As a play on the “evergreen” student coaching industry and on the Indian education sector at large, MT Educare, with its strong positioning in the lucrative Mumbai market looks set to ride the opportunity well.

Investors with a two-year horizon can consider taking exposure to the initial public offering of the company.

Increasing enrolments across its three segments of operation — school, science and commerce, entrenched presence in school board examination as well as entrance test preparations are key positives.

Premium justified

At the upper end of the price band (Rs 74-80), the MT Educare offer asks for 17 times its annualised per share earnings for FY12, on a diluted basis.

This is at a premium to peers such as Career Point, which trades at around 13 times forward earnings. But MT Educare is a much larger player in terms of revenues and has a much broader portfolio of offerings. The premium may thus be justified.

It should, however, be noted that given the richly valued nature of the offer, investors need to have a couple of years' timeframe for meaningful upside.

Coaching success

In FY11, the company saw its revenues grow 25.1 per cent over the previous fiscal to Rs 107.3 crore, while net profits rose 57.7 per cent to Rs 8.2 crore. In the first half of the current financial year, revenues reported were Rs 72.3 crore, while net profits stood at Rs 9.6 crore.

MT Educare coaches students in classes IX to XII with a focus on board exams — State, CBSE and ICSE. It also trains them for other certifications such as CA and other competitive exams for engineering admissions in various states. This offering is segregated as schools, science and commerce streams.

The company operates 188 coaching centres across 110 locations in States such as Maharashtra, Karnataka, Tamil Nadu and Gujarat. Mumbai is the mainstay for the company with nearly three-fourths of the branches located in the city.

Over the last three years, the company has seen increasing enrolments with number of students increasing from 44,317 in FY09 to 58,300 in 2010-11. The increase is across all the three streams, with commerce section growing at a faster pace.

The school section accounts for almost 49 per cent of revenues, the science segment nearly 26 per cent and the commerce stream for around 21 per cent.

Also, calculated on a per student basis, revenues have risen from about Rs 16,900 in 2009 to Rs 18,400 levels in 2011.

Sweet spot

With good scores in board exams and entrance tests gaining in importance, the recurrent nature of these tests, as well as increasing competition, MT Educare is in a sweet spot to ride on the momentum.

Even if the multiple State entrance exams are scrapped in lieu of a single engineering or a medical test, it seems unlikely that board exams would be done away with.

Also, there are proposals to give weightage for class 12 scores even for admissions to institutions such as IITs and NITs. This spells well for the prospects of coaching institutes.

The coaching industry is a fragmented one cluttered with many players, raising the risk of pricing pressures. But, MT Educare has been able to take regular fee hikes. This suggests growing acceptance of its offerings.

A recent report by CRISIL on the coaching industry expects the market to grow at 17 per cent annually from Rs 40,187 crore in 2010-11 to Rs 75,629 crore in 2014-15.

Given the size of the pie, players such as MT Educare have enough headroom and a large potential market. The key challenge would be to retain top faculty with salary increases.

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