Matrix Partners backed-preschool management company Tree House Education and Accessories Pvt Ltd made a poor debut on the stock market on Friday, listing around 1 per cent below the issue price only to shoot up around 16 per cent in intra-day trade but crashed thereafter to close at Rs 116.55 a share on the BSE, down 14 per cent to the issue price of Rs 135 a share.
The stock had a roller coaster ride on day 1 but ended much below the issue price, in line with weakness in the broader Indian market. The 30-stock benchmark index Sensex hit its lowest level since February 2010.
At the last traded price on Friday, the firm is valued at Rs 392 crore or around $86 million.
Matrix Partners India had invested in the company through multiple ranches during 2008-09 at Rs 63.16 per share and put in fresh money last year at Rs 110.53 a share. Matrix Partners also participated in the pre-IPO fundraising where it had estimatedly put in Rs 4 crore more, thereby taking its total commitment to around Rs 63 crore. Matrix currently holds 26.73 per cent stake in the company and is sitting on unrealised gains of 66 per cent.
Another investment firm Foundation Capital, which first co-invested with Matrix in May, 2010, is sitting on marginal gains of around 3.5 per cent. A subsidiary of Omidyar Network (whose investment value is underwater currently) led the round of pre-IPO funding worth Rs 19 crore in which Matrix and Foundation Capital also took part.
Tree House, which raised around Rs 112 crore in the public issue, is a five-year-old firm founded by the Bhatia couple Rajesh and Geeta. It started operations in 2007 and operates preschools under the brand name of Tree House. The company has also branched out into providing educational services to K-12 schools. Tree House has a total of 230 preschools as on August 26, 2011, two-thirds of which are self-operated.
The company reported net profit of Rs 9.2 crore on total income of Rs 41.1 crore for the year ended March, 2011. This means the firm is now valued 42.6x its last annual profit.
Tree House plans to use the money raised through the public issue 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).
Among the listed peers, Zee Learn (the education business of Subhash Chandra’s Essel group which demerged and listed late last year and runs Kidzee) had similar revenues as Tree House but had a fraction of profit for FY11. Zee Learn is currently trading around 264 times its last year’s net profit.
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