Tree House Education and Zee Learn to explore consolidation options; both stocks rally

The Education company Tree House Education and Zee Learn are gearing up for consolidation. Both the companies in their respective board meetings decided and gave in principle approval for exploring consolidation with each other as informed by the companies in their respective exchange filing.

Further both the boards have constituted and authorised a committee to finalised the proposed consolidation. Both the stocks rallied on this new development. Tree House Education was locked up on upper circuit by rising 10 percent at Rs 222.60. Zee Learn also gained 8 percent in trade after this story broke out as this appeared to be a positive news for both the companies shareholders.

Consolidation of both these big players will help them grow across the market and bring in operatonal efficiency in their performance and bring down costs. It would also aid both of them to use each other's already existing infrastructure and chalk out a combined expansion plan. A combined entity would have 2070 pre-schools across more then 550 cities helping them to compete with the local player and grow there business.

Tree House Education and Accessories shares have declined by 75 percent from its 52 week high of Rs 548 to Rs 138 touched on 1st December 2015. This decline has been primarily because the stockholders of the company had become anxious over the financial viability of its pre-school expansion plan after it opened a record number of branches in the second quarter of this financial year. The decline was even further aggrevated by the news of their promoters pledging there shares with the lenders in order to raise money to increase there stakes in the company. This development has led to many fund houses to tank the shares resulting in a sharp fall of 46 percent in its share price during the course of one month.

The Company in its recent filing on the BSE has reiterated that their business remains robust and they are on schedule with there expansion plans. They also informed the company about the improvement in the recivables as they successfully received all the amounts related to preschool and franchise operations that were outstanding as on 30th September 2015.

Zee Learn saw its revenue increase by 35 percent Y-O-Y due to addition of more schools. The EBITDA grew by 174 percent Y-O-Y and a substantial margin improvement. The Company posted a de-growth in its profitability as interest cost increased. The PAT declined by 5 percent Y-O-Y.

Tree House Q2 results came in flat as  the revenue grew 15 percent which was not translated into the EBITDA as it only rose by 1.5 percent due to an increase in expenses on account of new pre-school openings. PAT also rose slightly by 1.2 percent from Rs 12.59 crores to Rs 12.74 crores.

Tree House, the country's leading educational service provider, has 720 self-operated pre-schools with a spreading network in 103 cities in September 2015. Currently it is providing school management services to 24 K-12 schools in 3 states in India.

Zee Learn, runs the pre-school chain Kidzee with more than 1350 operational pre-schools in over 550 cities across India and neighbouring countries in Asia.