Budget schools make business sense, too

Last Updated: Mon, Mar 26, 2012 20:01 hrs

What is common between Jerry Rao, Shantanu Prakash, The Galas and Satya Narayanan R? They are selling the concept of budget schools in our neighbourhood.

Budget schools or the erstwhile government or municipal schools, aim to provide affordable education at minimum cost. These schools, as the players term it, will address the segment at the bottom of the pyramid.

“Budget schools have been existing. But these are mostly the government schools. However, it is now that professional players are becoming a part of it. It is a very large market and will see good growth in the coming years,” said Partho Dasgupta, president, Educomp Schools.

The Shantanu Prakash-promoted Educomp Solutions, launched its brand of Vidya Prabhat Schools in 2009. These schools were later re-christened as Universal Academy, its budget school brand. Educomp runs 12 Universal Academies at present and plans to open 60-80 schools in the next five years.

It also runs Little Millennium and The Millennium School at the upper end of its school services bouquet. While Universal Academy is at a price point of anywhere between Rs 12,000 and 20,000 per annum, The Millennium Schools charge anywhere between Rs 60,000 and 120,000 per annum, depending on the location. Little Millennium targets the pre-school section.

“The bottom of the pyramid concept works here. The total number of students at the budget school level is very large and the opportunity it throws up is huge,” added Dasgupta.

Educomp says setting up a Universal Academy costs anywhere between Rs 5 and 10 crore, depending on the location. “However, Educomp investments are much lower with the asset-light model we use,” said Dasgupta.

These schools, players add, are for people who cannot afford the basic cost of education for their children.

It is the same view that Jerry Rao's Sujaya School endorses. Rao's Value and Budget Housing Corporation (VBHC), which is building affordable housing, will at the same time within the housing complex, construct a budget school. At present, only one school is operational in Bangalore. But in the next decade, Rao plans to take this to 300 schools.

“We plan to bring this concept on every complex. We have eight projects at the moment and by next year, we will have one school operational each in Mumbai, Chennai, Bangalore and National Capital Region,” said Priya Krishnan, CEO, VBHC Education Services.

Krishnan says setting up a Sujaya School (kindergarten-12) costs around Rs 10-11 crore. The schools follow the Central Board of Secondary Education (CBSE) format and charge a fee of Rs 2,000 per month or Rs 24,000 per annum, per student. The school plans to have 40 per cent students via the scholarships it provides and 60 per cent on fees.

The concept of Budget schools, say industry players, is nothing but a new wine in an old bottle — an erstwhile state school segment which these players are making more attractive by employing better strategies.

Despite the low incomes (less than Rs 100 a day), many parents in the bottom of the pyramid segment are willing to provide private education for their children.

This has led Satya Narayanan R, promoter of Career Launcher an MBA test preparatory institute, to set up bottom of pyramid (BOP) schools.

“The need for quality and accountability is no less at the bottom of the socio-economic pyramid,” according to Career Launcher. Career Launcher also runs the Indus schools which targets the middle class segment and has seen HDFC invest in these.

Another player, Navneet Publications India, pumped in Rs 45 crore in K-12 Techno Services Private limited, a Hyderabad-based school management company servicing around 67 state board schools in Andhra Pradesh.

The schools, with over 50,000 students in the affordable education segment, are run under the Gowtham Model Schools and Orchids brands.

“Navneet's transaction is partly driven by the fact that they want to be in the school space. And also that they wish to develop the content business. This will also be about getting into the school management business and build their own schools later,” said an analysts tracking the company.

Promoted by the Gala family, Navneet Publications, a dominant player in content and stationery segment, runs a publishing business predominantly in Gujarat and Maharashtra. This investment, say investors would allow Navneet to launch its products and services in Andhra Pradesh and give it a direct entry into the growing education segment.

However, an area where the players see huge potential, investors see none. To make a good quality school at an unusually low cost is a difficult concept, they say.

“I think it is difficult to have budget schools work in the long term. And if these schools talk about not compromising on quality of teaching, there has to be some way to manage the costs. At some point of time, someone has to pay a bit more if quality of teaching is to be better,” said the managing director of the Private Equity firm.

Players however, are not deterred.

It is a function of looking at the concept from the perspective of an opportunity cost. “One can stretch the asset by using the same land and building and generate adequate volume. If may not be a very profitable venture, but will certainly be self sustaining and may attract investors too in the long run,” says Krishnan.

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