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Reliance Capital PE’s first deal is in education

In its first investment, the private equity (PE) arm of Anil Ambani-controlled Reliance Capital Ltd has purchased a stake worth Rs100 crore in Pathways World School, a group of schools for students from kindergarten to Class XII. The size of the stake acquired by Reliance Equity Advisors (India) Ltd hasn’t been disclosed.

Reliance Equity Advisors is seeking to tap annual growth in the education sector that its chief executive officer Ramesh Venkat estimates at 50-60%.

A recent report by education-focused PE fund Kaizen Management Advisors Pvt. Ltd has estimated that the so-called K-12 segment (kindergarten to Class XII) is a $20 billion (around Rs89,000 crore) business.

“Also, there are a lot of government initiatives and policy changes which are attracting investment in the sector,” Venkat said.

The ministry of human resource development under Kapil Sibal is aggressively pushing reforms in the education sector while parents are increasingly seeking to put their children in private institutions regardless of the high fees they charge.

Pathways, which offers the International Baccalaureate curriculum, will use this money to expand its present capacity and set up two more schools in the national capital region (NCR) centred on New Delhi, said Prashant Jain, promoter-director of Pathways, which is also looking to diversify into higher education and is working on a university model.

“The plans are still being drawn and the land for this has already been purchased,” said Jain.

The cash raised from the stake sale will fund Pathways’ expansion plan, for which the company has been seeking to raise a total Rs350 crore. It plans to raise the remaining Rs250 crore through debt funding.

Long-term plans include expanding into other parts of India and venturing abroad as well as making acquisitions. According to its website, it runs one school in the NCR and is building two more.

Venkat said Reliance Equity Advisors wanted to invest in an institution that was “reasonably diverse” with interests in schools and higher education.

“In Pathways, their existing expansion plans for the next two-three years has scale of a different order,” he said.

According to the report published by Kaizen Management in January, the K-12 segment consists of approximately one million schools. Of an estimated 343 million children who qualify for the K-12 segment, only 219 million are enrolled.

The K-12 segment is characterized by high upfront capital investment but relatively low operating expenses. Successful schools catering to the segment have significant pricing power, says the report.

“There are approximately one million schools in India, of which 900,000-plus are government-run and have poor quality infrastructure. So this space needs private investment,” said K.K. Iyer, partner and managing director of India Equity Partners, which invested Rs172 crore in IL&FS Education and Technology Services Ltd.

Some of the recent investments in the education space include Rs200 crore by Premji Invest—the investment venture of information technology company Wipro Ltd‘s chairman Azim Premji—in Manipal Education, Rs60 crore in Resonance Eduventures and Rs25 crore in IMS Learning Resources Pvt. Ltd by Milestone Religare Investment Advisors Pvt. Ltd and Rs100 crore in FIITJEE by Matrix Partners India.

Source: Livemint

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