Education Sector in India

A snapshot MIT Enterprise Forum 0 p 0 20th April 2011

Education is one of the largest service sector industries in India characterized by a unique set of attributes

One of the largest services market

Huge Demand-Supply Mismatch

Largely fragmented industry

Combined market size of more than 450 mn students and USD 50 BN per annum*

Investment requirement of approx. USD 100 BN by 2014 to meet expected demand *

Over 95% is held by the unorganized sector, with few large players

Robust growth rates expected

Higher rate of returns

Opening up of regulatory environment

Growth rates of 10 to 15% expected over the next decade

Attractive margins considering volumes and propensity of people to pay for HE

Foreign Education Bill Expected in 2011 *

Source: CSFB Report; CLSA Report; KPMG Analysis

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The formal education space is regulated and has a dominant share in the overall education market

Education in India

Formal education

Informal education

K-12

Higher education

Coaching institutes

Pre-schools

Vocational education

~USD 34 Bn USD 20 Bn
Market i M k size

USD 10.3 Bn USD 6.5 Bn

~USD 0.6 Bn USD 0.3 Bn USD 0.3 Bn

USD 1Bn USD 1.6 Bn

USD 4 Bn

14% 2008 2012E 2008

12% 2012E 2008

17% 2012E 2008

36% 2012E 2008

25% 2012E

Regulations

Under the purview of the Ministry of Human Resource Development K-12 is governed by different schooling boards State / ICSE/ CBSE/ IB Higher education* regulated by University Grants Commission (UGC) and All India Council of Technical Education (AICTE)
* Comprises of graduate, diploma and professional courses

Largely unregulated pre school There are no constraints on profit making in the pre-school system Vocational training institutes under the government are regulated by the Ministry of Labor and Employment, while those in the private sector are unregulated
High Moderate Low

Source: Netscribes, KPMG - Investing in India, CLSA, KPMG analysis

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

While there are strong growth drivers for each segment, accompanying challenges can constrain the growth potential

Education in India

Formal education

Informal education

K-12

Higher education

Coaching institutes

Pre-schools

Vocational education
Demand for skilled labour on the increase Low employability levels in the system

Rising income levels and willingness to spend on education Drivers Consumer preference for private schools Favorable population distribution Growth of services sector Private players entering education High Student teacher ratio in schools and accompanying lack of attention Increasing competition for professional courses Fragmented and person centric business Lack of adequate teaching talent Lack of government and financial support Very low penetration levels today, which are expected to increase Franchisee model and innovative teaching models shoring the supply side

Challenges

Low gross enrolment ratio (GER) and high dropout rates Low penetration of technology and multimedia content in schools

Low GER Low public spending on higher education Not-for-profit mandate of the government Lack of large players in the market

Lack of awareness on the requirement for preschool education Operational challenges including availability of quality teachers

Poor perception of vocational diplomas Lack of adequate financial support for students

Source: Netscribes, KPMG - Investing in India, CLSA

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The government has sought to reduce some of these shortcomings, albeit with a larger focus on the schooling system
Initiative Right to free and compulsory education bill Private public partnerships Mid day meal schemes K-12 Sarva Shiksha Abhiyan Description Education as a fundamental right to children in the age group 6-14 Tender awarded in a BOOT model for infrastructure and IT education i f t t d d ti Mid-day meals to students in the I-VIII standards Overall thrust to universalize elementary education by: Building capacity in the system Teacher skill development and improved course content Mid-day meal schemes 70% of the education budget is focused on schooling, a four-fold increase in allocation in the XIth plan (~185000 crores) as compared to the Xth plan (~50000 crores) Description An apex regulatory body to replace UGC and AICTE Allow entry of foreign educational institutions into the Indian market A 10 fold increase in allocation in the p (~85000 crores) as compared ) p XIth plan ( to the expenditure in the Xth plan (~8000 crores) Anticipated benefits Fall in drop-out rates Higher GER in higher education Improvement in ICT infrastructure Improvement in attendance rates Fall in drop-out rates Improvement in teacher quality Fall in drop-out rates Higher GER

Increased public spending

Adequate funding for the initiatives

Initiative Establishment of NCHER Foreign education bill Increased public spending

Anticipated benefits Fall in drop-out rates drop out Higher GER in higher education Tighter accreditation norms and better quality institutes Adequate funding for the initiatives

Higher education

Source: Netscribes, NIC, Planning Commission, Press information bureau, KPMG analysis
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

While the educational ecosystem itself sees some trends as a result of initiatives taken by the players

PRE SCHOOL Entry of Bi C E f Big Corporates Joint ventures with builders Upward integration towards K-12 Expansion to Tier I and II cities Leveraging infrastructure for economic viability

K-12 EDUCATION Emergence of new operating model E f i d l Foreign partnerships Hybrid Teaching Methodology Emergence of International Schools CBSE going global

Trends in Education Sector

HIGHER EDUCATION Collaboration with foreign players Multi campus model Increasing adoption of technology Indian players expanding abroad Stricter policy landscape VOCATIONAL EDUCATION Growing interest of PE/VC firms Rise of online and correspondences courses Partnerships between corporates & institutes Facilitation by government Up gradation of quality of education

**Above trends are discussed in detail in next few slides

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Pre-schools are looking at revenue enhancement through geographic expansion and scaling up to K-12 delivery, while partnering with large investors for infrastructure support
Many corporate houses have / are planning to set up their own chain of pre-schools - Pre schools are viewed as attractive investment opportunities due to the growth potential For e.g. Alphakids set up by Camlin group and Globe Toters by Yash Birla Bi l group Increasingly preschools are forming joint ventures with builders. Partnering with builders helps in imparting flexibility in the business against high lease rentals AEZ group and Motherss Pride entered into a JV for a Preschool Mothers s Preschool chains are moving up the value chain by upgrading to K-12 schools to ensure scalability for preschool firms Kidzee, Euro Kids and Kangaroo Kids are upgrading to K-12 schools and a large majority of their preschool population is expected to be the potential customers for K-12 Demand and affordability is increasing in small towns with the growing awareness among people about the need to send children to preschools E Euro kid plans to add 1000 pre schools i medium term with Ti II kids l dd h l in di i h Tier and Tier III cities as growth drivers In order to maximize space utilization, preschools are leveraging the existing infrastructure to generate additional revenues Additional programmes are being offered in the same premise in order to allow higher utilization of the infrastructure

Entry of Big Corporates

Joint Ventures with Builders

PRE S SCHOOL

Upgrade to K 12

Expansion to Tier I & Tier II Cities

Leveraging Infrastructure for economic viability

Sources: Netscribes, News Articles and KPMG Analysis

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The K-12 segment is looking at improving the quality of education through international partnerships and evolved teaching methods, and targeting niche growth markets
Companies are using a mix of franchisee and owned-schools in order to scale up. Players also adopting a model of setting up schools through joint ventures with real estate developers The moves are driven by the need to scale up and ensure economic viability of the schools i bilit f th h l Increasing demand for quality education has attracted international partnerships For e.g. Usha Martin Education & Solutions partnered with Pearson Education to start a chain of 200 K12 schools in India; GEMS Education partnered with the Ansal API Group, Private schools are moving from traditional black board to digital content to enhance effectiveness of teaching Schools outsource installation and maintenance of IT hardware, content and training to private parties on BOOT model Increased focus on delivery quality through technology adoption International Baccalaureate (IB )schools in India are growing quickly: The number of schools offering IBDP (XI/XII grade) doubled in three years from 30 in 2006 to 61 in 2009 Emerging wealthy class of India to drive its growth CBSE to introduce international curriculum for a few selected schools in classes I and IX. 25 schools in Oman, Qatar, Dubai, Muscat and Singapore are proposed to be catered by them Growing recognition of Indian education on global front to drive this growth

Emergence of new operating models for schools

Partnerships between Indian and International groups

K-12 EDUCATION E

Private Schools adopting Hybrid Teaching Methods

Rapid Growth in number of International schools In India

CBSE implementing its curriculum in schools abroad

Sources: Netscribes, DrEducation.com, Official Website CBSEI

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The higher education segment is expected to witness significant activity in terms of foreign partnerships and foreign entrants in the coming years, with Indian players scaling up in terms of technology and course content to match the competition
Increasing affordability and growing demand for quality education is driving the entry of foreign players. However for now, foreign players can enter the market through joint venture with Indian players , until the Foreign education bill enables direct entry F e.g. A For Apeejay signed MoU with Dutch U i j i d M U ith D t h Universities iti To facilitate scalability, institutes are increasingly adopting multi campus model. Private players like Amity, ISB and IIPM have multi campus model

Increasing collaborations with foreign players

Multi Campus Model

HIGHER EDUCATION N

Higher adoption of technology

Technology solutions are gaining ground in form of campus management software packages Enhancing quality, accessibility and increasing intervention by corporates is driving the adoption of technology Recognition of Indian education in global standpoint and ability of Indian players to compete globally has resulted in expansion into foreign geographies For e.g. Manipal Education which is already present in Antigua, Dubai, Malaysia and Nepal, intends to become one of the top three global education players AICTE aims to bring in new era of accountability and transparency is into educational institutes Plans to bring in sweeping reforms and mandatory fee disclosure g p g y norms including putting online every institutes fee details, faculty components and admission-related details

Indian players expanding internationally y

Stricter policy landscape

Sources: Investment in Higher Educations 2010- PwC Report, KPMG Analysis

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Investment by corporates/PEs in vocational training and technology enabled learning have the potential to enhance the scale of this segment

Growing interest of PE/ VC firms

Fast growing education sector has resulted in private equity players being bullish which includes vocational and supplementary training, In 2009, around $121 million (around Rs 556 crore) was invested in eight companies, including TutorVista, Career Point, FIITJEE, ITM Group and Edutech G d Ed t h Demand for online courses is growing owing to increasing broadband penetration in the country Institutes are capitalizing on the requirement of distant learning courses by providing self-study materials along with online yp g y g assessment and support Companies and industry bodies intend to make potential employees job-ready even before they enter the organization For e.g. Everonn tied up with Microsoft for an IT Academy and ICICI with Manipal University to train employees It is the least regulated segment in education sector segment with government encouraging both private & foreign participation through private entities and PPPs GoI also announced incentives including financial assistance for private participation in running ITIs, with a target to add 1,000 new polytechnics in government/PPP and the private sector by 2012 Quality of education being upgraded to make them more relevant to industry requirements and thus increase employability of students Government plans to modernize large number of ITIs across the country to meet the industry requirements

VOCATIONA EDUCATI AL ION

Rise of online & correspondence courses

Partnerships between corporates & institutes

Facilitation to Public Private Partnerships by government p yg

Upgrading the quality of education imparted

Sources: Netscribes, News Articles and KPMG Analysis

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Questions and discussion...

Anand Ramanathan A dR th
Phone: +91 98867 51699 Email: E il anandramanathan@kpmg.com d th @k

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Extra slides

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Low gross enrolment rates have resulted in a dearth in skill sets and the talent pool, threatening the sustainability of economic growth in the country

Requirement of Qualified Manpower in 2012 (Mn)

31.2 88.6 31 2 88 6 12.8 44.6 17

Bui ng l g di

5.7
Whol al es e

5.7
Communiy t Ser i vces

2.6
Hos t iy pial t

2.5
Publ i c Admi n

2.3
BF I SI

2.2
Healhcar t e

2.2
I/IES T TS

1.9
Comms s

1.5
T anspor r r t

0.9
Re ai ti l

0.2
T al ot Ser i s vces Ot s her Manuf ur act e Agrculur i t e
Post Graduation course 1.7 Mn Graduates

Source: NSSO Updates; MHRD 2004-05; Press releases; Estimates

Generation of Qualified Manpower (Mn)

Eligible for schools 23 Mn School System 20.8 Mn Class X 7.8 Mn K12 Vocational Diploma 6 Mn Graduation course 2.3 Mn 0.6 Mn

2.2 Mn

13 Mn Class I X dropouts

1.8 Mn Dropouts after Class X

3.7 Mn Dropouts after K12

Illiterates

22.4 Mn
Source: NSSO Updates; MHRD 2004-05; Press releases; Estimates
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

T al ot Wor or e kf ce

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