C L Educate IPO review (Apply)

CL Educate Ltd (CLE) is a diversified and integrated technology-enabled provider of education products, services, content and infrastructure, with a presence across the education value chain. It has diversified its operations across six business segments, spanning the education value chain

1. Test preparation and training services, generally referred to as 'test prep', conducted under our well recognized brand Career Launcher;
2. Publishing and content development, conducted under our brand GK Publications;
3. Integrated business, marketing and sales services for corporate, conducted under our brand Kestone, including event management, marketing support (including digital marketing support), customer engagement, managed manpower and training services;
4. Vocational training programs implemented by us under Government schemes in various States across India;
5. Integrated solutions to educational institutions and universities including business advisory and outreach support services under its brand CL Media as well as research incubation and support services conducted under the brand Accendere; and
6. K-12 schools operated under our brand Indus World Schools.

To part finance its needs for pre-payment of debt, working capital, general corpus fund and strategic acquisition plan, the company is coming out with a maiden IPO of 2180119 equity share of Rs. 10 each as well as offer for sale of 2579881 shares. The issue is via book building route with a price band of Rs. 500-502 per share. Total issue is for 4760000 shares to mobilize approx Rs. 238.95 crore (based on higher price band). 1666000 shares are reserved for retail category of investors. Issue opens for subscription on 20.03.17 and will close on 22.03.17. Minimum application is to be made for 29 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Being issue under Rs. 250 crore, it will be listed in 'T' group initially that may keep speculators away. From May 1996 to Oct. 2000 it issued initial equity at par and also a bonus in the ratio of 17 for 2 in August 2000. From June 2001 to October 2016 it issued fresh equity in a price range of Rs. 150 to Rs. 1000 (for a fv of Rs. 10) and bonus issues in the ratio of 6 for 1 (Sept 2004) and 1 for 2 (Feb 2007). Post issue its current paid up equity capital of Rs.11.98 crore will stand enhanced to Rs. 14.16 cr. Kotak Mahindra Capital Co. Ltd is the sole BRLM and Karvy Computershare Pvt Ltd is the registrar to the issue.

On the performance front, the company has (on a consolidated basis) posted turnover/net profits of Rs. 222.08 cr. / Rs. 14.57 cr. (FY13), Rs. 229.81 cr. / Rs. 15.34 cr. (FY14), Rs. 285.08 cr. / Rs. 21.23 cr. (FY15) and Rs. 296.69 cr. / Rs. 21.687 cr. (FY16). For first half of the current fiscal ended on 30.09.16 it has earned net profit of Rs. 12.92 crore on a turnover of Rs. 160.70 cr. Management is confident of maintaining the tempo of growth with more innovative plans. If we annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 27 plus (against industry composite of 53 plus as on 31.03.16) and at a P/BV of around 2.3. Thus issue is reasonable priced. However, peers are not having the same business model to compare with.

On BRLM’s front, it has handled 19 issues in past three years out of which 5 issues closed below the issue price on listing date.

Conclusion: Education sector is attracting fancy off late and hence, investors may consider investment for medium to long term.