MTEDUCARE

1)  MT EDUCARE is the company that owns the 25 year old coaching services brand Mahesh tutorials. The company initially used to provide coaching to Class Xth students of Maharastra State board. But over the years, it has expanded to various other coaching fields too. Now the company Operates under three business verticals – School, Science and Commerce; Diversified product offerings catering to students right from Std. VIII to students appearing for Engineering and Medical Entrance Exams (including IIT Entrance), exams for CA course and MBA aspirants

2)   The best part about MTEDUCARE is its asset light model and negative working capital. The company runs its coaching classes in rented spaces. So it doesn’t need to spent much on capital works. Being into coaching Industry, the company receives the tuition/coaching fees in advance. So it has a negative working capital

3)    The brand MAHESH TUTORIALS is highly reputed in Mumbai. When I contacted a few in Mumbai asking about the tutorial, all had heard about it and said that the institute has good reputation. It is to be noted that Consumer review websites like www.mouthshut.com doesn’t have any negative reviews on Mahesh Tutorials and people are praising the coaching

4)    The company has 226 coaching centres in 138 locations(As on dec 2013). Majority of this is in Maharastra. Now the company is moving into states like Gujarat , Karnataka etc and has presence in 7 states and Union territories. The number of locations has been growing at a CAGR of 26%

5)    Last year the company acquired 51% stake in IIT coaching provider Lakshya(option to buy the rest 49% within 2018). This is a high margin business that will help the company improve its operating margins. The company plans to take Lakshya brand to other states as well(now only in Punjab and Haryana)

6)    Revenues grew 21% and PAT grew 61% CAGR in the past 3 years. Margins showed an improvement of 300 bps(from 8 to 11%). The company has a good ROE of over 20% and is debt free.

7)   The company has set up a PU College in Mangalore. The company spent 50 crs in setting up the campus. The management wants to sell this asset and want to focus back to its asset light model. This is very positive for the company. We can conclude that company don’t have any capex going forward and selling of the PU College can bring in about 70crs. As per the management, they plan to use this money for growth(organic as well as inorganic)

8)  The company has introduced INK coaching for students in class 6^th to 8^th. This model is an two way interactive model where the student can attend class via internet. The company has 28 terminals that can cater to 6000 students. The students enrolled in this program are prospective candidates for coaching in 9^th and 10^th class. So this model not only brings revenue but also does customer acquisition for other models.

9)    The company has a capacity utilization of about 44%.This gives the chance to get more revenues by enrolling more students without any additional expense. The company can leverage its brand and grow.

10)  The company is now focusing on tie ups with PU colleges in Karnataka. It has already made 9 tieup’s and plans to take it to 30 within 3 years. In this model, the students of a college will be automatically enrolled for company’s coaching. The college provides infrastructure and they get a revenue share of 15%. The company is clearly focusing on this asset light system for its growth going forward.

11) The company’s topline showed a growth of  20%(QOQ). But bottom line didn’t grew in that proportion. The management clarified that, because of the new PU College in Mangalore, the company had made more provision for depreciation and that it turn affected bottom line. Once the PU college is hived off, the company will be reporting the same growth in bottom line

12) Going forward the management has guided a 20-25% revenue growth in FY15. Management has so far been able to meet their guidances(projected 200 cr for fy14 and they did it)

13) The company has a very good dividend payout ratio. The company stated that they aim to have 50% payout when they came with IPO(including DDT). The company also has a very good operating cash flow.

14) As per CRISIL,the coaching industry will grow at 15% till 2017. The number of students appearing in school board exams and various competitive exams will be rising. More disposable income with the families and more thrust on quality education, getting students wont be an issue for a coaching institute like Mahesh . It can grow eating into the market share of unorganized players

15) Career launcher may come out with its IPO. This would have a positive impact on market cap of comparable ones like MTEDUCARE

At the cmp of 100 rs, the company is available at a market cap of less than 400 crs.On the expected EPS of 6.5rs for next year, the company is expected to give 3rs dividend. So it’s a dividend yield of 3% on forward earnings. The company is debt free and has cash and cash equilants of 40cr. At a p/e of 19, this is not a stock that is cheap.But i beleive quality will always remian expensive just like what Asian Paints did throughout its life time.On an EV of 360 crs, this professionally managed company operating in the sunrise Education Sector is a worth putting some money.The stock has been range bound and has not moved in the Namo rally.The stock can only move up once it crosses its the multiple tops made at 110 levels

Disc:-I have holdings in MTEDUCARE