Tree House - 4QFY2015 Result Update - Angel Broking

Tree House Education & Accessories (THEAL) reported a mixed set of numbers for 4QFY2015. Its top-line increased by an impressive 41.8% yoy to Rs. 50.7cr, led by addition of 50 new pre-schools. EBITDA grew by 24.3% yoy to Rs. 23.6cr; however, EBIDTA margin came in at 46.5% as against 53.1% in 4QFY2014. This is owing to higher advertisement expenses during the quarter (4QFY2015). Depreciation increased by 77.4% yoy and came in at Rs. 7.8cr while interest expense increased by 36.9% yoy and came in at Rs. 3.5cr. However, on back of higher other income which came in at Rs. 6.2cr against nil in the corresponding previous year quarter, and due to lower tax rate of 7.3%, the company reported a 112.7% yoy increase in its net profit to Rs. 17.1cr.

Scalable business model to ensure healthy growth: The company has been successful in increasing its presence outside Mumbai, specifically in tier II and tier III cities. Further, the company plans to add 150 pre-schools in FY2016 and FY2017 and enter the untapped Delhi region which has huge potential. The day care service has been receiving good response and other service offerings too are gaining traction, which will support growth.

Profitability to improve on back of debt repayment and monetization of assets: THEAL successfully completed a Rs. 200cr QIP in December 2014. The proceeds will be used to support its expansion plans and towards repayment of debt which will lower its interest outgo. The company will continue to monetize its remaining K-12 assets which will help in creating an asset-light business model overall.

Outlook and Valuations: We continue to remain positive on the stock, as we believe THEAL will continue to register robust growth going ahead, with consistent expansion of pre-schools and repayment of debt which would boost earnings. We expect the company to post a revenue CAGR of 24.9% to Rs. 324cr while EBIDTA is expected to grow at a CAGR of 24.4% to Rs. 184cr over FY2015-FY2017. The Adj. net profit is expected to grow at a CAGR of 22.7% to Rs. 92cr over FY2015-17. We recommend an Accumulate rating on the stock, with a target price of Rs. 433, valuing the stock at 20x on FY2017E EPS of Rs. 21.7.

Shares of TREE HOUSE EDUCATION & ACCESSORIES LTD. was last trading in BSE at Rs.385 as compared to the previous close of Rs. 393.45. The total number of shares traded during the day was 10056 in over 574 trades.

The stock hit an intraday high of Rs. 395.8 and intraday low of 383.8. The net turnover during the day was Rs. 3909409.

Source : Equity Bulls

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