January 29, 2021
TED NewsDesk, Mumbai: The outbreak of COVID-19 affected the livelihood and businesses of many households. The entire nation was under lockdown since March, resulting in side effects on education and economic sector. The pandemic also led to a decrease in the number of admissions in business administration and engineering courses therefore, flattening the income of educational companies. Moreover, the government’s order regarding the cancellation of fee hike also supplemented the loss.
The delay in new admissions and the provision of payment in instalments led to the reduction in average fee collection by 25 per cent on-year till the end of November. This affected cash flows.
Fees are the main source of income for educational companies. The companies use fees to take care of operating maintenance and maturing bank loan obligations. The sector does not utilise the working capital facility from banks.
The formal education sector, including kindergarten to class 12 and tertiary or higher education (offering graduation and post-graduation courses including medical courses), constitutes over two-thirds of the Rs 9,00,000-crore revenue of Indian education segment. The rest of the sources include coaching or test preparations, pre-schools and other vocational programmes. According to the report, 60 per cent of the formal sector income includes K-12, while tertiary education is responsible for the rest.
Based on the balanced enrolments, the K-12 part is likely to expand 1-2 per cent even without any fee hike. On the other hand, the tertiary segment (engineering, technical and business administration courses) is likely to decrease by 5-6 per cent due to fewer admissions in 2020-21. This segment constitutes 15 per cent of the formal sector income. Talking about the medical education segment, it has a suitable demand-supply gap. This segment accounts for 5 per cent of the formal section income and does not contribute to the economy. It will witness moderate development in the revenue of around 5 per cent due to the increased number of intakes and enrolments.
The stability of formal education segments comprising arts, science etc., will result in flat revenue. However, profitability would be undented.
“Because of the lockdown, formal education companies had to spend significantly on shifting operations online. But, this spending was offset by savings on utility, establishment, maintenance and administrative costs,” said Rahul Guha, Director, Crisil Ratings.
He also said overall operating profitability of these companies will be maintained at 20-22 per cent this fiscal.
Companies adopted to postpone or cut staff salaries, which accounts for a third of cash outflows. It also delayed capital expenditure (CapEx). According to him, companies hope to witness improved conditions with swifter fee collections in the future.
“The formal education segment’s growth should rebound to 10-12 per cent over the medium term on the back of urbanisation, increasing enrolment in the tertiary segment, and economic rebound,” said Shirish Mujumdar, Associate Director, Crisil Ratings.
The shift in mode will boost the operating profitability of companies. The need for curbed CapEx to establish physical capabilities will support balance sheets.
As per the report, other concerns include challenges like access to capital, incorporating technology into business models and training of teachers to deliver efficiently using digital platforms.