Demand-supply gap to aid education sector growth: Ind-Ra

India Ratings (Ind-Ra) has given a stable outlook on the education sector for this financial year and said a huge demand-supply gap in the segment provides it an opportunity to grow.
Although enrolments increased marginally in the school segment and moderately in higher education, Ind-Ra said the sector has the potential to grow due to a demand-supply gap.
Government policy also provides support in augmenting the quality of education besides creating an environment conducive to investments, which would reduce the infrastructure deficit in the sector, it said.
Besides new educational institutions, the existing ones are continuously churning themselves both in terms of physical infrastructure and course content to keep abreast with the needs of the economy, Ind-Ra said today.

In India, funding remains a key challenge for an education venture. Although 100 per cent foreign direct investment in education is allowed, running an educational venture with the profit motive is still difficult, it opined.
As a result, the predominant organisational structure of private educational institutions in India is not-for-profit and they are mostly managed by trusts and societies, it said.

The presence of multiple regulators along with requirement of numerous approvals and regulatory compliances has complicated the investment process in the sector.
The rating agency has maintained a positive outlook on its rated portfolio of educational entities for FY18 due to their robust credit profiles.

The company expects their profiles to remain healthy during the year on account of growing enrolments and improving profit margins.
This is attributed to the regionally sound market position of the rated entities, their quality infrastructure and high academic standards, it added.
Despite tuition fee being regulated, educational institutions are able to generate healthy operating margins. Generally, technical and professional courses are in demand and their pricing is high, the rating outfit said.
However, several educational institutions offering these courses are finding it difficult to absorb the additional cost pressure and are facing liquidity pressures.
Also, the cyclical nature of business leads to liquidity mismatches because tuition fees (main source of revenue) are collected at designated intervals, but expenditure takes place on a regular basis, Ind-Ra said.

The impact of demonetisation on the education sector has been mixed. However, the increasing number of cashless transactions has the potential to bring in more transparency in the sector, especially due to rising interest shown by private equity players in the segment, it said.