Strong brand and quality teaching with innovative technologies to drive growth: MT
Educare has strong positioning in the Secondary School and Higher Secondary School
coaching business in Mumbai location. The city accounts for ~66% of the company’s
overall centers and contributes ~80% of the company’s overall revenue. The company
has introduced a technology, the unique – Learning Management System (LMS) – for
strengthening its offering in its core business. Also, LMS will enable the company to
have a competitive edge over competition and erect a strong entry barrier for entrants
in the coaching business. Thus, in our view, the company is likely to grow at a healthy
rate going forward on back of its strong brand image and with it implementing
innovative teaching technologies.
Top-line growth to accelerate; to grow at 21% CAGR over FY2014-17E: We expect MT
Educare to report a healthy top-line growth, ie ~21% CAGR over FY2014-17E, on the
back of strong growth in its wide offerings and segments. Going forward (a) we expect
the company to report higher growth in the Science segment on back of strong growth
in pre-university (PU) college business which provides test preparatory coaching for
Engineering & Medical entrance examination students. During the year, MT Educare’s
PU college tie-ups rose to 19 from 14 earlier and the number is expected to go up to
30 colleges in the next two financial years. Further, the company has partnered with
Shri Gayatri Educational Society (SGES) in Hyderabad which has a similar business
model like PU College. This partnership provides MT Educare direct access of 33,500
students, which is 42% of MT Educare’s students in FY2015 which will likely generate
additional revenue for the company going forward. Apart from this, Lakshya business
too is expected to witness healthy growth under the Science vertical (b) we also expect
the company to report a strong growth in the CA segment in Tamil Nadu and Mumbai
on the back of its strong brand and centre additions during the years.
Higher spending government projects to boost company’s revenue: The company is
implementing projects for State level governments towards education. In this segment,
MT Educare provides coaching for competitive exams like Engineering, Medical, CA
etc. to backward classes and poor students who can’t afford coaching fees. These
students’ fees are funded by the government under educational spending. In the
Budget FY2016, the finance minister has allocated ~Rs69,075cr on education
spending in FY2015-16. In our view, such government spending towards education
will benefit MT Educare on back of its strong brand, and diversified geographical
presence coupled with innovative teaching technology. The company has already
started getting a decent number of orders from governments. As of now, the company
has an order book of Rs15-20cr in hand. We expect the company to be able to secure
more orders from this segment.
Outlook and Valuation: We estimate MT Educare to report net sales CAGR of ~21%
to ~Rs355cr and net profit CAGR of ~19% over FY2014-17E. At the CMP, MT Educare
trades at a P/E of 12.6x FY2017E. We initiate with a Buy and target price of Rs141
(16x FY2017E EPS), indicating an upside of ~27%.

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