CRISIL assigns grade 4/5 to MT Educare IPO

CRISIL Research has assigned a grade 4/5 to the proposed initial public offer (IPO) of MT Educare Limited, which indicates that the fundamentals of the IPO are above average relative to the other listed equity securities in India.

According to the report, however, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument's future market price or its suitability for a particular investor.

"The assigned grade reflects the company's strong brand resulting from its established track record and dominant position in Mumbai coaching industry. The grade also factors in the expected healthy growth in the industry in Maharashtra - at a CAGR of 11.6% to Rs 51 bn in FY15. MT Educare currently runs 190 centers across Maharashtra, Karnataka, Gujarat and Tamil Nadu. It has undertaken a major expansion in the number of centers during FY09 but these are yet to reach optimum utilisation. MT Educare, being a branded and one of the largest players, with the support of its underutilized infrastructure, is well placed to benefit from the expected Maharashtra-wide growth. The grade is also supported by the company's diverse product portfolio and process driven operations which ensure quality and efficient use of the infrastructure as well as help to retain existing students. The grade is also supported by the execution capabilities of the management."

The report says, "The grade is moderated by the company's over dependence on Mumbai from where it derives a major portion of its revenue - this poses a geographical concentration risk. It is also moderated by the intense competition offered by the highly unorganised industry which could narrow down the company's growth. Further, being cash rich, its future acquisitions and their merger with MT Educare remains a key monitorable."

"MT Educare's revenue growth in the past three years has been driven by the capacity expansion in FY09 and increase in its utilisation, thereon. The increasing trend of the EBITDA margin is also explained by its increasing capacity utilisation. It has reported an EPS of Rs 2.8 for 9MFY11. The company is debt free as on 9MFY11," according to the report.

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