Education sector outlook improving driven by industry-oriented learning, digitalisation: India Ratings

New Delhi [India], March 17 : India Ratings and Research (Ind-Ra) has revised the outlook on the Indian education sector to "improving" from "neutral" for upcoming financial year 2023-24, citing a recovery in enrolments post-pandemic and a continuous rise in enrolments in higher education.

Demand, according to the rating agency, is mainly driven by medical and health allied courses.

Further, citing union budget's proposal to set up a National Digital Library for children and physical libraries for children at panchayat and ward level, it said it believes the government's steps towards digitalisation will improve the approachability of learning content, leading to enhanced knowledge and skills, and ultimately better employment opportunities.

The government proposal to to set up three artificial intelligence centres of excellence will also allow students to leverage advanced technology for innovations and will enable them for better employment opportunities, it said in a release on Friday.

"Institutions' revenue base thus could improve in FY24, but profitability may reduce from FY21-FY22 level on account of an increase in the operating expenditures because of the resumption of physical classes," it said, adding online classes during the pandemic had helped institutions to reduce their operating cost.

Student enrolments, according to the rating agency, fell in 2020-21 across the nation, as students shifted from private institutions to government institutions to get affordable education.

However, Ind-Ra expects student headcount levels to touch new highs in 2023-24.

"Nonetheless, institutions offering higher education had reported an increasing trend in enrolments despite the pandemic in 2020 and 2021 which is attributed to their sound market position, quality infrastructure and high academic standards. Enrolments in colleges and universities are likely to report consistent growth in FY24."

"Ind-Ra rated educational institutions offering higher education are likely to report comfortable EBITDA margins in FY24. Profitability was marginally higher during the pandemic and fell in FY23. Despite the fall in margins, they remained comfortable in FY23 and are likely to remain at FY23 level in FY24."

As educational institutes continue to engage in debt-funded capacity additions to meet the growing demand or garner a higher market share, the rating agency believes their debt level to remain elevated in 2023-24 as well.