Even after EdTech boom during COVID, education sector might see a flatter revenue collection this year, says CRISIL report

While K-12 contributes to almost 60 per cent to the formal segment’s revenue, higher education brings up the rest
Online Learning
Online Learning

Education was the only sector booming during the lockdown, or so we thought. A dip in the number of enrolments in engineering and business administration and management courses has affected the education sector adversely. No fee hikes in 2020 was also one of the major factors that will keep the "revenues of education companies flat this fiscal" year, said Indian analytics firm CRISIL.

The study found that fewer enrolments in engineering and business administration courses and the inability to hike fees amid the Covid-19 pandemic will keep the revenues of education companies flat this fiscal. "That compares with a compound annual growth rate of 12 per cent seen over the last five fiscals. The formal education segment, comprising K-12 and higher education, accounts for almost two-thirds of the approximately Rs 9,00,000 crore revenue of the Indian education sector. The informal segment comprising coaching or test preparations, preschools and other vocational courses accounts for the rest," said the analysis.

While K-12 contributes to almost 60 per cent to the formal segment’s revenue, higher education brings up the rest. "Despite no fee hike, the K-12 segment is expected to grow 1-2 per cent because of steady enrolments. The tertiary segment, comprising engineering, and other technical and business administration courses, which contribute about 15 per cent to the formal segment revenue, is expected to shrink by 5 to 6 per cent owing to fewer enrolments this fiscal. Economic growth has a direct bearing here, and there is also oversupply at present. The tertiary segment offering medical education, which accounts for around 5 per cent of 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. Revenues from other segments such as arts, science, commerce, and teacher training are seen stable," it said.

Even though the profitability would probably remain stable, the revenue will be flat this fiscal year for the formal education sector. “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. Consequently, overall operating profitability of these companies will be sustained at 20-22 per cent this fiscal,” said Rahul Guha, Director, CRISIL Ratings Ltd.

While revenues are expected to be flat, due to lower fee-collection efficiency cash flows will be impacted adversely. "That’s because average fee collection was down by 25 per cent on-year till November-end as new enrolments were delayed and an instalment facility was offered for fees payment. The sector relies solely on fees to meet operating expenses and maturing bank-loan obligations, and typically does not avail of working capital facility from banks. Companies resorted to postponement or cut in staff salaries, which typically constitute a third of cash outflows, and deferred capital expenditure," said the report.

But things are expected to improve with swiffer fees collections in the near-term. What will support credit profiles in the medium term is an improvement in fees collection given that the academic year typically ends in April-May, and sustained revenue and operating profitability, said the report. “The formal education segment’s growth should rebound to 10-12% over the medium term on the back of urbanisation, increasing enrolment in the tertiary segment, and economic rebound. In the meantime, recovery in fees collection and cash flow management will remain monitorable,” said Shirish Mujumdar, Associate Director, CRISIL.

While the shift online will support operating profitability of companies, what will benefit balance sheets is the curbed capex requirement towards building physical capacities. 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, said the analysis.

Related Stories

No stories found.
logo
EdexLive
www.edexlive.com