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Apr, 01 2014

The big business of k-12 schools

“An investment in knowledge pays the best interest.” -Benjamin Franklin

The quote stands true, both literally and figuratively for India's education growth story, especially the cash-rich K-12 segment! A research titled 'K-12 Education Market in India 2010' by consulting firm Netscribes India pegged the kindergarten to grade 12 education market in India at Rs 2,000 crore. Since then, it has been growing at 14% per annum. The market is wide open for passionate players but not without some challenges to conquer. Let's give a guided tour of the lucrative but challenging K-12 segment.

The term K-12 stands for kindergarten plus 12 years of schooling. Children enter kindergarten at a tender age of three and after spending two years there, they continue with 12 years of schooling before they are ready for higher education (which includes undergraduate, graduate and vocational level university education). K-12 includes primary education (which is eight years long), secondary education (which is two years long) and senior secondary education (also two years long).

A Grant Thornton report estimates the Indian K-12 sector to hit USD 50 billion in 2015. Consulting firm Technopak sees enrollments in the K-12 level growing to 351 million, requiring an additional 34 million seats by 2018! There is substantial scope for growth in K-12, especially given the vast difference in the market forces of demand and supply in this segment. Besides government-run public schools, private investment in the education sector is traditionally seen in the form of non-profit trusts that operate private educational institutes.

So why is demand-supply ratio still so skewed in this industry?

High investment

“As K-12 sector demands huge capital and qualified man power, fast paced establishment is often not possible. Also there is a lack of clarity in purpose, process and regulations with respect to franchising,” opines Chandrashekar D P, COO, JGI Schools.

Deep Technical know-how

Amol Arora, Vice-Chairman and Managing Director, Shemrock & Shemford Group of Schools adds, “Creating and managing a K-12 school chain requires a lot of know-how of the education industry which is limited to only a few players of the industry. It is a complex project.”

 

The Real-estate challenge

Raj Grover, Chief Mentor, Billabong High International Schools says “In K-12 investors have to keep a longer time horizon in mind. Only those with stable return expectation and a long term view will find this sector attractive and any city reasonably viable.”

Choosing the right partner

“Main challenge is getting associated with the right kind of people, who want to make a difference to this country through education”, observes Deepak Madhok, Chairman and Managing Director, Sunbeam Eduserve.

Regulations roadblock

Private players have been showing a keen interest in the K-12 sector for long. A 2013 report estimated almost US $1 billion to be invested in education over 2010-13 (through private equity, venture capital, strategic investments and debt). However, the extent of regulation in the field and restrictive legislature poses a big hurdle.

K-12 segment suffers from significant regulatory roadblocks that require only a trust/society or a non-profit entity to run a school. Traditional curriculums such as CBSE and ICSE require schools to have such non-profit structures in place to provide accreditation.

“There are at least 40 approvals that are required from the government to set up a school which makes it a burdensome process. Also, the process has to be structured as a non-profit one apart from the social profit i.e. goodwill, which is tough,”says Amol Arora of Shemford Group of Schools.

Industry experts agree with the challenges talked about by the players. Head- Consulting,  FranCorp, Srinivas Rao informs, “The industry is grappling with a host of challenges. The main ones are high investment, knowledge transfer, right franchisee profile, maintaining uniformity at all locations and coping with regional syllabus demands.”

However, the key to becoming a part of this lucrative sector and overcoming the challenges it poses, is aligning with the right brand.

A recognised brand, that has established itself in the sector will be able to handhold its franchisee through the initial teething period, provide required knowledge, impart much needed timely training (which forms the backbone of the K-12 segment) and make sure the brand's standards are met with, at every step.

Franchise opportunities

One such opportunity comes from Sunbeam Eduserve, a Public Limited Company, coming from Sunbeam Group of Educational Institutions- the biggest educational conglomerate in eastern UP. With more than 40 years of experience in the field of education and 17 schools up and running in Eastern UP, Sunbeam wants to expand further and provide quality education in every nook and corner of the country.

Another window of opportunity opens up in the form of Shemford chain of K-12 schools. Spread across 47 locations and with 40 more schools coming up pan-India, Shemford is one of the fastest growing school chains.

“We guide our franchisees at every step, right from the assistance in providing approvals from the government to the operations of the school once it is setup,” says Amol Arora of Shemford chain.

Billabong High International Schools; a premium chain of K-12 schools comes from the house of Kangaroo Kids Education Ltd (KKEL) that has 20 years of experience in education and a network of more than 100 schools across 30 cities in India, Dubai, Maldives and Doha. KKEL also takes pride in running a successful preschool chain by the name of Kangaroo Kids.

Billabong High works together with its partners and hand holds them in every aspect- from selection procedure and guidelines for principal and teacher interview to parent management to infrastructure development, maintenance, technology management etc.

Looking for like-minded partners to expand through North and Central India, another major player Seth MR Jaipuria School aims to open 50 new schools in coming 3-4 years. The brand foresees major growth in tier II and tier III cities as the penetration of high quality schools is still low there.

Banking on education!

Recognising the growing need for quality education, HDFC Education and Development Services- a wholly owned subsidiary of Housing Development Finance Corporation Ltd (HDFC) will be launching its schools from this academic year. With a vision to provide affordable education, the HDFC board cleared the foray into HDFC Educational and Development Services with an investment of Rs 100 crore last year. Looking for locations in the NCR to begin with, HDFC's education arm is currently exploring both the options owning and managing schools and is also in talks with defunct schools to take them over. According to experts in the education sector, several schools are looking for a profitable and scale-able model, as operating under trusts makes it difficult to segregate profits. Many schools would be open to the “takeover model” that HDFC plans to adopt.

 

Franchise facts: 

  Sunbeam Billabong High Shemford
Investment Rs 12-15 crore Rs 3-5 crore Rs 3 crore
Area

3 acres

1-8 acres approx

1 acre
RoI

Project specific

Project specific 20%
Breakeven

around 5 years

5-7 years 2 years
Expansion in 2014 3-4 more schools in Uttar Pradesh

25 High Schools

115 K-12 schools pan-India

 

 

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