Private equity takes a fancy to private coaching

And going by the recent slew of investments in the space,the traction is already happening. Consider this: biggies such as New Silk Route (NSR) are in investment discussions with Hyderabad-based Sri Chaitanya Educational Group,besides three others. Angel investor Mumbai Angels invested Rs 4.5 crore in DEXL Education Services last year. In 2009,it had also invested in Speakwell,a Mumbai-based English training institute.

One of the biggest players in the IIT entrance coaching space,FIITJEE,got an undisclosed investment from Qatari investment bank Qinvest this month,and is scouting for another Rs 400 crore from private equity. Rajesh Sharma,chief financial officer,FIITJEE says this Rs 400 crore would be over and above the Qinvest investment. In 2009,FIITJEE had raised Rs 100 crore from Matrix Partners. Inspired by another leading coaching firm,Career Point,which raised Rs 115 crore via an IPO in 2010,Sharma adds that FIITJEE is also working on a public listing. “We are getting substantial funding and we will have exits,which will come from the IPO,” he says.

Not surprisingly,the investment thrust is on the engineering,medical and MBA coaching space. The reasons are clear: Over two lakh aspirants take the CAT every year,vying for 1,700 IIM seats. The remaining 116 non-IIM institutes offer 13,000-15,000 seats. The All-India Pre-Medical/Dental Test for filling up 15% of total MBBS seats in India conducted by CBSE takes in about only 2,500 students. Again,over two lakh take the test. About four lakh students take the All India Engineering Entrance Examination for around 7,000 seats in 13 IITs,IT-BHU and ISM.

As per the 2007-08 National Sample Survey Organisation figures,coaching constitutes a bigger portion of the expense students incur on education and it is much bigger than the expenditure on school fees. Average amount spent on private coaching per year in West Bengal is Rs 3,485 while in Gujarat it is Rs 3,318.

Maharashtra follows with Rs 3,273. Karnataka comes next with Rs 2,604 and Delhi Rs 2,593. This clearly hints at the trend of stepping up private tutoring at the level of board exams and further for entrance into professional courses.

Rajesh Singhal,managing partner,Milestone Religare Investment Advisors,which last year invested Rs 60 crore in Resonance Eduventures,a Kota-based tutorial institute for engineering and medical entrance,underlines the opportunity.

“There are immense growth stories to tap,as very few coaching institutes have scaled-up operations. With the right money push,the medium players can be the next set of winners,” he says.

Milestone had in 2009 invested Rs 25 crore in IMS Learning Resources,a leading test preparation institute for MBA and law.

Even angel investors are jumping into the coaching fray. As Anil Joshi,VP,Mumbai Angels,reasons: “There is a definite gap in demand and supply for coaching,especially in smaller towns,which have a considerable number of aspirants wanting to crack the IIT and PMT. We will be looking closely at new entrepreneurs and smaller players in this space.”

As things look to get bigger,so much so that coaching is being taken even to get into coveted coaching institutes,Jacob Kurian,partner in NSR,feels the challenge for PE/VC players will be that as the coaching sector gets hot,valuations will also get hotter.