Mumbai: Pearson Education India, the operating company of Pearson Plc that recently acquired a majority stake in online site TutorVista and tied up with Educomp Solutions Ltd, will buy or form alliances with providers of education as it pushes for a market share of 10% in two years.
“We will grow inorganically, organically in the Indian market, will continue to forge alliances and buy out companies wherever there are synergies,” Anish Srikrishna, chief marketing officer of Pearson Publishing India, said in a phone interview.
Pearson, which owns the Financial Times newspaper and publisher Penguin, is growing at over 20% compounded annual growth rate in higher education and school publishing.
“Education as an investment destination is growing from the nascent stage to the growth stage. Institutions have to gain size and scale through three options—getting funded, getting acquired or coming together with other companies,” said Narayanan Ramaswamy, executive director, education, at consulting firm KPMG Advisory Services Pvt. Ltd. “Many a time, the question is whether you would want to build new capabilities or acquire through inorganic means.”
Two years ago, Pearson invested $30 million (around Rs 135 crore today) to co-promote vocational training provider IndiaCan with Educomp and took a 17.2% stake in TutorVista. Earlier this year, it acquired an additional 59% stake in TutorVista to take its holding to around 76% for $127 million.
Growth will come from higher education and the teachers training division of the company, Srikrishna said.
“With the government planning to spend Rs 1 lakh crore to provide higher education, companies like us can partner with them in various programmes,” he said. “We would want to implement the successful teachers training model in Bhutan with the state governments in India.”
The company is in talks with various state governments and expects to roll out the programme in the near future.
“Any public private partnership in India requires lot of due diligence, which is time-consuming and hence no timeline can be given on when we can roll this out,” Srikrishna said.
Returns in the sector are very attractive, said KPMG’s Ramaswamy. The risk-adjusted returns now look better than before and hence the interest from companies in acquiring firms or forging alliances.
The Indian higher education system has more than 26,000 institutes across varied fields of study, said a 2010 Ernst and Young (E&Y) report.
With the education industry growing at around 30% on a compounded annual growth basis, Pearson expects to outperform the rest of the market. “We will grow faster than the industry, as we have done in the past and will garner substantial market by 2015,” Srikrishna said.
According to the E&Y report, spending in the higher education segment is expected to increase to Rs 1.55 trillion by 2020. “In 10 years, by 2020, keeping in mind the target Gross Enrolment Ratio (GER, number of students admitted to schools and colleges) of 20%, and taking into account the prescribed infrastructure for educational institutes, we would need to invest Rs 360,640 crore,” the report said.
Against the backdrop of high growth, the nature of demand for higher education is changing. Shifting macroeconomic trends are influencing the composition and preferences of students, leading to new demands. These include higher spending on education, new categories of students, willingness to pay for academic quality, increasing demand for global education and demand for education linked to employability.
Srikrishna said the total marketsize of the Indian education sector is around Rs 10,000 crore, of which Rs 6,000 crore is addressable by private players.
Pearson, which is present in 70 countries, will continue to focus on emerging markets.
“We are investing to become a much larger global company, with particular emphasis on fast growing markets in China, India, Africa and Latin America,” Pearson said in a presentation to its investors on its website in February.
The company, listed on the London Stock Exchange and the New York Stock Exchange, has no plans to sell shares in India. “We will meet our investment demands through internal accruals and treasury management,” Srikrishna said.
The education sector has been gaining traction. In May, CORE Projects and Technologies Ltd, an education solutions provider, acquired ITN Mark Education, a UK-based provider of teachers and teaching assistants, for $25 million, while DMC Education Ltd acquired education consulting firm Plansteps for Rs 4.5 crore.
The valuations cannot be looked at in isolation, since these are diversified and in the early stages of investment, said KPMG’s Ramaswamy. “In those deals, where the investor company has seen good possibility of expansion and stabilization, valuations have been better.”
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