CMP: Rs. 274.15; Buy at current levels.
Total Shares: 1,81,32,939 shares; Promoters : 1,08,66,000 shares –59.92 %; Total Public holding : 72,66,939 shares – 40.08 %; Book Value: Rs. 150.65; Face Value: Rs. 10.00; EPS: Rs. 16.11; Div: 10.00 % ; P/E: 17.01 times; Ind. P/E: 27.46; EV/EBITDA: 14.34Short term Target: Rs. 285, 6 month Target – Rs. 330; STOP LOSS – Rs. 252.20; Market Cap: Rs. 497.11 cr; 52 Week High/Low: Rs. 535.70 / Rs. 245.00
Total Debt: Rs. NIL cr; Enterprise Value: Rs. 497.11 cr.
CAREER POINT LTD: The Company was founded in 1993 and is based in Kota, India. Promoted by Pramod Maheshwari, Om Prakash Maheshwari and Nawal Kishore Maheshwari. The company was formerly known as Career Point Infosystems Limited and changed its name to Career Point Ltd. in September 2011. Career Point is one of the leading providers of tutorial services in India, with the main centre in Kota, Rajasthan. Career point infosystems ltd engages in the provision of tutorial services in India. The company offers tutorial services to high school and post high school students for various competitive entrance examinations, including IIT JEE, AIEEE, SLEEE, AIPMT, NTSE, KVPY, and Science Olympiad. It provides its tutorial services through its owned/operated and franchised training centers, synchro-school courses integrated with schools, distance learning courses, and TechEdge and knowledge labs. The company also offers education consultancy and management services to schools, colleges, and universities, as well as infrastructure support services for setting up educational institutions. In addition, it provides assessment and online testing services through the a2zfeedback.com, a2zexam.com, Ecareerpoint, and Examtayari Web sites. Company has two subsidiaries: Career Point Infra (CP Infra) and Career Point Edutech. CP Infra renders infrastructure and allied services for setting up physical infrastructure for educational institutions. Edutech develops technologybased educational solution and software. Company has 14 Company-operated training Centers and 18 franchised Centers. CPIL made a successful IPO at Rs. 310/sh & got listed on Oct 10 2010.
Investment Rationale: The Kota centre's average fee for each student for IIT-JEE course is Rs 64000, for AIEEE - Rs 35000, for AIPPMT - Rs 40000, and for distance learning Rs 5000. Each year, the Kota centre's fee is hiked by 6 %, while a new centre's fee is hiked by 20 % after a year, by 10 % to 15 % after three years to 15 %, and by 6 % subsequently. Company has two subsidiaries: Career Point Infra (CP Infra) and Career Point Edutech. CP Infra renders infrastructure and allied services for setting up physical infrastructure for educational institutions. Edutech develops technology based educational solution and software. Both subsidiaries are yet to make money. Career Point Infosystems has a team of 231 faculty members, excluding faculty members of franchisees, comprising graduates in engineering and science. It has over a period of time built content repository of over 10,000 pages of text content and over 12,000 minutes of video content for various tutorial services. CPIL has a strong presence in Kota providing its educational services to over 25 % of the total students that enroll in Kota each year. The company currently operates 12 training centers and 11 franchisees throughout the country. They plan to open 10 training centers and 5 franchisees every year till FY14E. The company also plans to set up an integrated university campus (Kota) to cater to its captive students via its subsidiary Career Point Infrastructure Ltd, at an approximate cost of Rs 65 crores with a capacity of 3000 students. The campus will offer housing, lodging and eating facilities to its students. The company plans Capital Expenditures worth Rs 120 cr in the current fiscal year out of which Rs 45 crores have already been spent. The cash in their books stood at Rs 150 crores (Q1FY12) which should allow them to continue their ongoing operations and expansions for another year without needing to raise any additional funds. With the business model of providing educational solution, the company primarily generates sufficient cash/revenue to support its working capital needs of its various centers and ongoing activities. Sufficient Internal Accruals is the primary reason why the company does not need to raise additional debt nor dilute its equity to fund its ongoing expansion plans. The margins in the educational space make the business quite profitable provided the company maintains the quality of its services. CPIL's Revenue generation depends mainly on the numbers of students the company can enroll and hence, the company recruits reputed professionals/teachers in order to attract a majority of these students. The company has bifurcated its overall curriculum into smaller courses in order to lower its dependence on a niche category of professors. Career Point Ltd will have to increase its student base in order to grow and maintain its reputed image as a quality educational solutions provider. The company plans to further increase its foothold in the Formal Education space through the PPP model along with the Government. This will enable the company to tap the Formal Education space in the country. CPIL also plans to expand their Synchro schools, which involves forming partnerships with associated schools to provide tutorial services for entrance exams to its students. The advantage of this type of model is that it allows them to manage various colleges and schools without having to incurr infrastructure cost of actually building campuses. Apart from the university in KOTA they also plan to set up a university in Hamirpur, Himachal Pradesh along with various Technical campuses at Rajsamand, Rajasthan; offering Engineering, MBA and MCA degrees/courses. The company is also focusing on expanding through technology like broadband, to offer their services to a much broader market. This will inable them to cater to a larger student base via the internet hence reducing the cost of setting up a number of training centres.
Outlook and Valuation:
The company has managed to build a strong brand name in the North Western region of India when it comes to the educational solution's space. The very fact that more than 25 % of the students enrolled in Kota avail CPIL's expertise; this shows the trust by the students in the company's services. In the educational solutions space trust and popularity comes from past experience and word of mouth. CPIL has created a strong foothold in Kota and has expanded to several other Northern States in the country. AIEEE, IIT-JEE and AIPMT are really competitive and valued entrance exams. Past results in these exams have shown that CPIL's students were amongst the toppers. This re-affirms the quality of coaching CPIL's various training centers offer. Another positive for the industry is the number of students that appear for these exams. Nearly 85 % of the students appearing for these exams take the help of coaching classes. More than 10 lakhs students from all over the country had applied for the AIEEE entrance alone. The competitive nature of these exams and the importance they are given on the educational front enables the company to price its expertise at a premium as compared to others in the field. The company's aggressive expansion plans in the Formal Educational space via PPP, Synchro schools, etc will expose it to a much larger market in terms of revenue and growth potential. CPIL has started CPlive to offer live online tutorials via the internet. They also have also started an E-learning portal called ecareerpoint.com that offers “Adaptive Testing” for the preparation of Engineering Entrance Exams like IIT-JEE, AIEEE and BIT-SAT. CPIL's revenue growth will depend on the number of student’s its manages to enroll. With the sector getting more competitive the company needs to expand its operations as well as maintain its brand name. Some companies in the tutorial space offer the same courses as CPIL and have a better brand image and financials than the company. The tutorial space is currently unregulated by the Government. With the rapidly increasing market size of this space, the Government will pass regulations and legislations in the future to regulate the operations of the players in this sector. Any adverse policies might harm CPIL's operations or profitability. It is expected that CPIL's revenues to grow by 20 % and 14 % in FY12E and FY13E respectively. CPIL's internal accruals should take care of their expansion plans for the next 1-1.5 years which puts them in a good position to post above average return ratios. I have a bullish view on the “Educational Sector” from a long term perspective. At the current market price of Rs. 274.15, the stock is trading at 20.45 x FY12E and 14.58 x FY13E respectively. Earnings per share (EPS) of company for FY12E and FY13E are seen at Rs. 13.40 and Rs. 18.80 respectively. One can buy CPIL with a target price of Rs. 330.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 285.00
| KEY FINANCIALS | FY10 | FY11 | FY12E | FY13E |
|---|---|---|---|---|
| SALES (Rs. Crs) | 61.70 | 78.63 | 84.30 | 132.90 |
| NET PROFIT (Rs. Crs) | 17.80 | 23.20 | 24.20 | 34.10 |
| EPS (Rs.) | 12.30 | 12.80 | 13.40 | 18.80 |
| PE (x) | 21.30 | 20.40 | 19.60 | 13.90 |
| P/BV (x) | 2.80 | 1.80 | 1.60 | 1.50 |
| EV/EBITDA (x) | 19.00 | 15.30 | 14.60 | 9.20 |
| ROCE (%) | 13.30 | 8.70 | 8.40 | 10.50 |
| RONW (%) | 11.20 | 7.10 | 6.40 | 9.10 |
I would buy CAREER POINT INFOSYSTEMS LTD with a price target of Rs. 285 for the short term and Rs. 330 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 252.20 on every purchase.
