CL Educate hits D-Street today, but analysts say IPO valuation very rich
NEW DELHI: The Rs 239 crore initial public offering (IPO) of CL Educate is all set to hit the market on Monday. The company looks to sell a fresh issue of 21.80 lakh shares, besides an offer for sale (OFS) of up to 25.79 lakh shares by existing shareholders in the Rs 500-502 apiece price range.
The company has alloted 14.28 lakh equity shares worth Rs 71.69 crore to anchor investors, including Sundaram Mutual Fund, Canara HSBC Oriental Bank of Commerce Life Insurance Company, DSP Blackrock MicroCap Fund, ICICI Lombard General Insurance.
CL Educate plans to use the proceeds of the issue for acquisitions and strategic initiatives. The company will also use some of the proceeds to repay loans to fund working capital requirements.
Analysts find the issue unattractive given higher valuations than listed peers.
The company offers preparation courses for MBA, banking & SSC, engineering, medical, civil services, law and others under the brand Career Launcher. In addition, it publishing and content development arm offers test prep titles for professionals and entrance examinations under 'GK publications' brand.
ICICIdirect.com noted that CL Educate is one of the leading player in the education provider space. But, it is “available at nearly 27 times FY17E EPS on annualised basis. Recently, it witnessed slightly higher debtor days. Hence, we believe the current valuation leaves limited upside and recommend that investors avoid the issue,” the brokerage said.
Amarjeet Maurya, Senior Research Analyst for Midcaps at Angel Broking, said, “In terms of valuation, the pre-issue P/E works out to 23.2 times its annualised 1HFY2017 earnings at the upper end of the issue price band. This is higher compared to its peer MT Educare, which is trading at 8.9 times its annualised 1HFY2017 earnings. In addition, CLEL’s EV/sales multiple at 2.1 times works out to be at premium to MT Educare’s 1.2 times. On EV/Ebitda front too, CLEL’s issue appears to be unattractive 15.1 times against MT Educare’s 5.4 times. Moreover, compared with its peers, the margins and ROE profile of CLEL does not appear attractive.”
The company’s business is working capital-intensive, which coupled with expensive valuations may not provide a significant upside to the investor. The brokerage has a neutral rating on the issue.
Under the Union Budget 2017-18, the allocation to the education sector comprised Rs 46,356 crore for school education and Rs 33,330 crore for higher education. In total, the Union Budget 2017-18 announced Rs 79,686 crore to the education sector, up 10.1 per cent over Rs 72,394 crore in the previous year.
The Centre’s outlay on education -- higher education, K12 elementary and K-12 secondary -- has increased at a CAGR of 6.5 per cent from Rs 50,800 crore in 2010-11 to Rs 69,600 crore in 2015-16.
CRISIL Ratings in a note said the domestic test prep market is estimated at Rs 37,800 crore as of 2015-16, up 14 per cent CAGR over 2008-09, driven by factors including escalation in income levels, increased spend on education, high competition for limited seats in quality institutes and complexity of entrance exams.
Being an unregulated sector, the market is typically dominated by larger branded players across various streams, it noted.
Also, “the graduate segment accounts for 56 per cent share of the Indian test prep industry, while the job-oriented segment accounts for 30 per cent share (on account of high enrolments, as government jobs still enjoy mass appeal among the youth of India, especially in semi-urban and rural areas, although the coaching fees are relatively lower in this segment), and the postgraduate segment accounts for 13 per cent,” CRISIL said.
As on September 30, CL Educate had 151 test-prep centres in over 87 cities in India, eight K-12 schools spread across six cities besides 28 vocational training centres and offices.
The company has alloted 14.28 lakh equity shares worth Rs 71.69 crore to anchor investors, including Sundaram Mutual Fund, Canara HSBC Oriental Bank of Commerce Life Insurance Company, DSP Blackrock MicroCap Fund, ICICI Lombard General Insurance.
CL Educate plans to use the proceeds of the issue for acquisitions and strategic initiatives. The company will also use some of the proceeds to repay loans to fund working capital requirements.
Analysts find the issue unattractive given higher valuations than listed peers.
The company offers preparation courses for MBA, banking & SSC, engineering, medical, civil services, law and others under the brand Career Launcher. In addition, it publishing and content development arm offers test prep titles for professionals and entrance examinations under 'GK publications' brand.
ICICIdirect.com noted that CL Educate is one of the leading player in the education provider space. But, it is “available at nearly 27 times FY17E EPS on annualised basis. Recently, it witnessed slightly higher debtor days. Hence, we believe the current valuation leaves limited upside and recommend that investors avoid the issue,” the brokerage said.
Amarjeet Maurya, Senior Research Analyst for Midcaps at Angel Broking, said, “In terms of valuation, the pre-issue P/E works out to 23.2 times its annualised 1HFY2017 earnings at the upper end of the issue price band. This is higher compared to its peer MT Educare, which is trading at 8.9 times its annualised 1HFY2017 earnings. In addition, CLEL’s EV/sales multiple at 2.1 times works out to be at premium to MT Educare’s 1.2 times. On EV/Ebitda front too, CLEL’s issue appears to be unattractive 15.1 times against MT Educare’s 5.4 times. Moreover, compared with its peers, the margins and ROE profile of CLEL does not appear attractive.”
The company’s business is working capital-intensive, which coupled with expensive valuations may not provide a significant upside to the investor. The brokerage has a neutral rating on the issue.
Under the Union Budget 2017-18, the allocation to the education sector comprised Rs 46,356 crore for school education and Rs 33,330 crore for higher education. In total, the Union Budget 2017-18 announced Rs 79,686 crore to the education sector, up 10.1 per cent over Rs 72,394 crore in the previous year.
The Centre’s outlay on education -- higher education, K12 elementary and K-12 secondary -- has increased at a CAGR of 6.5 per cent from Rs 50,800 crore in 2010-11 to Rs 69,600 crore in 2015-16.
CRISIL Ratings in a note said the domestic test prep market is estimated at Rs 37,800 crore as of 2015-16, up 14 per cent CAGR over 2008-09, driven by factors including escalation in income levels, increased spend on education, high competition for limited seats in quality institutes and complexity of entrance exams.
Being an unregulated sector, the market is typically dominated by larger branded players across various streams, it noted.
Also, “the graduate segment accounts for 56 per cent share of the Indian test prep industry, while the job-oriented segment accounts for 30 per cent share (on account of high enrolments, as government jobs still enjoy mass appeal among the youth of India, especially in semi-urban and rural areas, although the coaching fees are relatively lower in this segment), and the postgraduate segment accounts for 13 per cent,” CRISIL said.
As on September 30, CL Educate had 151 test-prep centres in over 87 cities in India, eight K-12 schools spread across six cities besides 28 vocational training centres and offices.
