Prajodh Rajan, director – education services, EuroKids International Ltd, speaks about the company's decade long journey in the Indian market and the way forward. Edited excerpts...
Could you give us a brief overview of the pre-school business in India.
The pre-school segment is sometimes also referred to as pre-primary, kindergarten etc. But whatever the term used be, it by definition caters to children in the 2-5 years of age group. In India, this segment is largely dominated by the unorganised sector which is referred to as ‘aunty next door pre-school’ who operates a centre in her own house or courtyard and that’s where young kids were being taught. While it worked well as far as the care and welfare of the children is concerned, but didn’t make much of a difference as far as education of the children is concerned.
This is because while warmth and care could be brought easily it lacked the educational quotient required. When I say educational quotient, like primary or secondary school children, even pre-primary has some very specific goals that need to be met with and the ‘aunty next door pre-school’ setup wasn’t really able to meet this requirement as the person wasn’t qualified enough (in most cases) to be able to conduct it. That was the big gap branded / organised pre-schools have identified and are trying to make a difference here.
How has the EuroKids' business faired over the past few years?
EuroKids has completed a decade in this industry now. We started operations back in 2001 thereby bringing in the branded pre-school concept in India. It all started with just two pre-schools in Mumbai back then and today we are a nationwide network of over 812 such centres in 300 towns and cities across the country. The company has grown very aggressively over the years and the compounded annual growth rate (CAGR) for the last three years has been a steady 25%. We are pursuing rapid growth currently not only in the tier I cities but also in tier II and III cities of India.
Are you largely operating in the key metros or have established presence in Tier II and III markets as well?
Our presence predominantly has been in the metros i.e. Tier I and II, since inception. For example Bangalore as a city itself would have a network of 60 play-schools. Though we have branched out in tier III it would be correct to say that large proportion would still be in the Tier I markets.
Are there any plans to venture in the rural, Tier III markets as well? Is there a different model being followed here?
We do not have a rural model parse and the urban model in practice has been extended to the Tier III or rural markets with minor modifications in terms of suitability for a given town. So I have an urban model which is suited for a rural market.
What is the mode of expansion pursued?
Franchising is predominantly how we have expanded our business. Nearly 98% of our centres are through franchise arrangements and the balance (2%) is company owned and operated.
How have you priced the services in different markets?
Our Average selling price is fairly broad now that we have penetrated in the Tier III markets as well. While at the top end (tier I) market the ASP is around Rs 65,000 p.a. while at the lower end (tier III) the price is Rs 18,000 p.a.
Could you take us through some of the challenges faced by organised players like yourself in the market?
The market is currently unregulated and we are very much in support of regulations as we feel regulations will certainly help the sector. Its absence is only helping the unorganized operators as they can virtually open a centre any place, anytime with very little or no regulations of sorts. Having no regulations is detrimental to branded players mainly because of low entry barrier, there is tremendous competition not just from the unorganized players but also the branded operators. If you look at the market today, almost 90% is unorganised.
How do you see the growth panning out in the coming years?
I’ll be bullish on the way ahead mainly because the Tier III response has been very good. Initially there was this resistance for pre-school education but the scenario is gradually changing and people in those towns are starting to realize the importance of sending their child early to school. The whole concept had not sunk in till recently and with the emergence of nuclear families among other factors, we are seeing that tier II and III markets are responding positively to early child education. This is the key reason why I am fairly bullish at least for the medium term which in my opinion would be next three years or so. We are looking at either maintaining the 25% CAGR levels or possibly look to better the same in the coming years.
What kind of growth are you targeting say five years from now? How will you fund this growth?
Our target for the next five years is to have close to 2,000 play-schools in the country. In addition, we are consciously taking our business overseas. Taking the centres out of Indian borders has been a very recent foray for us. We have successfully established presence in SAARC nations in a very meaningful manner. In Nepal we have 10 EuroKids play schools, one in Dhaka (Bangladesh), we have just entered the Sri Lanka market with a master franchise and one in Gulf.
The international operations currently is a small part of the entire 812 centres but going forward we plan to very aggressively also grow the international presence. In some place it would be through overseas subsidiaries, while in others through master franchise arrangements. We might also look to appoint direct franchisees from the India entity itself.
The EuroKids business model doesn’t really require a lot of capital expenditure from the company as money is largely invested by our franchise partners.
What is the company doing to enhance its asset utilisation?
As for enhancing asset utilisation is concerned, we have taken various steps to ensure that the real estate is occupied with other activities post the pre-school sessions that get over by 2 pm. In this direction, we have launched new initiatives viz. the EuroStar Academy of Performing Arts where in the focus is on dance and we have tied up with Sandip Soparrkar’s ballroom dance academy. We should be launching this initiative across 100 centres in India in the first phase. Simultaneously we are also taking about theatre, other forms of art and similar such programmes. This approach, in a big way will help us increase asset utilisation going forward.
What is the size of the pre-school market in India?
The pre-school market in India according to CRISIL is a Rs 50-55 billion market and I think it’s a fairly decent assumption. The report further states that approximately 13% is organized and balance is unorganised.
What is the size of your business?
We are hoping to touch Rs 65 crore by the end of this fiscal i.e. March 2012.
What is Educom's role in your business?
In 2008, Educom acquired a 50% stake in EuroKids International and they are currently part owners of the business.
How is competition shaping up in this industry?
Competition is building up in the segment from not just domestic players but also international companies. I think the shift from an unbranded to a branded industry itself is a big development. More branded players in the business will help the cause because good quality education can then be made available to a large audience in the country.
Is consolidation anywhere on the cards as well?
There is enough opportunity to grow organically and we are pretty far away from consolidation as of now.