3QFY2016 Result Update | Education
February 6, 2016
MT Educare
NEUTRAL
CMP
`160
Performance Highlights
Target Price
-
Quarterly Data
Investment Period
-
(` cr)
3QFY16
3QFY15
% yoy
2QFY16
% qoq
Revenue
71
56
25.2
83
(14.8)
Stock Info
EBITDA
15.9
11
42.0
22
(28.8)
Sector
Education
Margin (%)
22.5
19.9
266bp
27.0
(443bp)
Market Cap (` cr)
634
Adj. PAT
8
6
33.6
14
(42.0)
Source: Company, Angel Research
Net Debt (` cr)
-10
Beta
0.8
MT Educare’s results for 3QFY2016 came in-line with our estimates. The
52 Week High / Low
200 / 96
company’s top-line growth was strong mainly due to firm growth in Robomate
Avg. Daily Volume
1,04,455
product sales as well as in the Government Projects segment. However, the core
Face Value (`)
10
coaching business was subdued during the quarter. On the operating front, the
BSE Sensex
24,617
company reported margin improvement which led to higher profitability.
Nifty
7,489
Strong growth in Robomate product sales and Government Projects segment boost
Reuters Code
MTED.BO
overall consolidated top-line: For the quarter, MT Educare registered a double-
Bloomberg Code
[email protected]
digit growth in its top-line, ie of ~25% yoy to ~`71cr, on back of strong growth in
Robomate product sales as well as in the Government Projects segment. However,
Shareholding Pattern (%)
the core coaching business was subdued during the quarter.
Promoters
42.8
PAT grew ~34% yoy: MT Educare posted a net profit growth of ~34% yoy to
MF / Banks / Indian Fls
1.1
~`8cr, owing to strong revenue growth and higher other income.
FII / NRIs / OCBs
23.8
Indian Public / Others
32.3
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
Abs. (%)
3m 1yr 3yr
would be owing to its strong brand image and with it implementing innovative
Sensex
(6.4)
(14.7)
25.2
teaching technologies. Further, we expect additional revenue growth from
MT Educare
16.5
34.1
34.0
execution of government projects, Robomate product, and tie up with Shri Gayatri
Educational Society (SGES) in Hyderabad which has a model similar to pre-
3-year price chart
university (PU) colleges. However, we believe that currently all positives are
250
already factors in stock prices. Thus, we recommend a Neutral rating on the stock.
200
150
Key financials (Consolidated)
100
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
50
Net sales
202
227
286
366
0
% 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)
30.3
21.4
20.7
17.1
P/BV (x)
5.7
4.9
4.4
3.8
RoE (%)
18.8
22.9
21.0
22.2
RoCE (%)
26.4
28.0
26.4
29.8
Amarjeet S Maurya
EV/Sales (x)
3.0
2.8
2.1
1.6
022-39357800 Ext: 6831
EV/EBITDA (x)
14.5
13.4
11.7
9.3
[email protected]
Source: Company, Angel Research, Note: CMP as of February 5, 2016
Please refer to important disclosures at the end of this report
1
MT Educare | 3QFY2016 Result Update
Exhibit 1: Consolidated quarterly performance
Y/E March (` cr)
3QFY16
3QFY15
% yoy
2QFY16
% qoq
9MFY16
9MFY15
% chg
Net Sales
71
56
25.2
83
(14.8)
228
176
29.6
Consumption of RM
0
0
166.7
1
(46.3)
1
0
374.1
(% of Sales)
0.5
0.2
0.7
0.6
0.2
Staff Costs
10
8
23.4
9
4.8
27
22
22.9
(% of Sales)
13.5
13.7
11.0
11.9
12.6
Operating Expense
45
37
20.1
51
(11.7)
151
116
30.7
(% of Sales)
63.5
66.2
61.3
66.3
65.7
Total Expenditure
55
45
21.1
61
(9.6)
180
138
30.1
Operating Profit
16
11
42.0
22
(28.8)
48
38
27.6
OPM (%)
22.5
19.9
27.0
21.2
21.6
Interest
1
1
(19.1)
1
65.1
2
3
Depreciation
4
4
10.3
4
12.6
11
5
121.3
Other Income
2.35
1.90
23.7
2.21
6.2
7
5
38.6
PBT
13
8
60.9
20
(35.1)
42
35
20.3
(% of Sales)
18.7
14.5
24.5
18.4
19.8
Provision for Taxation
5
3
108.6
7
(23.3)
15
12
27.8
(% of PBT)
40.5
31.3
34.3
35.1
33.0
Minority Interest
(0)
-0
(0)
-1
Reported PAT
8
6
33.6
14
(42.0)
27
25
11.1
PATM
11.1
10.4
16.3
12.0
14.0
Deprecation related adj.
Adj. PAT
8
6
33.6
14
(42.0)
27
25
11.1
Source: Company, Angel Research
February 6, 2016
2
MT Educare | 3QFY2016 Result Update
Top-line driven by Robomate product sales and execution of
Government Projects
For the quarter, MT Educare registered a double-digit growth in its top-line, ie of
~25% yoy to ~`71cr, on back of strong growth in Robomate poduct sales 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 expanded due to lower other expenses
The company reported an operating profit of
~`16cr in 3QFY2016, up
~42% yoy. The operating margin expanded by a significant 266bp yoy on account of
lower staff cost and other operating expenses.
February 6, 2016
3
MT Educare | 3QFY2016 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 ~34% yoy
MT Educare posted a net profit growth of ~34% yoy to ~`8cr, owing to strong
revenue growth and higher other income.
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
February 6, 2016
4
MT Educare | 3QFY2016 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 CAGR of ~27% 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.
February 6, 2016
5
MT Educare | 3QFY2016 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.
However, we believe that currently all positives are already factored in the stock
price. Thus, we recommend a Neutral rating on the stock.
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.
February 6, 2016
6
MT Educare | 3QFY2016 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
February 6, 2016
7
MT Educare | 3QFY2016 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
February 6, 2016
8
MT Educare | 3QFY2016 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
February 6, 2016
9
MT Educare | 3QFY2016 Result Update
Key Ratios
Y/E March
FY12
FY13
FY14
FY15
FY16E
FY17E
Valuation Ratio (x)
P/E (on FDEPS)
48.1
35.3
30.3
21.4
20.7
17.1
P/CEPS
30.8
24.1
19.0
16.8
15.0
12.4
P/BV
11.1
6.3
5.7
4.9
4.4
3.8
Dividend yield (%)
0.3
1.2
1.4
1.7
2.1
2.6
EV/Sales
4.6
3.8
3.0
2.8
2.1
1.6
EV/EBITDA
26.2
20.3
14.5
13.4
11.7
9.3
EV / Total Assets
4.7
3.3
3.4
3.0
2.5
2.0
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
February 6, 2016
10
MT Educare | 3QFY2016 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,
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with CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private
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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
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the merits and risks of such an investment.
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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%)
February 6, 2016
11