MT Educare: Book Profit
DSIJ Intelligence / 13 Apr 2012
MT Educare, better known as Mahesh Tutorials, got listed. The scrip on the listing day opened at Rs 86.50, higher than its upper price band of Rs 80. The scrip has again hit the upper circuit on the second day of the listing and trading at Rs 94.85.
MT Educare, better known as Mahesh Tutorials, got listed. The scrip on the listing day opened at Rs 86.50, higher than its upper price band of Rs 80. Later, in the next one hour of trade the scrip hit the upper circuit limit of 5 per cent at Rs 90.35. The scrip has again hit the upper circuit on the second day of the listing and trading at Rs 94.85. This also shows the investors’ appetite for the scrip with more buyers and less no of sellers on BSE. The issue at the time of subscription got oversubscribed by 4.8 times with an upper price band of Rs 74-80 a share.
| Recommendation | Book Profit |
|---|---|
| Price Band | Rs 74-80 |
| Issue Price | Rs 80 |
| Shares Offered | 1.23 crore equity shares |
| Oversubscribed | |
| Total | 4.8 |
| QIB | 6.01 |
| Non-Institutional | 8 |
| Retail Investors | 2.7 |
| Listing Price | 86.05 |
| CMP | 94.85 |
| Bse Code | 534312 |
| Percentage Gain/(Loss) on Listing | 12.93 |
| Percentage Gain/(Loss) at CMP | 18.56 |
| Date of Listing | April 12, 2012 |
At the time of writing the new issue analysis we had recommended subscribing to the issue with a view to earn benefit from the listing day gains. As expected, the scrip opened on the BSE at Rs 86.50 and closed at Rs 90.35 per share, a premium of 18.56 per cent over its issue price. As mentioned earlier, on the back of future concerns with regards to increasing competition, higher usage of technology and with no visible future expansion plans in terms of classrooms, etc we had advised our readers to book profit at the current levels.
There is no doubt that the company has done well in the past in terms of increasing its number of coaching classes and maintaining healthy financial growth, especially in the year FY11 and for the six months of FY12. The net profit of the company stood at Rs 9.5 crore as on September 30, 2011 versus that of Rs 8.24 crore for FY11. Moreover, the number of classrooms has increased aggressively to 142 coaching centers in a span of two years (2008-2011). This expansion was done with the help of Helix Investment, a private equity player who bought 28.6 per cent stake in 2007 and infused funds for the company’s expansion plans.
However, with this issue Helix has exited the company through an offer of sale of 80 lakh shares. And we believe this was one of the major reasons for MT Educare to come up with an IPO so as to provide the exit opportunity. As of September 30, 2011 the company has been sitting on a good cash and bank balance of Rs 17.29 crore and investments of Rs 35 crore, which certainly is a positive factor if it goes for any huge expansion plans in the future. This, however, makes you think about why it was necessary to raise funds through an IPO.
Also, a major portion of the IPO funds i.e. Rs 20 crore will go into the development of the Pre-University College (PUC) in Karnataka. We believe this investment does not synergize 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.
As mentioned earlier, there are various concerns over the sustainability of the business in the long term. One of the major concerns can be the increased usage of technology by the schools and students that are offered by other education companies like Educomp, Everonn, etc. This involves interactive content in the form of CDs, websites, etc so that students can learn better. This can lead to a lesser number of students opting for conventional coaching classes.
On the valuation front the scrip at the current market price of Rs 90.35 discounts its FY12E EPS of Rs 5 and is trading at a PE multiple of 18x, which is a bit expensive now. Taking into account the above mentioned concerns, our advice to readers is to book profit in the counter at its current levels.
| Shareholding Pattern | As on 12-04-2012 |
|---|---|
| Promoter | 42.88 |
| Institutional | 15.64 |
| Public | 41.48 |
| Total | 100 |
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