New Delhi: Indian Ratings (Ind-Ra) on Friday assigned a stable outlook for the education sector for FY22, but said that resumption of traditional classes is key for enrolment and revenue growth.
Debt levels in the sector are likely to increase slightly year-on-year in FY22 as some of the deferred capex plans of education players may start taking shape, the rating agency said.
The agency said its stable outlook is because it expects stability in enrolments across higher educational institutions for the year. Also, the commencement of 170 new institutions in FY21 supports the stable outlook. Furthermore, 29% of India’s population falls in the age group of 0 to 14 years, which reflects a great opportunity for the sector.
Ind-Ra said since enrolments were slightly behind schedule for the education sector due to the procedural delays in admissions in FY21, fee collection was also delayed by few months compared to earlier years.
“However, lower operating expenses in FY21 improved the operating margins of Ind-Ra rated investment grade educational institutions. Lower revenue collection than expected for non-investment grade institutions is likely to exert pressure on their operating performance in FY21. However, Ind-Ra believes profitability to recover in FY22, backed by normalisation of activities and recommencement of physical classes,” it said in its report.
Ind-Ra believes the liquidity profile would continue to be affected by continued delays in fee reimbursements over FY21-FY22. Ind-Ra, therefore, expects the working capital utilisation of such educational institutions to remain high in FY22.
“Ind-Ra believes debt levels are likely to increase slightly in FY22 from previous year as some of the deferred capex plans may start taking shape. Consequently, debt burden will rise for most educational intuitions in FY22 as the deferred capex plan gets implemented. Nevertheless, an improvement in the operational performance mainly in investment grade institutions is likely to support their leverage ratios in FY22,” the agency said in its sectoral outlook report.
It said continuation of the online classes will positively impact operation cost and help improve margins. But demand for discounts on fees poses a risk to revenue generating capacity of the institutions as this would lead to strains in fee collection. But institutions with strong demand and brand equity would be able to face these challenges better.
Indian education sector has faced a tough disruption since mid-March 2020 and institutions are largely closed since then. Though several states have opened up institutions albeit with riders, classes are not seeing even half the capacity. A resurgence of fresh covid-19 cases across India is bound to delay normal resumption of education in the short run.