India Ratings & Research (Ind-Ra) has maintained a stable outlook on the education sector for FY16 in view of a marginal increase in enrolments in primary to senior secondary to higher education (0.10% yoy). However, Ind-Ra has revised the Outlook on its rated education entities to positive for FY16 from Stable based on healthy improvements in credit profiles in FY14.
The entry of the private sector into the education sector has expanded the size of the sector. Ind-Ra estimates the market size to reach to Rs 6,423.19 billionn in FY16 based on growing private financing and the evolving operating structure of societies whereby they hire private limited companies to manage/provide various services including infrastructure of educational institutes. This is done essentially to appropriate the profit earned by the society.
India's gross enrolment ratio for higher education increased to 21.10% over the past five years ended FY13. It is still well below the world average enrolments ratio of 26%. This indicates that there is still enough scope to increase the enrolments in higher education. However, the employability of a significant proportion of educated youth continues to be an issue.
Educational institutes face tight liquidity mainly due to the cyclical nature of fee collection. They witness comfortable liquidity at the beginning of the new fiscal but liquidity pressure increases as the year progresses. In addition, delays in fee reimbursements, in few states, by the state government strain the liquidity profile of the educational institutes. Although some Ind-Ra rated educational institutes have aggressive capital expansion plans leading to higher debt levels, the debt burden of higher rated institutes is likely to fall in view of rising enrolments and improvements in their financials.
Ind-Ra believes increased foreign investment and private sector participation will improve both educational infrastructure and the quality of education. Ministry of Human Resource Development's proposed Foreign Educational Institutions (regulation of Entry and Operations) Bill, if cleared by the Parliament will benefit the Indian education sector. A continuous creation/up-gradation of physical infrastructure as also the addition of new educational institutions will provide the necessary impetus to the sector. More collaboration with foreign institutions and industry association would further help the sector grow.
