School, college enrollments continue to rise, driving fee income growth by 12-14% this fiscal: CRISIL

NEW DELHI: Schools and colleges will report 12-14% revenue growth this fiscal, riding on higher enrolments, allowing education institutions the flexibility to revise and hike fees, CRISIL Ratings, wholly-owned subsidiary of CRISIL Limited, a credit rating agency in India, said in a statement. The growth will be despite the high base following three consecutive years of high-teen growth, it said.

“An analysis of 96 educational institutes rated by CRISIL Ratings, accounting for almost Rs 20,000 crore fee income, indicates as much, “ it said. School enrollments in kindergarten to Class 12 will continue to rise due to two reasons - rising demand for high-quality education and improved affordability as income levels rise, the report read.

The National Education Policy (NEP 2020) aims to increase gross enrollment ratio (GER) for higher education to 50% by 2035, from under 30% currently. To achieve this goal, the Centre has been promoting new institutions and launching initiatives while expanding and improving current institutions and increasing penetration among the addressable population, it said.

The University Grants Commission (UGC) chairman Mamidala Jagadesh Kumar in April this year said that the online and distance learning (ODL) and online education will help the country achieve 50% more enrollment by 2035.

“Even as intake capacity increases, utilisation rates for schools and higher education institutes may improve to 86-87% by this fiscal from 85% last fiscal,” as per the analysis.

The analysis conducted by CRISIL Ratings showed that the “improved enrollment and better utilisation of assets should cover increasing salary costs for faculty and other ancillary expenses for new courses and, thereby, aid in maintaining the operating margin at around 28%”.

Moreover, it said that education institutions will continue to make capital expenditure (capex) to improve infrastructure and enhance intake capacities as the existing courses and seats remain highly utilised. “However, strong cash flow (from higher revenue and timely realisation of fees) limits reliance on debt for capex and supports the credit risk profile,” it added.

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AI, Data Science, ML in high demand

Himank Sharma, director of CRISIL Ratings, said: “Occupancies in Computer Science courses in engineering colleges remained healthy in fiscal 2024 despite subdued placements. Moreover, new courses on Artificial Intelligence, Data Science and Machine Learning were in high demand. Occupancies in these courses will be further boosted by better hiring signals for fiscal 2025.”

“Medical colleges and schools, too, continue to register high enrolments, driving fee income growth. Hence, educational institutes have the flexibility to undertake periodic fee revisions, which will result in fee income being higher by 12-14% in the current fiscal,” Sharma added.

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Schools, colleges will continue to expand

Although the analysis showed an increase in fee base, the working capital requirement will remain minimal as the fee receivables have been controlled at 45-50 days over the past few fiscals.

“Further, gearing and interest coverage ratio will improve to around 0.41 times and 7.0 times, respectively, this fiscal, as against 0.46 times and 6.2 times last fiscal,” a graph representing the same is given below.

Gearing and interest coverage for educational institutes rated by CRISIL Ratings

Nagarjun Alaparthi, associate director of CRISIL Ratings, said: “Strong cash generation by educational institutions led to capex spends increasing by 18-20% of existing gross blocks, reaching an all-time high in fiscal 2024. Even in the current fiscal, schools and colleges will continue to expand their capacities by investing heavily in land and infrastructure, around 14-16% of existing gross blocks, while adding various new courses to their portfolio. Yet, credit profiles of education institutes will remain stable as leverage continues to be low.”

‘That said, any impact of government regulations on the sector or any change in course preferences will bear watching,” it added.