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Education institutes Photo: Shutterstock
Schools and colleges in India are expected to report a 12 to 14 per cent rise in their revenue this financial year, according to a recent analysis by Crisil Ratings. This revenue growth is driven by higher enrolments, increased demand for new courses, and the opportunity for upward fee revisions. This growth comes despite the sector experiencing three consecutive years of high-teen growth, the report said.
The analysis is based on 96 educational institutions rated by Crisil, which collectively account for nearly Rs 20,000 crore in fee income and shows the overall sustained upward trajectory of the education sector in the country.
Rise in school/ college expansion
While increased salary costs for faculty and the expenses associated with launching new courses are likely to occur, rising student numbers, coupled with better utilisation of existing assets are expected to offset this increase. As a result, operating margins are expected to remain stable at around 28 per cent.
Educational institutions are also expected to continue making capital expenditure (capex) investments to improve infrastructure and expand intake capacity. This is driven by the growing demand for high-quality education, particularly in schools, and improved affordability as income levels rise. Utilisation rates for schools and higher education institutions are also expected to increase 86-87 per cent, up from 85 per cent last year.
Minimal working capital needs
Despite the large revenue base, working capital requirements are expected to remain low. Fee receivables have been maintained at 45-50 days over the past few years. Gearing is expected to improve to 0.41 times, and interest coverage to 7.0 times, up from 6.2 last financial year.
Nagarjun Alaparthi, associate director at Crisil said, “Strong cash generation led to capex spending increasing by 18-20 per cent of existing assets in 2024. This year, schools and colleges will invest heavily in infrastructure, but credit profiles will remain stable due to low debt.”
Demand for emerging courses
Crisil found that courses in artificial intelligence (AI), data science, and machine learning (ML) are in high demand at education institutes. Meanwhile, computer science courses in engineering colleges saw healthy occupancy, despite weaker placements in 2024. The overall demand for these courses is expected to rise in 2025, supported by better job prospects.
Medical colleges and schools are also seeing strong enrolments, which will contribute to boosting the fee income of these institutes.
“Educational institutes have the flexibility to undertake periodic fee revisions, which will result in fee income being higher by 12-14 per cent in the current fiscal,” added Himank Sharma, director, Crisil.
Push for higher enrolment levels
The expansion plans of education institutes also align with the government aim to increase the gross enrolment ratio (GER) for higher education to 50 per cent by 2035. It is currently at just under 30 per cent. The government is ensuring this by not only supporting the expansion of existing institutes but also promoting new ones.
However, institutions will need to monitor potential changes in government regulations and shifts in course preferences. These could affect the sector’s growth and financial health in the future.
First Published: Oct 08 2024 | 5:16 PM IST
