CMP 47multibaggerstocks.org/wp-content/uploads/2017/05/Zee-Learn-Ltd... · Index Details Zee Learn...
Transcript of CMP 47multibaggerstocks.org/wp-content/uploads/2017/05/Zee-Learn-Ltd... · Index Details Zee Learn...
Zee Learn Ltd Not Rated
- 1 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
ST
OC
K P
OIN
TE
R
Key Financials (Rs in cr)
EPS
EPS
Growth RONW ROCE P/E EV / EBITDA
(`) (%) (%) (%) (x) (x)
2016 151.3 36.0 15.1 0.5 51.79 6.23 5.64 104.1 39.3
2017 178.9 62.3 36.6 1.1 142.93 13.54 9.46 42.9 25.9
2018E 218.6 81.0 46.4 1.4 26.54 14.84 16.61 33.9 18.1
2019E 286.0 120.8 75.4 2.4 62.52 20.40 25.21 20.8 12.6
2020E 353.2 157.0 100.9 3.1 33.92 22.25 28.26 15.6 9.7
Y/E MarNet
RevenueEBITDA Adj. PAT
CMP ₹ 47
Index Details Zee Learn is fast emerging as a dominant player in the play school
and K12 segment through its Kidzee and Mount Litera Zee School
(MLZS) brands. The compelling growth dynamics of the Indian
demographics, rising affluence and a strong ethos of good quality
education are expected to drive growth for education in the country.
Being predominantly a franchisee based business, we believe that
Zee Learn can maintain its traction in establishing a pan India
franchisee over the next decade. To support its brand growth, the
company has put in place strong pedagogy of ‘Illume and Octave’
and follows a policy of 0% tolerance in its implementation.
On the back of the above, we expect revenues to grow at a CAGR of
23.6% to Rs 353.5 crore by FY20. EBITDA and PAT too are expected
to grow at a CAGR of 44.5% to Rs 157 crore and 60.8% to Rs 100.9
crore, respectively, by FY20. Return ratios ROE and ROCE too are
expected to grow up to 22.3% and 28.3%, respectively. ROIC should
also exhibit strong traction. We have valued the business of Zee
Learn by DCF method with a target price of Rs. 78. However we have
not rated the stock given that we would like to see more follow
through on continued performance and execution.
We initiate coverage on Zee Learn with no rating but have valued it
with a DCF based valuation. Our optimism stems from the fact that-
Company is expected to operate 2,470 franchisee preschools
and 147 K12 franchisee schools apart from its 6 owned
preschools and K12 schools by FY20.
Students in the preschool segment are expected to grow at a
CAGR of 25.8% to 2,39,855 students while in K12 segment at
a CAGR of 33.7% to 1,16,340 students by FY20.
Sensex 29,858
Nifty 9,285
Industry Education
Scrip Details
MktCap (` cr) 1,485.8
BVPS (`) 7.76
O/s Shares (Cr) 32.26
AvVol 231818
52 Week H/L 26.5/51.3
Div Yield (%) 0.0
FVPS (`) 1.0
Shareholding Pattern
Shareholders %
Promoters 67.3
Public 32.7
Total 100.0
Zee Learn vs. Sensex
0
10
20
30
40
50
60
0
5000
10000
15000
20000
25000
30000
35000
Jan
-16
Fe
b-1
6
Ma
r-1
6
Ap
r-1
6
Ma
y-1
6
Jun
-16
Jul-
16
Au
g-1
6
Se
p-1
6
Oct-1
6
No
v-1
6
De
c-1
6
Jan
-17
Fe
b-1
7
Ma
r-1
7
Ap
r-1
7
Sensex Zee Learn
- 2 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
The company charges advance annual payments, which
ensure regularity of cash inflows.
Revenues for the preschool segment are expected to grow at
a CAGR of 19.6% to Rs 218.5 crore from the K12 segment at a
CAGR of 34.3% to Rs 110.4 crore by FY20.
The company has transferred Rs. 125 crore in debts out of
the entire Rs 386.6 in FY17 to the trust which runs its owned
school leading to a huge reduction in debt and interest costs.
This will also result in an improvement in overall margins.
With the company having operations being stabilized and no
big capital expenditure to be incurred over the next 4-5 years,
strong cash flow generation of 30.2% CAGR to Rs 136.9 crore
by FY20 is on the cards.
- 3 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Company Background
Zee Learn Ltd is India’s leading company in the education segment with the
fastest growing chain of K-12 schools – Mount Litera Zee School and Asia’s No
1 pre-school network – Kidzee. They are pioneers in the education stream and
have standardized pre-schooling under Zee Learn’s proprietary pedagogy. The
company also runs Zee Institute of Media Arts (ZIMA), a TV and Film training
institute and Zee Institute of Creative Art (ZICA), which is the nation’s first full-
fledged Classical and Digital Animation Training Academy spread over 15 cities
across the country.
Business Verticals of Zee Learn
Source: Zee Learn, Ventura Research
- 4 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Key Investment Highlights
Franchisee based business model to sustain high growth in the long term
Zee Learn’s primarily franchisee-based business model augurs well for high
revenue growth over the long term. Its brisk run rate of adding 250-300
preschools and 12-14 new K-12 schools to the existing operation network of
1,750 preschools and 105 K-12 schools suggests strong student enrollment.
We expect student enrollment to grow at a CAGR of 25.8% and 33.7% for
preschools and K-12, respectively.
On the back of the same, we expect revenues to grow at a CAGR of 23.6% over
FY16-20 to Rs 353.2 crore from Rs 151.3 crore reported in FY16. EBIDTA and
PAT margins are expected to grow at a CAGR of 44.5% to Rs.157 crore and
60.8% to Rs. 100.9 crore over the same period, respectively.
Our optimism stems from the following-
India’s compelling demographic profile augurs well for preschool and K-12
outlook
India’s demographic profile is very attractive with almost 50% of the population
being below the age of 25 years. This majority population of youth drives the
demand for education.
Revenue streams of Zee Learn
0
50
100
150
200
250
300
350
400
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
Educational Goods and Equipments Course Fees/Royalty
Franchisee Fees Lease Rentals
Television Content & Other Income
In Rs. Cr
Source: Zee Learn, Ventura Research
- 5 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Demand dynamics for play group and K12 Segment augurs well for Zee
Learn
The burgeoning middle class with their increasing income and the premium on
quality branded education are the main factors fuelling demand for branded
preschools in tier II and III cities. The demand for preschools is expected to
grow at a CAGR of 26% (as per the Indian education investment report 2013 of
Franchise India). Kidzee which is clearly the market leader is expected to be the
biggest beneficiary.
As per Technopak, of the $52 billion K-12 segment, 0.4 million (of the total 1.5
million) schools are run by the private sector. This pie is expected to grow at a
CAGR of 16% by FY20. Today MLZS, with 105 schools is next only to Delhi
Public School, with 197 schools. We expect MLZS to continue to remain one of
the dominant players, while closing the gap on the market leader.
Popularity of CBSE curriculum to drive demand for K12 segment
More and more parents are interested in educating their children in CBSE
affiliated schools. CBSE has emerged as a popular curriculum and schools are
rapidly adopting the same given that-
CBSE affiliated schools groom the child in learning the style which is used in
competitive entrance exams.
The new innovations brought about by CBSE, specially the schemes
motivated to reduce stress on students, is alluring both to parents and children.
Some of the most attractive CBSE innovations include the Continuous and
comprehensive evaluation system, the optional Class 10th external board
exam, providing the formulae within exam papers, open text based assessment
etc. These have found favour with both students and parents alike.
MLZS K12 schools follow the CBSE curriculum and this should find easy
acceptability among prospective parents.
50% of the population is below 25 years
0%
20%
40%
60%
Below 25 25-40 40-60 above 60
India Japan China United States of America
Source: Zee Learn, Ventura Research
- 6 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
IB (International Board) surge in India
Elite private schools across India - be it under the ICSE Board or Central Board
of Secondary Education - are losing students in large numbers to international
schools and exams like the IGCSE and IB. Across India, the trend has picked up
significantly of late. Pedagogical techniques around the globe are witnessing a
paradigm shift. The demands on the students for admission into top colleges
and universities, both within India and abroad, require them to be able to think
critically, think conceptually and develop research and analytical skills.
Many parents feel that the international system prepares their children better for
an increasingly globalised world. Schools with affiliation to international boards
have sprung up across the metros. The ethos of a good education is deeply
rooted in the Indian culture and parents with increasing affluence are seeking
international schools.
Zee Learn has one school offering IB curriculum in the upmarket BKC in
Mumbai.
CBSE schools have shown huge % increase
4843
6293
13898
15845
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
1996-97 2001-02 2012-13 2016-17
No of CBSE affiliated schools
In nos.
Source: Zee Learn, Ventura Research
Number of private CBSE schools has elevated
3483
10290
0
2000
4000
6000
8000
10000
12000
2001-02 2012-13
No of private CBSE schools
In nos.
Source: Zee Learn, Ventura Research
- 7 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Aggressive roll out of Kidzee and Mount Litera schools pan India
Zee typically opens schools in two segments, on a franchisee model pan India.
Thereby there is no constraint on growth due to capital. As smart cities are
created and cities expand, the demand for branded and professional education
is only expected to increase. We expect Zee Learn to add Kidzee centres and
Mount Litera schools at an aggressive pace, going forward.
We expect Kidzee to reach 2,470 preschools and MLZS to open 147 schools
pan-India.
Preschools signed and opened up
325
388
509
413
327
400 410 420
244291
382
310
235 255 255 260
0
500
1000
1500
2000
2500
3000
0
100
200
300
400
500
600
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
Number of centers signed up Number of centers opened
Total centres (RHS)
In nos.
Source: Zee Learn, Ventura Research
K-12 Schools signed and opened up
30 31
26
14
2220 21 22
13
20
10
14 14 14 14 14
0
20
40
60
80
100
120
140
160
0
5
10
15
20
25
30
35
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
Number of schools signed up Number of schools opened up
Total Schools (RHS)
In nos.
Source: Zee Learn, Ventura Research
- 8 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Zee has overtaken its peers to truly emerge as a pan India leader in the
preschool segment and second to the leader in the K-12 segment.
Student intake to remain robust for a good decade
The capacity of a Kidzee centre is typically 125-150 students in a single shift
(180 in double shifts) while that of a Mount Litera School is around 1800. The
typical capacity utilization of a centre and Mount Litera School is shown below.
Typically, it takes 5 years for a Kidzee centre to achieve full capacity utilization.
The management has a strong code of compliance to be followed. Any centre
found violating these is put on a warning. Failure to improve and adhere to the
code of conduct would mean cancellation of their franchisee centre. This strict
Preschool attains 100% capacity utilization in year 5
30
55
75
95
125
0
20
40
60
80
100
120
140
Year 1 Year 2 Year 3 Year 4 Year 5
Capacity utilization
In nos.
Source: Zee Learn, Ventura Research
K-12 School attains 100% capacity utilization in year 10
125275
425
600
775
950
1150
1350
1575
1800
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Capacity utilization
In nos.
Source: Zee Learn, Ventura Research
Zee Learn emerges as market leader
1700
350
8801000
300 270
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Kidzee Tree House Euro Kids Bachpan Shemrock Millenium
No of preschools
In nos.
Source: Zee Learn, Ventura Research
Zee Learn is second to market leader
103
210
47
10
0
50
100
150
200
250
MLZS Delhi Public School Educomp School Euro School
No of schools
In nos.
Source: Zee Learn, Ventura Research
- 9 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
adherence to the code of conduct encourages maintaining quality of education,
which in turn has a positive impact on the brand which results in building in
strong referrals that enhances student intake.
Subtle marketing activities help build brand and awareness
The franchisee is encouraged to take up awareness and brand building
exercises by organizing health camps in gated communities in its catchment
areas. Additionally, the uniqueness of its pedagogy is also highlighted and this
helps build repute of a quality education.
Zee Learn boasts of a well researched pedagogy developed in-house
Its pedagogy in the preschool segment- Interactive ILLUME is what sets Kidzee
a class apart from other pre-school chains. It is an approach that helps parents
and teachers spot the unique potential in each child and help them realize it.
This was instituted by Kidzee after conducting an action research carried out
across 20,000 parents, 2000 teachers and 1,30,000 children.
It lays down diverse pathways before a child. With keen observation, a note is
made of the preferred learning style of each child. Once this is concluded,
activities are built around his/her preferred learning style. This approach ensures
that no pressure is enforced on the child and hence they grow at their own pace.
The child learns HOW to think rather than WHAT to think.
On the other hand, Litera Octave (pedagogy in K-12 segment) is the core belief
of every Zee School, which integrates the various pillars that impact the children
during their learning and development in school. It consists of the following
parts- Litera parents, Litera enrichment, Litera life skills, Litera network, Litera
Infra, Litera content, Litera teacher and Litera assessment.
- 10 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Over the period FY16-20, we expect the student intake to grow at a CAGR
of 25.8% and 33.7 % to 2,39,855 and 1,16,340 for Kidzee and Mount Litera,
respectively.
Each Mount Litera school has a capacity of 1800 students and hence achieving
optimal utilization takes much longer than a Kidzee centre. While the factors that
attract students to the Mount Litera schools is no different from those above, the
increase in the uptake typically gains traction when a large portion of the class X
students score greater than 80% marks.
Preschool student intake to grow robustly
70
75
80
85
90
95
100
105
110
115
0
100000
200000
300000
400000
500000
600000
No of students in preschools Weighted avg students in each school
In nos.
Source: Zee Learn, Ventura Research
K12 student intake to flatten out after gaining 100% capacity
300
400
500
600
700
800
900
1000
1100
1200
1300
0
100000
200000
300000
400000
500000
600000
FY 1
3
FY 1
4
FY 1
5
FY 1
6
FY17
FY18
E
FY19
E
FY20
E
FY21
E
FY22
E
FY23
E
FY24
E
FY25
E
FY26
E
FY27
E
FY28
E
FY29
E
FY30
E
No of students in preschools Weighted avg students in each school
In nos.
Source: Zee Learn, Ventura Research
- 11 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Strong mix of recurring payments collected in advance from franchises augurs
well for revenue growth. The company collects revenue in the form of royalty as
well as for the child kit that it provides to respective franchisee.
However, revenue from own schools flow slightly differently-
Zee Learn owns 6 schools (5 CBSE and 1 IB). While the assets are owned by
Zee Learn, the schools are run by an educational trust (as required by law). In
turn Zee Learn earns a management fee from these schools.
We expect the owned schools to contribute to revenues from a later stage as all
the schools are new, none of them have reached breakeven.
.
Mount Litera International, being the only IB board school (which charges
premium fee) in the portfolio of Mount Litera schools, has already achieved
breakeven. However, the management has guided that the revenue flow is not
expected before FY20 for the same.
The company has been receiving healthy revenues from its 6 preschools each
year, which run on a COCO (company owned company operated) model.
On the back of the above we expect consolidated revenues to grow at a CAGR
of 19.6% to Rs.218.5 crore by FY20 driven by growth in revenue from Kidzee
and a 34.3% CAGR to Rs.110.4 crore for Mount Litera.
Owned school of the company
Bhatinda 2012-13
Nagpur 2013-14
Patiala 2013-14
Karnal 2013-14
Goa 2012-13
Mumbai 2014-15
Spread across 7.8 acres - appx.
1,25,000 sq.ft. built up
Land taken on long term lease
Spread across 5.73 acres - appx.
1,25,000 sq.ft. built up
Land taken on long term lease
Spread across 5.48 acres - appx.
1,25,000 sq.ft. built up
Land taken on long term lease
Spread across 5 acres appx.
1,35,000 sq.ft. built up
Own Land
Spread across 1.45 acres –
appx. 274,000 Sq ft. built up
Land taken on long term lease
1,800
1,800
1,800
1,800
1,376
School LocationPeak student
capacity
1,800
Inception year Area
Spread across 8 acres - appx. 1,33,000
sq.ft. built up- Land taken on long term
lease
Source: Zee Learn, Ventura Research
- 12 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Franchisee model ensures non-linearity in earnings as operating leverage
kicks in
The franchisee model ensures non-linearity to the earnings as the business
scales. We believe the education business has reached a size and scale from
which recovery of costs has already taken place and we should see a sharp
traction in EBITDA. We do not expect a significant increase in costs as the
existing set up is sufficient to cater to growth going forward. Besides annual
wage inflation, the uptick in costs would be only from the addition of managers
to handle the newly opened Kidzee and Mount Litera schools.
Lease rentals provide steady cash flows
The company receives regular income in the form of lease rentals from its 6
owned schools situated in BKC (Mumbai), Bhatinda, Goa, Karnal, Patiala and
Nagpur. These school properties are owned by its subsidiary Digital Ventures
Private Limited, which provides the same to a trust, who in turn pay them lease
rentals.
ZICA and ZIMA to remain a non starter
ZIMA (Zee Institute of Media Arts) Digital Academy for film making is the latest
media education hub and a new talent hot spot for Bollywood. It offers courses
in the field of Film Making, Direction, Acting, Voicing and TV Presentation,
Screenwriting, Cinematography, Sound Engineering, Editing etc.
ZICA (Zee Institute of Creative Art) is the nation's first full-fledged Classical and
Digital Animation Training Academy that trains in classical 2D and modern 3D
animation. It has state-of-the-art infrastructure covering the stages of
visualization, pre-production, production and post-production. It has over 30
centres in more than 15 major cities including Mumbai, Delhi, Bangalore,
Hyderabad, Kolkata, Pune, Lucknow, Chandigarh, Bhubaneshwar, Ahmedabad.
Both have been started as a composite service of education and entertainment
as a part of extension to the ZEE group. The company is not keen on expanding
the same and they contribute a meager proportion of share in the overall
revenues, which is further expected to fall, going ahead.
- 13 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Profitability set to improve
We expect EBITDA to grow at a CAGR of 44.5% to Rs.157 crore by FY20.
Margins should also see a strong uptick, rising by a whopping 2064 bps to
44.4%.
Since the number of owned schools is not expected to increase significantly, the
capital employed should come down. The transfer of debt of Rs. 125 crore to the
trust will lead to a sharp fall in debt in the current year (FY 17-18).
EBITDA sees huge upsurge in the coming years
-20%
-10%
0%
10%
20%
30%
40%
50%
-20
0
20
40
60
80
100
120
140
160
180
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
EBITDA EBITDA Margin
In Rs. Cr In %
Source: Zee Learn, Ventura Research
Margins have been improving with each quarter
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2
4
6
8
10
12
14
Q4 FY15
Q1 FY16
Q2 FY16
Q3 FY16
Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Q4 FY17
EBITDA EBITDA Margin
In Rs. Cr
Source: Zee Learn, Ventura Research
- 14 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Owing to the above, we expect PAT to grow at a CAGR of 60.8% to Rs. 100.9
crore by FY20, while PAT margins should rise sharply by 1860 bps to 28.6%.
Debt to equity is on a decline as well as interest as a % of sales
0%
2%
4%
6%
8%
10%
12%
14%
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
Debt/Equity Interest as a % of sales
In Rs. Cr
Source: Zee Learn, Ventura Research
PAT shows a strong uptrend
-30%
-20%
-10%
0%
10%
20%
30%
40%
-23
-3
17
37
57
77
97
117
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
PAT PAT Margin
In %In Rs. Cr
Source: Zee Learn, Ventura Research
- 15 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Cash flows to grow significantly
Strong cash flow generation should lead to re-rating of the stock as cashflow
generation outstrips investment needs.
Operating Cash flow shows a strong uptrend
-20
0
20
40
60
80
100
120
140
160
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
In Rs. Cr
Source: Zee Learn, Ventura Research
- 16 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financial Performance
In Q4FY17, Zee Learn reported a healthy 19.7% growth in topline to Rs 60.1
crore from 50.2 crore reported in the same quarter of the previous year. The
EBIDTA margin decreased 190 bps to 20.8% from 22.7%, mainly on account of
rise in goods purchased. PAT stood at 14.7 crore increasing 88.5% YoY on
account of strong operating performance.
During FY17, Zee Learn’s net sales stood at 178.9 crore registering a growth of
18.2% YoY. EBIDTA margin increased 1104 bps YoY to 34.8%. PAT increased
by 143% YoY and stood at 36.6 crore.
Financial Performance (Rs in crore)
Description Q4FY17 Q4FY16 FY17 FY16
Profit & Loss Statement
Net Sales 60.1 50.2 178.9 151.3
Growth(%) 19.7% 18.2%
Total Expenditure 47.6 38.8 116.6 115.3
% of sales 79.2% 77.3% 65.2% 76.2%
EBDITA 12.5 11.4 62.3 36.0
EBDITA Margin % 20.8% 22.7% 34.8% 23.8%
Other Income 2.6 1.5 2.0 9.2
PBDIT 15.1 12.9 64.4 45.2
Depreciation 0.4 1.4 9.8 10.2
Interest 3.6 3.8 19.0 20.0
Exceptional items 0.0 0.0 0.0 0.0
PBT 11.1 7.8 35.6 15.1
Margin % 18.4% 15.4% 19.9% 10.0%
Tax Provisions -3.6 0.0 -1.1 0.0
Reported PAT 14.7 7.8 36.6 15.1
Minority Interest 0.0 0.0 0.0 0.0
Share of Associate 0.0 0.0 0.0 0.0
PAT 14.7 7.8 36.6 15.1
Margin % 24.4% 15.4% 20.5% 10.0%
Source: Zee Learn, Ventura Research
- 17 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financial Outlook
The revenue growth trajectory is expected to continue, going forward on the
back of strong growth in the preschool franchisee business. We expect overall
revenues to grow at a CAGR of 23.6% over FY16-20 to Rs 353.3 crore from Rs
151.3 crore reported in FY16. Further, the EBIDTA and PAT margins are
expected to surge to 44.4% and 28.6% in FY20 from 23.8% and 10%
respectively.
Return ratios ROCE and ROE are also expected to get bumped up by 2262 bps
and 1602 bps to 28.3% and 22.3% respectively by FY20
Revenues, EBIDTA and PAT margins
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
50
100
150
200
250
300
350
400
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
Educational Goods and Equipments Course Fees/Royalty
Franchisee Fees Lease Rentals
Television Content & Other Income EBITDA Margin
PAT Margin
In Rs. Cr
Source: Zee Learn, Ventura Research
Strong financials to boost ROCE and ROE
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
ROE ROCE
In %
Source: Zee Learn, Ventura Research
Debtors and Creditors Days
-
20
40
60
80
100
120
FY 13 FY 14 FY 15 FY 16 FY17 FY18 E FY19 E FY20 E
Creditor Days Debtor Days
In days
Source: Zee Learn, Ventura Research
- 18 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Key Risk and Threats
Schooling business requires front-loaded capex and provides back ended
returns (2-3 years in the case of a preschool and 8-9 years in case of a K-12),
which presents a substantial resistance for ramp up in school signups.
Preschool segment presents a huge market but is dominated by unorganized
players, which cover as much as 70% of the total market.
A typical K-12 school requires 2-3 years to open, post its initial agreement and is
highly regulated, requiring lots of licenses and agreements in place.
There is still lack of awareness about good quality education especially in Tier 3
towns and also unavailability of quality teachers.
Pricing cap like those proposed in Gujarat could restrict pricing freedom. With
the GOI also voicing similar thoughts pricing would be regulated leading to
dampener to value growth and margin accretion. However we do not expect any
drastic measures as education and we evince the formation of a “regulator” who
would balance the interests of schools and parents/students.
Price bracket of school fees proposed in Gujarat
15000
2500027000
0
5000
10000
15000
20000
25000
30000
Primary section Primary section 11th & 12th standard
Price Cap
In Rs.
Source: Zee Learn, Ventura Research
- 19 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Valuation
We initiate coverage on Zee Learn Ltd without any rating. However, we have
valued it with a DCF derived price objective of Rs 78 representing a potential
upside of 64%.
The proof of the concept has been established and the company is at an
inflexion point of rapid scalability and cash flow generation.
Key DCF Assumptions
Projected Years FY17-FY26
Risk Free rate 7.5%
Risk premium 4.0%
Beta 0.9
Cost of Equity 10.8%
Cost of Debt (after tax) 7.5%
Target D/E 0.1
WACC 10.3%
Terminal Growth Rate 6.0%
Source: Zee Learn, Ventura Research
DCF Table (Rs in crore)
Particulars Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Mar-26
EBIT(1-T) 35.06 36.56 52.93 79.40 104.96 120.31 142.82 161.52 186.10 198.60 222.35
Depreciation 10.19 9.80 12.82 14.16 15.50 17.18 18.85 20.53 22.20 23.88 26.69
Increase in WC 13.17 10.70 15.07 6.02 14.46 13.73 6.72 9.59 5.90 4.84 (1.06)
Increase in Capex (42.67) (32.25) (28.77) (28.94) (32.88) (38.28) (38.70) (39.13) (39.57) (40.04) (40.52)
FCFF 15.75 24.81 52.05 70.64 102.04 112.93 129.69 152.51 174.62 187.28 207.47
Net Debt (42.21) - - - - - - - - - -
Year 0 1 2 3 4 5 6 7 8 9 10
FCFF discounted at WACC 22.49 42.75 52.58 68.82 69.02 71.84 76.55 79.43 77.21 77.51
Terminal Value (at PV) 1,908.21
Enterprise Value 2,546.40
Debt Value (net) 35.74
Equity Value 2,510.66
No. of shares (in cr) 32.26
Value per share 77.83
CMP 47.55
Upside 63.7%
Source: Zee Learn, Ventura Research
- 20 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
We are positive on the company given that:
There is high visibility of long term earnings and sustainable free cash flow
generation. We believe, DCF best captures the valuation potential.
Zee Learn compares favorably with peers in education
0%
5%
10%
15%
20%
25%
30%
0.00 0.50 1.00 1.50 2.00
PEG Ratio FY18E
Navneet Education Ltd
MTEducare LtdZee Learn Ltd
Aptech Ltd RO
E %
FY
18E
NIIT Ltd
Source: Zee Learn, Bloomberg, Ventura Research
ROIC and Free cash flow to equity of Zee Learn
-7%
-2%
3%
8%
13%
18%
-100
-50
0
50
100
150
200
250
FY 13 FY 14 FY 15 FY 16 FY17 FY18 EFY19 EFY20 EFY21 EFY22 EFY23 EFY24 EFY25 EFY26 E
FCFE ROIC
Source: Zee Learn, Ventura Research
- 21 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Zee Learn PB trend
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Ap
r 1
5
Ma
y 1
5
Jun
15
Jul
15
Au
g 1
5
Se
p 1
5
Oct 1
5
No
v 1
5
De
c 1
5
Jan
16
Fe
b 1
6
Ma
r 1
6
Ap
r 1
6
Ma
y 1
6
Jun
16
Jul
16
Au
g 1
6
Se
p 1
6
Oct 1
6
No
v 1
6
De
c 1
6
Jan
17
Fe
b 1
7
Ma
r 1
7
Ap
r 1
7
CMP 3.05x 3.65x 4.25x 4.85x 5.45x
Source: Zee Learn, Ventura Research
Zee Learn PE trend
0
20
40
60
80
100
120
Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17
CMP 10X 31X 52X 73X 94X
Source: Zee Learn, Ventura Research
Zee Learn EV/EBITDA trend
0
500
1000
1500
2000
2500
3000
Ap
r 1
5
Ma
y 1
5
Jun
15
Jul
15
Au
g 1
5
Se
p 1
5
Oct 1
5
No
v 1
5
De
c 1
5
Jan
16
Fe
b 1
6
Ma
r 1
6
Ap
r 1
6
Ma
y 1
6
Jun
16
Jul
16
Au
g 1
6
Se
p 1
6
Oct 1
6
No
v 1
6
De
c 1
6
Jan
17
Fe
b 1
7
Ma
r 1
7
Ap
r 1
7
EV 17.52x 22.76x 28x 33.24x 38.48x
Source: Zee Learn, Ventura Research
- 22 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Peer Comparison (Rs in crore)
Y/E March Net Sales EBITDA PAT
EBITDA
margin
(%)
PAT
margin
(%)
EPSEPS
growth (%)ROE (%) P/E P/BV EV/EBITDA
Zee Learn Ltd
2016 151.3 36.0 15.1 23.8 10.0 0.5 51.8 6.2 104.1 6.3 39.3
2017 178.9 62.3 36.6 34.8 20.5 1.1 142.9 13.5 42.9 5.4 25.9
2018E 218.6 81.0 46.4 37.0 21.2 1.4 26.5 14.8 33.9 4.7 18.1
2019E 286.0 120.8 75.4 42.2 26.3 2.4 62.5 20.4 20.8 3.9 12.6
2020E 353.2 157.0 100.9 44.4 28.6 3.1 33.9 22.2 15.6 3.1 9.7
Navneet
2016 948.9 176.8 103.4 18.6 10.9 4.3 -20.7 18.4 34.1 6.0 17.3
2017E 1109.5 264.2 160.7 23.8 14.5 6.7 55.1 26.7 22.0 5.2 13.5
2018E 1302.3 306.6 188.7 23.5 14.5 8.0 18.8 28.3 18.5 4.8 11.6
2019E 1481.3 351.7 215.2 23.7 14.5 9.1 14.2 27.5 16.2 4.2 10.1
NIIT
2016 1006.9 69.5 67.2 6.9 6.7 4.1 148.5 8.8 18.2 1.5 18.7
2017E 1076.0 77.8 59.4 7.2 5.5 3.6 -12.4 7.3 20.8 1.5 18.0
2018E 1202.8 124.0 115.5 10.3 9.6 7.0 96.2 13.4 10.6 1.4 11.3
2019E 1376.1 157.7 149.8 11.5 10.9 9.1 29.3 16.2 8.2 1.2 8.8
Aptech
2016 163.3 20.4 10.2 12.5 6.2 2.6 -34.9 4.5 92.8 4.1 32.5
2017E 222.5 38.2 23.1 17.2 10.4 5.8 127.1 9.2 40.9 3.8 23.7
2018E 255.9 45.6 27.6 17.8 10.8 6.9 19.5 9.9 34.2 3.4 19.9
MT Educare
2016 287.1 57.7 3.2 20.1 1.1 8.1 8.7 23.6 15.5 3.4 9.0
2017E 324.7 60.3 3.4 18.6 1.1 8.7 6.5 19.3 14.6 2.8 9.3
2018E 366.6 67.8 3.7 18.5 1.0 9.3 6.9 17.4 13.6 2.4 8.2
Source: Zee Learn, Bloomberg, Ventura Research
- 23 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financials and Projections
Y/E March, Fig in ` Cr FY16 FY17 FY18E FY19E FY20E Y/E March, Fig in ` Cr FY16 FY17 FY18E FY19E FY20E
Profit & Loss Statement Per Share Data (Rs)
Net Sales 151.3 178.9 218.6 286.0 353.2 Adj. EPS 0.5 1.1 1.4 2.4 3.1
% Chg. 18% 18% 22% 31% 23% Cash EPS 0.8 1.4 1.8 2.8 3.6
Total Expenditure 115.3 116.6 137.7 165.3 196.3 DPS 0.0 0.1 0.1 0.1 0.1
% Chg. 1% 18% 20% 19% 14% Book Value 7.8 9.0 10.3 12.6 15.6
EBDITA 36.0 62.3 81.0 120.8 157.0 Capital, Liquidity, Returns Ratio
EBDITA Margin % 23.8% 34.8% 37.0% 42.2% 44.4% Debt / Equity (x) 1.5 0.8 0.3 0.2 0.2
Other Income 9.2 2.0 10.9 11.9 15.2 Current Ratio (x) 0.8 0.9 1.2 1.5 1.9
PBDIT 45.2 64.4 91.8 132.7 172.2 ROE (%) 6.2 13.5 14.8 20.4 22.2
Depreciation 10.2 9.8 12.8 14.2 15.5 ROCE (%) 5.6 9.5 16.6 25.2 28.3
Interest 20.0 19.0 9.8 6.0 6.0
Exceptional items 0.0 0.0 0.0 0.0 0.0 Valuation Ratio (x)
PBT 15.1 35.6 69.2 112.5 150.6 P/E 104.1 42.9 33.9 20.8 15.6
Tax Provisions 0.0 -1.1 22.8 37.1 49.7 P/BV 6.3 5.4 4.7 3.9 3.1
Reported PAT 15.1 36.6 46.4 75.4 100.9 EV/Sales 11.8 9.3 7.6 5.8 4.7
Minority Interest 0.0 0.0 0.0 0.0 0.0 EV/EBIDTA 39.3 25.9 18.1 12.6 9.7
Share of Associate 0.0 0.0 0.0 0.0 0.0 Efficiency Ratio (x)
PAT 15.1 36.6 46.4 75.4 100.9 Inventory (days) 26 29 30 32 33
PAT Margin (%) 10% 20% 21% 26% 29% Debtors (days) 72 102 80 76 66
Tax Rate (%) 0% -3% 33% 33% 33% Creditors (days) 22 25 26 24 23
Balance Sheet Cash Flow Statement
Share Capital 32.1 32.3 32.3 32.3 32.3 Profit Before Tax 15.1 35.6 69.2 112.5 150.6
Share warrant 0.0 0.0 0.0 0.0 0.0 Depreciation 10.2 9.8 12.8 14.2 15.5
Reserves & Surplus 218.1 258.9 301.4 372.8 469.8 Working Capital Changes 13.2 10.7 15.1 6.0 14.5
Borrowings 386.6 225.8 100.8 100.8 100.8 Others 9.3 20.1 -13.0 -31.1 -43.7
Long Term Provision 1.5 1.6 1.6 1.6 1.6 Operating Cash Flow 47.7 76.1 84.1 101.6 136.9
Other Non Current Liabilities 7.6 133.3 260.5 262.0 263.7 Capital Expenditure -42.7 -32.2 -28.8 -28.9 -32.9
Total Liabilities 645.8 651.9 696.6 769.5 868.3 Other Investment Activities 0.1 8.8 -47.6 -58.5 -99.3
Gross Block 623.9 656.1 684.9 713.8 746.7 Cash Flow from Investing -42.6 -23.4 -76.4 -87.4 -132.2
Less: Acc. Depreciation 32.2 42.0 54.8 69.0 84.5 Changes in Share Capital 1.2 0.2 0.0 0.0 0.0
Net Block 591.7 614.1 630.1 644.8 662.2 Changes in Borrowings -6.7 -43.4 -7.7 -4.6 -4.4
Non current Investments 0.0 0.0 0.0 0.0 0.0 Dividend & DDT 0.0 -3.9 -3.9 -3.9 -3.9
Deferred Tax Assets (Net) -0.1 4.3 4.4 4.5 4.6 Cash Flow from Financing -5.5 -47.1 -11.6 -8.6 -8.3
Long term Loans & Advances 31.0 27.2 28.5 31.4 34.5 Net Change in Cash -0.38 5.57 -3.95 5.59 -3.64
Net Current assets 23.2 6.3 33.6 88.8 167.0 Opening Cash Balance 11.9 11.5 17.1 13.1 18.7
Total Assets 645.8 651.9 696.6 769.5 868.3 Closing Cash Balance 11.5 17.1 13.1 18.7 15.1
- 24 - Monday, 8th
May, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Disclosures and Disclaimer
Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. Research Analyst (RA) involved in the preparation of this research report and VSL disclose that neither RA nor VSL nor its associates (i) have any financial interest in the company which is the subject matter of this research report (ii) holds ownership of one percent or more in the securities of subject company (iii) have any material conflict of interest at the time of publication of this research report (iv) have received any compensation from the subject company in the past twelve months (v) have managed or co-managed public offering of securities for the subject company in past twelve months (vi) have received any compensation for investment banking merchant banking or brokerage services from the subject company in the past twelve months (vii) have received any compensation for product or services from the subject company in the past twelve months (viii) have received any compensation or other benefits from the subject company or third party in connection with the research report. RA involved in the preparation of this research report discloses that he / she has not served as an officer, director or employee of the subject company. RA involved in the preparation of this research report and VSL discloses that they have not been engaged in the market making activity for the subject company. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. We may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, or other areas, units, groups or affiliates of VSL. This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients / prospective clients of VSL. VSL will not treat recipients as clients by virtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of clients / prospective clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. And such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document. The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by VSL, its associates, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. We do not provide tax advice to our clients, and all investors are strongly advised to consult regarding any potential investment. VSL, the RA involved in the preparation of this research report and its associates accept no liabilities for any loss or damage of any kind arising out of the use of this report. This report/document has been prepared by VSL, based upon information available to the public and sources, believed to be reliable. No representation or warranty, express or implied is made that it is accurate or complete. VSL has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. The opinions expressed in this document/material are subject to change without notice and have no obligation to tell you when opinions or information in this report change. This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This publication may not be distributed to the public used by the public media without the express written consent of VSL. This report or any portion hereof may not be printed, sold or distributed without the written consent of VSL. This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. This document is strictly confidential and is being furnished to you solely for your information, may not be distributed to the press or other media and may not be reproduced or redistributed to any other person. The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of VSL and are given as of this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance that future results or events will be consistent with any such opinions, estimate or projection. This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directors or any other person. Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any other person. Any opinions and projections contained herein are entirely those of the authors. None of the company or its directors or any other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connection therewith. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Securities Market. Ventura Securities Limited Corporate Office: 8th Floor, ‘B’ Wing, I Think Techno Campus, Pokhran Road no. 02, Off Eastern Express Highway, Thane (West) 400 607.