Tree House - 4QFY2013 Result Update - Angel Broking

Tree House Education and Accessories Ltd. (THEAL) reported a strong set of numbers for 4QFY2013. Its top-line grew by 32.8% yoy to Rs. 29.4cr, better than our estimate of Rs. 25.2cr. The EBITDA grew by 30.2% to Rs. 14.2cr while margins contracted marginally by 97bp yoy to 48.3% owing to rise in other expenses. Subsequently, the net profit grew by a whopping 45.1% to Rs. 7.3cr, aided by lower interest expense while net profit margin expanded to 25.0%.

Budding pre-school segment provides growth visibility: The concept of imparting education to young toddlers is catching up fast today. As per CRISIL research, the size of pre-school segment is expected to grow to Rs. 13,300cr in 2015 from the current Rs. 5,000cr. Moreover, with an urbanization rate of 40% and escalated average household disposable income, the demand for the segment is expected to maintain its momentum.

Dual business model provides competitive edge: Dual business model of THEAL facilitates it to maintain quality of education, maximize the profit through SOS, and widen its reach through franchisees. Moreover, 'Tree House' being an established brand in the pre-school segment has taken a logical step to enter the K-12 segment. Pre-schools and K-12, thus, become complimentary to each other with pre-school acting as a feeder to the K-12.

Outlook and valuation: Given the growth opportunities in the pre-school segment and consistent expansion by THEAL, we expect the top-line and net profit to grow at a CAGR of 30.1% and 29.9% respectively over FY2013-15E to Rs. 194cr and Rs. 56cr in FY2015E. We recommend Accumulate on THEAL with a revised target price of Rs. 297 based on target PE of 19x of FY2015E earnings.

Source : Equity Bulls

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