The Business of Schools
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Image: Hemant Mishra
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MODEL 2 Ranjan Pai, CEO, Manipal Education and Medical Group. Manipal K-12's model involves getting into a management contract with trusts that already run schools but are struggling
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While Career Launcher’s Satya Narayanan has set up new schools in Tier 2 and Tier 3 towns, Ganesh of Manipal K-12 is tying up with trusts which had set up schools (and owned the land and buildings) but were struggling to run the schools better.
Manipal K-12 gets into a management contract with these trusts — for a fee, Ganesh’s company runs all aspects of the school starting with appointing the principal, the faculty, teacher training, curriculum design, running the ICT (information and communication technologies) class, and so on. In return, the trust pays him anywhere between 20-80 percent of the school fees it collects from parents (depending on what investments Manipal K -12 is willing to make).
Ganesh says it’s the best way to build scale, since Manipal does not have to invest in expensive land and building. In five years, he hopes to sign up 100 schools across the country. Each will be co-branded as Manipal, which is already a recognisable name in education.
The key here, says Satya Narayanan, is to build scale and ramp up the model in as short a time as possible. Satya Narayanan raised about $10 million for Career Launcher from Gaja Capital, part of which is going in setting up the schools business. Schools bring in revenue of about of $4 million and are yet to start making profits, he says.
Narayanan’s Indus World runs schools in Tier 2 cities like Amritsar, Gurgaon, Bhiwani, and Raipur where the fee ranges between Rs. 1,500 and Rs. 6,000 per month. While five of these schools are owned by him, the rest are in partnerships with real estate companies who lease the land to him to build a school in a residential project that they are building.
For example, he has tied up with Shriram Properties to set up 25 schools in residential projects being developed by it. It’s a win-win situation for both. A school inside a residential complex helps the builder sell his property faster and provides Narayanan with good real estate.
Is management services contract then the way to go? Some think it is.
Sandeep Aneja, of private equity firm Kaizen, which raised a fund of $150 million for investing in education, says given the current regulatory structure in India, it is a good way to build a scalable model. He says his firm will soon announce an investment in a company which has a similar structure.
Not everyone agrees. Investors and analysts say that it is still not a clean corporate structure. While the law has so far allowed schools to function this way, there is no guarantee it will be continue to do so.
As far as Manipal K-12 is concerned, Ganesh says there are no violations of any law because he takes over existing schools.
Ganesh’s competitors say that the risk here is that only the schools that are struggling will look at this model. The good schools, which have the reputation and the staff, are not interested in partnering with entrepreneurs in this model.
That may be so, but Ranjan Pai, CEO of Manipal Education and Medical Group doesn’t see it that way. “How many students can get into these elite schools? We are a country of a billion people, how many elite schools can we create? You need mid range schools in this country. The entire IT boom was created by tier 2 and 3 colleges. You can’t be elitist in this country, you need good quality but you also need scale.”
Patience Capital
In 1998, when Kavita Sabharwal dropped out of the MBA programme at Harvard and went back to her dad’s business, the $600 million Lupin, she had no idea that one day she would start a preschool.
In 2005, frustrated by her attempts to find a good preschool for her son, Sabharwal set up Neev in Bangalore. Today Neev, a kindergarten school for ages two to six, has four branches in Bangalore. It charges an annual fee upwards of Rs. 1 lakh a year (most others charge one fourth of that). Sabharwal now wants to take Neev to other cities like Mumbai and also extend it to higher classes. Her first concern is raising money. Neev was funded by her own money but Sabharwal says she needs Rs. 20 crore to Rs. 25 crore for each full-fledged school she sets up. Four such schools would need at least Rs. 100 crore in capital investment.
She has received feelers from venture capital and private equity firms, but is not convinced that is the best way to raise money. They look for quick returns in three to five years, while this business is for the long haul, she says. Establishing a brand takes years. Her only choice then is to take debt to finance her expansion or fund it through her own money.
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Position one which is "technology is the SOLUTION" and the answer to scalability and Position two which categorically denies that technology can EVER replace a teacher as the way forward.
There is room for both depending upon the goal of the "educationist".
An afterthought, please don't use "standard" and "education" together. We are in the 21st century!
Scalability is only possible using technology with statndard education.
Merely building structure without standard / good faculty will be disaster. Mind set has to change to accept education thro' DTH.
and here will come the role of technology academician to redraft the entire syllabus suitable to DTH --and this will bring scalebility at affordable cost to all.
