Tree House Education's stock continues to be range bound despite robust results

MUMBAI: The stock of Tree House Education & Accessories has remained range bound in the last three months. Despite robust results for the quarter and year ended March 2012 declared on May 29 and the management's expectation to make future growth more profitable, the stock has not been able to break free from the range of Rs 190-220. One reason could be that its current valuation against a backdrop of weak market sentiments seems to fully reflect its future growth.

Tree House provides preschool services through its 302 centres spread across India. The company had moped up over Rs 114 crore through initial public offer in August 2011 to open more centers, to acquire office space, and to construct an educational complex in Rajasthan and Gujarat.

The company has grown business at a fast clip in the last year. It closed FY12 with Rs 81.1 crore in sales and Rs 21.7 crore in net profit. Both sales and profit were more than doubled compared to the prior year. Its operating margin also improved significantly to 56.6% from 41.2%.

The company's founder and managing director Rajesh Bhatia expects to grow revenue by 25-30% in FY13. The company has added over 75 centres since its listing. Given the nature of its business, the investment in these facilities would start earning revenue from the current school season that takes off in June. This is also likely to improve its profitability.

At the current price of Rs 194.5, the stock trades at a trailing P/E of 30.1. Considering the lower side of the guidance and 29% net margin, the FY13 forward P/E works out to be 22.4. Considering the current weak sentiments in the broader market, the stock may take some more time to report significant gains.