India Demographics – Playing The Enablers: Dolat Capital

The India story has taken quite a bit of whipping last quarter or
two, and a fair bit of that may be perceived to be self-inflicted and
rightly so. There are now doubts being expressed on the potential
of the demographic dividend playing out next decade, given the
structural challenges that the economy faces.
While the jury is still out on that, we believe that there are
opportunities that shall emerge next few years to play on some of
the themes that may be classified as ‘enablers’ to earn the so
called demographic dividend. We stress our intent – to look out
for sectors that will help India move towards realizing its
demographic dividend, not those that will benefit after the
dividend is realized.
We believe enablers for doing well in education shall be one of
the worthwhile segment to watch our for. We have also seen quite
a few of listed plays emerging over the last few years that offer
meaningful opportunities for making portfolio allocation. However,
given the high capex intensity, long gestation periods to generate
sustainable returns and disappointment with the listed players,
the investor interest has dwindled quite sharply. Yet given the
scalable, multi year growth opportunity, and higher priority on the
government social sector spending being a key driver, we expect
a few of these models to sucessfully play out in coming years.
Education and Training
India is one of the youngest population pools, with over 250 mn
students, nearly one fifth of its population. The size of India’s
student population in some of the segments is as large as over
ten million. However the challenge has been to improve the quality
and delivery of education services across the country, and the
concomitant resource pool.

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The extent of scale can also be gauged from the distinction that
India has on producing the highest number of engineering graduates
in the world. However, the employability of these professionals is
extremely low – our industry interaction indicates that more than
three fourth of them are unemployable.
Recognizing the need to elevate quality of basic education and
improve the standards at the higher level, the government has been
making significantly higher allocations on education through its
various programs. Over the last decade, the allocation / spending
on education has growt nearly five times from ` 125 bn to ` 645 bn
(FY14 budget allocation)

RISING ASPIRATIONS: Education amongst top goals
The last few years have witnessed a major rise in aspiration levels
for India as a country. And education of children remains amongst
the top priorities in majority of the population strata, given its
perceived advantage over the long run. We believe that the next
few years shall only accelerate this perception, and lead to demand
for enabling platforms that can offer the students quality training to
excel at the examinations, and then create skill sets to be readily
employable.
Inspite of rising government spending however, the challenge has
remained on the quality of the education. Our industry interactions
suggest that this evident especially at the mid-level - Class VIII-X,
and these are the most critical in terms of setting the base for higher
education. It is here that we believe opportunities for the private
sector shall play out. The most significant of them we believe shall
be in the form of organized private coaching, as it acts as the ‘gap
filler’ on quality and focus, as well as equalizer.
Why private coaching?
z The school education is there, however woefully inadequate to meet
the quality standard and give individual level focus
z Rising income levels are generating ability to afford better. Hence part
of these are being allocated on discretionary spending, however a fair
share is also going towards spending in children’s education. Thus is
also driven by the realisation at the level of lower earning segment that
better education will help their younger ones to compete better. Previously
there was no affordability, now that it is there, hence the spending
z Also, the nationalisation of all higher education examinations (Engg, MBA,
Medical, CA) has lead to increased competitiveness and thus the need
of coaching
z From an investor perspective, this segment requires lower setting up
cost per centre, leading to lower pay back period. Further the flexibility
to review a centre’s performance and quick exits through shut down
down or consolidation are also helpful to keep portfolio healthy
z The disadvantage is that the entry barriers are low. And hence the
dominance of the tution centre run by local teachers. However given
the increasing relevance of IT and better content delivery, the one man
entities will face challenges to scale up and sustain. Hence the organised
institutional level entities will gain market share.