With the government pushing for more public private partnerships in the vocational education space, venture capital and private equity players are sensing huge potential in the $1.5-billion vocational and corporate training market in India.
Early this month, staffing and education company TeamLease Services raised Rs 100 crore as equity fund from ICICI Venture and existing investor Gaja Capital Partners. The fund will be used to fuel the company?s vocational education business and about Rs 60-70 crore set aside for acquisitions that will compliment its existing domain and location reach.
High scalability, profitable model and few regulations, make it a preferred segment in the largely closed education sector for the investor community. The vocational and corporate training market in India is growing at a compounded annual growth rate (CAGR) of 22% over the last four years, according to the Kaizen Education Report, 2010. Kaizen Private Equity is one of the funds focused on the education sector.
?Vocational education market offers a huge business potential if executed right. It is a very relevant industry in the current scenario. In our country educational qualifications don?t always lead to employability. There is a need for specialised training to get ready for the job market,? says Ashok Reddy, MD, TeamLease.
TeamLease, which entered vocational education business after it acquired Indian Institute of Job Training last year, has received R50-crore funding from its existing investor Gaja Capital Partners. The company operates over 150 vocational training centres through its fully-owned subsidiary IIJT, which deliver classroom and satellite training in finance and accounting, IT infrastructure, sales and marketing, retail and English speaking skills.
Industry observers point out that there are several ongoing discussions between PE/VC players in the space such as private equity major New Silk Route and Hyderabad-based Sri Chaitanya Educational Group. ?We are actively looking at a number of opportunities in the sector and cannot comment on any specific one at this stage,? says Jacob Kurien, partner, NSR.
VC firms like Reliance Venture Asset Management are also exploring deals in the vocational education area, which focuses on a strong business model and scalability. ?I like the idea of franchises but provided the model lends itself to ensuring good quality and strict enforcement of standards. Many companies have tried that since the mid-1990s but have failed to deliver either the quality or the results that would make respectable graduates,? says Harshal J Shah, CEO, Reliance Venture Asset Management.
According to PE players, this year is expected to see more investments coming into the sector with increased government allocation and PPPs expected to provide stimulus to the market. ?The education and staffing sector in India is poised for an exciting future as there is clear recognition within the government as well as the private sector about the need to address gaps in the people-supply chain, need for up-skilling of workforce and demand for quality training with India?s current growth trajectory,? says Vishakha Mulye, MD and CEO, ICICI Venture.
In the vocational education segment, private participation mostly involves training in polytechnics, industrial training institutes (ITI) in verticals such as IT training and hospitality. According to a PwC report, in the last few years private and foreign participation in vocational area has been encouraged by the government ?both through private entities and PPPs. The government has also announced incentives including financial assistance for private participation in running ITIs, with a target to add 1,000 new polytechnics in government/PPP and the private sector by 2012, notes a PwC report.
The major vocational training players in the organised sector include IndiaCan, a JVC between British media major Pearson and education company Educomp, NIIT for IT, Aptech Computer Education, Jetking for hardware, Frankfinn offering training on aviation and hospitality and IndiaSkills another JV initiative between Manipal Education and City and Guild, UK.
For Manipal Education, which also runs training programme with major industry players in different sectors, corporate education currently accounts for about 5% of the group?s annual revenue of R1,000 crore as of March 2010. The initiative is expected to contribute to at least 25% of revenue over the next five years.
Industry experts feel with the new emphasis on skills development, vocational training should get strong governmental support and corporate training will continue to see robust investments. However, despite being a profitable model, apart from computer training, it has been difficult for the other formats to scale up. Experts point out that quality is a factor that can lead to sustainability in a model and in the long run only high-quality vocational and corporate training businesses will be profitable.