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Educational institutions in Brazil provide higher education services to over 9.4 million students. Private institutions have been the main drivers of expansion in the number of students and are responsible for roughly 78% of the student base. As the number of students has consistently increased in past years, distance learning courses have been key for that growth. Distance learning courses are often associated with more accessible tuition fees compared with traditional on-site learning.

More recently, the combination of a decreasing on-site student base and a highly competitive distance learning market made the sector's total revenue pool shrink 18% between 2015-2022, according to published data from Hoper Education.

Brazil's education sector has been affected by regulatory discussions, which could impact growth expectations in two main growth drivers: medical and distance learning courses. Also, challenges in how to foster sustainable industry growth have led to debates over consolidation among the main players.

The Ministry of Education (MEC) aims to increase scrutiny and enforce higher quality into distance learning courses. As such, one of the main topics of debate over a new regulation for distance learning courses is a potential increase in on-site activities, which could negatively impact the institutions’ costs. We believe it might be hard to precisely assess potential impacts until December 2024 (expected date of the new regulation announcement). In the meantime, the creation of new distance learning courses has been frozen by the MEC.

In the past 10 years, medical seats more than doubled in Brazil, boosted by the creation of the Mais Médicos (more doctors) program. This program is a Brazilian Government initiative that expanded medical school places to help address the acute shortage of doctors in the public health system. However, amid the restrictive regulations that came after the program, seats started growing at a slower pace in recent years, which led to an imbalance between demand and supply of medical seats, creating an industry with high tickets and margins. More recently, the announcement of the third edition of Mais Médicos and the decision from the Supreme Federal Court that established the standards to evaluate pending requests for new medical courses via injunctions, raised concerns about a possible oversupply of medical seats.

Brazil's education sector has been affected by regulatory discussions, which could impact growth expectations in two main growth drivers: medical and distance learning courses. Also, challenges in how to foster sustainable industry growth have led to debates over consolidation among the main players.

1. Medical seats expansion: The approval of medical seats through injunctions is higher than initially expected by the market. However, we believe that an increase in medical seats coming from injunctions and Mais Médicos III might not be sufficient to result in a pivotal change in supply. In our view, a more likely scenario could be a more moderated pricing power from private institutions, with tickets growing more in line with inflation in the mid/long-term.
2. Higher scrutiny of distance learning courses: Freezing new distance learning seats would have a limited impact on short-term growth due to the current stock of seats. However, costs could rise significantly depending on how the new regulation for distance learning standards evolves, although recent discussions suggest a more moderate tone from the MEC.
3. The competitive environment: Major M&A could happen, but it should be treated as an optionality for now. While M&As remain frequent in the segment, investors have started to assess again the possibility of consolidation between more prominent and larger players. However, we believe this could take some time to materialize as players continue to focus on internal efforts.