CL Educate

CL Educate IPO to open on March 20

CL Educate is a diversified and integrated technology-enabled provider of education products, services, content and infrastructure, with a presence across the education value chain. Since commencing operations in 1996, it has diversified operations across six business segments, spanning the education value chain:

1. Test preparation and training services, generally referred to as “test prep”, conducted under Career Launcher brand.

2. Publishing and content development, conducted under GK Publications brand.

3. Integrated business, marketing and sales services for corporates, conducted under Kestone brand, including event management, marketing support (including digital marketing support), customer engagement, managed manpower and training services.

4. Vocational training programs implemented under Government schemes in various States across India.

5. Integrated solutions to educational institutions and universities, including business advisory and outreach support services, under CL Media brand, as well as research incubation and support services conducted under the Accendere brand; and.

6. K-12 schools operated under Indus World School brand.

Promoters of CL Educate: Satya Narayanan R, Gautam Puri, Nikhil Mahajan, R. Shiva Kumar, Sreenivasan R, Sujit Bhattacharyya and Bilakes Consulting Private Limited.

CL Educate IPO details
Subscription Dates	20 - 22 March 2017
Price Band	INR500 - 502 per share
Fresh issue	2,180,119 shares (INR109.4 crore at upper end)
Offer For Sale	2,579,881 shares (INR129.5 crore at upper end)
Total IPO size	4,760,000 shares (INR238.9 crore at upper end)
Minimum bid (lot size)	29 shares
Face Value	INR10 per share
Retail Allocation	35%
Listing On	NSE, BSE

Company Financials:

Summary of financial Information
Particulars	For the year/period ended (in Rs. Million)
	30-Sep-16	31-Mar-16	31-Mar-15	31-Mar-14	31-Mar-13	31-Mar-12
Total Assets	3852.74	3789.34	3253.44	1838.88	1782.94	1707.98
Total Revenue	894.46	1738.46	1558.47	1247.42	1355.23	1021.74
Profit After Tax (PAT)	71.34	49.18	76.59	23.57	67.43	(53.76)

Objects of the Issue:

The object of the issue are:

1. Funding Working Capital requirement of the Company:
2. Acquisitions and other strategic initiatives;
3. Pre-payment of outstanding amount of a debt; and
4. General corporate purposes.

Should you invest?

So finally, we come back to the question if CL Educate IPO is good enough for subscription. There is no denying that Career Launcher is quite a strong and well-known brand and that it operates in an industry where demand of its services is unlikely to dip. The test preparation industry as of now is estimated at INR378 crore (INR3.78 billion) and continues to grow in double-digit percentage rates. The narrative for the necessity for coaching has not changed much in these years. High competition for the limited seats in even more limited quality institutions have ensured that parents spend a higher share of their income levels on coaching. This is all too well-known to our readers, so we will not spend much time here.

CL Educate is strong company but it is not really a high entry-barrier business which means there are always new entrants willing to spoil pricing for established players. The digital evolution of new generation is also a threat. CL Educate has also not been able to maintain steady profitability, despite very strong cash flows. This means we need rely on valuations to arrive at the investment decision. The EPS of 18.37 in FY2016 means CL Educate IPO is priced at a PE ratio of 27.5. This is not very high for a growing business. The situation has improved further in the latest six months and annualized EPS brings down PE ratio to 23.2. Given the natural downside of extrapolation, it is better to not take FY2017 estimates too seriously.

Analysts, however, are not very upbeat on the issue, as high valuation may not offer much scope for an upside on the stock.

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