Accumulate Tree House Education; target of Rs 433: Angel

Angel Broking's report on Tree House Education and Accessories

"Tree House Education & Accessories (THEAL) reported a mixed set of numbers for 4QFY2015. Its top-line increased by an impressive 41.8% yoy to Rs 50.7cr, led by addition of 50 new pre-schools. EBITDA grew by 24.3% yoy to Rs 23.6cr; however, EBIDTA margin came in at 46.5% as against 53.1% in 4QFY2014. This is owing to higher advertisement expenses during the quarter (4QFY2015). Depreciation increased by 77.4% yoy and came in at Rs 7.8cr while interest expense increased by 36.9% yoy and came in at Rs 3.5cr. However, on back of higher other income which came in at Rs 6.2cr against nil in the corresponding previous year quarter, and due to lower tax rate of 7.3%, the company reported a 112.7% yoy increase in its net profit to Rs 17.1cr."

Outlook and Valuations: "We continue to remain positive on the stock, as we believe THEAL will continue to register robust growth going ahead, with consistent expansion of pre-schools and repayment of debt which would boost earnings. We expect the company to post a revenue CAGR of 24.9% to Rs 324cr while EBIDTA is expected to grow at a CAGR of 24.4% to Rs 184cr over FY2015-FY2017. The Adj. net profit is expected to grow at a CAGR of 22.7% to Rs 92cr over FY2015-17. We recommend an Accumulate rating on the stock, with a target price of Rs 433, valuing the stock at 20x on FY2017E EPS of Rs 21.7", says Angel Broking research report.

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