CAREER POINT LTD : Invest In Future - A Long Term Bet !!!

Scrip Code: 533260 / CPIL

CMP:  Rs. 274.15; Buy at current levels. 

Short 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 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: 14.34

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.

EASY WAY FOR INDIA TO DO AWAY WITH SUBSIDIES !!!

India pays nearly Rs. 1.6 lakhs cr as subsidies, which in order burdens on India's fiscal. India has total public debt of US$ 852,827,671,233 and at Rs. 50/$ it is at Rs. 42,64,138 Lakhs Cr. And always there will be a question whether the said subsidy is used by the genuine citizen or the most needy, Can there be any alternative were by the real effected people of India can be benefited by the subsidy given by government.

9 months back Iran managed to reduced its subsidies by 50 % and this is how they did –

First, they announced the roll out of subsidy removal. Next, the government asked every individual to fill in forms listing the names of the members in each household; the number of cars in that house hold; details of assets especially apartments & land; wealth & other sources of income. This data was then cross – checked with the existing databases from Banks, car registration data, other data banks of the respective departments & property records.

Once the list was verified all the identified persons were asked to open accounts (Something similar to that of UID project hopes to do in INDIA). As of February 2011, subsidy compensation of $45 per head per month was credited into each person’s account irrespective of whether the person was rich or poor. This way all people are treated alike, rather than attempt to divide population into economically backward, cast reservation.

The logic behind is simple – The rich man may get $45 per month from government but will end up paying a few hundred $ more for the unsubsidised oil & electricity that he purchases. For the poor man the $45 per month allows him to decide whether he will opt for bread or fuel. Each car owned now gets 60 liters of semi – subsidised petrol at Rs. 15 equivalent a liter against an electronic smart card, the rest he must purchased at the subsidised rate of Rs. 28 per liter.

          Iran’s one more interesting is the way it plans to encourage its young to raise family in decent surrounding. The government gave each child irrespective of gender as soon as it is born a sum of around $950 is paid as a trust fund into that child’s account. To that, the parents of the child must add another $20. The amount may not be withdrawn or mortgaged till the child turns 20 years of age. Every year government tops up this amount by around $200 with the parents contributing another around 1/3^rd of this amount. With passage of time & accrual of interest each child ends up with $60,000 - $75,000 by the time he turns 20 years of age. At the time the boy or girl decides to marry will have a corpus of around $120,000 which they could use either to purchase a house or to invest in business?

          To ensure that there is no shortage of houses government gave land free to developers on 99 years of lease for building houses using pre approval designs & plans. Developers are also given subsidised loan of $15000/ apartment to meet capital cost. If a person retires after 25 years of his service he is eligible to receive 30 days of his monthly income regularly even after retirement. If he retires after 20 years of his services he gets monthly retirement package equals to 25 days of his last drawn salary.

           Off course the retire plan & the child development plans is difficult to implement in our country but as far as the oil subsidy is concern it’s not so difficult, UID project is gaining popularity and once done the said method would be easy to implement and also could tam out some of the corruption related to subsidies. 

         I remember there is a country called Mongolia which is the best performing stock market over the last year and they are coming out of the privatization programme as the largest coal company and what they have done is that they have given every Mongolian 500 shares of that company with the mandate that whenever it gets listed you can sell and create wealth. You need to do something to kick start this kind of company. Here we are not saying give shares for free but you need to make a system that every Indian member or the public can apply for few hundred shares and guaranteed allotment at a favorable price that brings people back into the markets and create the favorable churn. You need something to kick start the disinvestment programme, otherwise it is going to remain high talk and low delivery.

           Hope some day our UID project helps to reduce our subsidy burden..