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Tuesday, March 27, 2012

MT Educare Limited, an education support and coaching services provider for students in the secondary and higher secondary school and popular with brand name "Mahesh Tutorials" is entering the capital markets with an IPO for equity shares aggregating to INR3,500 lakhs (fresh issue) and an offer for sale of up to 80,00,000 equity shares.(including anchor portion of 17,37,914 equity shares.) MT Educare also provides coaching services for students pursuing graduation degree in commerce, preparing for various competitive examinations and undertaking chartered accountancy examinations

The IPO would remain open for subscription between March 27, 2012 and March 29, 2012. The object of the issue are for general corporate purposes and for:
1. Part financing the cost of construction of a PUC campus in Karnataka, which includes the cost of acquisition of land;
2. Establishing new Coaching Centres at 20 locations

Enam Securities Private Limited is the Book Running Lead Manager to the Issue while Link Intime India Pvt. Ltd. is the Registrar


IPO Grading:
CRISIL has assigned an IPO Grade 4 to MT Educare IPO. This means as per CRISIL, company has 'Above Average Fundamentals'. CRISIL assigns IPO grading on a scale of IPO Grade 5 to IPO Grade 1, with IPO Grade 5 indicating strong fundamentals and IPO Grade 1 indicating poor fundamentals. View MT Educare IPO Grading Report


Analysis of Financials:

Following are the standalone financials of the company as per the Red Herring Prospectus filed by the company:

The Net Worth of the company was Rs.47.75 Crores as on March 2011 which grew close to Rs.57 Crores till September 2011. On the revenue front, for financial year ended 31st March 2011, company reported Rs. 105 crore as total operating income, with PAT of Rs. 8 crore, on a consolidated basis. If we consider FY11, the EPS turns out to be around Rs.2.4. Assuming the shares would be issued at the upper end of the price band, i.e. at Rs.80/- per share, the resulting PE would still be on the higher side


Significant Risk Factors:
1. The company is heavily dependent on the services of the promoter Mahesh Shetty, directors and key members of the management team. Any damage to reputation of the promoter / his services may have an adverse impact on the business

2. There is heavy concentration when it comes to geographical diversity. Most of the coaching centres of the company are located in Mumbai and around 90% of the standalone fees is also received from there.

3. The company has provided loans to MT Educare Charitable Trust in the past at price not linked to market variables and may continue to do so in the future

4. Despite having loan burden of its own as on March 2011, In FY11, a loan of Rs.5 crore was given to a group company Neptune Venture and Developers


Concluding Remarks:
Even while keeping the growth and revenue potential of educational coaching centres in view, it may be difficult for investors to digest a heavier PE for a concentrated business such as this. The IPO may give listing gains - may be even handsome gains, but continued growth in shareholder value or rather the maintainability of the same over the long term remains a question keeping in view the risk factors involved

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