Nursery school chain Tree House expanding its footprint into day care

Ten years back when Rajesh Bhatia could not get his child admitted into a particular Montessori school in south-Mumbai he had been keen on, his wife Geeta and he started Tree House, a pre-school establishment offering early education for children in the age group of 18 months to five years. Today Tree House has close to 500 centres across 57 towns and cities in India.   

"I am not upset that my child didn't get admission, otherwise we could never have built Tree House," says Bhatia, managing director at Tree House. "We got into businesses only by accident." Now he is expanding into day care for children up to the age of eight.
 
"There was huge demand for a day care centre from parents who were sending their kids to our school," says Bhatia. He has already started 10 day care centres on a pilot basis to gauge the demand and the feasibility of running such centres. He plans to extend this to 70 centres in 2014. "I am receiving request from IT and BPO working parents who want a safe and secure centre for their kids when they are at work," says Bhatia. He also plans to change the business model for the day-care centre. "Earlier we were providing food to the kids. This was expensive for some parents. To reach more people we have decided to provide only shelter to the kid and serve the food given by their parents."

Over the years the company has also expanded from pre-school to provide educational services to K-12 schools throughout the country.  However, pre-school still accounts for the majority of the company's revenues. The company also plans to add another 100 schools in the next one year.

According to Elara Capital, the size of the pre-school industry is around Rs 6,644 crore. Of which Rs 1,328 crore is the market size of the organised players. Expectations are that the industry on a year-on-year basis for the next five years will grow at a rate of 25-26 per cent and estimates are by 2018 the industry is expected to scale to Rs 16,468 crore, with the organised sector growing to Rs 4,281 crore.

"I will record a 25 per cent growth in both top-line and bottom-line," says Bhatia. Though Bhatia expects growth to remain steady, competition and rising costs, especially real estate costs in places like Mumbai are a big factor. It is this that has seen Bhatia changing his business strategy by becoming mass-oriented. Recently he opened a pre-school in Dharavi, Mumbai, one of the largest slums in the world. Bhatia likes to call it corporate social responsibility (CSR), but it's purely business. Tree House is getting into the mass segment. For instance in Dharavi, he will charge a child anywhere between Rs 8,000 to Rs 12,000 as fees anually, compared to his usual schools where fees used to range from Rs 35,000 to Rs 1 lakh per child depending on the location of the school.

Overall it doesn't make any difference until the money tap is on. The mantra is maximising asset utilisation. In places like Dharavi there is an estimate of 100,000 children living in the area, who are between the age group of zero to six. Here the model will be to increase the number of classes. Similarly in the day-care segment too for increasing volumes the company has tactically priced the fee between Rs 3,000 to Rs 4,500 per child.  Apart from asset utilisation, Bhatia is also selling off his land. The idea is to be asset light and cash rich. Expectations are that sale of his four properties will bring close to Rs 100 crore on the company's balance sheet.

There is no doubt that rising urbanization, growing aspirations for a quality education, improved affordability and more women joining the workforce are the factors driving growth for the company. There is estimate that 8,400 new pre-schools would need to be added to the existing base of 4,300 pre-schools. With the sale of land, Tree House can open new schools, but the worry is getting into mass can impact quality. Bhatia disagrees. "We run most of our school and therefore we are in total control of quality." It's a big gamble for Bhatia who is confident of reaping huge dividends.