>MT EDUCARE LIMITED: IPO ANALYSIS (WAY 2 WEALTH)

MT Educare (MT Edu), promoted by Mr Mahesh Shetty, provides educational coaching services for classes 9 and 10 (State board, CBSE and ICSE), classes 11 and 12, graduation (commerce), preparatory/entrance tests (engineering, medical and MBA) and professional courses such as chartered accountancy.


Objects of the Issue:

• Part financing the cost of construction – (includes the cost of land acquisition of a PUC campus in Karnataka)
• Establishing new coaching centers at 20 locations
• General corporate purposes

Investment Highlights:
■  Business Prospects: MT Educare is the one of the leading players in the Indian educational coaching industry in terms of largest number of coaching centers. It operates 190 coaching centers across 106 locations in Maharashtra, Karnataka, Gujarat, and Tamil Nadu; with primary operations in Mumbai with 138 centers.


■ Recognized Brand name: It is one of the largest and one of the oldest players in the Mumbai coaching industry under the brand name “Mahesh Tutorials”, enjoying a good brand image.


Key Concerns:
■  Geographic concentration: MT Educare is concentrated highly in the regions in and across Mumbai which contributes the most to its revenue; although the company is present in four states, out of its 190 coaching centers, ~73% (138) centers are in Mumbai. This high dependence on a single geography poses a significant risk to the company.


■  Parallel Education system - lack of governmental recognition: Coaching business forms a part of the parallel education industry which has been a key concern for the government as it lacks accountability. The Government is bound to regulate this business in the future, which will affect revenue and profitability. 


■  Intense competition: The coaching industry is highly fragmented and competitive with most of the players being strong in their regions posing risk to expansion plans in future. Also it is highly unorganized with most of the local teachers providing coaching to students. Being a low capital intensive industry, it attracts huge entrepreneurial interest thas further intensifying the competition.


Valuation & Advice:
At the offer price band of Rs 74 – 80, the issue is available at FY12E P/E of 21.1-22.8x. Career Point Infosystems Ltd, a listed entity with similar business, is valued at a historical P-E multiple of 12.7x. Though the brand name is well recognized, it is hard to quantify returns with

certainty. The business model is unsustainable in the longer term with the industry bound to be regulated by the government. Also, at a price band of Rs 74 – 80, the valuation is stressed. Considering its constraint in scalability, investors can Avoid this issue.