HDFC to roll out schools from 2014

HDFC is in talks with real estate developers to provide it with infrastructure needed to set up schools

HDFC Education and Development Services, a wholly owned subsidiary of Housing Development Finance Corporation Ltd (HDFC), will launch its schools from academic year 2014.

The company, which was formed last November, may begin operations with its first school in the national capital region (NCR).

“We plan to begin operations from the academic year 2014. We are looking at locations in the NCR. We plan to provide affordable education and have a long-term plan,” said a senior HDFC official.

HDFC’s education arm is currently exploring both the options — owning and managing schools. Last year, the HDFC board had cleared the foray into HDFC Educational and Development Services with an investment of Rs 100 crore.

“We plan to own schools, but land is a big cost. So, considering the same, we may look at managing schools wherever we cannot have our own schools,” the official added.

HDFC is in talks with real estate developers, who already work with the bank for its housing loan arm to provide HDFC with infrastructure available to set up schools. The company plans to target the middle-class and is also in talks with defunct schools to take them over.

HDFC Chairman Deepak Parekh had earlier told Business Standard that HDFC would look at small towns to either set up schools or take over defunct boarding schools. “The opportunity is huge, as the need for quality education will only increase. Parents in even rural areas want to give their children a good education. Higher education is also on our radar,” Parekh had said.

The company is also considering the idea of either going in for a long-term lease of land or managing schools by revenue-sharing model. Setting up a school minus buying the land will cost HDFC around Rs 30 crore

“After we have built some expertise in this field, we may go in to managing schools. The company intends to provide school management and other allied services and set up flagship schools for which it will need to invest in infrastructure,” the official said.

According to players in the education sector, several schools are looking at a model that is profitable and scaleable, as operating under trusts makes it difficult to segregate profits. Many schools would be open to the “takeover model” that HDFC plans to adopt. Trusts can’t sell stakes, as they are not allowed to give dividends.

With missionary trusts and individual families that run institutions the conventional way exploring various avenues including the private equity route of raising funds, HDFC stands to gain.

Kindergarten to class 12 (K-12) is said to be the most attractive segment of the education market, as a student usually stays on for 12 years. The K-12 segment will be the direct beneficiary of rising middle-class incomes in India.

HDFC already has an educational loan unit — Credila Financial Services — in which it raised its stake to 51 per cent in July. Credila plans to leverage the distribution network and customer base of HDFC Bank to expand and also bring down the cost of funds.

As part of its education foray, HDFC also plans to have two skill upgradation centres in Hyderabad and Ahmedabad to train people for the financial services, back office and hospitality businesses. These centres will operate from a rented premises.