Tree House Accessories and Education 3QFY2014 performance highlights and results update
February 10, 2014, Monday, 15:41 GMT | 10:41 EST | 20:11 IST | 22:41 SGT
Tree House Accessories and Education Ltd (THEAL) reported in-line numbers for 3QFY2014. Owing to addition of 18 pre-schools in 3QFY2014, the top-line surged by 36.7% yoy to Rs.39.7cr, which is in line with our estimate of Rs.39.0cr. The EBITDA grew by 50.4% yoy to Rs.24.5cr, while margins expanded by 564bp yoy to 61.7% (owing to reduced other expenses as a percentage of sales by 480bp). On the back of a strong operating performance, the adjusted PAT too reported a yoy growth of 50.2% to Rs.12.1cr, in-line with our estimate of Rs.11.5cr.
Budding pre-school segment provides growth visibility: The concept of imparting education to young toddlers is catching up fast today. As per CRISIL research, the size of the pre-school segment is expected to grow to Rs.13,300cr in 2015 from the current Rs.5,000cr. Moreover, with an urbanization rate of 40% and escalating average household disposable incomes, the demand for the segment is expected to maintain its momentum.
Dual business model provides competitive edge: The dual business model of THEAL facilitates it to maintain quality of education, maximize profit through SOS (self operated schools), and widen its reach through franchisees. Strong brand and assured quality of education act as differentiating pillars and hence provide THEAL a competitive edge over other pre-school operators.
Outlook and valuation: Given the growth opportunities in the pre-school segment and consistent expansion by THEAL, we expect the top-line and net profit to grow at a CAGR of 28.9% and 29.6% to Rs.245cr and Rs.73cr respectively in FY2016E. On account of consistent expansion of pre-schools, THEAL is poised to register robust growth going ahead. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.313, based on 16x PE for FY2016E earnings.