Matrix Partners-backed pre-school management company Tree House Education and Accessories Pvt Ltd has changed its business expansion plan and is now looking to focus on the expansion of the pre-school business.

The company that went public early this year and raised around Rs 112 crore in the public issue, had originally proposed to split major portion of the money raised through the IPO for expanding the pre-school business and setting up education complex in Gujarat and Rajasthan besides repayment of loans.

Now it has tweaked the plan and will invest bulk of the money to expand the core pre-school business. The company has doubled the money earmarked for investment in the pre-school business, increasing the amount from Rs 42 crore to Rs 85 crore.

It has also cut down the amount budgeted for loan repayment by more than two-thirds, from Rs 28.58 crore to Rs 8.6 crore, while pruning its investment of Rs 40.27 crore in education complexes to Rs 27.5 crore and cutting its proposed investment of Rs 27 crore for procurement of exclusivity rights related to educational services to Rs 17 crore.

The firm expects to invest the balance in acquisition of office space.

Tree House had originally planned to use the money raised through the public issue to open 120 new pre-schools by 2014. Given that it has raised the amount earmarked for the same, it would be looking at a faster ramp-up of pre-school business.

Tree House scrip rose 3.87 per cent to close at Rs 155.7 a share on Thursday in a strong Mumbai market.

Incidentally, the company had made a poor debut on the stock market listing, around 1 per cent below the issue of Rs 135 a share.

Matrix Partners India had invested in the company through multiple tranches during 2008-2009 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 put in approximately 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.

Other investors in the company include Foundation Capital, which first co-invested with Matrix in May 2010, besides a subsidiary of Omidyar Network.

Tree House is a five-year-old firm founded by the Bhatia couple Rajesh and Geeta. It started operations in 2007 and operates pre-schools 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 pre-schools 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 57x its last year’s annual profit.

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 184 times its last year’s net profit.

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