TreeHouse Education and Accessories - Robust revenue and other income; Buy - Anand Rathi

TreeHouse Education and Accessories' (Treehouse) 2QFY13 revenue grew 62% yoy. EBITDA margin was down ~600bps yoy and net profit was at Rs.99m (+88.4% yoy, +23.8% qoq) led by strong revenues and high other income. It added five new centres during the quarter. We raise our target price to Rs.260 and maintain Buy on the stock.

- 2QFY13 result highlights. Treehouse registered 2QFY13 revenue of Rs.283m (+61.6% yoy; +2.7% qoq). EBITDA margin was at 54.9%(-603bps yoy; -248bps qoq), while net profit stood at Rs.99m (+88.4% yoy; +23.8% qoq). Other income was Rs.32m (+394%yoy; +240%qoq).

- Centre update. The company added five new centres this quarter, taking the total to 309. Of these, 243 are own, while 66 are franchised. The company has maintained that it will open 75 own centres by FY13 end.

- Management guidance. 1) TreeHouse has already started admission for academic year 2013-14 and is seeing good traction; 2) it has 21 K-12 schools operational and expects to set-up 3 more by 2015, to a total 25.

- Change in estimates. While our top-line estimates are intact, we are revising our EBITDA estimates upwards by 19% and 18% for FY13 and FY14, respectively, primarily because margins have sustained above 53% (above our expectations of 46%) owing to good capacity utilization. We also raise our FY13 and FY14 adj. PAT estimates 4.5% and 3.1% respectively.

- Valuation. We increase our target price on the stock to Rs.260, using the DCF-based method. At this target, the stock would trade at PE of 18x FY14e and 11x FY15e earnings. Risks. Availability of skilled manpower; geographical concentration, regulatory risks for the K-12 segment.

Source : Equity Bulls

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