IPO watch: What's making Tree House Education's stock tick?

MUMBAI: The stock of preschool operator Tree House Education and Accessories hit an all time high of Rs 278.9 on BSE during the Wednesday's trade. It ended 9.3% higher at Rs 258 after the company announced allotment of shares to private equity (PE) funds.

The interest shown by PE funds in the preschool operator reflects the expectations that the company would be able to retain its fast growth in the coming years. The company grew revenue by 65% and net profit by 71% in the first half of FY13.

Tree House has steadily expanded presence in the country's playschool segment over the last few years. The total number of preschools touched 309 at the end of September 2012. While it was higher than 261 in December 2011, it missed the target of 325 centers, which it had set then.

It continues to retain a higher share of self-operated preschools to 79%, which benefits operating margin since such centers yield higher profitability compared with franchise arrangements. The revenue of same self-operated centers rose by 35% year-on-year in the September 2012 quarter.

The company reported higher traction in the admission for 2013-14 across centers. This is also visible from the increase in the staff strength, which rose by 130 to 1,450 at the end of the second quarter.

In the coming quarter, apart from the organic growth, the acquisition of MT Educare's six self-operated centers would help improve the topline of Tree House. The Friday's gain has catapulted the stock's valuation. It's trailing P/E works out to be 30. Considering the annualised net profit for the 1 stsix months, the forward P/E for FY13 works out to be 24. The valuation looks to have fully factored in the future growth of the company.