Please refer to important disclosures at the end of this report
1
CL Educate Ltd (CLEL) is a diversified and integrated technology-enabled provider
of education products, services and content with presence across the education
value chain. It focuses on learners of multiple age groups and caters to the
various segments of the education industry like test preparation & training
services, publishing & content development, marketing & sales services for
corporates, vocational training, integrated solutions to educational institutions &
universities and K-12 education. As on September 30, 2016, the company had
151 test-prep centers spread over 87 cities in India, 8 K-12 schools spread across
6 cities & 28 vocational training centers and offices.
Positives: (1) CLEL has Pan-India presence for its integrated education products,
services and content; (2) Well-recognized brand Career Launcher with reputed
courses focuses on aptitude-based test preparation; (3) Asset-light, technology-
enabled business model; (4) Professionally qualified, experienced and
entrepreneurial management team.
Investment concerns: (1) CLEL’s overall financial performance has not been very
impressive over the last 4-5 years. Profits have been low and fluctuating, which
does not give a significant quality to business; (2) More than 45% of the
company’s revenue comes from institutional businesses like corporate training,
vocational training under Government schemes and advisory & research
incubation services to educational institutions/ universities, which has resulted into
stretched working capital cycle (increased from 89 days in FY2013 to 130 days in
FY2016); (3) K12 vertical under Indus World Schools has nearly 60% of company’s
capital deployed, which has resulted in lower profitability and return ratios.
Outlook and Valuation: In terms of valuations, the pre-issue P/E works out to
23.2x its annualised 1HFY2017 earnings (at the upper end of the issue price
band), which is higher compared to its peers, (MT Educare is trading at 8.9x its
annualised 1HFY2017 earnings). Also, CLEL’s EV/sales multiple at 2.1x, works
out to be at premium to MT Educare’s 1.2x. On EV/EBITDA front too, CLEL’s issue
appears to be unattractive 15.1x v/s. MT Educare’s 5.4x. Moreover, as compared
to its peers the margins and ROE profile of CLEL does not appear to be attractive.
The company’s business is working capital intensive which coupled with expensive
valuations may not provide a significant upside to the investor. Hence, we
recommend neutral rating on the issue.
Key Financials
Y/E March (` cr) FY2014
FY2015 FY2016 1HFY17
Net Sales 219
274 283 153
% chg 9.9
25.1 3.3 -
Net Profit 16
21 22 13
% chg 9.0
31.0 2.2
OPM (%) 11.5
13.5 12.7 13.9
EPS (`) 13.5
17.7 18.1 10.8
P/E (x) 37.2
28.4 27.8 -
P/BV (x) 4.0
2.9 2.5 -
RoE (%) 10.7
10.1 8.9 -
RoCE (%) 9.4
11.0 8.8 -
EV/Sales (x) 3.0
2.3 2.3 -
EV/EBITDA (x) 25.8
17.3 18.0 -
Source: Company, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
NEUTRAL
Issue Open: March 20, 2017
Issue Close: March 22, 2017
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 47.9%
Others 52.1%
Fresh issue: **
`
109cr
Issue Details
Face Value:
`
10
Present Eq. Paid up Capital:
`
12.0cr
Offer for Sale: 0.3cr Shares
Post Issue Shareholding Patter
n
Post Eq. Paid up Capital:
`
14.2cr
Issue size (amount): *
`
238cr -**239cr
Price Band:
`
500-502
Lot Size: 29 shares and in multiple
thereafter
Post-issue implied mkt. cap: *
`
708cr -
**
`
711cr
Promoters holding Pre-Issue: 64.7%
Promoters holding Post-Issue: 47.9%
*Calculated on lower price band
** Calculated on upper price band
Book Building
A
marjeet S Maurya
+91 22 39357800 Ext: 6831
CL Educate Limited
Preparing for the big Test
IPO Note
|
Education
March 17, 2017
CL Educate
|
IPO Note
March 17, 2017
2
Company background
Incorporated in 1996, CL Educate Ltd is engaged in providing various educational
products and services. They operate through two segments i.e. Education &
Training Programme (including sales of Study Material) and Vocational Training.
The Company's Education & Training Program (including sales of Study Material)
segment includes coaching for higher education entrances. The Company's
Vocational training segment includes specific projects undertaken by the company
(including government projects).
CL Educate offers test preparation courses and services under the Career Launcher
brand, publishing and content development services under the brand GK
Publications and event management, marketing support, customer engagement,
and managed manpower and training services under the Kestone brand name.
They also provide integrated solutions to educational institutions and universities,
including business advisory and outreach support services under the CL Media
brand, as well as research incubation and support services under the brand
Accendere. In addition, the company operates K-12 schools under the Indus World
School brand name. As on September 30, 2016, they had 151 test-prep centers
spread over 87 cities in India, 8 K-12 schools spread across 6 cities & 28
vocational training centers and offices.
Exhibit 1: Diversified & Integrated Player with Strong Brand Equity and Presence Across the Education Value Chain
Source: Company, Angel Research
CL Educate
|
IPO Note
March 17, 2017
3
Issue details
The company is raising ~`109cr through a fresh issue of equity shares in the price
band of `500-502. The fresh issue will constitute ~15% of the post-issue paid-up
equity share capital of the company, assuming the issue is subscribed at the upper
end of the price band. The company is offering 0.5cr shares that are being sold by
the promoter group and other shareholders.
Exhibit 2: Pre and Post-IPO shareholding pattern
No. of shares (Pre-issue) (%)
No. of shares (Post-issue) (%)
Promoters 77,55,376 65% 67,81,376 48%
Others 42,27,783 35% 73,81,902 52%
1,19,83,159 100% 1,41,63,278 100%
Source: RHP, Angel Research; Note: Calculated on upper price band
Objects of the offer
Company will deploy fund of ~`53cr towards Working Capital requirement
Pre-payment of outstanding debt of ~`19cr
Company to allocate ~`20cr towards acquisitions and other strategic
initiatives
General corporate purpose
CL Educate
|
IPO Note
March 17, 2017
4
Investment Rationale
Ddiversified revenue mix
CLEL has diversified operations across various business segments spanning the
education value chain, across age groups, which includes services like Test
preparation & training, Publishing and content development, integrated business,
marketing and sales services for corporate, Vocational training, integrated
solutions to educational institutions and K-12 schools. The company’s more than
~50% revenue comes from Test preparation & training and balance from other
segments.
Exhibit 3: Revenue break-up for 1HFY17
Source: Company, Angel Research
Strong brand equity and wide presence
We believe that Career Launcher is a well-recognized brand in the education
sector, particularly in aptitude-based test prep courses for MBA, Banking & SSC,
Law test prep, etc. As on September 30, 2016, the company had 151 test-prep
centers spread over 87 cities in India, 8 K-12 schools spread across 6 cities & 28
vocational training centers and offices.
Asset-light with technology-enabled business model
In order to ensure pan-India presence in test prep business, CLEL has adopted,
asset-light, scalable and less capital-intensive business partnership model to
operate test prep centers, in addition to its own test prep centers. As on September
30, 2016, company had a network of 151 test prep centers in 87 cities across
India, with 45 owned and leased model test prep centers (of which three were
temporary Smart Career Centers) and 106 test prep centers operating under a
partnership model.
53.3%
7.2%
33.0%
1.6%
2.7%
2.2%
Test preparation and training
Publishing and content
development
Integrated business, marketing
and sales services for corporates
Vocational training
Integrated solutions to
educational institutions*
K-12 schools
CL Educate
|
IPO Note
March 17, 2017
5
Track record of weak financial performance
CLEL, with ~12% CAGR in revenue, has underperformed its closest peer MT
Educare, which reported ~22% CAGR in revenues over FY2013-16. In profitability
too, CLEL, with ~13% CAGR in PAT over FY2013-16, has underperformed as
compared to MT Educare (~21% CAGR in PAT over FY2013-16). CLEL’s financial
performance has remained unimpressive over the last 4-5 years both on top-line
and bottom-line fronts, which does not provide a significant quality to business.
Exhibit 4: Historical revenue trend
Source: Company, Angel Research
Exhibit 5: Historical PAT trend
Source: Company, Angel Research
199
219
274
283
0
50
100
150
200
250
300
FY2013 FY2014 FY2015 FY2016
(` cr)
15
16
21
22
0
5
10
15
20
25
FY2013 FY2014 FY2015 FY2016
(` cr)
CL Educate
|
IPO Note
March 17, 2017
6
Outlook and Valuation
In terms of valuations, the pre-issue P/E works out to 23.2x its annualised
1HFY2017 earnings (at the upper end of the issue price band), which is higher
compared to its peers, (MT Educare is trading at 8.9x its annualised 1HFY2017
earnings). Also, CLEL’s EV/sales multiple at 2.1x, works out to be at premium to
MT Educare’s 1.2x. On EV/EBITDA front too, CLEL’s issue appears to be
unattractive 15.1x v/s. MT Educare’s 5.4x. Moreover, as compared to its peers the
margins and ROE profile of CLEL does not appear to be attractive. The company’s
business is working capital intensive which coupled with expensive valuations may
not provide a significant upside to the investor. Hence, we recommend neutral
rating on the issue.
Key risks
1. If the company is able to attract more students for its Test preparatory
business, which contributes a significant portion to its operating revenues, it
will pose an upside risk to our view.
2. Any favorable changes in the market dynamics of Test preparatory business
and Vocational Training business will hold an upside risk to our estimates.
3. If the company is able to successfully execute its competitive growth strategies,
it will pose an upside risk to our view.
4. The company has put up for sale the properties of K-12 business segment, if it
is able to sell these, it will pose an upside risk to our estimates.
CL Educate
|
IPO Note
March 17, 2017
7
Income Statement
Y/E March (` cr) FY2013
FY2014 FY2015 FY2016
1HFY17
Total operating income 199
219 274 283
153
% chg 20.0
9.9 25.1 3.3
-
Total Expenditure 188
194 237 247
132
Raw Material 6
7 11 12
5
Cost of services 69
78 106 118
73
Personnel 67
69 75 63
28
Others Expenses 45
40 46 54
26
EBITDA 11
25 37 36
21
% chg (12.5)
126.7 46.7 (2.3)
-
(% of Net Sales) 5.6
11.5 13.5 12.7
13.9
Depreciation& Amortisation 6
5 8 9
4
EBIT 5
20 29 27.0
18
% chg (32.1)
258.7 48.2 (7.2)
-
(% of Net Sales) 2.7
9.0 10.6 9.5
11.6
Interest & other Charges 10
9 9 10
5
Other Income 23
11 12 14
8
(% of PBT) 125.0
54.4 39.9 45.5
36.7
Exceptional Items -
1 2 -
-
Recurring PBT 19
20 29 31
21
% chg
9.9 42.0 6.5
-
Tax 4
4 8 9
8
PAT (reported) 15
16 21 22
13
% chg
9.0 31.0 2.2
-
(% of Net Sales) 7.5
7.4 7.8 7.7
8.4
Basic & Fully Diluted EPS (`) 12.4
13.5 17.7 18.1
10.8
% chg
9.0 31.0 2.2
-
CL Educate
|
IPO Note
March 17, 2017
8
Balance Sheet
Y/E March (` cr) FY2013 FY2014 FY2015 FY2016
1HFY17
SOURCES OF FUNDS
Equity Share Capital 10 10 12 12
12
Reserves& Surplus 124 141 198 230
244
Shareholders Funds 134 151 209 242
256
Minority Interest 28 29 1 -
-
Total Loans 54 58 56 63
58
Deferred Tax Liability 1 2 2 2
2
Total Liabilities 217 239 268 307
315
APPLICATION OF FUNDS
Net Block 90 87 91 87
86
Capital Work-in-Progress 1 1 1 1
1
Investments 2 2 2 2
2
Goodwill 16 20 20 33
33
Current Assets 172 192 228 266
290
Inventories 7 11 9 7
7
Sundry Debtors 54 65 87 119
127
Cash 12 11 19 16
12
Loans & Advances 65 75 81 91
94
Other Assets 35 31 32 33
49
Current liabilities 63 62 73 82
97
Net Current Assets 109 131 155 184
193
Deferred Tax Asset 0 0 0 1
1
Mis. Exp. not written off - - - -
-
Total Assets 217 239 268 307
315
CL Educate
|
IPO Note
March 17, 2017
9
Cash Flow Statement
Y/E March (` cr) FY2013 FY2014 FY2015 FY2016 1HFY17
Profit before tax 19
20 29
31
21
Depreciation 6
5 8
9
4
Change in Working Capital (20) (17) (17) (32) (16)
Interest / Dividend (Net) 0
0 0
0
0
Direct taxes paid (3) (6) (7) (9) (3)
Others 5
6 8
6
1
Cash Flow from Operations 6
10 20
5
6
(Inc.)/ Dec. in Fixed Assets 3
(9) (120) (24) (3)
(Inc.)/ Dec. in Investments (7) 8 (5) 7
3
Cash Flow from Investing (5) (1) (124) (17) (0)
Issue of Equity (12) (9) (120) (24) (3)
Inc./(Dec.) in loans 22
(2) (2) (1) 7
Others (9) 1 228
39
(13)
Cash Flow from Financing 1
(9) 105
14
(9)
Inc./(Dec.) in Cash 2
(1) 2
2
(3)
Opening Cash balances 4
6 5
7
9
Closing Cash balances 6
5 7
9
6
Key Ratios
Y/E March FY2013 FY2014 FY2015 FY2016
Valuation Ratio (x)
P/E (on FDEPS) 40.5 37.2 28.4 27.8
P/CEPS 29.4 27.8 20.8 19.6
P/BV 4.5 4.0 2.9 2.5
EV/Sales 3.2 3.0 2.3 2.3
EV/EBITDA 58.0 25.8 17.3 18.0
EV / Total Assets 3.0 2.7 2.4 2.1
Per Share Data (`)
EPS (Basic) 12.4 13.5 17.7 18.1
EPS (fully diluted) 12.4 13.5 17.7 18.1
Cash EPS 17.1 18.1 24.2 25.6
Book Value 111.9 126.1 174.7 202.2
Returns (%)
ROCE 2.9 9.4 11.0 8.8
Angel ROIC (Pre-tax) 3.1 10.0 11.9 9.4
ROE 11.1 10.7 10.1 8.9
Turnover ratios (x)
Inventory / Sales (days) 12 18 12 8
Receivables (days) 98 108 116 154
Payables (days) 22 28 27 32
WC cycle (ex-cash) (days) 89 97 101 130
Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
CL Educate
|
IPO Note
March 17, 2017
10
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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