MT Educare: Good scorecard

Companies in the education sector have not had a great performance track record over the last few years. MT Educare, a coaching services provider, has however bucked this trend. Riding on the growing demand for competitive exam coaching and established brand image, the company’s student reach has increased steadily from about 68,000 in April 2012 when it went public to over 84,000 in 2015 and the number of centres it operates rose from 114 in 2012 to 151 as of December 2015.

Revenue and earnings increased 31 and 17 per cent annually on an average respectively in the last four years. The company has expanded its reach to ten states currently and offers coaching in verticals such as engineering, CA and MBA entrance exams. The business is asset light and has negative working capital, as the company receives fees in advance. This has helped the company scale operations with nearly no debt.

Investors seem to have taken note and the share price has jumped about 65 per cent in the last year. The current stock price of ₹169 discounts the company’s trailing 12-month earnings by 21 times.

This is higher than the average earnings multiple of 18 times that it traded since listing. Also, the company plans to raise ₹100 crore through a Qualified Institutional Placement; this could dilute equity by about 15 per cent. Upside in the stock may hence be limited. But given the company’s good growth prospects in the long-term, investors can retain their holdings. The stock has a small market capitalisation of about ₹720 crore.

Diversified operations

MT Educare has diversified its operations geographically and in multiple verticals. While 80 per cent of its revenue still comes from Maharashtra, where it started, 8 per cent comes from Karnataka and the rest from eight other States.

The company derives 45 per cent of its income from the school division(grades 9-12); 35 per cent from IIT-JEE coaching and 17 per cent from CA coaching . The company has launched a new digital-based learning product called Robomate online and through tablets.

The company has tied up with 19 pre-university colleges to provide coaching for engineering and medical entrance exams and plans to expand such tie-ups to 30 colleges in two years. These tie-ups help reduce capex needs by utilising the college infrastructure.

Margin pressure In the nine months ended December 2015, operating margin dipped slightly compared to the same period last year due to higher sales and administrative costs. Operating margin has improved to over 20 per cent in 2014-15, from under 18 per cent four years ago, even as it expanded operations ; net profit margin has remained stable at about 10-11 per cent .

Margin may come under pressure as the company expands further organically or through acquisitions, given the intensifying competition in the coaching business. The company has government orders worth ₹ 15 crore to teach the economically weaker students; but the high receivable cycles typically seen in government business may become a cause for concern.

In the nine months ended December 2015, MT Educare’s revenue increased 30 per cent year-on-year to ₹190 crore; profits increased 32 per cent in the same period to ₹27 crore, helped by lower finance costs. About 46,000 students were added to its Robomate product.

The management expects revenues to grow at 15-20 per cent yearly in the next two years. But there have been some concerns.

Enrolment of students in the school segment fell 1.5 per cent y-o-y in the nine months to December 2015. Also, growth in realization per student slipped in 2014-15 compared with 2013-14 in the student and science segments.

COMMENT NOW