May CRISIL Opinion. CA/CS/MOOCs. 'MBA dream' withering away

Transcription

1 May 2014 CRISIL Opinion B-schools Humanities CA/CS/MOOCs 'MBA dream' withering away

2 CRISIL Opinion About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macro economy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. We deliver our research through an innovative web-based research platform. Our talent pool comprises economists, sector experts, company analysts, and information management specialists. CRISIL Privacy CRISIL respects your privacy. We use your contact information, such as your name, address, and id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of McGraw Hill Financial you may find of interest. For further information, or to let us know your preferences with respect to receiving marketing materials, please visit You can view McGraw Hill Financial's Customer Privacy Policy at Last updated: May, 2013 Disclaimer CRISIL Research, a division of CRISIL Limited (CRISIL), has taken due care and caution in preparing this Report based on the information obtained by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendation to invest / disinvest in any company covered in the Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL s Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL s prior written approval.

3 MBA dream withering away Shake up expected before the occupancy revives for Indian B-schools Business schools (B-schools) in India had a helluva ride in the past four years: their number swelled to an estimated 4,500 in from 3,000 in However, in recent times, there are fewer takers for MBA programmes, especially in tier-3 and tier-4 B-schools, owing to a variety of reasons: students increasing awareness on the quality of education being provided, lack of infrastructure and faculty in the lower-run schools, and the decreasing return on investment (fees). Consequently, several institutes have had to shut shop. Even then, the average occupancy rate remains far from comfortable at around per cent in We expect to witness more pain B-schools closing down and a slight improvement in pan-india average occupancy rates over the next 2 years. Market grew exponentially; with more MBA institutes being set up... India s business school (B-school) market grew at a frenetic pace in the past 3 years, with revenues rising at 21 per cent CAGR to Rs 160 billion in E from about Rs 91 billion in E. Market size doubled, as the All India Council of Technical Education (AICTE) granted more approvals for setting up B-schools: more than 1400 B-schools were set up in the past three years ( to E). A point to note here is that most of the new institutes were tier-3/ tier-4 institutes. As per CRISIL Research estimates, tier-3 and tier- 4 B-schools together account for about 85 per cent of intake capacity of B-schools in India. However, students clearly are not biting the bullet, as indicated by the slowdown in growth in the last couple of years. (Please refer to the Annexure for understanding our approach to categorising B-schools in India) Rapid slowdown in revenue growth for B-schools E: Estimated Source: CRISIL Research 1

4 CRISIL Opinion Tier-3, 4 B-schools accounts for majority seats it India 4% 13% 37% 47% Tier-1 B-Schools Tier-2 B-Schools Tier-3 B-Schools Tier-4 B-Schools E: Estimated Source: CRISIL Research...but fewer test takers as students eye other professional courses Unlike in the boom years, where the aspiration for the MBA tag drove growth in the market, students are becoming increasingly aware about the benefits of quality education. Most students clearly perceive that completing a management course from lower-rung B-schools may not fetch adequate returns on the investment (fees paid). The lack of qualified faculty members, proper infrastructure and the absence of industry tie-ups also make students shy away from Tier-3/ Tier-4 b-schools. This drop in interest among students has led to a huge oversupply, forcing most lower-rung institutes to struggle with low occupancy rates, or in some cases even cease operations. The number of MBA aspirants has grown at a sharply slower pace in the past 2-3 years, at a CAGR of 2 per cent and will stay at these levels in The number of takers for even the hugely popular Common Admission Test (CAT) has been continuously declining. We expect this trend to continue further, as students mindsets change, opt increasingly for other professional courses in the fields such as Arts, Humanities, etc as well as professional programmes started by some corporates. The rising preference for top-tier institutes is also clearly perceptible, indicating a flight towards quality. 2

5 Fewer test takers for MBAs now in Lakhs E P P P CAT Test Takers E: Estimated P: Projected Source: Company reports, CRISIL Research Low occupancy rates force lower-rung institutes to shut shop... With a lesser number of students opting for management courses, many institutes have had to struggle with lower occupancy rates. Rapid growth in the B-school market in the past three years doubled the number of seats to 4.3 lakh as of from 2.4 lakh as of In , average occupancy rates declined to 69 per cent, with more than 1.3 lakh seats remaining vacant, especially in tier-3/tier-4 institutes. Occupancy rate across different tiers 120% 100% 80% 60% 40% 20% 0% Tier-1 college Tier-2 college Tier-3 college Tier-4 college Average E P E: Estimated P: Projected Source: CRISIL Research A total of 176 B-schools have shut shop over the course for and , presumably hamstrung by low occupancy levels and consequently poor cost economics. We expect minimal seats to be added in the next 2 years that too by the top tier institutes and more institutes closing down. As a result, the number of seats offered by B-schools is likely to decline to 4.15 Lakh by Consider this: institutes in seven states, which house the majority of lower-rung B-schools, have approached the AICTE asking it not to provide fresh approvals. 3

6 CRISIL Opinion Intake capacity of B-schools in India in Lakhs E P P Source: CRISIL Research, Industry...cutting size to prop up utilisation rates, especially for lower-rung institutes With more students vying for a seat in top-tier B-schools, utilisation levels for such institutes will touch 100 per cent. For tier-4 B-schools though, the recent shutdowns may provide some respite, occupancy rates will remain below the industry average. Due to low utilisation, inadequate infrastructure, poor placements, and unavailability of qualified faculty, we expect more tier-4 institutes to shut shop in the near term. This will prop up utilisation rates in this bucket. Overall, we expect the occupancy rate to improve to per cent in from per cent in To conclude, B-schools that focus on imparting quality education, developing the all-round skill sets of students and forging relevant tie-ups with the industry will continue to do well. The rest of the B-schools will have to either reorient themselves or fall by the wayside. 4

7 Annexure: Categorisation of Business Schools in India CRISIL Research has categorised business schools in 4 buckets namely Tier-1, Tier-2, Tier-3 and Tier-4 based on four parameters. Type Occupancy rate Average salary offered Number of students placed Average Fees (in Per cent) (in Lakhs) (in Per cent) (in Lakhs) Tier Tier Tier Tier Note: Business schools have to fulfill the requisite criteria for all parameters considered- occupancy rate, average placement offered, number of students placed to fall in a particular bucket. For instance, a business school with the capacity utilisation rate of 98 per cent, with 100 per cent of the students placed but with an annual average salary to students of Rs 7 lakhs would classify as a tier-2 college and not a tier-1 college. Source: CRISIL Research Analytical Contacts: Ajay Srinivasan Swati Rajde Niraj D. Satnalika Director, CRISIL Research Associate Director, CRISIL Research Analyst, CRISIL Research 5

8 CRISIL Opinion Notes

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