Awards, Competitions, Funding Grants

Childs play now a big business.To touch USD 1 Billlion in 2 years

Play schools are scouting for Private equity investors in India

Rishi Navani, co-founder and managing director of Matrix Partners India, says what the organised retail sector went through in the past five years, education will go through in the near future.

Matrix Partners India has invested Rs 59 crore in Tree House Education, a pre-school and K-12 education entity. The investment was done in two tranches — Rs 50 crore in 2008 and Rs 9 crore recently.

Matrix Partners India had also invested Rs 100 crore in FIITJEE, a company which helps students prepare for the IIT-JEE test, crucial for seeking admission into top engineering colleges.

play school india

Play schools in India

In the past five-six years, the pre-school market has seen a shift toward organised players. KidZee (renamed Zee Learn) — India’s largest pre-school chain — has set up 623 pre-schools in just five years since inception and plans to add another 1,000 over the next two years.

Read more in the Economic Times… HERE

The concept of preschool or playschool, as they are also known, is relatively new in India, but the trend is fast growing, due to increasing, awareness that 40% of learning takes place before the age of four.

The $300m preschool segment is expected to be a $1bn market by 2012 (36% CAGR) led by low penetration (1 out of 100 preschool-aged children enrolled) and further price discovery.

With low entry barriers, corporate activity has gathered pace and 11 major chains and ~10 smaller players are active in the space. While the scale-up has so far been on the franchisee platform, corporates are increasingly forming JVs with builders/ partners and moving up the value chain by upgrading to K12 schools.

The strategy imparts resilience to the model against high lease rentals besides ensuring scalability. With players planning aggressive rollouts, the organized segment is growing faster than the industry (50% vs 36% CAGR).
Playschools, more popularly known as preschools, traditionally cater to the 1.5-3 years age group. Increasing awareness among parents about the benefits of a quality preschool education has been driving penetration levels and price discovery in the segment.

Led by these factors, we expect the market to expand by more than 3x in size by 2012. While the market is currently highly fragmented and unorganized in nature, increasing prosperity is driving a shift towards the organized segment. A largely urban phenomenon, there has been rapid proliferation of organized preschool chains beyond metros and tier 1 cities in the last five years.

There is enough demand for preschools (as reflected by the rapid proliferation) and capex requirements are also relatively lower, which means that it is play time for preschool chains. However, the model is fraught with risks including the inability to attract preschoolers beyond a catchment area of 2km, high lease rentals, intense competition from the unorganized segment (at considerably lower cost to customer) and increasing competition among organized players.

Limit to lever infrastructure for preschool children
Any preschool, however strong the brand, ideally has a customer pull within a 2km radius (parents prefer to send toddlers within a limited radius for safety/ comfort reasons). Also, the segment caters only to customers who can afford annual fees of Rs20, 000-45,000, which further limits the scope of the market.

Tail wags the dog – rental costs!
Preschools are currently being run primarily on the franchisee model, which has so far evolved largely on the back of two factors – low cost of setting up a franchisee, and housewife occupation that typically does not consider the opportunity cost of lease rentals (schools are being set up on existing premises which otherwise also do not generate returns). Considering the economics of the preschool business, lease rent forms the largest expense for running a preschool and can eat into profitability of the business.

The unorganized neighbor
With awareness levels still low, the unorganized market provides ‘the same’ care but at a much lower price. With more than 80% of the target market still with the ‘trustworthy’ neighbor, it may take some time before organized players are able to establish the importance of a quality preschool education.

A non-regulated market – low entry barriers
The preschool market is non-regulated and hence entails no regulatory barriers for new entrants. Given the relatively low investment required, competition is intensifying in this segment.

Previously we had also covered the emerging sector of Toy Libraries in this post here

To Top