Schooling a supply-constrained market, says Zee Learn

Zee Learn, the education arm of the Essel Group, got listed on Monday on the National Stock Exchange. The company which derives over three-fourths of its revenues from the preschool segment is also involved in higher education up to the university level as well as vocational training through animation institutions. Sumeet Mehta, its chief executive officer spoke to DNA about the opportunities in the segment. Excerpts from the interview:

The group had mentioned a target of investing Rs500 crore in the education business. Could you give us an update on that?
We have deployed around 40% of what we had targeted to spend by 2015. Half of the money has been spent on setting up a university in Dehradun. The remainder has been spent as capital advance towards acquiring exclusive rights to provide management services and education services to a school in Mumbai.

How many locations are you currently present in?
Kidzee is present in over 300 cities and schools would be 48. We have 65 schools coming up. In metros, we are pretty much one per city. Kidzee’s growth is fairly broad-based. It would be very hard to strait-jacket it to a specific area or geography. With 300 cities, pretty much wherever you go, you will see a Kidzee. But I think it is still the tip of an iceberg. If you look at pre-schools in the country, the penetration is not more than 20%. A large part of this is unorganised sector.

What are the factors driving growth in the segment?
There are two movements which will happen. One is that more and more people are going to start sending their kids to pre-school because they realise that early education does make a difference. I never went to a pre-school, but my kids do. So that’s the kind of transition that is happening in this country. The second is that a lot of parents are realising that there is no standardisation in a lot of the neighbourhood places, which are just set up with some toys and lack age-appropriate curriculum. So the second is that there is a migration from those unorganised players to us. I think these two broad trends are going to fuel the growth for maybe ten years if not more. And that’s what we are going to ride.

How large a market do you eventually see for your business?
India has one of the largest population of kids in the world. There is no reason that the pre-school market in this country should not be 10 times the next biggest country. And today the largest player in the US has 2,000 pre-schools. In India, we are virtually the largest and we have around 700. By that measure we should be closer to 6,000. I’ve seen various studies, some people say India needs 25,000 more schools, others say 200,000. We are talking of opening about 300. Schools, I think, is a market which can be said to be in a growth phase.

Are you tying up with state governments in any way?
We are currently engaged in a pilot project in Gujarat which would act as a creative proof of concept and we are also working with other governments on the same line. But it is kind of too early to file details or comment anything on the same. But I think we have recognised that improving the teaching outcomes in government schools can be a big opportunity. We are committed to it and we will also need people to kind of make it happen, but these are long gestation periods and very lumpy forecasts, so what we can only comment is that we have our efforts in place. And as and when we realise any opportunity, we will look into it.

Would you be looking at any inorganic opportunities?
We are not averse to it, but we haven’t come across a target which is complementary to the Kidzee business. If we look at acquisition also, it will be pretty much like a side-by-side kind of player. So we are not actively kind of pursuing an inorganic growth model.

What are the main challenges that you see for the business?
The primary issues are likely to be regulatory ones. We see some discussions happening in some of the states to lock the fees. We believe that this is working at the wrong end of the barrel and they should be looking at locking the quality of education. And yes, there is competition, but schooling is a supply-constrained market, ask any parent how difficult it is to get their child admitted in schools. I personally believe if you have a good quality school you will definitely be able to fill it. There is enough demand and opportunity for every player to grow.