In what could a first-of-its-kind market debut, Matrix Partners-backed Tree House Education and Accessories Ltd, engaged in the pre-schools business, is looking at a Rs 150-crore initial public offering adding to the diverse flavour of recently listed entities from sectors such as microfinance, test preparation, fitness centres, restaurant chains and so on.
Four-year-old Tree House, which has filed a DRHP with market regulator SEBI, is looking to raise around Rs 14-18.5 crore ($3-4 million) in a pre-IPO transaction ahead of its proposed public offer.
This will value the company anywhere at Rs 400-500 crore and Matrix that owns 36.35% pre issue could be sitting on 2.25x returns on its less than three-year-old investment, as per VCCircle estimates.
Matrix Partners has put in a total of around Rs 59 crore through multiple infusions since August 2008. Its last part-investment was in May 2010 when it bought shares at Rs 110.53. Its average cost of purchase is pegged at a little over Rs 67 per share.
Another financial investor in Tree House is Foundation Capital (through FC VI India Venture (Mauritius) that put in Rs 31 crore at Rs 110.53 per share last May.
Tree House started operations in 2007 by husband-wife duo Rajesh and Geeta Bhatia who have been engaged in the education services business for the past few years. As of December 31, 2010, it had 177 pre-schools under the brand name of “Tree House” across 23 cities in India. Of this, it operates 108 on its own and the rest are operated through franchisees.
It has also branched out into providing educational services to K-12 schools and as of December 31, 2010, it was engaged with 12 schools which have over 5,000 students, in 4 cities in India. Its pre-schools are largely concentrated in Maharashtra, Gujarat, Karnataka, Rajasthan and Andhra Pradesh.
Tree House revenues for the year ended March’10 was Rs 21.87 crore, double that of previous year, with profit after tax of Rs 2.59 crore, five times the year ago period. For the nine months period ended December it had net profit of Rs 7 crore with revenues of around Rs 30 crore.
Annualising this for the year ending March’11, the company on an expanded equity base post IPO will have earnings per share of Rs 2.76 that will mean it is eyeing valuation of as high as 55 times its trailing profit.
This is much above the current valuations of larger industry peers such as Educomp or Everonn who trade at 20-25 times earnings. But Tree House could be eyeing a higher valuation based on its faster growth than the more established listed peers.
Tree House plans to use the money raised through the public issue to expand pre-school business (Rs 41 crore), acquisition of office space (Rs 11 crore), procurement of exclusivity rights to provide educational services (Rs 15.6 crore), construction of infrastructure for educational complexes in Rajasthan and Gujarat (Rs 40 crore) and repayment of loan (Rs 28.5 crore) besides other purposes.
There are several other big players in the pre-school segment although none of them have gone for an IPO yet. These include Delhi-based Mothers Pride and Shemrock Schools, among others. There are several units of listed firms like Educomp's Eurokids, where Educomp took 50% stake for Rs 39 crore in 2008. Kidzee, which is backed by Zee’s Subhash Chandra, comes under BSE-listed Zee Learn with more than 700 pre-schools in 300 cities.
Markets have also reacted well to some of the listings in the space. Career Point Infosystems, a Rajasthan-based tutorial company, listed on the bourses last year with an issue price of Rs 310. The share price of the firm rose to reach a high of Rs 711 in week following its debut, though it has since corrected, currently trading at Rs 362 per share.
The sector has seen an increasing interest from PE players, with investments of $190 million across 23 deals in 2010, according to VCCEdge, compared to 10 deals worth $128 million in 2009. Beginning of 2011 has already seen several large-ticket deals such as Dubai-based QInvest's deal with FIITJEE and Pearson's strategic acquisition of TutorVista.
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