MT Educare IPO Oversubscribed 4.8x

MT Educare’s IPO, which opened for subscription on March 27, 2012 has received a good response from retail as well as institutional investors. The issue was oversubscribed by 4.8x, with bids of over 5.27 crore shares against the issue of 1.099 crore shares. The portion that is reserved for retail investors has been oversubscribed by 2.7x. The institutional portion was subscribed 6.01x, while the non-institutional portion got a strong response and was subscribed 8x. Through this, the company will raise Rs 99 crore, which consists of a fresh issue of Rs 35 crore and an offer of sale of up to 80 lakh shares by Helix Investments.

The company has done well in terms of both topline as well as bottomline growth in the last 3 years. For FY11, the topline grew by 23% and the bottomline by 57% to Rs 8.24 crore. Further, for the 6 months ending Sept 2011, it has outpaced its full year’s net profit of FY11.

The response from investors for the MT Educare IPO has been very good in the aftermath of a scary performance by the markets in 2012. As mentioned in our earlier update, the company looks good in terms of its financials and a sound business model, which will provide a good opportunity for investors on listing day.

However, from the long term point of view, there are certain concerns which could impact its business. One of these is the increased use of technology in education. With major education companies coming up with a lot of interactive contents in form of CDs/web sites, students can learn via these media at home and in schools. This could potentially lead to fewer students opting for coaching classes.

With regard to the usage of the proceeds for the development of pre-university colleges (PUC) in Karnataka, we believe that this does not augur well with the company’s current coaching business. Further, MT Educare is sitting on the cash, including investments worth Rs 35 crore, which raises questions over the requirements of funds.

Keeping these factors in mind, we at DSIJ, opine that one may subscribe to the counter for listing day gains. Thereafter, we advise caution, as clarity is awaited on the future sustainability of the company’s business model. We shall keep our readers updated further on the counter in our post issue analysis.