Preschool 1

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PRESCHOOL MARKET: MULTIFOLD GROWTH

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Preschool 1

  1. 1. PRESCHOOL MARKET<br />Preschools – a snapshot<br />
  2. 2. <ul><li>Playschools, more popularly known as preschools, traditionally cater to the 1.5-6 years age group.
  3. 3. Increasing awareness among parents about the benefits of a quality preschool education has been driving penetration levels and price discovery in the segment.</li></ul>Market to expand 3x to $1bn by 2012E<br />In 2008 pre-schol Market <br />Total population 1.15bn<br />HHs with income>Rs200,000(8%) 91m<br />2-4 yrs (6%) 5.5m<br />2-4 yrs enrolled (12%) 661,246<br />Average spend (Rs pa) 8,000<br />Market size (Rs m) 11900<br />Market size ($ m) 300<br />Source: IDFC-SSKI Research<br />PRESCHOOL MARKET: MULTIFOLD GROWTH<br />
  4. 4. Preschools – a snapshot<br />
  5. 5. Major players – KidZee the largest<br /><ul><li>Largest player at 34% oforganized market and 7% of total market</li></li></ul><li>Organized preschool market in India<br />
  6. 6. Organized preschool market in India<br />
  7. 7. Preschools have a limited target area – maximum of 2km radius<br />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).<br />The segment caters only to customers who can afford annual fees of Rs20,000-45,000, which further limits the scope of the market.<br />Tail wags the dog – rental costs!<br />Preschools are currently being run primarily on the franchisee model, which has so far evolved largely on the back of two factors-<br /> 1.low cost of setting up a franchisee,<br /> 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).<br />Franchisee Model<br />
  8. 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.<br />Soaring rental costs – mounting pressure on cost structures<br />
  9. 9. The unorganized neighbor<br />With awareness levels still low, the unorganized market provides ‘the same’ care butat a much lower price. <br />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.<br />A non-regulated market – low entry barriers<br />The preschool market is non-regulated and hence entails no regulatory barriers for new entrants.<br /> Given the relatively low investment required, competition is intensifying in this segment.<br />unorganized neighbor Market<br />
  10. 10. franchisee has to pay a brand/franchisee fee (Rs60,000-5,00,000pa)<br />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.<br />Except for a few preschool chains (Kangaroo Kids going in for JVs with developers and Tree House with largely owned schools),<br />Assumptions:<br /> We have assumed a model premise of 1200 sq. ft with rent at Rs70 per sq.ft.<br />Only 60% of the total area can be used for classrooms and a minimum of 10-15 sq.ft per student is considered optimal.<br />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).<br />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.<br />Economics of a preschool<br />
  11. 11. Economics of a preschool<br />
  12. 12. Revenue modelUsing these assumptions, the model breaks even at the operational level at a fairlyhigh occupancy level of ~70%.<br />
  13. 13. The limited catchment area for a preschool implies limited scalability per branch<br />A large section of the franchisees being run on owned premises<br />The model ignores lease rentals – a major cost-head<br />The business for a franchisee runs the risk of becoming economically unviable in a scenario of high rentals . (it has<br /> been observed that while franchisees keep mushrooming, <br /> there has also been a considerable churn in existing franchisors under high rental costs).<br />To improve economic viability of the model, some franchisors are seen to be levering <br /> 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)<br />Levering infrastructure beyond preschools to improve economic viability<br />
  14. 14. Investment Details<br />

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