Tree House Multiplies Its Overwhelming Growth

Educational services company Tree House Education & Accessories (Tree House) has been growing by leaps and bounds since its inception. From starting its first preschool in 2003, it has grown to operating 351 centres across India. Mopping up about Rs 112.1 crore in its initial public offering (IPO) in August 2011, the company has continued its trajectory and opened up 75 centres since then.

After having grown geographically and in terms of centre additions (franchise and owned & operated), the company has now taken up a path of inorganic growth. In the beginning of 2013, it completed the acquisition of MT Educare’s preschool business. MT Educare operated this division through the brand ‘Global Champs’ in Mumbai and Pune. Under this brand, Tree House now plans to launch six schools by June 2013, which will cater specifically to children of the urban lower income group who aspire for quality preschool education.

Tree House also recently announced its entry into an agreement to purchase Brainworks Learning Systems. The details of this transaction would be disclosed post consideration likely to be concluded in roughly another 60 days. Brainworks currently has 51 preschool centres across India.

The acquisition would boost the number of centres for Tree House from the current 351 to 402, which is a direct jump of approximately 15%. More than plain volume addition, it would also be a good strategic move for Tree House. Currently, 68% of Tree House’s centres are located in the western states of Maharashtra, Gujarat and Rajasthan. Apart from these, its presence is spread across nine states. The acquisition of Brainworks will help it spread geographically because of Brainworks’ presence in regions where Tree House doesn’t operate in yet. These include Delhi – NCR, Goa, Jammu & Kashmir, Punjab, Uttaranchal and Uttarakhand. This would thus significantly help improve Tree House’s presence in North India.

Tree House has seen tremendous growth in the last five years. The average YoY growth in revenues over the last five years has been at a massive 94.62%. With this it has also seen tremendous improvement in margins. Its operating profit margin has increased from 15.68% in FY08 to 54.41% in FY12. At the same time, its bottomline has seen a jump from a net loss of Rs 0.19 crore in FY08 to Rs 21.66 crore in FY12. Having looked at the centre additions and acquisitions of Tree House, we believe that this momentum would not slowdown. The company will continue to perform well and yield high returns for investors.