MF Global Recommends Buy on MT Educare with a Target Price of Rs.125

Investment Highlights

MT Educare, promoted by Mr. Mahesh Shetty, provides educational coaching services for Std. IXth and Xth(State board, CBSE and ICSE), Std. XIth and XIIth , graduation (commerce), preparatory/entrance tests(engineering, medical and MBA) and professional courses such as chartered accountancy. It is spread along Maharashtra, Gujarat, Tamil Nadu, and Karnataka with 188 coaching centers across 110 locations.

Well-researched course content and technology-supported teaching: MT Educare's in-house development of course contents for the courses offered by them eliminates a student's need to search for quality study materialand provides them a one stop solution for all their needs in the course they are enrolled. We are of the view that company's adaptability of technological methods will help to augment its brand which will lead growth inprofitability.

Topic-wise teaching is a step ahead of the industry: The traditional scenario of the coaching industry where a student used to prefer an individual teacher who could teach all the major subjects of a particular stream is changing and now specialized teachers in a single domain are preferred as the focus has now shifted to resultoriented teaching due to the rising competition. Our belief is that this major shift in terms of students' preferencefor topic wise teaching has led to an improvement in the quality of teaching and could be one of the factors forrising enrollments to coaching classes that could boost the top line.

Diversified product portfolio provides operational efficiency and helps cater to a big market: MT Educare has been successful so far to cater students in all the segments right from the school level to the graduation level, professional courses and the entrance exams for engineering and MBA. The strong brand image of the companyhas helped it to grab a large number of enrollments at different locations in Maharashtra, Gujarat, Tamil Naduand Karnataka in a very short span of time. We believe that the strong brand image and its geographical reachwill help MT Educare to attract more and more number of students that will help to increase the utilization rate in the current infrastructure facilities available which will boost the bottom line.

Financials and Valuations: Revenue increased by 25% to Rs 1,306 mn in FY12 from Rs 1,048 mn in FY11. The growth is primarily driven by the increase in enrollments and fee hikes. Student enrollments increased at a by 15% during the same period with the fees growing by 11%. We expect that for the period FY12-15E the total income would grow at a CAGR of 23% whereas the PAT would grow by 53%. Company to maintain higher ROE. We initiate coverage on the stock with a Buy recommendation with one-year target price of Rs 125 thatimplies a P/E of 23.5x & 14.1x for FY13E & FY14E respectively, that we assume to be fair on account of higher return ratio.

Source : Equity Bulls

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