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Resumption of traditional classes will be key for enrolment as well as revenue growth in FY22 in the Indian education sector, said India Ratings and Research (Ind-Ra) on Friday.

Accordingly, the ratings agency maintained a stable outlook for the Indian education sector for FY22.

"The key reason for this view is the expected stability in enrolments across higher educational institutions for the year. Also, the commencement of 170 new institutions in FY21 supports the stable outlook,"

"Furthermore, 29 per cent of India's population falls in the age group of 0 to 14 years which reflects a great opportunity for the sector."

According to Ind-Ra, despite the pandemic, India was able to retain above 9,600 institutions and 3.13 million intakes in FY21, mainly supported by digital learning.

"Ind-Ra believes the dependence on online classes would remain in FY22 as well, even though institutions are expected to reopen for physical classes in the next academic year (2021-22)."

"Education remains a strategic priority for the government of India. The union government has approved the National Education Policy (NEP) 2020, making way for large-scale, transformational reforms in both school and higher education sectors."

As per the report, majority of Ind-Ra-rated educational institutions, mainly managing colleges and universities, reported steady enrolments in FY21 backed by their strong demand profile and regionally good market position.

"At the same time, institutions only managing schools and located mainly in rural areas reported a fall in enrolment rates in FY21 due to the pandemic."

"This coupled with rising discounts on tuition fee eroded the revenue collection of these institutions in FY21. However, enrolments in these schools are likely to increase in FY22 with the resumptions of regular physical classes."

In general, the ratings agency said that liquidity profile of educational institutions in India is weak due to their high debt service commitments and operational expenditures which worsened in FY21 due to mismatches in cash inflow and outflow on account of Covid-19.

"Ind-Ra expects the liquidity profile to remain the same in FY22."

"Since enrolments were slightly behind schedule for the education sector due to the procedural delays in admissions in FY21, fee collection was also delayed by few months compared to earlier years. However, lower operating expenses in FY21 improved the operating margins of Ind-Ra rated investment grade educational institutions."

Additionally, it cited that lower revenue collection than expected for non-investment grade institutions is likely to exert pressure on their operating performance in FY21.

"However, Ind-Ra believes profitability to recover in FY22, backed by normalisation of activities and recommencement of physical classes."

"Ind-Ra believes debt levels are likely to increase slightly in FY22 from previous year as some of the deferred capex plans may start taking shape."

Consequently, debt burden will rise for most educational intuitions in FY22 as the deferred capex plan gets implemented, the agency pointed out.

"Nevertheless, an improvement in the operational performance mainly in investment grade institutions is likely to support their leverage ratios in FY22."