Rajesh Bhatia, the founder of Tree House Education and Accessories, aims to educate over one lakh children over the next three to four years
Ten years ago, when Rajesh Bhatia could not get a preschool admission in Mumbai for his two-year-old son, he knew he had chanced upon a business opportunity as he realised that there was a strong demand for quality preschools in the city. And rightly so, for over the last few years, the concept of preschools has become popular due to the increasing awareness about the fact that about 40 per cent of a child’s ability to learn is shaped during the first four years of his/her life. Seizing this opportunity, in 2003, Bhatia along with his wife, Geeta, established the first preschool in Andheri, Mumbai in 2003 and, by 2006, he had set up six more centres. “Our business concept was very simple – every centre had to be profitable,” recalls Bhatia. In 2007, he converted the preschool into private limited company called Tree House Education and Accessories (Tree House).
The couple set up the centres with their own capital, initially. In 2008, Tree House received its first round of funding to the tune of Rs. 350 million from Matrix Partners India with a follow up of Rs. 150 million in 2010 from the same investors. In 2011, FC VI India Venture (Mauritius) invested Rs. 310 million while it received Rs. 90 million from Matrix Partners. Eventually, Tree House went public in August 2011 by raising Rs. 1,121 million. In 2012, it received investment to the tune of Rs. 189 million, out of which Rs.133 million was from Omidyar Network (Mauritius). Utilising these funds, the company grew significantly and now has over 379 preschools in 43 cities, including Pune, Kolkata, Ranchi and Patna with over 1,500 teachers. However, for Bhatia, setting such benchmarks just leads to expanding his vision for the company. Over the next three to four years, he believes that Tree House would make a difference to over a 1,00,000 children as against 50,000 children enrolled in its centres, currently. The company proposes to open an additional 90 preschools by FY 2014.
Keeping tabs on quality
There are many popular preschool brands in the country and most of them expand through the franchise route. However, Bhatia was very clear from the beginning that Tree House would be largely company-operated. “We did not want to compromise on the quality of the schools,” he says.
Bhatia was very certain right from the beginning that Tree House would be largely company-operated. He did not want to compromise on the quality of the schools. Currently, almost 80 per cent of its preschools are owned by the company while the rest are run by franchisees.
As most entrepreneurs will agree, starting a self-operated chain is one of the most difficult things to do. “You are dealing with the customer (in this case, a parent) on a daily basis. There is a quality check happening every day in terms of content being delivered and one needs to be on their toes, always,” states Bhatia. Currently, almost 80 per cent of the Tree House schools are owned by the company while the rest are run by franchisees (mostly in Tier-III and Tier-IV towns), which are monitored by the quality control team.
Apart from preschools, Tree House has also entered the K-12 segment and currently manages around 24 high schools, across India. It has entered into a long-term agreement with these schools which in turn compensate Tree House with an annual service and consultancy fee. This apart, the company is also in the process of developing three self-owned K-12 school buildings in Rajasthan, Maharashtra and Gujarat.
The company also undertakes a three-month teacher training programme, currently available at over 34 centres. Since most trainees are absorbed by the chain, it keeps staff costs under control. Moreover, after-school activity programmes and day-care centres are some of its other asset utilisation strategies. At present, a majority of its revenues are generated from its preschool business.
Additonally, Tree House has opened preschools under the brand Global Champs, which aims at providing pre-primary education at a price point of Rs. 12,000 to Rs. 15,000 annually, as against its regular fee of approximately Rs. 40,000. This pre-school caters to community helpers who aspire to provide quality education for their children.
Tackling the challenges
According to Bhatia, the factors that contribute to Tree House’s differentiated offering are regularly updated curriculum; teachers who are passionate about teaching; continuous staff training; strong quality control both on infrastructure as well as curriculum delivery; regular assessment and feedback mechanism for parents; top of the line infrastructure and facilities; and willingness to innovate. However, his biggest challenge is in getting high quality teachers, training them and ensuring their longevity with the organisation. He says, “Teaching preschoolers is not simple. It is about giving the children good education and understanding their brain development.” He elaborates further, “Functionalities are different in that age group and what is important is that they get maximum exposure to various learning methodologies in the classroom, which is concept-driven rather than rote education,” says Bhatia. Tree House ensures different kinds of learnings where both the parent and the child gain in the 12 months to 48 months period that a child spends at the preschool.
One of the ways in which Bhatia tackled the challenge of finding and retaining talent was by taking the company public. He says, “Someone has to change the ecosystem of this segment and bring a holistic approach so that all the partners in the system, mainly teachers, are benefited.” At Tree House, women constitute 98 per cent of the employees.
Moreover, as a software engineer, he learnt 22 years back that one of the main reasons for change in the IT industry was because of the employee stock options (ESOPs) offered to employees which they benefitted from immensely, as the industry boomed. “We are able to share our wealth not just with our PE investors but also with our teachers by offering them ESOPs,” adds Bhatia.
Apart from setting up centres, Tree House is open to acquisitions to reach geographies in which it does not have a presence. It recently acquired 64 centres (13 self-operated centres and 51 franchisee centres) under the Brainworks brand. Brainworks’ centres are located in New Delhi & NCR, Punjab, Uttar Pradesh, Uttrakhand, Jammu & Kashmir, Gujarat, Maharashtra, Goa, Karnataka, Andhra Pradesh and Tamil Nadu.
While Bhatia is certain that consolidation is likely to happen in this industry, what will drive its demand and contribute to its growth are increasing disposable incomes, expanding urbanisation and increasing awareness about the role of pre-primary education. In fact, a research report released by CRISIL suggests that the preschool business is expected to reach Rs. 13,300 crore by 2015-16, out of which the branded preschools are expected to contribute approximately Rs. 4,500 crore.
The outcome of the growth opportunities in this sector and company’s expansion drive are already reflected in Tree House’s financial performance. For the first quarter ended June 2013, the company’s revenue stood at Rs. 40.87 crore as against Rs. 27.53 crore in the corresponding previous years’s quarter. While there was a marginal squeeze of 183 basis points (bps) in its EBIDTA margin, the PAT margin increased by 111 bps. Its net profit went up to Rs. 12.30 crore from Rs. 8.02 crore. However, for Bhatia, profitability is a by-product and it is the functionality that matters. With a clear process in place for Tree House’s preschools across the country, his focus is on offering quality education by remaining primarily self-operated, just as it set out to be.
Tree House Education and Accessories
Founder : Rajesh Bhatia
Year : 2003
City : Mumbai
Number of Centres: 440 (including Brainworks centres which it acquired)
Turnover: Rs. 40.87 crore (Q1June 2013) and Rs. 114.28 crores (FY 2012-13)
- Make a difference to over a 1,00,000 children in the next three to four years
- Expand its presence across geographies (could include acquisitions, if found suitable)
- Plans to open an additional 90 preschools by FY 2014