Buy Tree House Education; target Rs 326: Angel Broking

Angel Broking is bullish on Tree House Education and Accessories (THEAL) and has recommended buy rating on the stock with a target price of Rs 326 in its March 25, 2013 research report.

"THEAL is the largest self-operated pre-school education provider in India. THEAL has 349 pre-school centres of which 278 centers are self-owned schools (SOS) while 71 centers are franchisees (as of December 2012). THEAL has also entered into the K-12 schools segment (in regions where it has strong pre-school presence) which is a logical extension from its existing pre-school business. THEAL has advantage over other players since it has feeders from its pre-school segment. It offers school management services to K-12 schools through a trust and currently has 23 operational schools under this arrangement. With rising need for quality education and changing lifestyles, THEAL is expected to grow at a robust pace with its established brand. We initiate coverage on THEAL and recommend Buy with a target price of Rs 275. Budding pre-school segment to boost top-line: The concept of imparting education to young toddlers is catching up fast today. With a current size of Rs 5,000cr, the pre-school segment is expected to grow to Rs 13,300cr in 2015 as per CRISIL Research. Considering an urbanization rate of 40 percent, the demand for the segment is expected to maintain its momentum. In addition the expected growth in average household disposable income in India to ~Rs 239,000 in 2030 (from ~Rs 60,000 in 2008; CAGR of 6.4 percent) is expected to drive growth for THEAL. Unique business model to provide competitive edge: THEAL operates its pre-schools on a dual business model, ie operating SOS in metro cities and adopting the franchise model in tier 3 & 4 cities. This model facilitates the company to maintain its quality of education and maximize the profit through SOS; and widen its reach through franchisees. Moreover, 'Tree House' being an established and trusted brand in the pre-school segment has taken a logical step to enter the K-12 segment and benefit from its brand and experience of providing quality education. Both, Pre-schools and K-12 are complimentary to each other with pre-school acting as a feeder to the K-12. Outlook and valuation: Given the growth opportunities in the pre-school segment coupled with its consistent expansion of pre-schools and K-12 schools, we expect THEAL's top-line to grow at a CAGR of 35.3 percent and net profit to grow at a CAGR of 39.4 percent respectively over FY2012-15E to Rs 192cr and Rs 58cr in FY2015E. The stock is currently trading at a PE of 13.9x its FY2015E earnings. Considering the nascent stage of pre-school segment with high potential growth prospects and unique business model of THEAL, we initiate coverage on THEAL and recommend Buy with a target price of Rs 275 based on target PE of 17x for its FY2015E earnings," says Angel Broking research report. FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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