Playing catch up

The mismatch between demand and supply in India’s education sector presents a slew of investment opportunities, writes Siddharth Poddar.

India has a literacy rate of 65 percent. That means more than a third of its 1.1 billion population is in need of a basic education.

Even those who do go to school in India can sometimes find it a challenge to obtain a satisfactory education. Some of the schools and educational institutions across the country are in bad shape, with a shortage of basic facilities and good teachers.

For a country that aspires to be an economic powerhouse in the near future, the state of the education sector is shambolic. While there are a few great academic institutions in the country at secondary and tertiary levels, these are only accessible to an insignificant proportion of the country’s population as they are very expensive and not designed to meet the needs of a country growing as rapidly as India has.

Siddharth Poddar

As the country’s economy has expanded, so too has the need for a skilled and educated workforce. There is a need not just for more education facilities, but also for a better quality of education. The sector is undercapitalised in terms of both money and human capital.

Firms like Gaja Capital, Sequoia Capital India, UTI Ventures and Lightspeed Venture have been targeting the Indian eductation sector for a while, but in recent months it has been drawing increasing interest from investors.

Last week, Franklin Templeton invested INR500 million ($10.3 million; €7.3 million) for an undisclosed stake in Career Point Infosystems, an examination preparation company. The investment came just a fortnight after a very similar investment made by Matrix India Partners, which invested INR1 billion in FIITJEE, another group providing training for competitive examinations in India. In May, South and Southeast Asia-focused Navis Capital Partners invested $30 million for a controlling stake in Edutech, which offers tertiary, post-graduate and part-time executive programmes.

Meanwhile, India that Kaizen Global, a newly established private equity firm based in Mumbai, is currently raising up to $150 million solely for deals in the education sector.

The increasing demand for education, coupled with its acyclic nature and predictability of revenue streams, makes investments in the sector an attractive proposition for private equity managers. Expect to see a greater number of fund managers capitalise on education opportunities as the country works to catch up to its economic growth.