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Tree House Education & Accessories Ltd. (Tree House), which started
operations in 2007, operates pre-schools under the brand name of 'Tree
House'. As of June 15, 2011, ‘Tree House’ had 223 pre-schools (of which
149 are self-operated) across 33 cities. The company also provided
educational services to 12 schools, which have over 5,000 students, in
four cities in India. Tree House has also ventured into ancillary services
like preschool teacher training and day care.
Objects of the issue: Tree House plans to utilise the IPO proceeds to
open 120 new pre-schools by 2014 (Rs 41 crore), besides constructing
the necessary infrastructure in Rajasthan and Gujarat (Rs 40 crore). It
also plans to use the proceeds for acquiring office space (Rs 11 crore),
procuring exclusivity rights to provide educational services (Rs 15.6
crore) and repayment of loan (Rs 28.5 crore).
Investment Rationale
Company-owned model: The Company prefers company-owned
model as against franchisee model as the former has various
inherent advantages such as quality control and maintenance of
hygiene. Its 149 self-operated pre-schools represent 66.82% of its
total pre- schools.
Recognized brand: The “Tree House” brand is well- recognized for
pre-schools and its quality teaching methods.
Expansion to new geographies: It intends to expand its
geographical presence and reach by opening 120 additional selfoperated
pre- schools across India by FY14.
Standardized and innovative teaching methods: For maintaining
quality, all its pre- schools have standardized curriculum and
innovative teaching methods including playschool, nursery facilities,
vacation camps, mother-toddler classes, hobby classes, day care
facilities and teacher training course. An average teacher student
ratio of 1:14 is maintained at its self- operated pre- schools.
Key Concerns
It proposes to set up educational complex at Jhunjhunu, Rajasthan
on a land which cannot be used for non-agricultural purpose. It is
yet to receive approval for land use conversion. If delayed it may
disrupt the schedule of development of the said complex.
Limited operating history in providing educational services to K12
schools.
Its self-operated pre-schools are mainly on leave and license basis.
Inability to renew the agreements may hamper the operations.
Valuation and Investment Argument: The pre-school market is still at
a nascent stage in India and being highly fragmented and unorganised
provides huge opportunity to an established player and early entrant
like ‘Tree House’. At the offer price bands, the issue is available at P/E
of 38.6x- 43.7x its FY12E EPS of Rs 3.5 on post diluted equity capital
which seems to be on a higher side. Though we are not comfortable on
the pricing front and the present market stuation also looks threatening
but being a concept stock, it may attract investor interest. Hence we
recommend playing on Education theme via Tree House. Subscribe at
the lower band.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tree House Education & Accessories Ltd. (Tree House), which started
operations in 2007, operates pre-schools under the brand name of 'Tree
House'. As of June 15, 2011, ‘Tree House’ had 223 pre-schools (of which
149 are self-operated) across 33 cities. The company also provided
educational services to 12 schools, which have over 5,000 students, in
four cities in India. Tree House has also ventured into ancillary services
like preschool teacher training and day care.
Objects of the issue: Tree House plans to utilise the IPO proceeds to
open 120 new pre-schools by 2014 (Rs 41 crore), besides constructing
the necessary infrastructure in Rajasthan and Gujarat (Rs 40 crore). It
also plans to use the proceeds for acquiring office space (Rs 11 crore),
procuring exclusivity rights to provide educational services (Rs 15.6
crore) and repayment of loan (Rs 28.5 crore).
Investment Rationale
Company-owned model: The Company prefers company-owned
model as against franchisee model as the former has various
inherent advantages such as quality control and maintenance of
hygiene. Its 149 self-operated pre-schools represent 66.82% of its
total pre- schools.
Recognized brand: The “Tree House” brand is well- recognized for
pre-schools and its quality teaching methods.
Expansion to new geographies: It intends to expand its
geographical presence and reach by opening 120 additional selfoperated
pre- schools across India by FY14.
Standardized and innovative teaching methods: For maintaining
quality, all its pre- schools have standardized curriculum and
innovative teaching methods including playschool, nursery facilities,
vacation camps, mother-toddler classes, hobby classes, day care
facilities and teacher training course. An average teacher student
ratio of 1:14 is maintained at its self- operated pre- schools.
Key Concerns
It proposes to set up educational complex at Jhunjhunu, Rajasthan
on a land which cannot be used for non-agricultural purpose. It is
yet to receive approval for land use conversion. If delayed it may
disrupt the schedule of development of the said complex.
Limited operating history in providing educational services to K12
schools.
Its self-operated pre-schools are mainly on leave and license basis.
Inability to renew the agreements may hamper the operations.
Valuation and Investment Argument: The pre-school market is still at
a nascent stage in India and being highly fragmented and unorganised
provides huge opportunity to an established player and early entrant
like ‘Tree House’. At the offer price bands, the issue is available at P/E
of 38.6x- 43.7x its FY12E EPS of Rs 3.5 on post diluted equity capital
which seems to be on a higher side. Though we are not comfortable on
the pricing front and the present market stuation also looks threatening
but being a concept stock, it may attract investor interest. Hence we
recommend playing on Education theme via Tree House. Subscribe at
the lower band.
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