New Delhi: The consolidation in India’s fragmented and unregulated test preparation industry continues with smaller local entities getting acquired by bigger ones. The latest is listed coaching company MT Educare Ltd acquiring a majority stake in Lakshya, a chain that prepares aspirants for admission to the Indian Institutes of Technology (IITs).
The trend has picked up largely because of three reasons—a change in education policy, the modification of exam formats and efforts by leading test-prep companies to expand their portfolio. For smaller companies it’s a question of survival as a merger or partnership with a bigger entity allows them to be competitive in a changing environment.
In the last three years, the Common Admission Test (CAT) conducted by the Indian Institutes of Management (IIMs) has gone online. The civil service exams have become more like CAT by adopting an aptitude test. In May, the government decided to give 40% weightage to school board marks in engineering college admissions.
The implementation of a single, online entrance system for selection into all engineering colleges including IITs has made it difficult for smaller coaching centres without the capability of delivering national-level tests. Adding to this is the stress on English language capability in both CAT and the civil service exams and the growth of a blended tutoring format that combines elements of the classroom with distance education.
“The education scenario has changed and you just cannot have the same mindset you used to have seven or eight years back,” said Satya Narayanan R., chairman of CL Educate (formerly Career Launcher), a leading coaching chain. “Now, all the key exams need expertise and not all have that. So consolidation is happening. People with different expertise are coming together to fulfil the demand.”
CL Educate has made at least three acquisitions in the last five years, the most recent having been in December 2011, when it took over G.K. Publications, a Noida-based publisher of competitive exam books. The acquisition has helped CL expand distance-mode tutoring, in which books from the institute are an integral part. Before that it had acquired Arun Roy Classes, an IIT test-prep chain in Maharashtra, and Law School Tutorial in north India.
“Those who thought organized classroom tutoring is a choice in a postal tutoring era, missed out on market share,” the CL Educate chairman said. “Now, those who are thinking classroom is the only mode will miss out too. You have to think of the digital mode too.”
For instance, Brilliant Tutorials, once a market leader, is not as dominant. Brilliant uses the CL platform for classes in north and east India. The change in education policy makes it imperative for smaller companies like Lakshya to tie up with a bigger organization.
“MT is a leader in school preparation and we are for IIT-JEE (joint entrance examination),” said Vamsi Krishna, co-founder, Lakshya, started in 2006 by four IIT graduates and having built up a presence in Punjab. “With the change in education policy, joining hands (with MT) will provide complete training to aspirants—from schools to IIT.”
The test-prep industry is becoming organized and some are now professionally run companies, he said.
Yagnesh Sanghrajka, chief financial officer of MT, described their deal as a “backward-forward integration of business. Earlier, we were serving students for four years (in school board preparation) and now they will stay with us for seven to eight years”.
If a coaching institute has a good reputation in school preparation, their students will feel comfortable staying with it when he or she seeks to get into engineering or medical school, said Dilip Nayak, a Class 11 student in south Delhi. “I don’t understand their business but for a student it’s more about trust and comfort,” he said.
A school education system that’s patchy in quality and unable to keep up with growing aspirations among Indians will fuel growth in the coaching industry, according to experts and the industry.
The tutorial business is expected to grow to Rs.75,629 crore in 2014-15 from Rs.40,187 crore in 2010-11, according to a Crisil Research report.
Sensing that the business was set to expand, Educomp Solutions Ltd acquired Vidyamandir Classes in 2010 and Triumphant Institute of Management Education Pvt. Ltd (TIME) took a majority stake in Veta, an English language training chain in south India.
The acquisition made Educomp a complete education company catering to students from school to higher education and finally the job market. For TIME, the acquisition was aimed at making its MBA coaching more robust.
“India is a young country and the demand for education will grow. So it’s natural that coaching as a sub segment will grow,” said Soumya Kanti, chief executive of Educomp Global at Educomp Solutions. “We as an education company want to get involved with students from pre-school to getting job ready.”
While some are already part of the consolidation process, other leading names are looking to see whether there are any opportunities.
“The coaching industry is now getting corporatized. Consolidation is a sign of maturity,” said Aakash Chaudhry, director, Aakash Educational Services, a leading engineering and medical tutorial chain. “Like any other sector, it’s now passing through a critical phase that’s good for students.”
As Aakash seeks to expand its base from north to south India, it too is ready to “shake hands” with regional players. “We will like vertical integration—if we are in the undergraduate space, maybe we would go for synergy in the postgraduation space.”
TIME said in an email that while the company is achieving “creditable organic growth”, it too is “actively pursuing acquisition opportunities in the field of education and training”.