Buy Tree House Education; target of Rs 225: AnandRathi

AnandRathi is bullish on Tree House Education and has recommended buy rating on the stock with a target of Rs 225 in its June 21, 2012 research report.

“Tree House Education management is seeing more traction this year in junior KG and senior KG. The key reason: 25% of seats in K-12 schools with an integrated pre-primary section for those from weaker sections of society have been blocked as a result of the implementation of the Right to Education Act. As a result, in cities like Mumbai that already have a shortage, seats in the general quota are further limited. This has emerged as a positive for the company.”

“Continuing its policy of having more self-owned centres than franchisees, THEAL has raised the proportion of self-operated centres, from 74.7% in 3QFY12 to ~80% currently. It now controls 302 centres, 240 of them its own. This figure will increase following the acquisition of six centres from MT Educare. Further, in order to ensure that no centres are shut down, THEAL will convert its franchisee outlets into self-owned centres if franchisees wish to exit. EBITDA margin is likely to see a boost from 1QFY13 onwards as a result of good traction from 75 new centres opened in 2HFY12. Further, THEAL is talking to landlords of closeddown franchisees of its peers to convert them into self-owned centres.”

“Our DCF-based price target is `225. At this price, the stock would trade at a PE of 16x FY14e. Risks: Non-availability of skilled manpower, geographical concentration and regulatory risks for the K-12 segment,” says AnandRathi research report.

Institutional holding more than 40% in Indian cos

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