Career Point

Career Point Infosystems is entering the capital market on 16^th September 2010 to raise Rs. 115 crore, via a fresh issue of 37-39 lakh equity shares of Rs.10 each (depending on the price discovered). The issue, priced in the band of Rs. 295 to 310 per equity share, constitutes about 20% of post-issue paid-up capital of the company and closes on 20^th September for QIB bidders and on 21^st September for retail and HNI category.

The company provides tutorial services for engineering and medical entrance exams such as AIEEE, IIT-JEE and All India pre-medical and pre-dental tests. It has presence through 33 centres, of which, 17 are company operated while balance 16 are franchisee centres, spread over 13 states of the country, mainly in North, East and Central India.

For FY10, it had close to 32,000 student enrolments, of which, over 40% were from a company operated Kota centre alone. Kota centre alone accounted for over 60% of the company’s consolidated revenues of FY10.

Going forward, the company plans to discontinue the franchise model for tutoring and also diversify into the formal education space. It plans to set up a university in the name of Career Point University in Kota, Rajasthan and also set-up another university in Himachal Pradesh.

The funds being raised via the IPO will be used to finance the following:

a)       Establishing an integrated campus spread across 8.6 lakh square feet in Kota, for 3,000 students, with investment of Rs. 68.25 crore. This facility will provide accommodation to students and visiting parents, library, recreation and other such facilities.

b)       Expansion of campus and office at Kota, across 45,000 square feet, with investment of Rs. 16.49 crore.

c)       Strategic acquisitions worth Rs. 15 crore, to be deployed in FY11, however no targets have yet been identified

For objects a and b above, no funds have been deployed till date, despite a cash balance of Rs. 22.74 crore and liquid investments of Rs. 37.87 crore in its books, as of 31^st March 2010.

The company, being debt-free, earns most of its revenue during the first six months of the financial year itself. For FY10, on a consolidated basis, it generated a topline of Rs. 66 crore against Rs. 48 crore in FY09, growth of 38%. Of this, education and training income grew by 49% to Rs. 59 crore, from Rs. 40 crore in the previous year. However, the company’s margins have been on a decline, mainly due to decrease in franchisee fees and rising employee costs. Employee costs increased by 75% in FY10 to Rs. 21 crore, from Rs. 12 crore a year ago.

The net profit for FY10 was Rs. 18 crore, resulting in net margin of 27%. The resultant EPS was Rs. 13.2 on equity of Rs. 14.42 crore. Post IPO, if book gets discovered at the upper end of the price band at 310, the company’s equity will rise to Rs. 18.13 crore. Promoter holding, presently at 75.4% would drop to a little under 60%, post-issue.

As on 31^st March 2010, the company’s networth stood at Rs. 133 crore and BVPS was Rs. 92. As on that date, the company had cash and cash equivalents (liquid investments) aggregating to Rs. 61 crore.

For FY11, the company is expected to report net profit of about Rs. 21 crore. Discounting one year forward PAT by 20 times, gives a value of Rs. 420 crore. Add to that the cash and cash equivalents of Rs. 61 crore, as of latest balance sheet date, gives a pre-IPO valuation of Rs. 481 crore for the company. This gives a per share value of Rs. 334, while the upper band is set at Rs. 310. Looks fair, as it leaves close to 8% on the table for the prospective investors.

The company is expecting its core business to grow at the rate of 30% on an annualised basis, while its margins are likely to improve slightly by over 33% on marginal basis. The contribution from new areas will start flowing in from FY 12 onwards, which will improve its financials further, so as to service the higher equity base post IPO. To implement these new projects, the company made a preferential allotment of shares in July 2009, at Rs. 248.60 to Franklin Templeton for Rs. 50 crore, and to Mr. N S Raghavan, founder promoter of Infosys, at Rs. 292.64 per share in January 2010, for Rs. 10 crore.

This is the first company from tutorial education field, tapping the capital market, from Kota, which is termed as Mecca for IIT aspirants and hence is likely to have some extra interest in its IPO. We advise to apply in it, even at the upper end of the band at Rs. 310, as it is likely to give some listing gains but better gains in the longer horizon of 6-8 months.