IPO note: CL Educate Limited
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Incorporated in 1996, CL Educate Ltd is engaged in providing various educational products and services. They operate through two segments i.e. Education & Training Programme (including sales of Study Material) and Vocational Training. The Company's Education & Training Program (including sales of Study Material) segment includes coaching for higher education entrances. The Company's Vocational training segment includes specific projects undertaken by the company (including government projects). CL Educate offers test preparation courses and services under the Career Launcher brand, publishing and content development services under the brand GK Publications and event management, marketing support, customer engagement, and managed manpower and training services under the Kestone brand name.They also provide integrated solutions to educational institutions and universities, including business advisory and outreach support services under the CL Media brand, as well as research incubation and support services under the brand Accendere. In addition, the company operates K-12 schools under the Indus World School brand name. As on September 30, 2016, they had 151 testprep centers spread over 87 cities in India, 8 K-12 schools spread across 6 cities & 28 vocational training centers and offices.
Object of issue: The company is raising ~INR1,094mm through a fresh issue of equity shares in the price band of INR500-502. The fresh issue will constitute ~15% of the post-issue paid-up equity share capital of the company, assuming the issue is subscribed at the upper end of the price band. The company is offering ~2.6mm shares that are being sold by the promoter group and other shareholders
- Company will deploy fund of ~INR530mm towards Working Capital requirement
- Part pre-payment of outstanding debt
- Company to allocate ~INR 200mm towards acquisitions and other strategic initiatives
- General corporate purpose
At the upper end of the price band of INR502, the company is available at 27.7x PE @ FY16 earnings. The return ratios (ROE, ROCE) of the company for FY16 are subpar at ~10% as compared to closest peer MT Educare with ROE of ~22% and ROCE of ~30%. The company's business is working capital intensive (FY16 WC: ~130 days). CLEL reported total operating income of INR ~INR1,532mm and PAT of ~ INR129mm for H1FY17.
Diversified revenue mix: CLEL has diversified operations across various business segments spanning the education value chain, across age groups, which includes services like Test preparation & training, Publishing and content development, integrated business, marketing and sales services for corporate, Vocational training, integrated solutions to educational institutions and K-12 schools. The company's more than ~50% revenue comes from Test preparation & training and balance from other segments.
Strong brand equity and wide presence: Career Launcher is a well-recognized brand in the education sector, particularly in aptitude-based test prep courses for MBA, Banking & SSC, Law test prep, etc. As on September 30, 2016, the company had 151 test-prep centers spread over 87 cities in India, 8 K-12 schools spread across 6 cities & 28 vocational training centers and offices.
Technology enabled model: CLEL has adopted asset-light, scalable and less capital-intensive business partnership model to operate test prep centers, in addition to its own test prep centers. The company has a network of 151 test prep centers, of which 45 are owned and leased and 106 test prep centers operating under a partnership model.
While CL Educate has built a brand in coaching services, the business is highly competitive with stiff competition from private players. After September 2016, about four test prep centres were closed.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.
- CL Educate IPO: Looks expensive at current level; HEM Securities recommend to 'Avoid'
- Jainam Wealth recommend 'Avoid' on the CL Educate IPO
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