SMC has ‘Neutral’ view on Tree House Education IPO

MUMBAI: SMC has a ‘Neutral’ rating on the initial public offering of Tree House Education & Accessories. However, the brokerage is of the view that compared to other listed players in education sector the IPO is priced to perfection.

Tree House Education operates the largest number of self-operated pre-schools in India. As of June 15, 2011, it has 223 pre-schools under the brand name of “Tree House” across 33 cities in India. It has also branched into providing educational services to K-12 schools and provides such services to 12 schools which have over 5,000 students, in 4 cities in India.

The company has entered the capital market to raise between Rs 114-129 crore by issuing shares in the price band of Rs 135-153 per share. Retail investors will get a discount of Rs 6 per share.

It plans to use the proceeds for expansion of pre-school business, acquisition of office space, procurement of exclusivity rights to provide educational services, set-up educational complexes in Rajasthan and Gujarat and for loan repayment.

“Considering the P/E valuation on the upper end of the price band of Rs 153, the stock is priced at pre issue P/E of 42.07x on its annualised FY11 EPS of Rs 3.64. Post issue, the stock discounts its FY11 annualised earnings per share of Rs 2.73 by 56.10x.
On the lower end of the price band of Rs 135, the stock is priced at pre issue P/E of 37.12x on its annualised FY11 EPS of Rs 3.64. Post issue, the stock discounts its FY11 annualised earnings per share of Rs 2.73 by 49.50x,” the report said.