An uptick in enrolment, especially for higher education, and a modest hike in fees after two years will drive up the revenue of schools and colleges by over 10 per cent this fiscal, compared with a compound annual growth rate of 4 per cent between fiscals 2018 and 2022, an analysis of 110 education entities rated by CRISIL Ratings shows.

The formal education segment comprising K-12 (kindergarten to class 12) and higher education (graduation and postgraduation), accounts for almost 65 per cent of the Rs 10 lakh crore revenue of the sector. The informal segment, which covers coaching/test preparation, pre-schools and digital learning, accounts for the rest.

In fiscal 2021, as Covid-19 surged and lockdowns began, enrolments for higher education, except to study medicine, fell. In the K-12 segment, enrolments were stable, but fees were stagnant on year, and other sources of revenue such as transportation, hostel and canteen dried up completely. Last fiscal, enrolments for higher education improved, while for K-12 it was steady. But with no hike in fees, revenue growth was limited to 5 per cent.

Rahul Guha, director, CRISIL Ratings, says, “This fiscal, resumption of classroom learning, and more timely completion of admissions will lead to more higher-education enrolment. Streams hit by the pandemic, such as management and engineering could see 5-6 per cent higher enrolments, while K-12 will be steady at 2 per cent.”

In the past two fiscals, operating profitability remained steady despite muted revenue growth, supported by lower administrative and other fixed costs, and cost-cutting measures. Though commencement of in-person learning will jack up the costs, higher revenue — partly driven by a fee hike of 5 per cent expected for K-12 and most of the higher education courses this academic year — will help sustain the operating profitability at 27-29 per cent.

Cash flows were impacted in fiscal 2021 and a good part of last fiscal because of flexible fee payment terms offered to students, and delayed admissions, especially in higher education courses. But capital expenditure (capex) deferral and cost-cutting helped offset this. This fiscal, with things returning to normal, fee collection efficiency has improved and previous payment facilitations were rolled back.

Capex was muted in the past two fiscals given the uncertainties amid the pandemic. This has helped schools and colleges conserve cash, and gearing improved to 0.5 time as on March 31, 2022, from around 0.65 time as on March 31, 2020. Since the beginning of this calendar, following the slow return to business as usual, capex has seen some uptick.

Shirish Mujumdar, associate director, CRISIL Ratings said, “Annual capex may increase to around 1.2-1.3 times pre-pandemic levels over the next two fiscals. While this will be partly funded by debt, balance sheets of CRISIL-rated institutes have the cushion to absorb it. Gearing will remain stable at ~0.5 times, supported by increasing accretions.

Timely completion of admission processes, primarily for higher education courses, and government-imposed restrictions on fees in private medical colleges will bear watching.

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