MT Educare IPO Analysis
DSIJ Intelligence / 23 Mar 2012
The persistently weak market sentiments had kept companies away from the IPO market through FY12. However, with a view to emulate the big bang performance that MCX managed to deliver with its offer, private tutorial major MT Educare which runs coaching classes under the name of Mahesh Tutorials has decided to tap the primary markets with its offer of 1.27 crore shares to the public. Out of this 1.27 crore shares Helix Investment will offload 0.80 crore shares from its current holdings and rest 0.47-0.43 crore shares will be a fresh issue by the company to raise Rs 35 crore. It will open on March 27, 2012 and close on March 29, 2012.
| Shareholding Pattern | Pre Issue (%) | Post Issue (%) |
|---|---|---|
| Promoter | 48.2 | 42.96 |
| Helix | 28.6 | 5.26 |
| Bodies corporate | 1.4 | 1.25 |
| Inviduals | 19.8 | 48.8 |
| Trust | 1.9 | 1.73 |
| Total | 100 | 100 |
At a price band of between Rs 74-80 per share, the company would garner an amount of Rs 35 crore by offering to sell 0.47-0.43 crore shares which will be used for funding its expansion plan of a Pre university college (PUC) campus in Karnataka (including the cost of acquisition of land) and setting up of 20 new centers across Maharashtra and other core regions.
| Issue Information | |
|---|---|
| Issue Opens | 27-Mar-12 |
| Issue closes | 29-Mar-12 |
| Issue Size (No of Shares Cr) | |
| Fresh Issue | 0.43* |
| Offer of Sale | 0.8 |
| Price Band (Rs) | 74-80 |
| Face Value (Rs) | 10 |
| Issue Route | Book Building Issue |
| Promoters | Mahesh Shetty |
| Pre issue Equity (No of Shares Cr) | 3.517 |
| Post issue Equity (No of Shares Cr) | 3.947* |
| Lead Managers | Enam Securities |
| Listing | BSE, NSE |
| Retail Portion (Cr Equity shares) | 0.444 |
| QIB Portion (Cr Equity Shares) | 0.635 |
| Non-Institutional Portion (Cr Equity Share) | 0.19 |
| * based on higher band price | |
MT Educare is an education company offering various coaching services to students based in Maharashtra, Karnataka, Gujarat and Tamil Nadu. Although the company has presence in four major states, it primarily operates in Mumbai with 142 coaching centers at 87 locations. There are three major sections under which the company operates viz. school, science and commerce. All these sections offer courses for classes from IX to XII as also test preparation centers for engineering and CET students. With these offerings the company has also started courses for CA IPCC and CA final examinations. Further, the company has 757 faculty members across all the coaching centers with the total number of registered students reaching 58,000 in FY11 as compared to 52,000 in FY10.
With its strong faculty support and focus on quality teaching the company has created a good brand name in the coaching industry. Further, it has been able to consolidate the highly fragmented business which is quite commendable.
We believe that the education industry is still at a nascent stage and factors such as higher disposable income and giving more importance to quality education by the parents will drive the growth of the industry. Moreover, education has become the most important aspect in today’s competitive world which has become a must for the child and therefore the business remains less prone to any slowdown in the economy.
Further looking at the financials of the company of the past three years it can be clearly seen that the company has done really well in terms of both topline as well as bottomline. For FY11 the topline of the company grew by 23 per cent and the bottomline by 57 per cent to Rs 8.24 crore. And if we look at the latest financials provided by the company for six months ending September 2011, it has outpaced its full year’s net profit of FY11.
| Financial Performance (Rs/Cr) | |||
|---|---|---|---|
| Particulars | FY10 | FY11 | H1FY12 |
| Sales | 83.24 | 104.78 | 70.33 |
| Other Income | 2.54 | 2.56 | 1.94 |
| EBIT | 7.37 | 13.05 | 14.25 |
| Depreciation | 7.89 | 8.3 | 3.63 |
| Interest | 0.1 | 0.11 | 0.2 |
| PAT | 5.23 | 8.24 | 9.75 |
Also, the company has a good revenue visibility as it receives a major part (30-35%) of the coaching fees in advance and rest is taken as Post dated Cheques. Because of which the company is sitting on a good cash and bank balance of Rs 17.29 crore and Investment of Rs 35 crore, as on 30th Sep 2011 which certainly is a positive factor if it goes for any huge expansion plans in the future.
However this also raises question over the requirement of funds to be raised from the IPO. We believe the probable reason for the company to come up with the IPO is to give an exit opportunity to its stakeholder Helix investment a private equity player who bought 28.6% stake in 2007 to provide funds for the company’s expansion plans.
Also the major portion of the raised fund through IPO i.e. Rs 20 crore will go into the development of the Pre University College (PUC) in Karnataka. We believe this investment does not synergies with the company’s current business of coaching. The company will provide Administrative and infrastructure to the PUC which is not related to the company’s core business.
In conclusion despite being upbeat about the business prospects of MT Educare in the near term, however there are certain concerns which can impact its business in long term. One of the concerns can be the increased use of technology for the education purpose. With major education companies coming up with lot of interactive contents in form of CD’s/Websites students can learn by sitting at their home and in schools. This can lead to less number of students opting for coaching classes.
Keeping this in mind one may subscribe the counter for listing day gains. We shall update out readers further on the company in our post issue analysis. On the valuations front, with the greater visibility of the revenue stream and given its brand name in the coaching market, the company looks good at a price band between Rs 74-80 per share, which discounts its FY12E EPS of Rs 5 at a PE of 14.8-16x.
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