We recommended to Buy MT Educare at Rs. 111 in July2015 (MT Educare: Teaching + Technology= Good Returns)

Recently MT Educare announced its results for Q1FY16. Here is an update on the same:

• On a standalone level, fee income increased from Rs. 45 cr in Q1FY15 to Rs. 51 cr in Q1FY16, showing a strong growth of 13.6%. In spite of no growth in student enrollment, the fee growth was led by reductions in discount offering. In the past, the discounts increased from 7.4% in FY12 to 13.1% of FY15. However, we expect the discounts to stabilize or decrease here on.

  
  

• On the consolidated level, fees income increased from Rs 52 cr in Q1FY15 to Rs. 64 cr in Q1FY16, indicating 22% growth. This was mainly driven by strong enrollment in IIT coaching subsidiary Lakshya Educare Pvt Ltd (Lakshya Mumbai). The number of students increased from 640 in FY15 to around 1000 in FY16. The average fee per student for this course is around Rs. 2 lakh.

  
  

• Consolidated other operating income increased sharply from Rs. 2 cr in Q1FY15 to Rs. 11 cr in Q1FY16. This was led by increased Government orders under Skill Development and increase of Robomate sales to non-MT students.

  
  

• Other income stood at Rs. 2.1 crores in Q1FY16, up by 73% YoY on back of interest income received from Sri Gayatri Education Trust. The interest income will continue at the current level in future.

  
  

• On the consolidated levels, Direct expense increased by 44% YoY mainly due to purchase of tablets / SD cards which are issued to students as a part of study materials. These tablets / SD cards are issued to MTEL students with pre-recorded lectures by the teachers.

  
  

• Other expenses increased by 31% on a YoY basis as the advertisement spend increased substantially in Q1FY16 when compared to Q1FY15. We believe company will incur higher advertisement costs in FY16 as against Rs. 15 cr spent in FY15.

  
  

• In spite of sale of its Mangalore University, Depreciation for the quarter increased to Rs. 3.5 cr. This is due to capitalization of intangible assets (mainly content generation) for its learning solution Robomate. It is important to note that in Q1FY15, there was a writeback of Rs. 5.5 cr for one-time reduction in depreciation due to change in depreciation policy that made changes in useful life of assets.

  
  

• Finance cost for MTEL came to Rs. 0.3 cr due repayment of long term loans out of the sale proceeds of Mangalore PU college.

  
  

Conclusion: The result is in line with our expectation. We believe that the performance of the company will further improve because of reduction in discounts, enrollment growth in Lakshya and use of technology like Robomate and Learning Management System which will improve the student’s performance and experience. We remain optimistic on MTEL at CMP of Rs. 125 and maintain a Buy on MT Educare.

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Dhruvesh Sanghvi is a Research Analyst registered with SEBI having registration No: INH000000875.

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2. The Research Analyst is not engaged in market making activity for the subject company.

 

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