2QFY2016 Result Update | Education
November 7, 2015
MT Educare
BUY
CMP
`134
Performance Highlights
Target Price
`169
Quarterly Data
Investment Period
12 months
(` cr)
2QFY16
2QFY15
% yoy
1QFY16
% qoq
Revenue
83
66
26.4
75
10.8
Stock Info
EBITDA
22.4
19
19.2
10
119.7
Sector
Education
Margin (%)
27.0
28.6
(163bp)
13.6
1,337bp
Market Cap (` cr)
534
Adj. PAT
14
11
21.2
6
124.3
Source: Company, Angel Research
Net Debt (` cr)
-10
Beta
0.8
For 2QFY2016, MT Educare reported results above our estimates. The company’s
52 Week High / Low
150 / 96
top-line growth was strong mainly due to firm growth in Robomate product sales
Avg. Daily Volume
41,942
as well as Government Projects segment. However, the core coaching business
Face Value (`)
10
was subdued during the quarter. On the operating front, the company saw
BSE Sensex
26,265
pressure due to increase in other costs. However, higher other income and a lower
Nifty
7,954
tax expense boosted the company’s overall profitability.
Reuters Code
MTED.BO
Strong growth in Robomate product sales and Government Projects segment boost
Bloomberg Code
[email protected]
overall consolidated top-line: For the quarter, MT Educare registered a double-
digit growth in its top-line, ie of 26% yoy to ~`83cr, on back of strong growth in
Robomate poduct sales (at `17.6cr) as well as in the Government Projects
Shareholding Pattern (%)
segment. However, the core coaching business was subdued during the quarter.
Promoters
42.8
MF / Banks / Indian Fls
1.1
PAT grew ~21% yoy: Despite of operating margin pressure, which was on account
FII / NRIs / OCBs
23.8
of higher other costs, MT Educare posted a net profit growth of ~21% yoy to
Indian Public / Others
32.3
~`14cr, owing to strong revenue growth, higher other income and lower taxes.
Outlook and valuation: We expect MT Educare to report a strong top-line and
Abs. (%)
3m 1yr 3yr
bottom-line growth in the coming financial years (FY2016E and FY2017E) on back
Sensex
(7.2)
(5.9)
40.0
of healthy growth in coaching business (school, science and commerce). This
MT Educare
12.8
(0.7)
26.8
would be owing to its strong brand image and with it implementing innovative
teaching technologies. Further, we expect additional revenue growth from
3-year price chart
execution of government projects, Robomate product, and tie up with Shri Gayatri
160
Educational Society (SGES) in Hyderabad which has a model similar to pre-
150
140
university (PU) colleges. Hence, we recommend a Buy rating on the stock with a
130
target price of `169.
120
110
100
Key financials (Consolidated)
90
80
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
70
Net sales
202
227
286
366
60
% chg
28.3
12.5
25.8
28.1
Net profit
21
30
31
37
% chg
16.5
22.9
18.9
21.3
Source: Company, Angel Research
EBITDA margin (%)
21.0
20.5
18.3
17.7
EPS (`)
5.3
7.5
7.7
9.4
P/E (x)
25.4
17.9
17.3
14.3
P/BV (x)
4.8
4.1
3.6
3.2
RoE (%)
18.8
22.9
21.0
22.2
RoCE (%)
26.4
28.0
26.4
29.8
Amarjeet S Maurya
EV/Sales (x)
2.5
2.3
1.8
1.4
022-39357800 Ext: 6831
EV/EBITDA (x)
12.1
11.2
9.7
7.7
[email protected]
Source: Company, Angel Research, Note: CMP as of November 6, 2015
Please refer to important disclosures at the end of this report
1
MT Educare | 2QFY2016 Result Update
Exhibit 1: Consolidated quarterly performance
Y/E March (` cr)
2QFY16
2QFY15
% yoy
1QFY16
% qoq
FY2015
FY2014
% chg
Net Sales
83
66
26.4
75
10.8
227
202
12.5
Consumption of RM
1
0
447.2
0
64.4
1
0
79.2
(% of Sales)
0.7
0.2
0.5
0.3
0.2
Staff Costs
9
8
15.6
9
7.0
29
29
3.2
(% of Sales)
11.0
12.0
11.4
13.0
14.2
Operating Expense
51
39
30.9
56
(8.9)
150
131
15.1
(% of Sales)
61.3
59.2
74.5
66.2
64.7
Total Expenditure
61
47
29.3
65
(6.4)
180
159
13.1
Operating Profit
22
19
19.2
10
119.7
47
42
10.0
OPM (%)
27.0
28.6
13.6
20.5
21.0
Interest
1
1
(32.9)
0
69.9
4
0
Depreciation
4
3
6.1
4
4.5
9
13
(30.6)
Other Income
2.21
1.69
31.0
2.16
2.6
7
2
196.5
PBT
20
16
26.0
8
140.0
41
32
27.7
(% of Sales)
24.5
24.6
11.3
17.9
15.8
Provision for Taxation
7
6
23.0
2
187.7
12
11
4.8
(% of PBT)
34.3
35.1
28.6
28.7
34.9
Minority Interest
-0
(1)
0
(1)
0
Reported PAT
14
11
21.2
6
124.3
30
21
41.4
PATM
16.3
17.0
8.1
13.1
10.4
Deprecation related adj.
0
4
0
Adj. PAT
14
11
21.2
6
124.3
26
21
22.9
Source: Company, Angel Research
November 7, 2015
2
MT Educare | 2QFY2016 Result Update
Top-line driven by Robomate product sales and execution of
Government Projects
For 2QFY2016, MT Educare registered a double-digit growth in its top-line, ie of
26% yoy to ~`83cr, on back of strong growth in Robomate poduct sales (at
`17.6cr) as well as in the Government Projects segment. However, the core
coaching business was subdued during the quarter.
Going forward, we expect the company to continue to report healthy growth in the
Coaching business on back of its strong brand and with it adopting an innovative
teaching technology. Further, the company’s revenue from government projects is
also likely to increase, going forward, considering healthy orders in hand and also
owing to increase in education spends by the government.
Exhibit 2: Top-line growth trend
90
60
80
50
70
40
60
30
50
20
40
10
30
0
20
-10
10
-20
0
-30
Net Sales
QoQ growth (%)
Source: Company, Angel Research
Operating margin contracts due to higher other expenses
The company reported an operating profit of
~`22cr in 2QFY2016, up
~19% yoy. The operating margin contracted by a significant 163bp yoy on account of
higher other operating expenses (up 211bp yoy as a percentage of sales).
November 7, 2015
3
MT Educare | 2QFY2016 Result Update
Exhibit 3: Operating profit and margin trend
25
35
30
20
25
15
20
15
10
10
5
5
0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
PAT grew ~21% despite operating margin contraction
Despite of pressure at the operating level, which was on account of higher other
operating costs, MT Educare posted a net profit growth of ~21% yoy to ~`14cr,
owing to strong revenue growth, higher other income and lower taxes.
Exhibit 4: Net Profit and growth trend
16
250
14
200
12
150
10
100
8
50
6
0
4
2
-50
0
-100
Net Profit
QOQ growth (%)
Source: Company, Angel Research
November 7, 2015
4
MT Educare | 2QFY2016 Result Update
Investment rationale
Strong brand and quality teaching with innovative technologies
to drive growth
MT Educare has strong positioning in the secondary school and higher secondary
school coaching business in Mumbai location. The city accounts for ~66% of the
company’s overall centers and contributes
~80% of the company’s overall
revenue. The company has introduced a technology, the unique Learning
Management System (LMS), for strengthening its offering in its core business. Also,
LMS will enable the company to have an edge over competition and erect a strong
entry barrier for new entrants in the coaching business. Thus, in our view, the
company is likely to grow at a healthy rate going forward on back of its strong
brand image and with it implementing innovative teaching technologies.
Top-line to register 27% CAGR over FY2015-17E
We expect MT Educare to report a healthy top-line growth, ie of ~27% CAGR over
FY2015-17E, on the back of strong growth in its wide offerings and segments.
Going forward, we expect the company to report higher growth in the science
segment on back of strong growth in the PU college business which provides test
preparatory coaching for engineering and medical entrance examinations. During
the year, MT Educare’s PU college tie-ups rose to 19 from 14 earlier and the
number is expected to go up to 30 colleges in the next two financial years. Further,
the company has partnered with Shri Gayatri Educational Society (SGES) in
Hyderabad which has a similar business model like PU colleges. This partnership
provides MT Educare direct access of 33,500 students, which is 42% of MT
Educare’s students in FY2015. This will likely generate additional revenue for the
company going forward. Apart from this, the ‘Lakshya’ business too is expected to
witness healthy growth under the science vertical. Further, we also expect the
company to report a strong growth in the CA segment in Tamil Nadu and Mumbai
on the back of its strong brand and centre additions during the years.
Higher spending government projects to boost company’s revenue
The company is implementing projects for State level governments in the education
domain. In this segment, MT Educare provides coaching for competitive exams like
engineering, medical, CA etc to backward classes and poor students who can’t
afford coaching fees. These students’ fees are funded by the government under
educational spending. In the Budget FY2016, the Finance Minister has allocated
~`69,075cr on education spending in FY2015-16. In our view, such government
spending towards education will benefit MT Educare on back of its strong brand,
and diversified geographical presence coupled with it adopting an innovative
teaching technology. The company has already started getting a decent number of
orders from governments. As of now, the company has an order book of `15-20cr
in hand. We expect the company to be able to secure more orders from this
segment.
November 7, 2015
5
MT Educare | 2QFY2016 Result Update
Outlook and valuation
We expect MT Educare to report a strong top-line and bottom-line growth in the
coming financial years (FY2016E and FY2017E) on back of healthy growth in
coaching business (school, science and commerce). This would be owing to its
strong brand image and with it implementing innovative teaching technologies.
Further, we expect additional revenue growth from execution of government
projects, Robomate product, and tie-up with Shri Gayatri Educational Society
(SGES) in Hyderabad which has a model similar to pre-university (PU) colleges.
Hence, we recommend a Buy rating on the stock with a target price of `169.
Exhibit 5: One-year forward P/E band
250
12.0 X
15.0 X
18.0 X
24.0 X
27.0 X
200
150
100
50
0
Source: Company, Angel Research
Company Background
Mahesh Tutorials is a 25-year old brand, with Mr Mahesh Shetty providing
coaching services under this brand since 1988. The company operates under three
main business verticals - school, science and commerce. Currently, it has ventured
into other verticals as well, which include engineering and medical entrance exam
prep, IIT test prep, MBA entrance test prep as well as coaching for CA exams.
Though predominantly present in Mumbai, the company has currently expanded
its operations across 7 states/union territories including Maharashtra, Karnataka,
Tamil Nadu, Gujarat, Punjab, Haryana and Chandigarh. In fact, a majority of the
growth hereon is expected from extending its established model to new
geographies. Its network consists of 138 coaching locations with 239 centres
(points of sale). It has a student base of 80,829 (FY2015), employee and faculty
strength of 2,200+ and 1,100+ respectively, of which 300+ faculty members are
post graduates.
November 7, 2015
6
MT Educare | 2QFY2016 Result Update
Consolidated Profit & Loss Statement
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Total operating income
131
157
202
227
286
366
% chg
23.8
20.5
28.3
12.5
25.8
28.1
Total Expenditure
107
128
159
180
233
301
Personnel Expenses
18
22
29
29
42
53
Others Expenses
90
106
131
151
191
248
EBITDA
23
29
42
47
52
65
% chg
21.6
26.9
44.4
10.0
12.2
23.9
(% of Net Sales)
17.7
18.6
21.0
20.5
18.3
17.7
Depreciation& Amortisation
8
9
13
9
12
13
EBIT
15
21
30
38
40
52
% chg
42.8
35.6
42.2
27.7
6.1
29.2
(% of Net Sales)
11.7
13.2
14.6
16.6
14.0
14.1
Interest & other Charges
0
-
0
4
2
2
Other Income
4
5
2
7
7
7
(% of PBT)
20.7
18.3
7.5
17.4
15.6
12.3
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
19
25
32
41
45
57
% chg
49.8
32.2
25.6
27.8
10.3
27.1
Prior Period & Extra. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
19
25
32
41
45
57
Tax
6
8
11
12
15
19
(% of PBT)
33.2
29.8
34.9
28.7
33.1
33.0
PAT (reported)
13
18
21
29
30
38
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
(0)
(0)
(0)
(1)
(1)
1
PAT after MI (reported)
13
18
21
30
31
37
Deprecation related adjustment
-
-
-
4
-
-
ADJ. PAT
13
18
21
26
31
37
% chg
62.9
36.4
16.5
22.9
18.9
21.3
(% of Net Sales)
10.1
11.5
10.4
11.4
10.8
10.2
Basic & diluted EPS (`)
3.3
4.5
5.3
7.5
7.7
9.4
Adjusted EPS EPS (`)
3.3
4.5
5.3
6.5
7.7
9.4
% chg
62.9
36.4
16.5
22.9
18.9
21.3
Note: - the company has gained ~`4cr (post tax) due to reversal of excess depreciation charged
earlier with a change in the method of calculation from written down method to straight line
method in FY15
November 7, 2015
7
MT Educare | 2QFY2016 Result Update
Consolidated Balance Sheet
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
SOURCES OF FUNDS
Equity Share Capital
35
40
40
40
40
40
Reserves& Surplus
22
62
72
90
106
128
Shareholders Funds
57
101
112
130
146
168
Minority Interest
0
(0)
(1)
(1)
(1)
(1)
Total Loans
-
-
-
5
5
5
Deferred Tax Liability
-
0
-
-
-
-
Total Liabilities
57
101
111
134
150
172
APPLICATION OF FUNDS
Gross Block
63
106
151
106
116
126
Less: Acc. Depreciation
32
38
50
58
71
84
Net Block
31
67
101
48
45
42
Capital Work-in-Progress
16
12
7
7
7
7
Investments
14
17
12
1
10
15
Current Assets
64
77
58
146
175
237
Inventories
-
0
0
0
0
0
Sundry Debtors
6
10
9
23
30
40
Cash
18
24
10
14
19
28
Loans & Advances
26
12
20
77
91
112
Other Assets
14
30
20
32
36
57
Current liabilities
73
77
72
72
91
133
Net Current Assets
(9)
0
(13)
74
84
104
Deferred Tax Asset
4
4
5
5
5
5
Total Assets
57
101
111
134
150
172
November 7, 2015
8
MT Educare | 2QFY2016 Result Update
Consolidated Cashflow Statement
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Profit before tax
19
25
32
41
45
57
Depreciation
8
9
13
9
12
13
Change in Working Capital
(7)
4
(16)
(83)
(5)
(11)
Interest / Dividend (Net)
(3)
(4)
(2)
4
2
2
Direct taxes paid
(7)
(7)
(11)
(12)
(15)
(19)
Others
2
1
1
-
-
-
Cash Flow from Operations
12
27
17
(41)
39
42
(Inc.)/ Dec. in Fixed Assets
(16)
(45)
(28)
45
(10)
(10)
(Inc.)/ Dec. in Investments
10
(3)
5
11
(9)
(5)
Cash Flow from Investing
(6)
(48)
(22)
56
(19)
(15)
Issue of Equity
1
35
0
-
-
-
Inc./(Dec.) in loans
(5)
0
(0)
5
-
-
Dividend Paid (Incl. Tax)
(1)
(6)
(8)
(11)
(14)
(16)
Interest / Dividend (Net)
(4)
(1)
(1)
(4)
(2)
(2)
Cash Flow from Financing
(10)
28
(9)
(11)
(16)
(18)
Inc./(Dec.) in Cash
(3)
7
(14)
4
5
9
Opening Cash balances
21
18
24
10
14
19
Closing Cash balances
18
24
10
14
19
28
November 7, 2015
9
MT Educare | 2QFY2016 Result Update
Key Ratios
Y/E March
FY12
FY13
FY14
FY15
FY16E
FY17E
Valuation Ratio (x)
P/E (on FDEPS)
40.3
29.5
25.4
17.9
17.3
14.3
P/CEPS
25.8
20.2
15.9
14.0
12.6
10.4
P/BV
9.3
5.3
4.8
4.1
3.6
3.2
Dividend yield (%)
0.3
1.5
1.7
2.0
2.5
3.1
EV/Sales
3.8
3.1
2.5
2.3
1.8
1.4
EV/EBITDA
21.7
16.8
12.1
11.2
9.7
7.7
EV / Total Assets
3.9
2.8
2.8
2.5
2.1
1.6
Per Share Data (`)
EPS (Basic & fully diluted)
3.3
4.5
5.3
7.5
7.7
9.4
EPS (Adjusted)
3.3
4.5
5.3
7.5
7.7
9.4
Cash EPS
5.2
6.6
8.4
9.5
10.6
12.9
DPS
0.4
2.0
2.2
2.7
3.4
4.1
Book Value
14.4
25.4
28.1
32.6
36.7
42.2
Returns (%)
ROCE
26.8
20.5
26.4
28.0
26.4
29.8
Angel ROIC (Pre-tax)
59.9
34.8
32.7
31.5
32.7
39.6
ROE
23.2
17.8
18.8
22.9
21.0
22.2
Turnover ratios (x)
Asset Turnover (Gross Block)
2.1
1.5
1.3
2.1
2.5
2.9
Inventory / Sales (days)
-
0
0
0
0
0
Receivables (days)
18
23
16
37
38
40
Payables (days)
9
13
13
13
13
13
WC cycle (ex-cash) (days)
9
10
3
24
25
27
November 7, 2015
10
MT Educare | 2QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitian Stock Exchange of India Limited. It is also registered as a Depository Participant
with CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private
Limited is a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration
number INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for
accessing /dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial
interest/beneficial ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any
compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve
months. Angel/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in
market making activity of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
MT Educare
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15%)
November 7, 2015
11