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Sunday, March 25, 2012

MT Educare IPO Review


MT Educare Limited IPO Analysis Report



Issue Highlights
Issue period: 27/3/2012-29/3/2012
Issue Size: Rs. 64 crore (80,00,000 equity shares)
Issue Type: 100% book building
Face Value: Rs. 10
Price Range: Rs. 74- Rs. 80
Market Lot: 80 equity shares
Maximum retail subscription: Rs. 1,98,400 (31 lots)
Registrar: Link Intime India Pvt. Limited
Listing : BSE,NSE

Objects of the Issue
(1)    Part financing the cost of construction of a pre-university campus (PUC) in Mangalore (Karnataka)
Proposed amount 20 crore
(2)    Establishing new coaching centers at 20 locations
Proposed amount 5 crore
(3)    General corporate purposes

Industry Profile


Coaching market in India is worth over Rs.40,000 crore (FY 11 figure) and is expected to grow to Rs. 75,000 crore by FY 2015. Coaching industry is  low capital intensive industry and is expected to grow at 17 % CAGR between FY 11 and FY 15.



Company Profile
MTEL is an education support and coaching service provider company . MTEL mainly caters the needs of commerce and science students at secondary and graduate level and prepares them for curriculum and competitive exams. Company operates across the states of Maharashtra, Gujarat,Tamil Nadu and Karnataka through 188 coaching centers spread across 110 locations.


MTEL offers its services to following sections-
(1)    School section: Under this section  standard 9th and 10th students appearing for state board (Maharashtra, Gujarat and Karnataka), CBSE and ICSE  are catered.
(2)    Science section: This section comprises standard 11th and 12th science students appearing for engineering and medical entrance examinations.
(3)    Commerce section: Preparation for 11th and 12th standard commerce stream and CA exams.
(4)    In association with MT Educare Charitable trust, MTEL operates pre-university junior colleges in Karnataka

Strengths
(1)    In FY 12 MTEL became a debt free company
(2)    MTEL is well established coaching brand in Mumbai and boasts 142 coaching centers at 87 locations in Mumbai
(3)    Multi-state presence in Maharashtra, Karnataka, Tamil Nadu and Gujarat
(4)    Partnership with HT media to run Studymate centers
(5)    Foray into internet based VC (video conferencing )coaching

Risks
(1)    Around 90 % of the total fees received come from the 142 centers (at 87 locations) in Mumbai. Such a high geographical concentration could jeopardize the profitability of the come in case of any natural or manmade calamity or disasters.
(2)    There might be Regulation of the coaching industry in future which might adversely affect the company.
(3)     A few of MTELs group companies and subsidiaries have incurred losses in past 3 years.


 Financial Analysis#
# post issue equity was considered for the calculation
# FY 11 data

Parameter
 Stand alone
Consolidated
Price to Earnings Ratio (P/E Ratio)
41.9
43.3
Price to Book Value (P/B Ratio)
7.2
7.3
Return on Equity (ROE)
17.3%
16.7%
Return on Capital Employed (ROCE)
25%
26.9%
Current Ratio
.9
.8
Net Profit Margin
8%
8%
M-Cap/ Sales Ratio
3.3
3.3
Operating Profit Margin
12.5 %
12.18%
M-Cap/Reserve
25.8
26.04
Debt/Equity ratio
.1
0

Comparison with Peers
# peer data for FY 2011 as per Moneycontrol site.
# Price as on 23/3/2012
# Peer companies belong to education sector but are not directly comparable with MTEL and comparison is for valuation purposes only

Company
MTEL
Educomp
Everonn
P/E
41.9
6.96
16.1
NPM
8%
37 %
23.46%
ROE
17.3%
24 %
13.87%
Debt Equity ratio
.1
.42
.4


Inference
This issue is highly overpriced. A price–to-earnings multiple of 41.9 (at the upper price band) is too high for a company working in the education sector. CAGR of just 2 years is not sufficient to justify such a high valuations as due to the scheme of arrangement results of FY 2009 (and later years) are not comparable with prior years, hence  CAGR and PEG ratios for a period greater than 2 years can’t be deduced appropriately.
In the same financial year MTEL had issued shares under ESOP in the price range between Rs.25 and Rs. 29. and the upper band price of the issue is 2.75 times of the  ESOP price, which is not at all justified.
Issue being overpriced should better be skipped.

Disclaimer
Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.

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