Zee Learn Ltd, the education firm of Essel Group, plans to enter a new segment—school outsourcing, or managing schools owned by corporate houses or the government.
The company said this is a fresh business opportunity at a time when the country’s education sector is growing rapidly and companies from other sectors also want to invest.
Chief executive officer Sumeet Mehta said Zee Learn is in talks to manage a school of steel manufacturer JSL Stainless Ltd and some other companies.
“We are hoping that 20% of our school business will come from this segment. We will focus on operating and managing schools of leading business houses and making it a key vertical to expand,” said Mehta. “We are in touch with at least four-five other corporates.”
India’s kindergarten to class 12 (K-12) segment was worth $20 billion in 2008, private professional colleges $7 billion and tutorial $5 billion, according to a report by consulting firm CLSA.
The cost of school education has doubled between 2005 and 2011, according to the Associated Chambers of Commerce and Industry of India (Assocham). There are at least 240 million students in India pursuing school education, according to data available with the Union government.
Zee Learn runs 900 play schools, 100 K-12 schools and nearly three dozen animation institutes across the country. It recently tied up with Japan’s Gakken Education to improve science learning in classrooms. By the end of the year to March 2012, the company plans to add 100 playschools and 25 each in the other segments.
Mehta said Zee Learn hopes to have 500 K-12 schools in five years, of which 15-20% will be owned by others.
Motiprakash Rath, deputy general manager, corporate communication, JSL Stainless, said the company is in talks with Zee Learn. “Organizations like Zee Learn are specializing in education and we believe that the best result can be extracted by giving the right job to the right people,” Rath said.
Analysts said school outsourcing can help education firms sidestep the difficulties of land acquisition.
“For any business expansion, land is a major issue and in case of education firms this is definitely one of the concerns. Hence, some K-12 education players find it convenient to partner with those corporate houses or government bodies that have this facility. What they are following is a management service model,” said Bharat Gulia, senior manager, education practice, at consulting firm Ernst and Young.
Mehta agreed that acquiring land is a concern for Zee Learn, and the company won’t mind expanding to smaller cities and towns, where land acquisition is easier.
Zee Learn has already tied up with the Gujarat government to manage 25 municipal schools in Ahmedabad, he said. The agreement was signed some months ago and the firm will take over operations after Diwali holidays.
The company’s board has approved a proposal to raise $60 million to support its expansion, Mehta said. He did not say how the money will be raised but added that the option of bringing in private equity firms or other investors is “not off the table”.
Zee Learn’s revenue grew 40% in the first half of fiscal 2012 to Rs.220 crore, Mehta said. In the second half, it aims to expand 50-60% to nearly Rs.300 crore as it is expecting its order book to grow.
On Wednesday, the firm’s share ended at Rs.18.70, up 2.9% on the Bombay Stock Exchange.