Our Call. There is value in MT Educare’s courses

The markets may be scaling new peaks, but there are still stocks in segments such as education that offer reasonable valuations.

MT Educare, a provider of coaching services for school board exams, professional courses and competitive entrance tests, is an entrenched player in the segment.

Good prospects Investors with a two-year horizon can consider buying the stock. A steady increase in student enrollment, a strong presence in the Maharashtra and Karnataka markets and improving operating margins are positives.

The recent move to give more importance to class 12 results along with entrance exam scores has also helped in boosting revenues.

Along with regular school coaching, MT Educare is increasing training for engineering and medical competitive exams.

At ₹125, the stock trades at a little over 14 times its likely per-share earnings for fiscal year 2016, lower than the 16 times level that the stock has been trading over the past few years and cheaper than smaller rival Career Point, whose valuation multiples are at about 19 times.

Operating margin up In the first half of fiscal year 2015, MT Educare’s revenue rose 10.2 per cent over the same period in the previous fiscal year to ₹119.9 crore, while adjusted net profit increased 17.8 per cent to ₹14.9 crore. The company’s operating margin has risen from 15 per cent levels three-four years ago to over 21 per cent in fiscal year 2014, as it mines its relatively lucrative markets well.

Expanding footprint MT Educare has 222 coaching centres across 196 locations, mainly in Maharashtra and Karnataka.

It is also expanding in Tamil Nadu, Gujarat, AP and Telangana. The number of centres has nearly doubled in the past five years.

Student enrolments, too, have nearly doubled over this period to over 80,000 in fiscal year 2014, clearly indicating increasing interest in its coaching abilities.

The company’s key school and science segments, which involve teaching students to ace CBSE, ICSE and state board exams as well as entrance tests to engineering and medical courses, continue to see improving enrollment.

Coaching for professional courses, such as chartered accountancy, has also seen steady demand from students.

Training for MBA entrance tests is gaining traction.

With entrance to premier engineering colleges such as the IITs and the NITs dependent on both a student’s ability to do well in the board exams as well as entrance tests, MT Educare gets to train students for multiple challenges, ensuring higher revenue.

Growth potential A report from Crisil indicates that the classroom coaching industry has been growing at 17 per cent annually from 2010-11 and will reach ₹75,629 crore by 2014-15.

This large potential allows players even in a diffused industry such as coaching to make sufficient inroads to tap enrollment and revenue.

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