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Preschool 1

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PRESCHOOL MARKET: MULTIFOLD GROWTH

PRESCHOOL MARKET: MULTIFOLD GROWTH


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  • 1. PRESCHOOL MARKET
    Preschools – a snapshot
  • 2.
    • Playschools, more popularly known as preschools, traditionally cater to the 1.5-6 years age group.
    • 3. Increasing awareness among parents about the benefits of a quality preschool education has been driving penetration levels and price discovery in the segment.
    Market to expand 3x to $1bn by 2012E
    In 2008 pre-schol Market
    Total population 1.15bn
    HHs with income>Rs200,000(8%) 91m
    2-4 yrs (6%) 5.5m
    2-4 yrs enrolled (12%) 661,246
    Average spend (Rs pa) 8,000
    Market size (Rs m) 11900
    Market size ($ m) 300
    Source: IDFC-SSKI Research
    PRESCHOOL MARKET: MULTIFOLD GROWTH
  • 4. Preschools – a snapshot
  • 5. Major players – KidZee the largest
    • Largest player at 34% oforganized market and 7% of total market
  • Organized preschool market in India
  • 6. Organized preschool market in India
  • 7. Preschools have a limited target area – maximum of 2km radius
    Any preschool, however strong the brand, ideally has a customer pull within a 2km radius (parents prefer to send toddlers within a limited radius for safety/ comfort reasons).
    The segment caters only to customers who can afford annual fees of Rs20,000-45,000, which further limits the scope of the market.
    Tail wags the dog – rental costs!
    Preschools are currently being run primarily on the franchisee model, which has so far evolved largely on the back of two factors-
    1.low cost of setting up a franchisee,
    2.housewife occupation that typically does not consider the opportunity cost of lease rentals (schools are being set up on existing premises which otherwise also do not generate returns).
    Franchisee Model
  • 8. Considering the economics of the preschool business, lease rent forms the largest expense for running a preschool and can eat into profitability of the business.
    Soaring rental costs – mounting pressure on cost structures
  • 9. The unorganized neighbor
    With awareness levels still low, the unorganized market provides ‘the same’ care butat a much lower price.
    With more than 80% of the target market still with the‘trustworthy’ neighbor, it may take some time before organized players are able to establish the importance of a quality preschool education.
    A non-regulated market – low entry barriers
    The preschool market is non-regulated and hence entails no regulatory barriers for new entrants.
    Given the relatively low investment required, competition is intensifying in this segment.
    unorganized neighbor Market
  • 10. franchisee has to pay a brand/franchisee fee (Rs60,000-5,00,000pa)
    some part of the revenues to the franchisor (~20% of total) in lieu of using the latter’s brand name and for the handholding required to run a preschool.
    Except for a few preschool chains (Kangaroo Kids going in for JVs with developers and Tree House with largely owned schools),
    Assumptions:
    We have assumed a model premise of 1200 sq. ft with rent at Rs70 per sq.ft.
    Only 60% of the total area can be used for classrooms and a minimum of 10-15 sq.ft per student is considered optimal.
    The one-time capex broadly comprises furniture and fittings cost and excludes brand fee (we have assumed an average franchisee fee of Rs2,00,000, which is renewable every three years and amortized over a period of three years).
    We have assumed three classes and two batches a day, which translates into a maximum capacity of 20 students per class (thereby a maximum of 120 students per preschool) and an annual fee of Rs25,000.
    Economics of a preschool
  • 11. Economics of a preschool
  • 12. Revenue modelUsing these assumptions, the model breaks even at the operational level at a fairlyhigh occupancy level of ~70%.
  • 13. The limited catchment area for a preschool implies limited scalability per branch
    A large section of the franchisees being run on owned premises
    The model ignores lease rentals – a major cost-head
    The business for a franchisee runs the risk of becoming economically unviable in a scenario of high rentals . (it has
    been observed that while franchisees keep mushrooming,
    there has also been a considerable churn in existing franchisors under high rental costs).
    To improve economic viability of the model, some franchisors are seen to be levering
    The existing infrastructure beyond the 1.5-3 year age group for programmes' like mother-toddlers(children aged between 6-12 months) and activities like dance, music, pottery classes, etc (children aged three years and above)
    Levering infrastructure beyond preschools to improve economic viability
  • 14. Investment Details