Educational Institutions Set For 11–13% Income Growth On Higher Enrolments, Fee Hikes: Crisil

Educational institutions' are likely to witness 11-13% growth in total income in the current fiscal year and the next, driven by rising enrolments and fee hikes across segments as schools and colleges capitalise on steady demand and improving realisations, a report said on Monday.

Operating margins will be steady at 27-28% as these institutions will incur higher staff salaries and other related costs, Crisil Ratings said in a report.

With rising enrolments, the institutions will also incur capital expenditure to create additional capacity and improve infrastructure, the report said, adding that credit profiles will, however, remain stable as strong cash flows will limit reliance on external debt.

"Overall income is expected to log healthy double-digit (11-13%) growth over the next few fiscal years, mainly supported by fee revisions, along with growth in enrolments, albeit at a modest rate.

"Fee escalations are primarily driven by higher inflation, especially in the urban areas. Despite this, increasing spending on staff salaries and facilities will prevent any improvement in operating margins, which are expected to remain stagnant around 27-28%," Crisil Ratings Director Himank Sharma said.

The report further stated that the K-12 segment, accounting for a third of the sector's revenues, is expected to grow at a steady rate of 9-10% supported by rising urbanisation and affordability, along with annual fee revisions at private schools.

However, the report revealed that engineering courses continue to log healthy demand, despite turbulence in the job market amid the global slowdown and issues related to visas and immigration restrictions in the US.

In medical education, demand for undergraduate MBBS courses has continued to surpass supply, even as other courses on nursing, pharmacy, physiotherapy, among others, witnessed moderate demand, it said.

Crisil Ratings said the government's thrust on increasing the number of undergraduate and postgraduate medical seats and augmenting education infrastructure will drive enrolments for medical courses in the near term.

"The credit profiles of educational institutions will be supported by strong cash flows from rising fee collections, which will be used for developing infrastructure. Gearing and interest coverage ratios are expected to be healthy at 0.37 time and 7.6 times, respectively, this fiscal, similar to the previous fiscal," Crisil Ratings Associate Director Nagarjun Alaparthi said.