It is a true story, it is filled with pathos, and it comes with a happy ending. 12-year-old Aproopa lives in Hyderabad and loves science. She was readying her project (a barometer made with, of all things, a used plastic water bottle, a toothpick and a straw) for the finals of an inter-school science contest, when tragedy took the form of a spinal injury and multiple surgeries. “She still made it to that stage and stood second,” recounts Navneet Anhal, chief operating officer, Zee Learn, with the easy pride of someone who has narrated a favourite story to a legion of admirers or, as in this case, newcomers to his company.
Zee Learn is the education business that was hived off from Zee Entertainment Enterprises in April 2010. It runs preschool chain (Kidzee), K-12 schools (the Mount Litera Zee Schools and the Mount Litera World Schools), vocational education centres (the Zee Institute of Creative Arts and the Zee Institute of Media Arts), plus a private university in Dehradun as a separate venture. The Essel Group forayed into education because of the founder media baron Subhash Chandra’s, deep-rooted desire “to improve the quality of human capital while investing in a sector that was ripe for investment”.
Kidzee began operations in 2003 but it’s only of late that Zee Learn has seen traction in the business. Enrolments have risen from 33,000 in 2009 to 60,000 in 2012, across 900 centres, and the business now contributes 60% of the company’s total revenue. An IDFC-SSKI report says the $300 million organised preschool market, which saw a 36% CAGR till 2012, is split three-ways as of now. Kidzee has 34% of this lucrative and growing market, making it the market leader, Euro Kids has 30%, and Tree House brings up the rear with 3%.
Clearly, the brand’s decision to take the franchise route to growth has worked well for it. A typical franchisee of the preschool, on contract for four years, invests Rs.8-10 lakh in a centre, and bears the cost of real estate, salaries and advertising, while Zee Learn takes care of the content and activities vertical through its proprietary curriculum under the Illume brand. It has a variety of programmes, such as Parent Toddler, Play Group, Nursery and Kindergarten, designed to suit various age groups from 10 months to five and a half years. Illume claims to help children to learn by nurturing their unique potential. The annual fees for Play Group to Kindergarten is in the range of Rs.50,000 to Rs.55,000 in tier 1 cities. This is in the same range as Kidzee’s rivals Eurokids and Tree House.
But what has given Kidzee the lead over others is that it has taken a fancy to the franchisee model of growth. “They started early and, have the first-mover advantage,” says P Naveen Kumar, who has his own chain of Sudiksha schools in Hyderabad. “Their integrated education services has helped establish them in preschools and their teaching system is excellent.”
While Kidzee centres have grown particularly well in states such as Uttar Pradesh and West Bengal, big cities and metros appear to suit franchisees better in terms of turnover (60% centres are in metros and tier 1 cities). However, the universal truth of lower overheads in smaller cities applies here, too. Each Kidzee centre, company sources say, needs 50-60 children to be profitable. Currently, about 20% of the centres are loss-making.
Moving up the chain
In a bid to capitalise on the strong brand that it had created with preschools, in 2008 Zee Learn ventured into the K-12 with Mount Litera Zee schools. “The K-12 sector was a venture that we entered with a well-designed plan and curriculum given the opportunity and dearth of players,” says Anhal. Today, the Mount Litera Zee Schools account for 20% of the company’s revenue. As of now, 62 Mount Litera Zee schools are up and running of the 105 planned by 2014.
There were 6,100 students in 2011; enrolments nearly doubled to 11,500 in 2012. Around 70% of the schools are company-owned; the rest are operated on a management-contract basis. In the case of Mount Litera World Schools, the target audience is the middle to upper class. The school’s teaching methods follow the company’s proprietary Octave pedagogy.
Play and earn
Kidzee continues to be a big growth driver for Zee Learn
Zee Learn earns its K-12 revenue in two ways — through a franchise fee that is fixed and a royalty, which is a percentage of the earnings. A typical K-12 school franchisee invests Rs.8-10 crore. While the number of schools has doubled as the base was small, the company is looking at “over 60% growth per year, from FY14 for Mount Litera,” says Pradeep Pillai, business head, Kidzee and Mount Litera.
Brain Café, started in October 2010, is Zee Learn’s youngest department — it provides additional guidance to students apart from the school curriculum. For instance, it has tied up with Gakken Education of Japan to provide science classes for students from grades 1 to 8. The charges range from Rs.900 to Rs.1,000 per student per annum, depending on schools’ strength. There are more than 500 schools running the cafés across India. The school provides the space for storing the equipment and conducting the classes while Brain Café provides the instructors and kits. “It’s a platform for students to learn science through experiments,” says Aman Pal Singh, business head, Brain Café.
Then there is the Zee Institute of Creative Arts (Zica), an institute that teaches animation, which has grown to 33 centres across India since it started in 1995, and the Zee Institute of Media Arts (Zima), which has a single centre in Mumbai, opened in 2004. Together, they have 1,500 students enrolled with them. “We have a number of courses that combine learning with on-the-job experience in the institutes,” says Prabhanjan Chappar, business head, youth, Zee Learn, who handles the operations for Zica and Zima. Zima offers post-graduate, UG and diploma courses in film-making, besides several short-term skill-based programmes in direction, cinematography, editing and acting. The pricing of Zica’s 33 courses depend on the city where the branch is located, and range from Rs.30,000 to Rs.1 lakh per annum; it costs about Rs.1 lakh per annum to study in Zima.
In FY12, Zee Learn clocked a turnover of Rs.62 crore, but ended in the red with Rs.27.5 crore loss. However, Anhal is unfazed and says the company will break-even in FY15 by ramping up the K-12 section, which is expected to then account for over 60% of the revenue. “Last year the investments were mostly devoted to brand building,” says Sumeet Mehta, independent education observer and former Zee Learn CEO. Besides, Anhal points out, the company is still in the investing phase. It is targeting a CAGR of over 40% over the next five years with an investment of Rs.800-1,000 crore in its preschools, schools and content development.
Analysts are playing it by the ear even though the stock has bounced back from its 2011 lows of Rs.12 to the current Rs.29 levels. “A company with negative PAT and negative cash flow will not be in demand,” points out Atul Thakkar, analyst with Anand Rathi. Thakkar believes running a franchisee model poses a risk as most franchisees cannot bear losses for 18-36 months, which is usually the time taken for a venture to break-even.
However, Mehta points that the company has been looking at innovations and products to increase revenues. For instance, in FY11, Zee Learn launched Dance India Dance academies and Robotics Camps at existing preschools and schools across the country. “This increases the company’s revenue potential and return on investment from its real estate assets,” states the company’s FY12 annual report.
Besides, Zee Learn is looking at school management solutions and entry into premium preschools to drive growth. Under school management solutions, it offers local educational trusts solutions such as assistance for setting up schools and managing existing ones. In such schools, it employs a per child fee model. In the preschool segment, it has launched two premium Mount Litera World Preschools that will be owned and operated by the company. While Zee Learn’s competitive advantage lies in its ability to cover a range of offerings in education, from preschools to vocational training to a private university, its task is cut out as far as clocking profits are concerned. Till such time Anhal will be hot on the trail of students.