Stock Pick From The Education Sector

HERE IS WHY:

• It is a cash-rich, debt-free and generous dividend paying company
• An extensive presence which encourages conversion across the academic life of students
• Technology-driven approach, interactive delivery methods and value added services give it an edge

Classroom-based coaching industry and operates under the brand name ‘Mahesh Tutorials’. With an average revenue growth of 20 per cent in the last five years, negative working capital, 50 per cent dividend payout policy, zero debt and ensured improvement in profitability in the coming years, it is a good investment proposition. 

The company operates under four divisions, i.e. school, science, commerce and others catering to students from 5th grade to post graduation. It runs 126 coaching centres in eight states across the country and has a humongous student base of 70828. Its technology-driven approach, concentration on the professor-driven nature of the industry, interactive delivery methods and value added services give the company a competitive edge over organised and unorganised players in the industry and allow it to command a premium.

One of the major reasons behind the consistent revenue growth is the company’s tactful adjustment of volumes and pricing. For example, in FY13, MT Educare saw a growth of 9.15 per cent in the number of students in the commerce division. It increased the fees by 13.31 per cent to achieve revenue growth of 23.68 per cent. However, the science division saw its volumes decline of 6.97 per cent. Increasing the fees by 32.11 per cent saw its revenues grow by 22.89 per cent in FY13. 

One of the major growth drivers for MT Educare is its extensive presence. While providing services to school-going students ensures a strong customer base, offering national level exam coaching brings scalability. Growth also comes from an inorganic approach. MT Educare has made several acquisitions in the last three years, which has brought synergy in its offerings and ensured geographic expansion. In 2012, the company acquired a 51 per cent stake in Lakshya Forum for Competitions. This acquisition eased its entry into the North Indian market and strengthened its offerings on account of Lakshya’s specialisation in IIT entrance exam coaching.

As it charges fees in advance, the company operates on negative working capital. Also, the cash rich status of the company (cash and cash equivalents of Rs 39 crore as of FY13) and debt-free status make it fundamentally robust. Its strong past performance, visible future outperformance and available at a attractive TTM PE of 12.65x makes MT Educare a must-buy.