$ 6 -8 Mn/institute 40-50%
High Quality MBA
institute
US-$ 11-12 Mn US-$ 10 – 11 Mn/campus 30-45% Foreign collaborations and industry
linkages
Infrastructure, faculty and strong PR
Medical Institute US-$ 100 -150 Mn/ institute
20-25% Strong tie-up with hospital
Research focus and tie up with global
institute
Broad based
University
US-$ 20 Mn US-$ 12 - 21Mn 30-55% Flagship courses: Well-regarded and
highly ranked
Effective media use for brand
positioning
Skill Development
Centers
US-$ 0.4 – 0.6 Mn US-$ 24 – 150 K 15% Customizing the training to industry
needs
Alliances with industry players for
recruitment
Chain of job oriented
training outlets
US-$ 0.4 – 0.6 Mn US-$ 300 K 25-35% Re-branding vocational education to
professional skill development
Tie-ups with corporate
Critical Success Factors
Engineering/
Technical Institute
US-$ 5 – 7 Mn/institute Industry Affiliations and accreditations
Infrastructure for industry readiness
* Capex figures exclude land acquisition costs Source: KPMG Analysis
Snap shot of business cases across different education streams
© 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved.
The education industry in India provides some very strong
opportunities…
■ Estimated investment requirement of approximately USD 100 billion to meet the demand from 230
million students enrolled each year and increasing by 8 million each year.
■ Industry estimates indicate that to meet the gross enrollment ratio target in elementary education,
45,500 additional institutions need to come up by 2015 and to meet 20% gross enrollment ratio in
higher education , an additional 460 institutions would need to be set up.
Demand supply gap
■ The government has been taking steps to enhance education infrastructure and literacy in India.
One of these include the Right to Education Act, which provides for free and compulsory education
for students in the 6-14 age group, up to 25% reservation for economically weaker section students
in private aided and unaided schools and no capitation fees.
■ The planned spend on education in the11th five year plan is almost six times that of the 10th five
year plan.
■ Other regulatory changes are also planned to ease investment and promote foreign private players
to enter the sector.
Government reforms
and higher spending
■ With the rise in middle class incomes, the savings ratio for securing higher education for their
children has touched 55%.
■ Educational and related expenses are deemed an investment. This change in attitude will act as a
catalyst, promoting higher investments in the said sector.
Change in mindset
■ Quality of public sector education is perceived to be lower than that of the private sector. This will
further heighten the demand for private sector institutions. Quality perception
© 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved.
10
… but has its own share of challenges
■ The regulatory structure is antiquated with multiple government bodies having overlapping
functions. The regulated segment is controlled by the government to prevent commercialisation,
profit making and requires plough back of all surplus.
■ There are also restrictions on fee, student intake and course delivery. As a result, investors resort
to innovative structures to realise profits through outsourcing, service contracts or supplementary
courses.
■ All these regulatory hurdles make this sector challenging to invest in and more importantly, these
innovative structures are currently untested from a regulatory and tax standpoint.
Regulatory hurdles
■ In the regulated segment there are two routes available for corporate participation. –
– Indirectly through investment in companies providing school management or other allied
services;
– In some states where for-profit schools are allowed, they can invest directly into the schools
which are affiliated with a foreign board.
■ However, exit route for such management companies is currently untested and how the markets
will respond to a management company proposing a public listing is unknown.
■ Further, given this structure, where the cash flows and assets continue to rest with the trust, and
not the management company that is being invested into, financial investors are unsure of investing
in a company without direct control over underlying assets and cash flows.
Management
company structure
and lack of exit route
■ India’s pupil-teacher ratio of 23 compared with world average of 15 indicates a severe shortage of
teachers.
■ Further, the situation is worsened by the low number of students opting to qualify as teachers as
teaching is not a ‘preferred’ option at higher education levels.
■ Some education institutions lack professional management and are at times run by promoter
families which may require external assistance to scale up the business and make it competitive.
Faculty shortage and
lack of professional
management
© 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved.
11 11 11
Tiger traps – key issues
Related party supplier/customer relationships on non-commercial terms,
No formal arrangements Funds deployment in non-core activities/ related party
companies
Decision making concentrated with the owners Lack of familiarity with due diligence process Likelihood of regulatory violations
Aggressive tax management (tax planning vs tax avoidance) Tax litigation is common – final resolution of issues time
consuming Continued availability of tax benefits/ incentives post
transaction needs careful analysis
Complex ownership issues
Weak corporate governance standards
Weak Systems
Legal Environment
Organisation culture
Tax exposure GAAP and other financial matters
Related party transactions
No separation between ownership and management Limited reliance on internal and external audits Weak internal control environment Inadequate document trail for capture of information Financial statements driven by fiscal considerations
Financial statements driven by fiscal considerations Audit done by small firms lack independence Aggressive management estimates with respect to
provisions/write downs Weak book closing processes Capitalisation of pre-operative expenditure
Complex group structures – difficult to unwind, “hidden” owners especially other factions of family
“Associated companies” may need to be consolidated which may bring in more liabilities/value enhancers
Minority interests may have a disproportionate amount of power
Weak internal controls Quality and reliability of information May require immediate capex in ERP systems
Litigation is very time consuming Various central and state laws Many companies set arbitration clauses in mutually agreeable
foreign jurisdictions
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
2
Market
Attractiveness
Sector Size
CAGR medium
Term
CAGR Long
Term
Sector
Structure
Level & Intensity
of competition
Relevance for
Foreign Particip.
Foreign
particip/
Investments
Capital investment
Resource
Availability
EBITDA%
Return on Capital
Risk on returns
Presence of Govt
Incentives
Level of regulatory
clearances required
Restrictions on
Investment,
participation & exit
Extent of liberalization
of Policy
Regulatory
Attractiveness
Risk adjusted
Profitability
Overall
Attractiveness Index
Strategy / Willingness to
expand globally
Exposure to Indian
students & expectations
Skills & Capabilities
(from Faculty)
Administrative and
management skills
Strategic Fit
&
Capability
Op
po
rtu
nity S
ize
Industr
y S
tructu
re
Investm
ent
Att
ractiveness
Global Scalability
Scope f
or
diffe
rentia
tio
n
Product
Differentiation
Ease of acquisition
of Tech/R&D
Education in India – Attractiveness Index
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
3
INDIA
Trust/
Society*
Education
institute
Indian
Promoter
Company
Foreign
Promoter /
Univerisity
Education institute to be set up under a duly registered Trust,
sponsored by an Indian promoter.
1
Provision of Land/ buildings, academic/ administrative staff.
Provision of funds (if pure investor)
And (if University)
(i) Technical content; (ii) Curriculum; (iii) Soft infrastructure; (iv) administrative support
4
Memorandum of Understanding
3
2
Payment of Royalty/Fees for
services
7 Payment of Fees for services
6
Student Fee Receipts
5
Structure I
Traditional structure
Recognized by Indian regulatory
bodies like AICTE/ UGC (subject
to the all compliances by foreign
institute)
* Trust to seek FCRA registration for receipt of donations, grants from any foreign institute/source
ILLUSTRATIVE
Entity structure to attract investments..
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
4
Trust/
Society*
Education
institute
Indian
Promoter
Company
Foreign
Investor /
University
Student Fee Receipts
Structure II
Unbundling of value chain
Recognized by Indian regulatory
bodies like AICTE/ UGC (subject
to the all compliances by foreign
institute)
SPV
Managemen
t Co (MCO)
Property
Co (PCO)
* Trust to seek FCRA registration for receipt of donations, grants from any foreign institute/source
Equity Investment in Joint Venture SPV
2
Application with FIPB for investment in Indian company
1
Promotion of Service Cos.
3
Operation/ Management
Contract 4
Property/ Asset Lease/
Rental 5
Charges/Fees/Rentals
7
6
Dividend upstream
8
ILLUSTRATIVE
Entity structure to attract investments.. contd
Agenda
Higher education in India
16 © 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved. © 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Indian HE – Landscape
Share of Enrollments in Higher Education
Higher education
General Degree Colleges (Arts/Science/Commerce) Engineering Medical Management Other niche opportunities
74.1% 7.3% 3.2% 9.1% 6.3%
Others – 4%
- Seen as Generic courses; Do not create direct job skills - Less preferred among students, as compared to professional
courses - Brand/ reputation drives ability of institute to attract students - Long gestation period to build brand (Most top institutes are
well over 25 years old) - Existing institutes are at very low fee ranges; Limited potential to
charge a fee premium
Replication of IVY League concept Premium scalable Mass and distance learning
- Institutes with large base of enrollments - Not very selective about students
enrolled
- Such models do not deliver good academic and employability outcomes
- Replication of IVY league concept in India
- Ranked among the top institutes in the country
- High focus on research
- Such models however take time to build,
- High quality institutes with good academic and placement outcomes
- Caters to good students who are not able to make to existing top institutes (Eg. IITs, AIIMS etc.)
- Ranked among the top 100 institutes in the country
(Indicative)
Business model options
Share of Enrollments
Opportunity for centers of excellence in select areas like Public
policy and administration, Design/Architecture
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Indian HE – Regulations
Being a concurrent subject, Indian higher education is regulated by both Central and
State governments
Source: KPMG Analysis
Ministry of Human
Resource Development
State Higher Education
Department
University Grants
Commission
All India Council for
Technical Education
Distance Education
Council
Other Central
Regulators
Regulates higher
education in the state
Regulates University education
and establishment and
controls government grants
disbursal
Regulates Distance Education by
defining standards and eligibility
criteria for players – now a part of
UGC
Regulates Technical Education in
streams like Engineering (non
degree awarding) by prescribing
norms for players and recognizing
programs offered
Regulators of other segments like
Medical and Law. E.g. Medical
Council and Bar Council of India
Overlap of regulatory jurisdictions
• Education being a concurrent subject, is regulated at both central and
state government levels. Both central and state governments regulate
operations, admissions and provide funding to institutions
• Even at the central level, education in areas like Medicine and Law is
regulated by independent councils reporting to their parent ministries,
and a dotted line reporting relationship to the Ministry of Human
Resource Development
Other Ministries
(Health, Law) etc.
Ministries under Central Government
Indian higher education sector has a complex regulatory system with overlapping mandates amongst regulators
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10 14 41 74
174 89 96
101
112
151
0
100
200
300
1970 1980 1990 2000 2011
Private Government
1.96 2.02 1.31 1.05
0.67
1.33 0.07
0.04 0.11 0.67
0
1
2
3
4
5
Siz
e in
IU
SD
bn
Public Private
2.02
1.05 1.31
3.83
2.46
2.04
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Engineering Management Medical
2010 2015e
Market Drivers and Actors
Certain key sub segments within Higher Education have attracted more private play than
others…
Source: Higher Education in India, UGC Annual report, Cygnus, MCI, KPMG Analysis’
Private institutions constitute majority of the market share
with Engineering, Management and Medical accounting for
more than 85% within private share
Engineering and Management are expected to grow at a quick
pace in the next 5 years
CAGR
14%
CAGR
19%
CAGR
9%
Engineering and Management are the programs that are
offered by most private universities in India
Medical education space too, has witnessed an increasing
level of participation from private players
Pri
va
te M
ark
et
Siz
e (
US
D B
n)
Market size based on student fee revenues
# o
f in
stitu
tio
ns
80 72
34 28
17
6
0102030405060708090
# o
f p
vt. U
niv
ers
itie
s
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Market Drivers and Actors
There is a significant supply gap for quality institutes with intense competition for entry
into top institutes
Source: KPMG Analysis
Note: Information on seats based on publicly available information and institute rankings for 2010
2,06,000
2,100 5,358
CAT applicants IIM seats Top 30 B-schoolsseats
40:1
100:1 40:1
En
gin
ee
ring
M
an
ag
em
en
t M
edic
al 1,46,230
2,270
AIPMT applicants AIPMT seats
65:1
The competition for entry into top institutions is intense… …while seats remain vacant in low ranked colleges
Some of the key reasons why seats are going unfilled,
especially in the engineering space are:
• A majority of these un-ranked/low ranked institutions are in rural areas and are
unable to attract quality faculty or industry linkages
• Though AICTE has approved an addition of over 8.2 lakh seats since 2005-06,
much of this addition has led to the proliferation of low quality institutions that
are unable to serve the industry need for quality manpower
AIEEE, CAT and AIPMT
are the most common
entrance exams in India for
Engineering, Management
and Medical colleges
respectively
~ 45000 Engineering
Seats ~ 39000 Engineering
seats
~ 2000 MBA seats
0
10000
20000
30000
40000
50000
Tamilnadu Andhra Pradesh Gujarat
Va
ca
nt se
ats
Opportunity: To offer top quality education in the above segments to stand differentiated in the market
10,65,100
27,752
AIEEE applicants AIEEE seats
© 2013 KPMG Advisory Services Private Limited, an Indian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Market Drivers and Actors
Supply and Demand Drivers have worked at different paces leading to gaps in both
quantity and quality of Indian Higher Education
Demography
Traditional
Factors Technology
Tax breaks for
Research Institutes
Anytime
Learning Education share in
Household spend
Broadband/PC
Penetration
Industry demand for
specialized skills Economic
Factors
Investment
Regulation
Growing interest for
Higher Education
Training and incentives for
teaching faculty
Demand Drivers Supply Drivers
Allowability of select
‘For profit‘ structures Right to
Education Act Government
Mandate Universalizing
Secondary Education
Foreign
Education Bill
Enabling
Regulation
Autonomy for
Private Institutes
Number of Quality
Institutions
Assessment of
students & institutions
Gaps in Indian HE
that are turning into
opportunities for
Private players
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Market Drivers and Actors
Some of the leading existing Private education players have started to demonstrate
scalable models in India
Amity University Overall
Hybrid
(Premium + Mass)
(Private University)
• 47 Higher Education Institutes
• Over 80,000 students
ISB Management Premium
(Certificate Program)
Player Sector Model Scale Achieved
Manipal Overall
Hybrid
(Premium + Mass)
(Deemed University)
• One campus in Hyderabad, another
campus in Mohali
• ~700 plus Post graduate students in 2012
• 3 universities, 9 campuses
• Student base of over 17,000
• Revenue >1100 crore
SRM University Overall
Hybrid
(Premium + Mass)
(Deemed University)
• 4 Higher Education Institutes
• Student base of over 15,000
These models are worth considering in order to achieve a scalable business model in higher education
Agenda
Vocational Education in India
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Vocational education opportunity in India
With the focus now shifting from education to employability, vocational training and employability
enhancement will become big opportunities for players with scale and experience
Source: EIU, Economic Survey, CRISIL, BCG-CII, KPMG Analysis
Industry/Service 2008 2022 (E) Increase
Auto and Components 13 48 35
BFSI 4 9 4
Building,constuction and Real estate 37 86 49
Chemicals and Pharma 2 4 2
Education and Skill development 5 13 9
Electronics and IT 1 4 3
Food Processing 9 18 9
Furniture and Furnishings 1 5 3
Gems and Jewelry 3 8 5
IT and ITES 2 8 5
Leather 3 7 5
Media and Entertainment 1 4 3
Organized Retail 0 18 17
Textiles 13 30 17
Tourism 4 7 4
Transport and Logistics 7 25 18
Unorganized sector 36 77 41
Other 68 170 102
Total in Industry or services 209 539 330
Employed in Industry of services (%) 43 82 39
Employment across sectors, March fiscal year ends,2008-22 (E )
mn
0
20
40
60
80
100
120
Proportion of graduates that industry finds employable (%)
Non-Employable
Employable
• More focus on “General degree” has led to an
over supply of graduates.
• A chunk of these graduates are considered
“unemployable” by the industry
• Poor quality of education based on outdated
teaching methodologies and curricula
Current Scenario
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Policy and Government
The national policy on skill development aims to train 500 million people in vocational skills by 2022
MoL&E (DGE&T) (100 m)
CTS
2500 ITIs
7000 ITCs
NCVT
NVQF
AITTs
Other schemes
NSDC (150 m)
Funding, Facilitation, Advocacy
SSCs
MHRD (50 m)
Vocational Schools
K12 schools Higher
Education
17 ministries and
departments (200 m)
Private ownership Public/ Private Partnership Contract award
ITCs
ITIs through PPP
Loan grant only
NSDC equity stake
Polytechnics
Vocational schools (plan)
Select schemes
Bulk of schemes
Prime Minister’s National Council on Skill Development
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Policy and Government
Capacity comparison – Identification of top stakeholders
Tier 1 Ministries comprise of the following – Transportation (MoRTH), Construction (HUPA), Rural Development (MoRD),
Urban Development (MoUD), Agriculture (MoA) and Micro Small Medium Enterprises (MSME)
The top 8 Ministries, along with NSDC account for ~ 74% of the total incremental capacity
buildup which is required to meet the skill development targets, totaling to a requirement of ~
24 mn out of the ~ 32 mn needed
5.50
1.20
3.36
0.00 0.46 0.55
0.00
1.98
0.29
8.13 7.75
0.80
2.73
1.30 1.21 1.36
0.00
1.04
NSDC MoLE MHRD Transportation Construction RuralDevelopment
UrbanDevelopment
Agriculture MSME
Current vs. Gap training infrastructure across players
Current (Mn) Est. gap (Mn)
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Policy and Government
NSDC/NSQF
NSDC (National Skill Development Corporation)- A
Public-private enterprise with mandate to work on
creating required ecosystem for further education in
India, to contribute skilling / upskilling 500 million people
in India by 2022,
Source: NSDC 26
• Leading policy advocacy across various forums and
decision making bodies
• NSDC has invested across more than 70 training
partners towards in the form of Debt, Equity and Grants
• Instrumental in setting up Sector Skill Councils for
various sectors with a representation of industry bodies
• SSCs would be driving development of NOS (National
Occupational Standards) , LMIS (Labor Market
Information System) and engage with Training
organizations
• Leading knowledge management with state/sector level
skill gap studies to bring-in focused efforts
NSQF (National Vocational Education Qualification
Framework)- To provide a common reference framework for
linking various vocational qualifications and setting common
principles and guidelines for a nationally recognized
qualification system and standards.
• Strive towards development of skilled man-power for
diversified sectors through short term, structured job
oriented courses
Chosen Sectors:
IT/ITES and Telecom
Media & entertainment
Hospitality & Tourism
Construction
Banking, Finance, Retail & Insurance
Infrastructure
Automotive
Agriculture
• Recommendation of Industry Bodies, Organization, eminent
educationists has been incorporated
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Vocational education opportunity in India
NSQF – Overview and impact
Source: Draft NSQF
• Across sectors and geographies
• Short duration focused modular programmes
• Local language delivery
• Flexible timing options
• Full mobility between VE, Formal education and
employment
• Pilots have been launched in Haryana and West
Bengal
• NSQF level 1 and 2 would be at a foundation
level with level 2 being equivalent to Class 10.
Learners would be able to achieve occupation
specific qualifications from level 3 onwards
• Sector skill councils would determine the
qualifications for NSQF levels
• Academic qualifications to be assessed by
educational bodies and NVEQ would be
assessed and certified by SSC
• However, the NSQF excludes the skill
development infrastructure under MoLE (ITI/
ITC) from its ambit. The NVQF which is coming
up as a competing unification framework would
also involve SSCs.
• Irrespective of which gains prominence, SSCs
are likely to have a central role in the sector
specific competence definition space moving
forward
13
15
17
18
21
Class VIII
Class IX and X NVEQ 1 & 2
Class XI and XII NVEQ 3 & 4
Degree
NVEQ 5
NVEQ 6,7
School board
(CBSE/ State) and
SSC
NCVT and SSC
(Diploma)
Level 8, 9 and 10
University (AICTE)
(Degree)
University (AICTE)
and SSC
(Advanced
Diploma)
School board
(CBSE/ State)
ITI/ ITC
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16 (mn), 15%
26 (mn), 24% 66 (mn),
61%
High Skill Trades
Mid range skills
Low end skills
Opportunities and Challenges
Opportunity for skills training exist in across low, medium and high skill trades…
Source: KPMG analysis
1.2 (mn), 7%
4 (mn), 25%
11 (mn), 68%
High Skill Trades
Mid range skills
Low end skills
Vocational education providers can look at launching
programs across skill levels
Skill level LOW MEDIUM HIGH
Examples Construction
worker,
informal
trades (Eg.
Domestic
help)
Construction
supervisor,
Rural BPO,
Retail Exec.,
Debt recovery
Media &
Entertainment,
Retail
supervisor/
manager,
Aviation
Salary
range for
graduates
Starting: Rs
6000-8000
monthly After
2 years: Rs
10000+
Starting: Rs
8000-12000
monthly
After 2 years:
Rs 150000+
Starting: Rs
15000-25000
monthly
After 2 years:
Rs 30000+
Typical
Fees /
Duration
Rs 12-15,000
(~2 Months)
Rs 30-40,000
(~4 Months)
Rs 100,000+
(~12 Months)
Student enrollments by Skill levels (2010)
Estimated annual requirements by skill levels (2020)
While ticket size for low end skills are low they offer potential for higher scale of operations Due to higher wages, medium / high end skills offer opportunity for higher fee / ticket sizes
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Opportunities and Challenges
Training and capacity building in the government segment is also expected to
emerge as a large opportunity…
446576 672 752 789790
1457
2192
2926
3587
0
500
1000
1500
2000
2500
3000
3500
4000
FY 13 FY 14 FY 15 FY 16 FY 17
Financial Outlay for the 12th plan period - Skill Development
Non Recurring (INR Cr) Recurring (INR Cr)
Area Net
(Million
USD)
Unit (‘000
USD)
Opening 600 new schools (PPP) 1600 2680
Strengthening 3000 existing
schools (infrastructure, teaching
aides procurement) 520 170
PPP assistance to 6000 Pvt.
Schools 360 60
Assistance to 800 NGOs
(content, train the trainer –
procurement) 140 170
Training to 90,000 teachers (train
the trainer, content procurement) 40 0.46
Development of 1200 modules
(content procurement) 7 6
Establishment of MIS for
monitoring (software
procurement) 1 1000
Total outlay for Skill Development
– 12th plan 2.7 billion USD
Proposed Funding for the 12th Plan period
• The Government has clearly been favoring greater private
participation across supply systems (e.g. upgradation of ITIs by PPP,
setup of NSDC) as well as value chain areas (content, delivery, quality
standards, placement support)
• Private participation is expected at three levels – Industry bodies and
key players (SSC, standards); training players (content, training and
assessment) and post training service providers (placement,
continuous learning).
• Opportunities for private players include strengthening of existing
schools (teaching and learning methods), NGO assistance (training),
teacher training (training the trainer) and content development
(modules) Source: Draft 12th plan – Vocational Education, KPMG
Analysis
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Opportunities and Challenges
…driven by initiatives launched by various ministries and state governments…
Ministry/ Dept. Recent Initiatives
MHRD • 10,000 additional schools planned over the 12th plan period
• Currently preparing pilot implementation of NSQF in Haryana, West Bengal
MoLE • 1500 new ITIs and 5000 Skill Development Centres planned to be opened in the 12th Plan
period; awaiting approval from the Planning Commission
• Skill development proposed to be integrated with successful NREGA programme to bring skilling
to rural locations
Dept. of IT • Department plans to train 10 million candidates in mass IT literacy by 2022
• All ITIs have been mandated to provide basic IT literacy wef March 2011
Ministry of MSME • Organizing and delivering short – mid term courses through Central tool rooms located in 9
states (current) focusing on Micro, Small and Medium enterprises
• Every state to have a tool room by the end of the 12th plan period
Ministry of Tourism • Currently has 85 institutions for skill development and training
• Plans to set up 26 schools in Hotel Management in 4 states on a pilot basis in 2012 – 13
State Governments • AP – 6 Universities with combined capacity of 30,000 students launched skilling course in IT in
association with NASSCOM
• Karnataka – Focusing on English language fluency as a key area, plans to set up 1000
industries schools to delivery this to 8th pass students
• Bihar – Collaborating with IGNOU for launch of 400 skill development centres sharing IGNOU
infrastructure and certification
Source: NSDC,KPMG Analysis
Agenda
School Education in India
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Market size of K-12
Market size of school education
Super Premium School Premium
Fee = INR
50,000 -1,00,000
pa
Fee = INR
25,000 -50,000
pa
Mass/ government
Fee = INR
15,000 -25,000
pa
Fee = 1-4 Lakhs
per annum
Fee = >4 Lakhs
per annum
Low revenue per
school (Difficult to
manage
operationally)
Policy not clear in
terms of how
many schools are
likely to be
available
Please Note: Expat focused schools have not been considered; The expat population in India is low, estimated at ~ 50,000; Hence there is limited potential for a scalable model in
this segment
Please Note: Given the infrastructure and services required for a super premium school, these require a minimum fee of ~Rs 1 Lakh; Hence super premium schools at a fee range
lower than this have not been considered
INR
158,720 cr
64% 1%
Residential
Schools
Increasingly,
Indian
residential
schools are
facing a drop
in demand.
Disinclination
of parents,
shortage of
faculty are
major hurdles
Aided Schools PPP
Not financially
viable
Can be addressed
through the
foundation
35%
DAV,
Chinmaya
Vidyalaya
Bishop
Cottons,
Padma
sheshadari
DPS, Ryan,
Amity
International
Prakriti,
Billabong
Sarla Birla,
Ecole
Mondiale
Share of number of schools Share of number of schools Share of number of schools
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Concept definition: Premium schools
Sub head Segment 1 Segment 2 Segment 3
Core need of segment • Help student learn English
• Future aspiration of children – Basic
Graduation/High end Vocational
Education from India
• Academic Excellence
• Future aspiration of children – PG
studies from good quality institutes in
India
• Academic Excellence with all round
development
• Future aspiration of children - PG from
top institutes in India (May go abroad
as well, depending on scholarships)
Fee Range and Size • Fee range of INR 15,000 – 25,000 pa
• Students enrolled 1500
• Fee range of INR 25,000 – 50,000 pa
• Students enrolled 1200
• Fee range of INR 50,000 – 1,00,000 pa
• Students enrolled 1000
Academic Curriculum • CBSE based curriculum • CBSE based curriculum • CBSE based curriculum
Extra curricular activities • Limited focus • Traditional activities like Music, Art,
Dance, Quiz and Essays etc
• Activities like Literature, Environment,
Science, Astronomy, Red Cross etc
• Frequent excursions, visits etc
Faculty • English speaking
• Low end faculty; Rely on ICT to
standardize quality of service delivery
• Good spoken English
• Medium end faculty; Rely on ICT to
standardize quality of service delivery
• Good spoken English
• Well groomed teachers
• Use ICT to supplement service delivery
Infrastructure (Indicative) • Basic laboratories
• Basic Playground
• Library
• Outdoor sports facilities
• Basic auditorium
• Technology enabled laboratories
• Indoor & Outdoor sports facilities
• Large auditoriums
Examples • DAV
• Chinmaya Vidayala
• Bishop Cotton
• Padma Sheshadari
• DPS
• Amity International School
• Ryan International School
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Demand –Supply scenario: Premium schools
Segment 1 Segment 2 Segment 3
**Assuming average number of children in segment 1,2 and 3 schools are 1200,1350 and 775 students resp
Source: KPMG Analysis, Mc Kinsey The Bird of Gold –Rise of Indian consumer market, Urban India Awakening
• Household Income in the range of INR
10-20 lakhs per annum
• Fee range of INR 50,000-100,000
• Household income in range of INR 5-
10 lakhs per annum
• Fee range of INR 25,000-50,000
• Household income in range of INR 3-5
lakhs per annum
• Fee range of INR 15,000-20,000
Potential
Demand
versus
Current
Supply
Target
Segment
CAGR
6%
Potential Demand versus Current Supply
16,000
74,300
26,300
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2010 2020
• Current unmet
potential demand in
terns of number of
schools
42,300
74,300
• Incremental demand
of over 32,000 schools
in next 10 years
• More than half of the
incremental demand to
come from Segment 2
schools
• Current supply of
Unaided Premium
Schools
21%
51%
28%
Incremental Demand
Segment 1
Segment 2
Segment 3
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
In the premium segment, some players have built scale using different
business models
Largest network built
Current Schools Proposed Schools
Players Snapshot
DPS
(Franchisee )
Ryan
(Greenfield
Schools)
Gowtham
(Leased
Infrastructure)
Pearsons
Manipal K12
(School
Management)
Zee Schools
(Education
Delivery)
• Mount Litera schools in 2003
• End to end education support,
partner brings in land, capital &
building
• Schools started in 2009
• End to end school
management. Partner to
provide immovable infra
• Started schools in 2002
• Raised funds to infuse
technology in its schools
• Started in 1983
• Plans to diversify in schools for
NRIs, polytechnics etc
• Established in 1972
• Institutions gets fixed annual
revenue from Franchises (~
INR 5 to 25 lakhs)
Ansals
(Infrastructure
Services)
• Started schools in 2008
• Tie up with Educomp on fixed
lease rental & revenue share
basis
0
40
80
120
160
200
Fra
nchis
ee
Gre
en
fie
ld S
ch
oo
ls
Gre
en
fie
ld w
ith
le
ase
d In
fra
Scho
ol M
ana
ge
me
nt
Fra
nchis
ee
Ow
ned
Edu
ca
tion
Deliv
ery
Infr
astr
uctu
re S
erv
ices
DPS
Ryan
Gowtham
Pearsons/
Manipal K12 Zee
Schools Ansals
Traditional Models Emerging Asset Light Models
30-40 schools
every year for
next five
years
100
schools
by 2015
65 coming
up
16-17 schools
by 2012
100
schools
by 2014
Millennium
Indus (Career
Launcher)
Indus World
(Franchise )
• Established in 2005
• Franchise based model
Millennium
Schools -
Educomp
(Owned )*
• Established in 2007
• Owned schools Model
Gre
en
field
Sch
oo
ls
Gre
en
field
Sch
oo
ls
*While Educomp initially owned the infrastructure/ asset, it has now
moved to a ‘dry management’, asset light model
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Concept definition: Super Premium schools
Sub head Segment 1 Segment 2
Core need of segment • All round development
• Global exposure seen as important
• Some students pursue higher education abroad
• All round development
• Most students pursue higher education abroad
• Admission in good international universities is critical
Fee Range and Size • INR 1-4 lakhs per annum
• Student base > 600
• > INR 4 lakhs per annum
• Student base of 400- 600
Academic Curriculum • Mix of International and CBSE/ICSE Curriculum • Pure International Curriculum
Extra curricular activities • Focus on large number of extra curricular activities • Partnerships and Tie ups with leading institutes
promoting arts/ literature etc
Faculty • Limited international faculty
• Teacher student ratio < 1:15
• Up to 30% international faculty
• Large share of faculty with post graduate degree
• Teacher student ratio < 1:10
Infrastructure • High end facilities • Very high end facilities like Horse Riding, Multi Sports
Court
• Specialized labs
Examples • Billabong High International School
• GEMS International School
• Ecole Mondiale
• Dhirubhai Ambani International School
• Sarla Birla Academy
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Demand –Supply scenario: Super Premium schools
Super Premium Concepts
Segment 1 Segment 2
Assuming 3 children per two
households
Source: KPMG Analysis, McKinsey
Bird of Gold
•~250 schools
•Schools located in Metro & Tier 1 cities
•Very few ( ~ 20 nos)
• Located mostly in Metros
CAGR
12%
Household Income > INR 20 to 30 lakhs per
annum
High Networth Individuals (HNI); Income
well over Rs 30 Lakhs per annum
Current
Supply of
Schools
Target
Segment
Potential
Demand Potential Demand versus Current Supply
280
7,400
2,220
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010 2020
2,500
7,400
• Current unmet
potential demand in
terns of over 2,000
schools
• However, demand to
be dependant on
parents adoption of
International
Curriculum
• Incremental potential
demand of over 7,200
schools
• Current supply of
Super Premium
Schools
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Few players have achieved large scale in the Super Premium segment
Scale Built in International Schools in India
0
400
800
1200
0 2 4 6 8 10 12
Mallya Aditi
Sarla Birla
GEMS
International
Billabong High
Number of Schools
Nu
mb
er
of
stu
den
ts p
er
sch
oo
l
Owned Franchise Content School Management
Pearson
Ecole Mondiale
DAIS
Educomp
DPS International
Pathways
Single School
Phenomenon
Franchisee
Model
Corporates
promoted
schools
• Corporates likes Ambanis, Oberois
and Birlas have flagship schools
operating in Segment 2
• However, franchisee models are
facing issues and are yet to mature
• Both Billabong & GEMS have partners
breaking away and are unable to
expand
• Two schools – Billabong and GEMS
internationals have achieved scale
using franchisee model
• Large share of players in the market
are single institutions with 300- 1000
students
Solution &
Management
Service
Provider
• The participation of content and
management service providers is
relatively small in this segment
TISB
Observations
Sources: KPMG Analysis, School Websites
Segment 2 School Segment 1 School
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