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  1. 021"Why should I buy your college, and how much would you sell it for?" Value a college with 8,000 students each paying Rs 2 lakh a year in fees, at a 35% operating margin.Estimation and market sizingHardWellington ManagementBoston · 2024

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    What is the college's yearly operating profit?

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    Roughly Rs 560 to 784 crore, on Rs 56 crore of operating profit at assumed multiples of 10 to 14 times. Fees are 8,000 times Rs 2 lakh, Rs 160 crore; a 35% margin leaves Rs 56 crore. The case for buying is durability: a brand, accreditation and a campus that keep the seats full for decades. The multiple you ask for depends on how sure the buyer can be of that.

    What is the interviewer really testing?

    Think of selling the tea stall outside a busy railway station. The buyer is not paying for the kettle; he is paying for the queue that shows up every morning and the confidence it will keep showing up. Any institution can be valued as a stream of cash plus a judgement about how long and how reliably that stream lasts, and the question has two halves because those are the two halves of a valuation. "Why should I buy" asks for the durability story; "how much" asks for the numbers.

    From fees to profit to a value rangeRs crore a year160-10456Fees8,000 x Rs 2 lakhCosts65% of feesOperatingprofit, 35%Value at assumed multiples of profit40050060070080090010x: 56014x: 78412x: 672Rs croreCheck: Rs 7 lakh a seat at 10x,three and a half years of fees
    Fees of Rs 160 crore less Rs 104 crore of costs leave Rs 56 crore of operating profit, which at assumed multiples of 10 to 14 times values the college at roughly Rs 560 to 784 crore.

    How do you get from fees to a value?

    Revenue is students times fees: 8,000 times Rs 2 lakh is Rs 160 crore a year. A 35% operating margin leaves Rs 56 crore, and the multiple you put on that profit is where the durability argument turns into a number. At 10 times it is Rs 560 crore, at 14 times Rs 784 crore. These multiples are assumptions for the exercise; say you would set them against what comparable education businesses have changed hands for, and against a cash flow valuation.

    The relationship
    V=m×(N×F×M)=m×(8,000×2 lakh×0.35)=m×56 croreV = m \times (N \times F \times M) = m \times (8{,}000 \times 2 \text{ lakh} \times 0.35) = m \times 56 \text{ crore}
    Nstudents, 8,000
    Fyearly fee per student, Rs 2 lakh
    Mthe operating margin, 35%
    mthe multiple of operating profit, assumed 10 to 14
    What it says in wordsProfit is students times fee times margin, and value is that profit times a multiple that reflects how durable it is.

    Then sell the durability and test it. The selling points are a waiting list larger than the intake, accreditation that a new entrant would take years to earn, land owned rather than leased, and alumni who send their children. The tests are the risks: if enrolment falls 10% while costs stay fixed, operating profit drops from Rs 56 crore to about Rs 40 crore, because every rupee of lost fees falls straight to profit. A per-seat check helps too: Rs 560 crore over 8,000 seats is Rs 7 lakh a seat, three and a half years of fees.

    Name one structural limit. Many colleges are run by trusts or societies that cannot distribute profit, so in practice a buyer may be acquiring a management contract, the land or a related company rather than the college itself; the cash a buyer can actually take out may be smaller than the operating profit. Asking who can receive the cash shows the interviewer you think like an owner.

    Where candidates lose it

    The common failure is answering only one half: a heartfelt speech about the college with no number, or a quick multiple with no reason a buyer should believe the profit lasts. The interviewer asked both questions on purpose.

    The second failure is multiplying revenue instead of profit, or quoting a multiple as if it were a market fact. Build revenue, then profit, then state the multiple as your assumption and the range it gives.

    What the interviewer asks next

    • What would a buyer pay if fees are capped by a regulator and costs rise 6% a year?
    • How would you value the college with a discounted cash flow instead of a multiple?
    • Which single number would you most want to verify before agreeing a price?

    Asked at Wellington Management, Investment Research, Boston, 2024 (Wall Street Oasis): Why should I buy your College and how much would you sell it for?