MT Educare : Quality Education Franchisee

You can read about the business model from here

What I like about the company :

1) Scalability. The company has grown at a revenue CAGR of 21% and Profit After Tax of 68% over the last 4 years. I believe they should continue to grow at the same pace in terms of revenues while earnings should be lower at around 40% over the next 2 years. They just have to increase capacity utilisation and some growth should come from new centers, pre-university tie-ups and IIT-JEE preparation courses.

2) Return ratios (ROE/ROCE) are impressive at around 30% though it should be lower this financial year due to the dilution of IPO.

3) The management has announced 50% dividend payout with dividend to be declared half-yearly.

4) Negative Working Capital as you can see in the investor presentation

5) Management wants to be asset-light as far as capex is concerned as one can read in this interview of the promoter Mahesh Shetty.

6) Coaching is a competitive business in Mumbai (Company derives major revenues from here) but still I observe most of the “branded” coaching institutes in Mumbai are able to increase fees by Rs 500-2000 per student every year depending on the stream/course.

At CMP of Rs 103 (Market Cap of 400crs), it trades at 16x FY14 earnings so not cheap from any perspective for its size but for a company with above features, it won’t come cheap. If it does, load on!


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