a quarterly report by - Technopak

perspective
a quar terly repor t by
Volume 02 / 2009
| Volume 02
Cost per Seat Estimations in the Private
Higher Education Segment
Cost per seat estimations in higher education would vary depending on the scale of the project and the
cost of land. Enclosed are few parameters on which we have calculated that a medical seat would cost
~ US$ 104,166 and a non-medical seat would cost ~US$ 14,580 to be created by a private player. The
assumptions backing these estimates are outlined below. In these calculations we have assumed that
100% students would be residing in the hostel and the cost per acre of land is ~ US$ 520,800.
Exhibit 6
Thumb Rules for Investments in Private
Education
It has become evident in the last decade or so that government alone cannot bear the cost of the education
sector and this sector particularly lacks proper investments, which is a constraint in coping with growing
market demand and global competition. To bridge the gap, the private sector has stepped in. Education
as an investment sector is often viewed as safe by the investors. With the attractive rates of return and
the growth potential, it is one of the hot favorite sectors for the private players and private equity funds in
India.
A few thumb rules for entrepreneurs and companies wanting to invest in education are listed below.
‘Market’ Assessment
A pragmatic assessment of the “catchment” in each segment of education is important, from the standpoint
of achieving required student enrollment, before planning an investment. The catchment (travel time from
institute) for a pre-school would be 30 minutes, for a K-12 day school would be 60 minutes, and for a
residential school this would be 5 hours. Demand for a vocational training institute originates from within
its city premises, with few students travelling across cities for enrollment. A university or a higher education
institute would attract students from all parts of India (as well as South Asia, the Middle East and Africa), the
catchment being dictated by the quality of education on offer and the reputation of the institute.
Key Financials
A regular day K-12 school, built over 2 acres of land with a capacity of 2,100 students, would require an
investment of ~US$ 3.1 Mn, and so would an MBA Institute with a capacity of 240 students enrolled in a 2
year course spread over 1.5 acres of land. An engineering college with a capacity of 1,600 students spread
over 10 acres of land would require an investment of ~US$ 21 Mn. The project cost for setting up a private
71 | Forecasting the Financial Potential in Education
Cost Per Seat Estimations in Different Streams of Higher Education
Engineering MBA MCA Architecture Medical
Max No of Students Enrolled 1680 240 360 200 500
Course Duration 4 2 3 5 5
Capex (US$ Mn) 16-26 3-4 4-5 3-4 46-52
Cost per Seat (US$) 12,500 14,580 12,500 18,750 104,166
Cost Per Seat Excluding Land (US$) 9,380 11,460 9,790 13,542 66,666
Area of Land 10 acres 1.4 acres 2acres 1.4 acres 25 acres
Hostel Development Cost (US$) 4.6 Mn 750,000 1.1Mn 625,000 1.5 Mn
Source: Technopak analysis