Brazilian Education: 6 key aspects for upcoming Mais Medicos bid

We left our industry comfortable with margins and more cautious with tickets

We conducted a series of discussions with both private and public stakeholders in the education sector to gather crucial insights for the upcoming Mais Medicos (MM III) bidding process. Throughout these checks, we obtained feedback on six essential aspects of the projects, which enhanced our understanding of margin ramp-up, ticket expectations, investment needs, talent recruitment, bidding strategies and project timelines. We consolidated our primary findings into our project model, with user friendly inputs to sensitize key project indicators such as tuition, margins, initial investment, annual tuition increase and others.

Remarks from Minister of Education could have limited impacts in projects

Recent statements from the Education Minister regarding regulation in medical schools raise concerns, yet several points suggest a more balanced perspective: 1) Price increases in private higher education are already governed by Federal Bill 9.870/99; 2) Projects bid for MMIII proceeded without new price increase constraints. Altering this could lead to increased litigation and delay the government's goal of supporting medical schools in the country side.

Controlled cost base could sustain >40% EBITDA margin w/ lower tickets

Our assessments indicate that tuition fees for first-year students are anticipated to be lower than the current national average (~BRL 10k), mostly due to the countryside regions where the Medical schools are planned. We are considering a base case of BRL 8.5k, consistent with the average in Brazil’s North region, which is the most affordable in the country according to our previous report. While margins will remain below those of the most efficient medical schools, they are anticipated to exceed 40%, achieving positive EBITDA from the first year and peaking in years 3-4. However, by the fifth year, increased boarding student numbers may pressure margins due to a reduced student-to-teacher ratio.

Geography strategy will be key in a expected tight race

Institutions will be ranked using a scoring system based on over 10 criteria divided in two groups: N1: Proposal Merit and N2: Regulatory Experience, along with two location-specific criteria. In our opinion, there is no distinct frontrunner in terms of Proposal Quality and Regulatory Expertise among the listed players in our coverage. This leads us to conclude that it is still premature to factor in any potential favorable outcomes into the companies' valuation.

For better or for worse… We will need to wait until '27 to see impacts

We anticipate that 2027 is a plausible timeframe for the initiation of the institutions' ramp-up. Until the end of May, institutions are expected to make only modest progress on their individual projects. Once final approval is granted, institutions will enter the construction stage, which may last approximately 6 months to 1 year and typically requires an average capital expenditure of BRL 25 million (including all associated equipment costs).