MT Educare
CMP: 135

MT Educare is a great play on the growing demands of Test Coaching in India. The company has an asset light capital efficient model that continues to churn strong numbers.

I believe that MT Educare is one of the few brands to have successfully scaled up across divisions and geographies in the coaching space. MT Educare's business model is capable of generating negative working capital that helps in improving capital efficiencies.

The company is run by a good Management team and is backed by several intelligent investors, including Prof. Shivanand Manekar who is known for his shrewd investments.

Prof. Manekar is holding 19,25,000 shares amounting to 17 crores.

At the current price, MT Educare continues to be one of the few quality small caps that is available at reasonable valuations. We believe that there are triggers in the form of increased Operational leverage and maturing centers that would help the company to get re-rated going forward.

Company is extremely well positioned to capitalize on the growth opportunities in the Indian coaching space with its strong brand image across verticals. We believe that the company's growth strategy is well planned.

In addition to such growth prospects, the company's financials are rock solid. It has a net cash Balance sheet, enabling it to grow without diluting equity or taking higher loans. We believe that company's PAT growth can continue to be better than its Revenue growth.

If one compares MT with educomp or career point, then certainly MT Educare appears to be lot cheeper. Further from investors perspective Mt is a mumbai based company with 92 branches in mumbai alone. Right now I do not think any other company has such strong branch network amonst all listed peers.

Another interesting aspect of the company is it caters to very broad spectrum of students right from schools, competative examination, X, XII, Science Stream commerce CA, No of branches are on rise. Another interesting aspect of this business is its size.

The size of MT is almost difficult to replicate and acts as a very sound entry barrier for especially new players and thus primium valuation should persist for the counter going forward too.

MT Educare recently posted Fantastic Results - PAT 44% Q-o-Q and 18% y-o-y to 14.9 crores

MT Educare reported net profit of Rs. 18.8 crores for the half year ended 30th sept. 2014, as compared to 12.64 crores in corresponding last year half. The reported PAT includes one-time gain of Rs. 3.89 crores due to change in depreciation policy from WDV to SDM method. Hence the adjusted PAT of rs. 14.9 crores represents a rise of 18% y-o-y.

Total consolidated Income for H1 FY 14-15 stood at Rs. 198.88 crores as compared to Rs. 108.76 crores in H1 FY 13-14, a growht of 10% y-o-y.

MT Educare has declared an interim dividend of 6% resulting in total payout of Rs. 2.88 crores, including dividend distribution tax.

In today's hyped market, there are few companies that can generate consistently high ROE's of around 25% and still get quoted at FY-15 (E) P/E of around 14X. We believe that the stock would get re-rated as the business performance comes through over the next few quarters.

Take: Hold for 2-3 years time frame for target of 700-900 target.