Published: 28th January 2021
Education companies' revenues to remain flat in 2020-21, finds Crisil Ratings report
The sector relies solely on fees to meet operating expenses and maturing bank loan obligations, and typically, does not avail working capital facility from banks
Fewer enrolments in engineering and business administration courses and inability to raise fees amid the COVID-19 pandemic are likely to keep the revenues of education companies flat this financial year, according to a report. Revenues are expected to be flat, due to lower fee-collection efficiency. Cash flows will be impacted as the average fee collection was down 25 per cent on-year till November-end as new enrolments were delayed and installment facility was offered for fees payment, Crisil Ratings said in a report.
The sector relies solely on fees to meet operating expenses and maturing bank loan obligations, and typically, does not avail working capital facility from banks. The formal education segment, comprising K-12 (kindergarten to class 12) and tertiary or higher education (offering graduation and post-graduation courses including medical course), accounts for almost two-thirds of the Rs 9,00,000-crore revenue of the Indian education sector.
The informal segment comprising coaching or test preparations, pre-schools and other vocational courses accounts for the rest. K-12 contributes 60 per cent to the formal segment's revenue, while tertiary education brings up the rest, the report noted. Despite no fee hike, the K-12 segment is expected to grow 1-2 per cent because of steady enrolments, it said. The tertiary segment, comprising engineering and other technical and business administration courses that contribute about 15 per cent to the formal segment revenue, is expected to shrink 5-6 per cent owing to fewer enrolments in 2020-21.
The tertiary segment offering medical education, which accounts for 5 per cent of the formal segment revenue, has a favourable demand-supply gap and is largely insulated from the economy. This segment will see moderate revenue growth of over 5 per cent, driven by higher intake and enrolments, the report stated. Revenues from other segments such as arts, science, commerce, and teacher training are seen stable, therefore, for the formal education segment, revenue will be flat this fiscal, though profitability would be undented.
Crisil Ratings Director Rahul Guha said, "Because of the lockdown, formal education companies had to spend significantly on shifting operations online. But, this spending was offset by savings on utility, establishment, maintenance and administrative costs." He added that consequently, overall operating profitability of these companies will be sustained at 20-22 per cent this fiscal. Companies resorted to postponement or cut in staff salaries, which typically constitute a third of cash outflows, and deferred capital expenditure (capex).
However, things are expected to improve with swifter fee collections in the near-term, he said. Crisil Ratings Associate Director Shirish Mujumdar said, "The formal education segment's growth should rebound to 10-12 per cent over the medium term on the back of urbanisation, increasing enrolment in the tertiary segment, and economic rebound."
While the shift online will support operating profitability of companies, what will benefit balance sheets is the curbed capex requirement towards building physical capacities, the report said. But, challenges such as access to capital, incorporating technology seamlessly into business models, and training of teachers to deliver efficiently using digital platforms will need to be addressed, it added.