IDFC Alternatives invests in Manipal’s student services firm3 min read . Updated: 26 Nov 2012, 11:07 PM IST
This is IDFC Alternatives’s second investment in an education services company
Mumbai: IDFC Alternatives Ltd has invested ₹ 100 crore in a Manipal group firm that offers housekeeping, catering and related services to hostels run by varsities and other institutes.
Manipal Servicecorp Facility Management Pvt. Ltd, promoted by Manipal Education and Medical Group International India Pvt. Ltd, will use the money to roll out student hostels and facilities management at universities and other institutes in India and abroad, the firm said.
Student hostels will initially be rolled out at Manipal University, Jaipur, and TA Pai Management Institute in Manipal, followed by projects for Manipal Global Education Services’ banking training division in Bangalore. Student living is a mature, multi-billion dollar industry in developed markets such as the US and the UK, said Ranjan Pai, chief executive of Manipal Education.
“Many of the drivers that led to the growth of the industry in those markets are also increasingly apparent in India today, such as the increasing demand for better facilities and the desire of colleges to outsource hostel capex and management in order to better focus on core academics," he said.
Manipal Servicecorp already manages about 12 million sq. ft of space across more than 70 sites and provides institutional catering services to at least 13,000 people a day. It offers services such as housekeeping, security and catering as well as engineering and water management.
This is IDFC Alternatives’ second investment in education services and its third in a Manipal group firm. The investment was done through IDFC Private Equity Fund III. Raja Parthasarathy, partner at IDFC Alternatives, said many educational institutes do not invest in creating good living facilities for students because the emphasis is on spending on academics, auditoriums, labs and classrooms. “Educational institutes feel that as long they offer a roof, the purpose is solved," he said. “In India, there is no existing organized player targeting the student living market, and Manipal Servicecorp has an opportunity to leverage its first-mover advantage and create a unique platform."
Manipal Servicecorp is exploring tie-ups with owner-operators of hostels who want to outsource the management of the facilities or monetize these assets, Parthasarathy said. “We want to start with well-established educational institutes, which could be 15 to 20 to 30 years old. We are not too keen on real estate play. We can enter into long-term lease for underlying land."
Investors have multiple options to sell stakes in such firms, he added, saying. “We can look at growing the business to a firm of size where we can list it on its own or in a REIT-like (real estate investment trust) structure. We can also look at monetizing individual assets over time."
IDFC Alternatives’s latest investment is another example of investors’ growing interest in ancillaries businesses in the education sector. Of the 28 deals worth $147.9 million in education businesses this year, 24 investments worth $116.68 million were in ancillaries firms, according to VCCEdge, which tracks investment activity in the country.
Much like healthcare, education is an interesting sector for any investor looking at tapping opportunities arising out of India’s growing domestic consumption. While K-12 (kindergarten to class 12) and higher education are the biggest segments in education, many of the investments were in relatively unregulated allied businesses. Test preparation, content development, preschool chains and education technologies businesses are more attractive to investors from a regulatory standpoint.
“We like education sector. We are trying to identify routes to education investments without taking the regulatory risk. Ancillaries are a great way to ride the education wave," said Parthasarathy.
The risk of an education business failing, even in a downturn, is low if the deals are vetted well, said Sandeep Aneja, managing director, Kaizen Management Advisors Pvt. Ltd, an education-focused fund. Valuations, too, are becoming realistic, he said, but added that striking deals with such firms is not easy despite the huge investor interest.
“All deals don’t even come into the market," he said. “For many large firms, the primary source of capital is not third party money. Also, these deals tend to become proprietary."