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Tree House Education And Accessories - Reaping Educational Dividends

| 7/12/2012 9:04 PM Thursday

Tree House Education and Accessories has rapidly grown its education services in the pre-school and K12 segments. The company has offered impressive returns to investors since its listing on the bourses, and looks like a good value proposition overall, says Chandrakant Shukla

Until a few years ago, education wasn’t looked upon as a business opportunity in India. That scenario changed with the changing demographics. Educomp, which was listed in 2006, initially managed to create wealth for investors. However, with most of the bigger players that had jumped into this business getting embroiled in corporate governance issues, the sector soon lost its sheen. In the past five years, companies such as Educomp and Everonn have declined by as much as 83 per cent in value on the bourses. So, is education as a sector really worth its salt for those that are operating in it, as also for investors?

Recent IPOs of education companies such as MT Educare and Tree House Education suggest that the sector has a lot more to offer. We believe that the education story is still intact, in fact robust, and continues to offer a large opportunity based on factors such as the diverse nature of our country, increasing spending on education, etc.

We have lately seen many small and medium-sized education companies emerging and entering the primary market to raise money to fund their expansion plans. One such company is the Mumbai-based Tree House Education and Accessories (THEAL), which offers pre-school education services for kids between 1.5 and 6 years. The company was incorporated in 2003 with one pre-school, and today, it has become one of the largest self-operated pre-school companies in India.

We met the management of the company to understand its business and to know more about what the sector has to offer. This company tapped the primary market to raise a total of Rs 113 crore, and got listed on 26th August, 2011 at Rs 132. The current market price of the scrip is Rs 227, which translates into a 71 per cent return from where it was listed. In contrast to this, companies like Educomp and Everonn have lost tremendous value, and are trading almost 55 per cent down over the past one year.

A Strong Business Model

THEAL mainly operates in the pre-school business, which contributes to about 91 per cent of its total revenue. The rest comes from the K12 school business. As on 31st March, 2012, the company had 302 pre-school centres across 37 cities in India, of which 240 are self-operated and only 62 are franchises. The uniqueness of the enterprise is its business model which, unlike its competitors, focusses more on owned centres and less on franchised ones.

 

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