Initiating Coverage | Education
April 17, 2015
MT Educare
BUY
CMP
`111
Coaching a success story
Target Price
`141
Strong brand and quality teaching with innovative technologies to drive growth: MT
Investment Period
12 Months
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
Stock Info
has introduced a technology, the unique - Learning Management System (LMS) - for
Sector
Education
strengthening its offering in its core business. Also, LMS will enable the company to
Market Cap (` cr)
440
have a competitive edge over competition and erect a strong entry barrier for entrants
in the coaching business. Thus, in our view, the company is likely to grow at a healthy
Net Debt (` cr)
(20)
rate going forward on back of its strong brand image and with it implementing
Beta
0.8
innovative teaching technologies.
52 Week High / Low
155 / 85
Top-line growth to accelerate; to grow at 21% CAGR over FY2014-17E: We expect MT
Avg. Daily Volume
27,109
Educare to report a healthy top-line growth, ie ~21% CAGR over FY2014-17E, on the
Face Value (`)
10
back of strong growth in its wide offerings and segments. Going forward (a) we expect
the company to report higher growth in the Science segment on back of strong growth
BSE Sensex
28,666
in pre-university (PU) college business which provides test preparatory coaching for
Nifty
8,707
Engineering & Medical entrance examination students. During the year, MT Educare’s
Reuters Code
MTED.BO
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
Bloomberg Code
[email protected]
Shri Gayatri Educational Society (SGES) in Hyderabad which has a similar business
model like PU College. This partnership provides MT Educare direct access of 33,500
students, which is 42% of MT Educare’s students in FY2015 which will likely generate
Shareholding Pattern (%)
additional revenue for the company going forward. Apart from this, Lakshya business
Promoters
42.8
too is expected to witness healthy growth under the Science vertical (b) we also expect
the company to report a strong growth in the CA segment in Tamil Nadu and Mumbai
MF / Banks / Indian Fls
1.7
on the back of its strong brand and centre additions during the years.
FII / NRIs / OCBs
23.0
Higher spending government projects to boost company’s revenue: The company is
Indian Public / Others
32.5
implementing projects for State level governments towards education. 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
Abs. (%)
3m 1yr 3yr
students’ fees are funded by the government under educational spending. In the
Sensex
2.6
28.1
67.9
Budget FY2016, the finance minister has allocated
~`69,075cr on education
spending in FY2015-16. In our view, such government spending towards education
MT Educare
(6.7)
27.0
17.0
will benefit MT Educare on back of its strong brand, and diversified geographical
presence coupled with innovative teaching technology. The company has already
3-year price chart
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
160
150
more orders from this segment.
140
130
Outlook and Valuation: We estimate MT Educare to report net sales CAGR of ~21%
120
to ~`355cr and net profit CAGR of ~19% over FY2014-17E. At the CMP, MT Educare
110
100
trades at a P/E of 12.6x FY2017E. We initiate with a Buy and target price of `141
90
(16x FY2017E EPS), indicating an upside of ~27%.
80
70
60
Key financials (Consolidated)
Y/E March (` cr)
FY2014
FY2015E
FY2016E
FY2017E
Net sales
202
235
275
355
% chg
28.3
16.4
17.1
29.3
Source: Company, Angel Research
Net profit
21
29
29
35
% chg
16.5
39.1
0.6
19.3
EBITDA margin (%)
21.0
21.0
18.3
17.3
EPS (`)
5.3
7.4
7.4
8.8
P/E (x)
21.0
15.1
15.0
12.6
P/BV (x)
3.9
3.4
3.0
2.7
RoE (%)
18.8
22.5
20.2
21.1
RoCE (%)
26.4
30.1
25.2
28.2
Amarjeet S Maurya
EV/Sales (x)
2.1
1.8
1.5
1.1
022-39357800 Ext: 6831
EV/EBITDA (x)
9.9
8.6
8.2
6.5
[email protected]
Source: Company, Angel Research, Note: CMP as of April 16, 2015
Please refer to important disclosures at the end of this report
1
MT Educare | Initiating Coverage
Investment Arguments
To benefit from Indian coaching industry’s CAGR of 17% over
FY2011-15E
The Indian coaching industry has evolved from a small classroom with few students
into sizable classrooms with higher number of students where supplementary
Rising disposable incomes, increasing
education is imparted through state-of-the-art hi-tech classrooms. According to
household spend on education,
CRISIL estimates, the Indian coaching industry is expected to clock 17% CAGR
infrastructural bottlenecks for formal
(over FY2011-15E) from `40,187cr to `75,629cr. This growth would primarily be
education and higher private sector
driven by rising disposable incomes, increasing household spend on education,
participation would aid in sustaining the
infrastructural bottlenecks for formal education and also higher private sector
growth momentum
participation.
Exhibit 1: Indian coaching industry - on a growth trajectory
80,000
70,000
60,000
50,000
40,000
75,629
30,000
20,000
40,187
24,418
10,000
0
FY2007E
FY2011P
FY2015P
Source: CRISIL Research
According to Mckinsey Global Institute (MGI), average disposable income is
expected to surge to `1.9lakh in CY2015E and `3.2lakh in CY2030E, which
imparts strong growth visibility for the education market. Further, as per National
Sample Survey Office (NSSO), average spending on education in India for urban
household has moved upward from `322 per month in FY2005 to `1,035 per
month in FY2012, and for rural household it has escalated from `88 per month in
FY2005 to `293 per month in FY2012. Also, the Indian household budget share of
education has risen from 2% to 7% between FY1994 and FY2012. Interestingly,
education has witnessed one of the fastest growth rates among different
expenditure heads in Indian households. Going forward, we believe that average
household spending on education would elevate further owing to the rising
aspirations for quality education, which would act as a strong driver for this sector.
April 17, 2015
2
MT Educare | Initiating Coverage
Exhibit 2: Rising avg. disposable income fuelling demand
Exhibit 3: Average household spending on education
350,000
319,518
1200
1,035
300,000
1000
250,000
800
190,639
200,000
600
150,000
113,744
400
322
293
100,000
200
88
50,000
0
0
FY2005
FY2012
CY2005
CY2015
CY2030
Urban Rural
Source: McKinsey Global Institute (MGI), Angel Research
Source: NSSO, Angel Research
Exhibit 4: Huge market opportunity No. of students appearing in various exam
MSB Higher Secondary
CBSE Xth
CBSE XIIth
AIEEE
IIT JEE
Com Ent Exams, Mah
All India Pre Med/Pre-Dental Test
CA CPT
CA PCC
CA IPCC
CA Final
0
5
10
15
(No. of students in lakhs)
Source: Source: Websites of JEE, IIT Delhi, AIEEE, MHRD, Annual report of ICAI, Maharashtra
Directorate of Medical Education and Research
Thus, we believe MT Educare has the leverage to expand its market share given its
strong brand equity and extensive reach (138 locations in 9MFY2015; aiming at
an addition of 10 locations on an average every year). Further, the company has
diversified its product portfolio (viz. School, Science, and Commerce streams, JEE
Advanced and Mains for engineering, NEET for medical, CPT/IPCC/CA Final for
commerce, and CAT/CMAT for MBA aspirants), which would further aid to capture
the rising demand of the coaching industry in India.
Mitigating the business risk by geographical and product expansion
In the past few years, the company has expanded its geographical presence from
31 locations in Mumbai in FY2007 to 138 locations in 9MFY2015 spread across 7
states/union territories that include Maharashtra, Karnataka, Tamil Nadu, Gujarat,
Punjab, Haryana and Chandigarh. As a result, the number of centres has also
significantly risen from 80 in FY2008 to 239 in 9MFY2015.
April 17, 2015
3
MT Educare | Initiating Coverage
Interestingly, the company’s centres are currently concentrated in Mumbai, which
accounts for ~66% of the overall number of centres. However, MT Educare has
The company has undertaken a
taken this as a cue and has embarked upon a geographical expansion plan across
strategic move to open centres in each
India (aiming at an addition of 10 locations on an average every year). This move,
region based on their business growth
we believe, is a positive step in terms of mitigating the risk of geographic
prospects, higher demand and student
concentration. Notably, the company has undertaken a strategic move to open
preferences
centres in each region based on their business growth prospects, higher demand
and student preferences. For example, MT Educare has launched exclusive CA
courses in Tamil Nadu, Engineering in Karnataka etc.
Exhibit 5: Geographical Reach in FY2007
Exhibit 6: Geographical Reach in 9MFY2015
31 Locations
138 Locations
Source: Company, Angel Research
Source: Company, Angel Research
Further, MT Educare is strengthening its business model by diversifying into various
It
has introduced new business
business segments through acquisitions, JVs, entry in new product categories etc.
segments and products (launched
The company acquired a 51% stake each in Chitale's Personalised Learning Pvt Ltd
Robomate in FY2014) which are
in FY2011 and Lakshya in FY2012, which contribute
~1.5% and
~6%,
expected to contribute to revenue,
respectively, to its revenue. Student enrollments towards MBA, Engineering, and
going ahead
Medical entrance exams preparation have increased significantly. Additionally, the
company has introduced new business segments and products (launched
Robomate in FY2014), which are expected to contribute to revenue, going ahead.
Further, the company has entered into a partnership with SGES which is expected
to contribute significantly to revenue (10-12% of total MT Educare’s revenue) in
FY2017. Also, the company is executing government educational projects which
are expected to contribute by 8-10% to the company’s total revenues, going
forward.
April 17, 2015
4
MT Educare | Initiating Coverage
Exhibit 7: Favorable revenue mix with new business segments
100
6
9
8
0
11
13
15
11
2
2
2
1
22
1
14
80
20
18
20
16
15
2
13
60
24
24
29
24
28
27
25
40
47
45
43
43
20
41
39
34
0
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
School
Science
Commerce
CPL(MBA - CAT/MAT/CET)
Robomate
Gayatri Educational Society
Others
Source: Company, Angel Research
Exhibit 8: Acquisitions and Product expansions aiding diversification of business model
Company/ Business
Years Description
Specialization
Total revenue contribution
segments
MBA entrance examination including CAT,CET, XAT,
Chitale's Personalised
FY2011 Acquisition of 51% stake
NMAT, SNAP, etc and International exams like GRE
More than 1.5%
Learning Private Ltd.
and GMAT
Lakshya
FY2013 Acquisition of 51% stake
IIT and Medical entrance examinations
More than 6%
PU College
FY2013 Entery into new geography Engineering & Medical entrance examinations
More than 6%
Educational application with recorded lectures of
Introduction of new
Likely to contribute decent
Robomate
FY2014
faculties and multimedia content for concept
products
amount
learning, easy revision
Shri Gayatri
Engineering & Medical entrance examinations and
Contribute significant
FY2015 Partnership agreement
Educational Society
Commerce
revenue
Source: Company, Angel Research Source: Company, Angel Research
Asset light business model; negligible debt with higher turnover
ratio
MT Educare follows an asset light business model by leasing/renting all its
coaching centres. This, in turn, reduces capex requirements and generates higher
The company has been successful in
return ratios. Subsequently, it has been successful in maintaining almost debt-free
maintaining a debt-free balance sheet
balance sheet with a rapid growth in number of centres. Recently the company has
with a rapid growth in number of
sold its Mangalore Pre-University (PU) campus for about `55cr and leaseback deal
centres
entails continuation of MT Educare's operating and management rights in the
premises for 30 years with an initial 15-year lock-in period. This will again lead to
an asset light model (2-3 years back the company had spent money to construct
PU campus). Furthermore, for its core coaching business, it receives fees in
advance (due to the nature of business), which results in a negative working
capital. However, going forward, the company is likely to see pressure on working
capital due to execution of government projects. Hence, we believe that MT
Educare would be able to optimize its resources and focus on brand building and
product diversification initiatives, which, in turn, would improve its business, going
forward.
April 17, 2015
5
MT Educare | Initiating Coverage
Exhibit 9: Increasing asset turnover ratio of MT Educare
3
2.8
3
2.4
2.2
2.1
2
1.5
2
1.3
1
1
0
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
Source: Company, Angel Research
High brand recall and quality teaching through innovative
technology impart competitive edge
The coaching business is not capital intensive, which results in higher competition
in various segments. Interestingly, MT Educare is facing competition as a whole
With high quality teaching staff, and
given that it caters to all streams viz, School, Commerce - CA, Science, MBA
with the company being a front-runner
Engineering and Medical (entrance exams). Also, since its centres are concentrated
in the use of innovative and strong
in Mumbai (accounting for ~66% of the overall centres and contributing more
brand value, the company draws a
than 80% to the total revenue), it faces competition. Nonetheless, with high quality
competitive edge over its peers
teaching staff (company offers good salary; attrition rate is less than 10%), and
with the company being a front-runner in the use of innovative technologies (like
electronic commerce portal, browser-based content delivery, gesture based
technology, fllipped platform etc.) and with the strong brand value, the company
draws a competitive edge over its peers.
During the year, MT Educare launched a technology enabled unique Learning
Management System to strengthen its core business offerings and to create a
strong entry barrier. For FY2016, MT Educare is providing Samsung tablets with
LMS software to its students (tablets provided to 12,000 students across secondary
and higher secondary levels). However, due to this expense towards offering
tablets, the company’s margins will be impacted in FY2016. But this facility is only
for an initial period to penetrate the market. The company later on will be levying
a charge on the tablets extended to students to cover its expense. So the company
would witness margins return to normal levels, FY2017 onwards.
April 17, 2015
6
MT Educare | Initiating Coverage
Exhibit 10: Unique Learning Management System (LMS) model
Tied with Samsung tab (with audio video content)
Students prepare and write the test
Test gets uploaded and reviewed by the teacher
Test results can be viewed by parent on their mobile phone
Source: Company, Angel Research
Exhibit 11: Key competitors in Mumbai
Competitors
Since
Founder
Presence
Centres
Course offered
Students of Class VIII, IX & X
School
Across Mumbai,
English, Semi-English and Marathi
Nayak tutorials
2000 Mr. Manoj S. Nayak
64
section
Maharashtra and Gujarat
mediums for S. S. C. Board and for C. B.
S. E. and I. C. S. E. Boards
School - VIII-IX-SSC
Mumbai - Dahisar to
Airhant Academy
13
Science -XI, XII-NEET/JEE(MAIN)
Andheri
Commerce - FYJC,SYJC - CPT/CSFP
SSC, CBSE, ICSE, HSC Boards, JEE ,
Sinhal Classes
1981 Prof. O. P. Sinhal
Across Mumbai
14
NEET examinations. NEET
Science
Prof. M. H. Kalra and
SSC (all boards), HSC and CET, Zenith-
Kalra Shukla
1993
Across Mumbai and Pune
17
section
Prof. R. D. Shukla
AIEEE
Pre-Engineering Courses - BIT-
SAT,Foundation Course Std. VIII, IX &
X,IIT JEE (Main +Advanced),Junior
Science College,NTSE,Std. XI, XII + JEE
Across Mumbai,
Main / Medical entrance exam
Vidyalankar
1960 Mr C. S. Deshpande
Maharashtra, Gujarat and
30
Bhopal
Engineering Courses - B.Sc. (IT),Degree
Engineering,Diploma Engineering
Post Graduate Courses - CAT /
CET,GATE
Brilliance
1990 Mr. Harish Mishra
Across Mumbai
28
XI (Sci.), XII (Sci.) & MHT-CET
IIT JEE, AIIMS, AFMC, CAT, GMAT, GRE,
IIT Entrance
IITians PACE
2000 Mr Praveen Tyagi
Across India and Dubai
37
SAT etc
Mr Vivek Sharma &
Ideal 21st century
Prof. Jagdish
Mumbai,Kota,Hyderabad
33
JEE-Main and Advanced , AIIMS/NEET,
Walavalkar
MHT-CET
Mumbai, Gujarat,
Rao IIT Academy
1993 Dr.B.V.Rao
13
Rajasthan, Hubli
JEE - Main, Advanced,AIPMT,KVPY,NTSE
Mumbai,Ahmedabad,
Commerce/
Commerce (XI and XII), TYB C.com,
J K Shah
1981 Prof. J. K. Shah
Rajkot, Bengaluru,
18
CA Section
CA,CS,CWA
Hyderabad, Jaipur,Sikar
Prof. Jagdish
School,scince,commerce - CA,CS, CWA,
Ideal
1987
Across India
74
Walavalkar
MBA - CAT/ CMAT,CAT
Professional
Mr Prasad
Mumbai,Kolkata,Hyderaba,
1998
12
CA
Academy
Sivaramakrishnan
Andhra Pradesh
Prime Vision
MBA
Mr Manek N.
CAT, JEE MAIN, ADVANCED, GATE,
TIME
1992
Across India
236
Entrance
Daruvala
CMAT, GRE, GMAT, CLAT, Bank PO
Prof. Nagesh
IMS
1991
Across India
62
CAT,MH-CET,CMAT, GMAT, GRE,TOEFL
Raghunath Rane
Source: Company, Angel Research
April 17, 2015
7
MT Educare | Initiating Coverage
Strategic moves adopted for each segment to trigger growth
ahead
Schools: ~11% CAGR in Net Revenue over FY2014-17E
MT Educare offers coaching to students of standards IX and X across all boards,
namely the State Board (Maharashtra, Gujarat and Karnataka), CBSE and ICSE.
Though its centres are predominantly based in the Mumbai metropolitan region, it
has now expanded across Maharashtra, Gujarat, Tamil Nadu, Karnataka, Punjab,
Chandigarh and Haryana.
Growth strategy adopted by MT Educare for school segments
The company’s unique product “Robomate” with entire content in digital form
developed by in-house faculties, has been already launched for this academic
season and has received a good response from students. Flipped classroom
Going forward, we expect ~11% CAGR
teaching methodology with tablets, to be implemented from the academic
in Net Revenue over FY2014-17E to
year FY2016, will differentiate MT Educare from other coaching classes and
`121cr
provide a technology edge to MT Educare in the teaching field.
Expansion in Maharashtra, outside Mumbai, in cities like Pune and Kolhapur
and also focus on increasing capacity utilisation of exisiting centres.
Tie up with local coaching classes in tier-III and tier-IV towns in Rest of
Maharashtra for sale of Robomate to their students and providing TAT and
teacher training.
Focus on developing the CBSE & ICSE business verticals as a pillar of strength
to enable rapid scalability of operations in the school segment across all states
in India.
Exhibit 12: No. of students serviced during the year
Exhibit 13: Expected revenue from the School section
40,000
36,641
140
34,924
35,231
121
33,224
33,876
35,000
31,774
120
108
29,227
30,000
96
100
88
25,000
80
70
20,000
60
60
50
15,000
40
10,000
5,000
20
0
0
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
Source: Company, Angel Research
Source: Company, Angel Research
This segment contributes ~43% to the company's total revenue, which grew by
~11% to `76cr in 9MFY2015 from `69cr in 9MFY2014. Going forward, we expect
~11% CAGR in Net Revenue over FY2014-17E to `121cr owing to the increase in
number of students and an improvement in average realization.
April 17, 2015
8
MT Educare | Initiating Coverage
Science: ~14% CAGR in Net Revenue over FY2014-17E
Going ahead, we expect ~14% CAGR
MT Educare offers science coaching to students of standard XI and XII. It also
in Net Revenue over FY2014-17E to
provides test preparatory for the engineering and medical entrance examinations
`88cr
(JEE Mains and JEE Advanced, NEET). It has now expanded its presence across
Maharashtra and Karnataka. This geography contributes ~34% to the company's
total revenue, which grew by ~16% to `59cr in 9MFY2015 from `50cr in
9MFY2014. Going ahead, we expect
~14% CAGR in Net Revenue over
FY2014-17E to
`88cr owing to the growing number of students (~10% CAGR
over FY2014-17E due to growth in standard XI-XII and common entrance test for
medical and engineering students) and an improvement in average realization.
Exhibit 14: No. of students serviced during the year
Exhibit 15: Expected revenue from the Science section
25,000
23,339
100
88
20,727
90
18,663
80
76
20,000
17,776
65
70
14,524
59
15,000
13,511
60
11,527
50
40
10,000
40
33
26
30
5,000
20
10
0
0
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
Source: Company, Angel Research
Source: Company, Angel Research
Notably, in 2HCY2012, the government altered the pattern for IIT
examination:
For IIT admission, students need to score high in 12th Board, JEE Mains & JEE
Advanced. Thus, the company now has to give equal importance to 12th
Board exams as well as JEE preparations.
Under the new system, only top 1,50,000 students based on JEE Mains score
will be allowed to appear for the JEE Advanced exam for admission into IIT.
Each State has been given equal importance. IIT admissions will be based on
the JEE Advanced scores provided the student is in the Top 20 percentile of
each state based on standard XII results.
Admissions to non-IIT engineering institutes will be based on a combined
score of standard XII and JEE Mains.
With importance now being given to standard XII for admission in IIT/other
engineering institutes and JEE Mains becoming a common engineering
entrance exam across states, this new pattern would boost revenue for the
Science section offered by MT Educare.
April 17, 2015
9
MT Educare | Initiating Coverage
Revamp in IIT examination pattern would enhance growth for
Lakshya
MT Educare has forayed into the coaching domain for IIT aspirants with the
acquisition of 51% stake in Lakshya, a leading North India-based IIT, engineering
and medical teaching institute in FY2013 (with an option to acquire the balance
stake by June 2018). It is a strategic move to capitalize on new IIT Entrance
examination pattern, which has been introduced in the academic year 2013. The
science tutorials are aligned to the new advanced IIT examination pattern. As a
result, it encompasses end-to-end training - from Boards to entrance examinations
like JEE Mains, JEE Advanced and Medical examinations.
Exhibit 16: Expected students for Lakshya
Exhibit 17: Expected revenue from Lakshya
15
4,600
16
4,420
4,377
13
4,400
14
12
11
12
4,200
3,979
10
4,000
8
3,800
3,684
6
3,600
4
3,400
2
3,200
0
FY2014
FY2015E
FY2016E
FY2017E
FY2014
FY2015E
FY2016E
FY2017E
Source: Company, Angel Research
Source: Company, Angel Research
Currently, Lakshya operates from 6 locations in Punjab and Haryana and, going
forward, it is planning to expand further in Punjab, Haryana, and in states like
Currently, Lakshya operates from
6
Jammu & Kashmir, Himachal Pradesh and Uttar Pradesh. Further, MT Eudcare has
locations in Punjab and Haryana
also launched JEE Advanced (IIT Entrance Exam) in Mumbai under Lakshya to
improve its footprint in the IIT segment in this region. Besides, it is also planning to
launch the course in Karnataka in the next two years. Thus, we believe that the
company would benefit from this segment owing to an increase in number of seats
as well as rising aspirations and awareness.
Pre-University Colleges in Karnataka would aid revenue growth
The Karnataka PU College Tie-up Model is one of the most important growth
areas under the Science vertical for MT Educare. In this model, every college ties
up with a coaching institute that provides test preparatory coaching for Engineering
& Medical entrance examinations after college hours. In the current financial year,
the company has 14 college tie-ups across Karnataka (Mangalore, Udipi, Tumkur,
Hubli, Bengaluru, Davangere, Belgaum, Mysore and Gulbarga), with 4,000+
students. These follow two business models viz.: a) Tie-up model and b) Owned
model.
April 17, 2015
10
MT Educare | Initiating Coverage
Exhibit 18: Expected students for PU College
Exhibit 19: Expected revenue from PU College
25
9,000
7,845
8,000
19
20
7,000
6,058
6,000
15
15
5,000
4,498
11
4,000
2,753
10
3,000
6
2,000
1,379
5
2
1,000
0
0
FY2013
FY2014
FY2015E
FY2016E
FY2017E
FY2013
FY2014
FY2015E
FY2016E
FY2017E
Source: Company, Angel Research
Source: Company, Angel Research
Tie-up Model:
Test preparatory coaching for engineering and medical entrance examinations
after college hours; every college student is a student enrolled with MT
Educare for test preparatory.
Management services provided viz. - Content for standard XI and XII, sourcing
and training of teachers, time-table management and academic MIS.
Under this model, the revenue streams for company are test preparatory fees and
college management fees.
Owned model:
Under this model, the revenue streams for company are test preparatory fees,
During FY2015 the company has
college management fees, hostel management fees etc.
added 5 more PU colleges (taking the
total to 19 PU college tie-ups) and is
We opine that Karnataka has a good business opportunity for preparatory
aiming 30 tie-ups in the next 2-3 years
coaching for Engineering & Medical entrance examinations. Interestingly, during
FY2015 the company has added 5 more PU colleges (taking the total to 19 PU
college tie-ups) and is aiming 30 tie-ups in the next 2-3 years.
Further, MT Educare has sold its pre-university campus (consists of college
attached with a hostel) for an amount in the range of `55cr (sold at cost price) to a
buyer and leased it back for 30 years with operating and management right
(lock-in period is 15 years for both buyer and seller). The property depreciation will
become nil going forward and now the company has once again become asset
light. The money realized on sale of PU campus will be utilized for paying debt
which the company raised during the year for acquiring Gayatri Educational Trust.
April 17, 2015
11
MT Educare | Initiating Coverage
Commerce: ~8% CAGR in Net Revenue over FY2014-17E
MT Educare offers commerce coaching to students of standards XI and XII, CA
(CPT, IPCC, final), CS-Entrance and Bachelors degree in Commerce (University
level). The company has expanded its presence across Maharashtra, Tamil Nadu,
Karnataka although it is primarily concentrated in the Mumbai metropolitan
region.
Exhibit 20: No. of students serviced during the year
Exhibit 21: Expected revenue from Commerce section
30,000
50
46
26,672
25,096
25,057
45
41
23,992
25,000
22,088
40
37
38
20,236
33
35
20,000
17,546
30
26
23
15,000
25
20
10,000
15
10
5,000
5
0
0
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
Source: Company, Angel Research
Source: Company, Angel Research
Commerce section contributes ~16% to the company's total revenue and it grew
by ~1% to `29cr yoy in 9MFY2015. Going ahead, we expect ~8% CAGR in Net
Going ahead, we expect ~8% CAGR in
Revenue over FY2014-17E to `46cr owing to multiplying number of students on
Net Revenue over FY2014-17E to `46cr
the back of growth in CA students and an improvement in average realization.
Robomate to generate additional revenue for the company
Robomate is an educational application with recorded lectures of faculties and
multimedia content for concept learning, easy revision and improved results. This
e-learning initiative is directed towards providing Anytime, Anywhere learning
opportunity to the students. It is also available for non-MT Educare students at
higher fees.
Exhibit 22: Expected revenue from Robomate
7.0
6.4
6.0
5.3
5.0
4.0
3.0
2.4
2.0
1.0
0.6
0.0
FY2014
FY2015E
FY2016E
FY2017E
Source: Company, Angel Research
April 17, 2015
12
MT Educare | Initiating Coverage
During the year, the company has sold more than `2cr Robomate products in the
CA and IIT segment and is also selling these products in segments like School,
Science and Commerce. The company has already tied up with 15 coaching
classes in Maharashtra (excluding Mumbai) and is expected to tie up with a further
50 coaching classes in this financial year. Furthermore, the company is also selling
its products online and getting a good response for the same. This year the
company is targeting `10cr revenue from the Robomate product which we have
not factored in our financial model. We believe that, going forward, this product
would draw additional revenue for the company with higher margin.
Partnership with SGES to generate additional revenue for
company
MT Educare has entered into long term partnership agreement with SGES through
its subsidiary. For this partnership the company has given an unsecured loan of
~`42cr at ~ 13% interest rate per annum.
Under this arrangement, the company will provide to SGES its expertise in teacher
training, study material, technology aided teaching methods and support in
SGES has 33,500 students which is
development of digital content on the lines of Robomate. Further, the company has
~42% of total MT Educare students
planned to jointly tap the growing potential in the Engineering and Medical
aspirants market through various technology initiatives. Also, with the increasing
student focus on Commerce stream in the two states of Andhra Pradesh and
Telangana, MT Educare’s presence in the XI-XII commerce market will help SGES
extend its reach to a wider target audience.
SGES has 33,500 students which is ~42% of total students of MT Educare. In our
view, going forward, MT Eduacare would get business opportunity from these
higher number of students through test preparatory coaching for Engineering &
Medical entrance examinations. Currently SGES is not making profits. However,
MT Educare expects to turn it around in the next two years on back of higher
capacity utilization, increase in number of students and hike in fees in FY2016 and
FY2017.
About SGES: Established in 2010, SGES is one of the leading educational
institutions for the intermediate section in the states of Telangana and Andhra
Pradesh. SGES was founded by Mr. PVRK Murthy, an eminent and renowned
educationist with over 30 years of teaching and academic experience. SGES
currently has 51 colleges spread across the two states, with over 33,500 (in
FY2015E) Engineering, Medical and Commerce aspirants studying in Junior and
Senior Intermediate (XI and XII) colleges.
Higher spending government project to boost the additional
revenue for MT Educare
The company is implementing projects for State level governments towards
In the Budget FY2016, the finance
education. In this segment, MT Educare provides coaching for competitive exams
minister has allocated ~`69,075cr on
like Engineering, Medical, CA etc. to backward classes and poor students who
education spending in FY2015-16
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. Out of this,
`42,220cr is pegged for the Schools sector and `26,855cr for higher education.
April 17, 2015
13
MT Educare | Initiating Coverage
The new government has already started to emphasize on education spending. In
our view, such government spending towards education will benefit MT Educare on
back of strong brand, diversified geographical presence coupled with innovative
teaching technology. The company has already started getting a decent number of
orders from governments. As of now, the company has `15-20cr order book in
hand. We expect the company to be able to secure more orders from this segment.
Exhibit 23: Historical and projected Revenue trend from govt. project
45
40
40
35
30
30
25
19
20
15
10
6
3
4
5
2
1
0
FY2010
FY2011
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E
Source: Company, Angel Research
April 17, 2015
14
MT Educare | Initiating Coverage
Financial Analysis
Top-line likely to clock a CAGR of 21% over FY2014-17E
Going ahead, we expect MT Educare
MT Educare reported revenue CAGR of 24% over FY2011-14, primarily driven by
to report a top-line CAGR of ~21%
the growth in enrollment of students and fee hikes. Going forward, we expect the
over FY2014-17E to ~`355cr
company to register a healthy top-line CAGR of 21% over FY2014-17E supported
by continuous centre expansion plan, strong brand value, and an increase in
number of students; particularly in the Science segment (owing to higher
enrollments in Lakshya and PU Colleges in Karnataka). Further, Robomate would
also assist in improving revenue. Apart from this, the company is also executing
government projects which would drive additional growth in the coming financial
years. Moreover, the company has also tied-up with Gayatri Educational Trust
which is expected to contribute strong revenues in FY2017.
Exhibit 24: Revenue trend
Exhibit 25: Profit trend
400
35
40
62.9
70
28.3
29.3
350
35
55.3
60
30
26.7
300
23.8
30
25
50
20.5
250
25
16.4
17.1
20
36.4
40
200
20
355
15
30
150
15
19.3
275
16.5
20.6
235
10
16.0
20
100
202
10
157
131
10
50
106
5
5
8
13
18
21
25
29
35
0
0
0
0
FY2011
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E
FY2011
FY2012
FY2013
FY2014
FY2015E FY2016E FY2017E
Net Revenue
yoy growth (%)
Adjusted Net Profit
yoy growth (%)
Source: Company, Angel Research
Source: Company, Angel Research
Going ahead, we expect MT Educare
We expect ~19% CAGR in Net Profit over FY2014-17E; mainly led by strong
to report a bottom-line CAGR of
revenue growth and also on back of a rise in capacity utilization of coaching
~19% over FY2014-17E to ~`35cr
centres, and introduction of high margin business - Robomate, which would drive
earnings, going forward.
Exhibit 26: ROE & ROCE trend
31
30.1
28.2
29
26.8
26.4
27
25.2
25
23
23.2
20.5
21
22.5
21.1
19
20.2
18.8
17
17.8
15
FY2012
FY2013
FY2014
FY2015E
FY2016E
FY2017E
RoE
RoCE
Source: Company, Angel Research
April 17, 2015
15
MT Educare | Initiating Coverage
Outlook and Valuation
We believe that, going ahead, the company would report strong revenue growth
owing to addition of new centres as well as increase in utilization rate at existing
centres, expected growth from Karnataka (due to higher PU College tie-ups)
besides its pan-India strategy with a focus on nationwide common entrance and
professional examinations such as CA, IIT JEE Advanced, JEE Mains, CAT, CMAT
etc.
Further, the company launched the Robomate product last year for IIT and CA
students which got a good response. In FY2016, the company would be launching
Robomate for schools, and science and commerce students, which would aid its
revenue growth, going forward.
We estimate MT Educare to report net revenue CAGR of ~21% to ~`355cr and
net profit CAGR of ~19% over FY2014-17E. At the current market price of `111,
the company trades at 15.0x and 12.6x, its FY2016E and FY2017E EPS of `7.4
and
`8.8, respectively. We initiate coverage on the stock with a Buy
recommendation and target price of `141, based on 16x FY2017E EPS; indicating
an upside of ~27% from the current levels.
Exhibit 27: Comparative analysis
Company
Year end Mcap(` cr ) Sales(` cr)
OPM(%) PAT(` cr)
EPS(`)
RoE
P/E
P/BV EV/ Sales EV/ EBIDTA
MT Educare
FY2015E
440
235
21.0
29
7.4
22.5
15.1
3.4
1.8
8.6
FY2016E
275
18.3
29
7.4
20.2
15.0
3.0
1.5
8.2
FY2017E
355
17.3
35
8.8
21.1
12.6
2.7
1.1
6.5
Tree House
FY2015E
1,693
206
59.9
53
15.6
8.0
35.9
2.9
8.7
14.5
FY2016E
259
60.3
79
18.6
10.9
24.0
2.6
7.1
11.9
FY2017E
313
60.5
100
23.6
12.5
18.9
2.4
6.0
9.8
Source: Company, Angel Research
Exhibit 28: One year forward PE chart
Exhibit 29:
trading below average PE
200
28
180
26
24
160
22
140
20
120
18
100
16
14
80
12
60
10
40
8
share Price
10x
14x
18x
22x
26x
1yr Fwd PE
Average PE
Source: Company, Angel Research
Source: Company, Angel Research
April 17, 2015
16
MT Educare | Initiating Coverage
Risks and concerns
Geographical concentration: All its coaching centres are located in the western
region, mainly in Mumbai metropolitan. This is a geographical concentration risk
for the company.
Threat from competitors: In the coaching model, lack of any significant entry
barriers exposes the company to the risk of facing intense competition from other
domestic players like Sinhal Classes, Kalra Shukla, Brilliance, etc.
Thriving unorganised segment: A growing presence of unorganised segment might
grab a share of the industry revenue pie.
April 17, 2015
17
MT Educare | Initiating Coverage
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,
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 (FY2014), Employee and faculty
strength of 2,200+ with 1,100+ respectively, of which 300+ faculty members are
post graduates.
Exhibit 30: Milestones achieved
Source: Company, Angel Research
April 17, 2015
18
MT Educare | Initiating Coverage
Consolidated Profit & Loss Statement
Y/E March (` cr)
FY12
FY13
FY14
FY15E
FY16E
FY17E
Total operating income
131
157
202
235
275
355
% chg
23.8
20.5
28.3
16.4
17.1
29.3
Total Expenditure
107
128
159
186
225
294
Personnel Expenses
18
22
29
33
40
53
Others Expenses
90
106
131
152
184
241
EBITDA
23
29
42
49
50
61
% chg
21.6
26.9
44.4
16.5
2.0
22.2
(% of Net Sales)
17.7
18.6
21.0
21.0
18.3
17.3
Depreciation& Amortisation
8
9
13
9
12
13
EBIT
15
21
30
41
38
48
% chg
42.8
35.6
42.2
38.3
(6.9)
27.3
(% of Net Sales)
11.7
13.2
14.6
17.4
13.8
13.6
Interest & other Charges
0
-
0
4
2
2
Other Income
4
5
2
6
7
7
(% of PBT)
20.7
18.3
7.5
14.5
16.1
13.0
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
19
25
32
43
44
54
% chg
49.8
32.2
25.6
35.9
0.5
23.8
Prior Period & Extra. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
19
25
32
43
44
54
Tax
6
8
11
14
14
18
(% of PBT)
33.2
29.8
34.9
33.1
33.0
33.0
PAT (reported)
13
18
21
29
29
36
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
(0)
(0)
(0)
(0)
(0)
1
PAT after MI (reported)
13
18
21
29
29
35
Deprecation related adjustment
-
-
-
4
-
-
ADJ. PAT
13
18
21
25
29
35
% chg
62.9
36.4
16.5
20.6
16.0
19.3
(% of Net Sales)
10.1
11.5
10.4
10.8
10.7
9.9
Basic & diluted EPS (`)
3.3
4.5
5.3
7.4
7.4
8.8
Adjusted EPS EPS (`)
3.3
4.5
5.3
6.4
7.4
8.8
% chg
62.9
36.4
16.5
20.6
16.0
19.3
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
April 17, 2015
19
MT Educare | Initiating Coverage
Consolidated Balance Sheet
Y/E March (` cr)
FY12
FY13
FY14
FY15E
FY16E
FY17E
SOURCES OF FUNDS
Equity Share Capital
35
40
40
40
40
40
Reserves& Surplus
22
62
72
90
106
127
Shareholders Funds
57
101
112
130
146
167
Minority Interest
0
(0)
(1)
(1)
(1)
(1)
Total Loans
-
-
-
6
5
5
Deferred Tax Liability
-
0
-
-
-
-
Total Liabilities
57
101
111
135
150
171
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
12
17
25
Current Assets
64
77
58
155
179
226
Inventories
-
0
0
0
0
0
Sundry Debtors
6
10
9
24
29
39
Cash
18
24
10
14
17
19
Loans & Advances
26
12
20
89
100
121
Other Assets
14
30
20
28
33
46
Current liabilities
73
77
72
90
102
133
Net Current Assets
(9)
0
(13)
64
77
92
Deferred Tax Asset
4
4
5
5
5
5
Total Assets
57
101
111
135
150
171
April 17, 2015
20
MT Educare | Initiating Coverage
Consolidated Cashflow Statement
Y/E March (` cr)
FY12
FY13
FY14
FY15E
FY16E
FY17E
Profit before tax
19
25
32
43
44
54
Depreciation
8
9
13
9
12
13
Change in Working Capital
(7)
4
(16)
(74)
(9)
(13)
Interest / Dividend (Net)
(3)
(4)
(2)
4
2
2
Direct taxes paid
(7)
(7)
(11)
(14)
(14)
(18)
Others
2
1
1
0
0
0
Cash Flow from Operations
12
27
17
(32)
34
37
(Inc.)/ Dec. in Fixed Assets
(16)
(45)
(28)
45
(10)
(10)
(Inc.)/ Dec. in Investments
10
(3)
5
-
(5)
(8)
Cash Flow from Investing
(6)
(48)
(22)
45
(15)
(18)
Issue of Equity
1
35
0
0
0
0
Inc./(Dec.) in loans
(5)
0
(0)
6
(1)
0
Dividend Paid (Incl. Tax)
(1)
(6)
(8)
(11)
(13)
(15)
Interest / Dividend (Net)
(4)
(1)
(1)
(4)
(2)
(2)
Cash Flow from Financing
(10)
28
(9)
(9)
(15)
(17)
Inc./(Dec.) in Cash
(3)
7
(14)
4
3
2
Opening Cash balances
21
18
24
10
14
17
Closing Cash balances
18
24
10
14
17
19
April 17, 2015
21
MT Educare | Initiating Coverage
Key Ratios
Y/E March
FY12
FY13
FY14
FY15E
FY16E
FY17E
Valuation Ratio (x)
P/E (on FDEPS)
33.4
24.5
21.0
15.1
15.0
12.6
P/CEPS
21.4
16.7
13.1
11.8
10.7
9.0
P/BV
7.7
4.4
3.9
3.4
3.0
2.7
Dividend yield (%)
0.4
1.8
2.0
2.5
2.9
3.5
EV/Sales
3.1
2.5
2.1
1.8
1.5
1.1
EV/EBITDA
17.7
13.6
9.9
8.6
8.2
6.5
EV / Total Assets
3.2
2.3
2.3
1.9
1.6
1.3
Per Share Data (`)
EPS (Basic & fully diluted)
3.3
4.5
5.3
7.4
7.4
8.8
EPS (Adjusted)
3.3
4.5
5.3
6.4
7.4
8.8
Cash EPS
5.2
6.6
8.4
9.4
10.4
12.4
DPS
0.4
2.0
2.2
2.8
3.3
3.9
Book Value
14.4
25.4
28.1
32.6
36.7
41.9
Returns (%)
ROCE
26.8
20.5
26.4
30.1
25.2
28.2
Angel ROIC (Pre-tax)
59.9
34.8
32.7
37.1
32.5
38.0
ROE
23.2
17.8
18.8
22.5
20.2
21.1
Turnover ratios (x)
Asset Turnover (Gross Block)
2.1
1.5
1.3
2.2
2.4
2.8
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
April 17, 2015
22
MT Educare | Initiating Coverage
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 MCX Stock Exchange 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 has received in-principal approval
from SEBI for registering as a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014. 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
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This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
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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)
April 17, 2015
23