CL Educate offer pricey, investors can give it a miss
ET Intelligence Unit: Investors' past experience with the education sector has not been encouraging.
The stocks of Career Point and MT Educare are trading significantly below their initial public offer (IPO) prices. Against this backdrop, another education sector company CL Educate has hit the primary market.
Investors may give the IPO a miss considering expensive valuation amid rising competition in the sector. However, if the valuation becomes reasonable after the listing, investors may reconsider the stock given the company's efforts to improve return on equity (RoE) by exiting the less profitable school business.
BUSINESS MODEL
CL Educate offers test preparation services for MBA, banking, law and civil services under the Career Launcher brand. The total market for test preparation services in India is about Rs 37,800 crore and expected to grow by 13% annually in the next five years.
The company started operations in 1996 and now has presence in 87 cities with 151 centres. Besides, it publishes books for popular professional and entrance examinations under the GK Publication brand. The company also offers enterprise solutions such as integrated business, marketing, and sales service to corporates and research incubation services to education institutions.
The test preparation and publish ing business accounted for 53.3% and 7.2%, respectively, of the revenue in the first half of FY17. The remaining revenue was from the enterprise business.
FINANCIALS
Revenue grew by 13.6% annually to Rs 296 crore, while net profit grew by 19.1% to Rs 21.7 crore between FY14 and FY16. Revenue from the core business of test preparation rose by 12.3% annually to `128 crore during the period, which is higher than the industry growth of 7.5%.
Despite the steady revenue growth, RoE has been tepid at 9%, since over 60% of the capital was employed in the low-margin school business. The company has signed definitive term sheet to sell its school business. The proceeds from the sale will be deployed to higher margin businesses.
Due to high receivable days from government vocational training programmes, the company's outstanding revenue is equivalent to nearly five months of sales, which is quite high.
VALUATION
The company demands a multiple of 27.4 based on annualised earnings in the first half of FY17. This compares with price-earnings multiples of 20.4 and 13.7 for MT Educare and Career Point, respectively .
CL Educate's market cap works out to be Rs 700 crore, greater than the combined market cap of MT Educare and Career Point. Investors, therefore, may wait for the listing before making any investment decisions.
The stocks of Career Point and MT Educare are trading significantly below their initial public offer (IPO) prices. Against this backdrop, another education sector company CL Educate has hit the primary market.
Investors may give the IPO a miss considering expensive valuation amid rising competition in the sector. However, if the valuation becomes reasonable after the listing, investors may reconsider the stock given the company's efforts to improve return on equity (RoE) by exiting the less profitable school business.
BUSINESS MODEL
CL Educate offers test preparation services for MBA, banking, law and civil services under the Career Launcher brand. The total market for test preparation services in India is about Rs 37,800 crore and expected to grow by 13% annually in the next five years.
The company started operations in 1996 and now has presence in 87 cities with 151 centres. Besides, it publishes books for popular professional and entrance examinations under the GK Publication brand. The company also offers enterprise solutions such as integrated business, marketing, and sales service to corporates and research incubation services to education institutions.
The test preparation and publish ing business accounted for 53.3% and 7.2%, respectively, of the revenue in the first half of FY17. The remaining revenue was from the enterprise business.
FINANCIALS
Revenue grew by 13.6% annually to Rs 296 crore, while net profit grew by 19.1% to Rs 21.7 crore between FY14 and FY16. Revenue from the core business of test preparation rose by 12.3% annually to `128 crore during the period, which is higher than the industry growth of 7.5%.
Despite the steady revenue growth, RoE has been tepid at 9%, since over 60% of the capital was employed in the low-margin school business. The company has signed definitive term sheet to sell its school business. The proceeds from the sale will be deployed to higher margin businesses.
Due to high receivable days from government vocational training programmes, the company's outstanding revenue is equivalent to nearly five months of sales, which is quite high.
VALUATION
The company demands a multiple of 27.4 based on annualised earnings in the first half of FY17. This compares with price-earnings multiples of 20.4 and 13.7 for MT Educare and Career Point, respectively .
CL Educate's market cap works out to be Rs 700 crore, greater than the combined market cap of MT Educare and Career Point. Investors, therefore, may wait for the listing before making any investment decisions.
