‘Although enrolments increased marginally in the school segment (FY15: 0.43% yoy) and moderately in higher education (FY15: 5.88% yoy), the sector has the potential to grow due to a huge demand-supply gap. Besides new educational institutions, the existing institutions are continuously churning themselves both in terms of physical infrastructure and course content/curricula to keep abreast with the needs of the economy,’ said the credit rating agency.

Even though 100 per cent FDI in education is allowed, funding still remains a key challenge for an education venture in India. The presence of multiple regulators in conjunction with the requirement of numerous approvals and regulatory compliances has further complicated the investment process in the Indian education sector. However, despite tuition fee being regulated, educational institutions across the board are able to generate reasonably healthy operating margins. Ind- Ra has observed a continuous rise in enrolments across all segments of education such as schools, higher education, distance learning and vocational courses, and expects educational entities to remain healthy on account of growing enrolments and improving profit margins.

The agency’s analysis of the impact of demonetisation on the education sector has been mixed however. ‘Institutions where donation and capitation fees are collected in cash and have been a significant component of revenue such as in engineering, medical, nursing colleges have been negatively impacted due to demonetisation. However, the increasing number of cashless transactions has the potential to bring in more transparency in the education sector, leading to increased interest of private sector, especially private equity/ venture capital players in the sector,’ said the Fitch Group arm.BLD