Career Launcher to launch its IPO on 20th March 2017

About The Company

CL Educate operates in two major segments, viz. Education Training and Vocational Training Program which also includes sale of study materials and vocational training. The company provides coaching for higher education entrances Like GATE,GMAT, CAT, CET, etc. under the Education training segment. Vocational training segment includes specific projects taken including government’s projects.

It offers test preparation courses and services under the career Launcher brand (46.67% of revenue), publishing and content development under the brand of GK publication (8.31% of revenue) and research incubation and support services under Accendere brand (37% of revenue). The company also operates in K-12 schools under the Indus World School Brand name (2.78% of revenue) while vocational training contributes 7% of revenue.

Industry Analysis

The test preparation industry is valued at Rs 37800 crores and is expected to grow by 13% CAGR over the next five years. In test preparation, MBA and Law is expected to grow at a CAGR of 7% and 16% respectively over the same period of time.

There has also seen a shift towards online platform which has highest reach and penetration. The digital education industry has grown substantially. In the last few years, the industry's revenues tripled from Rs 30400 crore in 2011-12 to an estimated Rs 84900 crores in 2014-15, growing at a CAGR of 40% .

The publishing industry is valued at Rs 24400 crores as of 2015-16 with academic segment accounting for the highest share of Rs 20200 billion (approximately 83 ) and remaining for non-academic segment. K-12 has the highest market opportunity with estimated share of 67%.

Overall, the private coaching sector is expected to grow at over 15% each year.

Growth prospects

Company expects the growth to flow from the test prep market in particularly assessment and research service. With increasing need for companies and government to outsource preliminary assessment for selecting appropriate candidates, CL sees an market opportunity with high ROCE.

Also, it plans to exit in phased manner from business which are high in capital intensity over next 3-4 years. These include programs implemented by company under government schemes in various state across India and K12 business. This is expected to lift ROCE over next three years.

About the Issue

The company is issuing 4,760,000 equity shares of Rs.10 to raise Rs 239 Crores. Out of this ~128 crores will be the payment to selling shareholders and Rs.110 crores will be utilized by the company.



The objects of Issue

Company is planning to utilize the funds from IPO to in three major areas as follows
1) Funding working capital requirements of the Company and its Subsidiaries, GKP and Kestone: Rs 52.5crores
2) Pre-payment of outstanding amount of a debt facility availed of by its Subsidiary, CLIP: Rs 18.6crores
3) Acquisitions and other strategic initiatives: Rs 20.0crores
4) General corporate purposes

Financial performance

On the financial front, the company's revenues have shown positive growth of 14% CAGR over FY13-16. However, its EBITDA margins have declined by 200 bps in FY16, leading to decline in PAT by 35% yoy. However, in the last six months, the company has successfully increased its operational efficiency by decreasing overall costs by around 7-8% . We expect that company to continue to improve its operational efficiency, which will positively impact EBITDA and PAT margins.

Peer Comparison and Valuation

Being a largely unregulated and unorganized market, there are large number of competitors in this sector. Some are organised private coaching chains like TIMES and IMS to the unorganized home tutors, but very few are listed. We attempt to analyse company’s performance against listed companies like MT Educare, Zee Learn and Tree House. CL majorly compete in education segment and vocational training segment with them.

As far as the ROE is concerned MT Educare leads with ROE of 23% while Zee Learn’s ROE stands at 6.3%. CL has decent ROE of 8.31% in FY16. CL’s EBITDA margin stands at 10.4% while PAT margin stands at 7%. However, EBITDA & PAT margin of MT Educare and Zee Learn are 22% &11% and 25.3% & 10% respectively.

Coming to valuation, at the upper price band of Rs 502 it is valued at P/E of 27.47x. Considering the company intends to acquire and exit high capital intensity business we expect margins to improve over a period of time. We suggest our investors to subscribe for the IPO for listing gains.