Some of the NBFCs, specialized in lending to private schools, are planning to hoist fresh equity capital. These include VC-backed companies such as Delhi-based Indian School Finance Company and Bengaluru-based Varthana.
Both of these companies are planning to raise $50-60 million each, Business Standard reports. While Kotak Mahindra is helping Varthana, Deloitte is running the book for Indian School Finance Company. The founders of these companies could not be reached for comments.
Its a huge market. There are 200,000 private schools in India. Banks dont lend them, but many of these schools need funds to upgrade their infrastructure, says the head of a private equity firm.
They have the ability to grow the loan book (they have lent Rs 250-300 crore each), enjoy good yields (14-15%), while the loans are secured by land and property. Its a good time to come in now, he added.
There are governance risks, with many school founders coming from real estate sector, but investors take comfort in cash flows from fees, which help schools generate 20-25 return on equity, said an investor. Schools are recession-proof, says an investment banker.