Zee Learn: Asset light model & operating leverage

(rvetri) #21

Pledging of stocks is a hobby in zee group… You can see that happening in
all the group stocks… That is one of the reasons, zee group stocks are
always looked with skepticism

(DevKolhi) #22

@Prash - there is a legal difference between the company and the promoter. When a promoter pledges shares it is not because “the company needs 400 cr”. Frankly, you should not buy securities directly if you are unclear on the difference between the promoter & the company as 2 legal entities.

And yes, pledging shares seems to be a hobby in this group. But I think it’s unfair to say they are looked at with scepticism - Zee Entertainment & Zee Media have both created wealth in the last few years and trade at high multiples so I’m not sure this holds true.

Also my $0.02 about the business model - many posters have called for this to be spun off - while great if it happens I feel that may be a little over enthusiastic as my understanding is that the franchisee model would not exist without the co developing some of their own schools - it’s necessary capex on the school side which helps the franchisees - so I don’t think investing in schools is bad capital allocation as I view it as necessary for the franchisees to succeed.

(Prash) #23

@DevKolhi, I understand the difference between the promoter and company. I don’t think we have answer of how much money is raised by pledging shares and for what purpose?

Whether promoter or company is pledging the shares, as a minority shareholder, it is utmost important to understand the need for raising money that too using pledge route.

I am very skeptical of company’s who are in constant need of money and resort to pledging shares for raising money. In today’s market, there are other avenues to raise money and if company is not doing that means, it is clear red flag

(DevKolhi) #24

It does not seem like you do - your post does not exhibit any understanding of the matter. The company is not in need of money - the promoter is in need of money. When you pledge a security it is the promoter who gives the security as collateral and takes a loan.

I am not clear as to why you are keen on understanding what the promoter does with his money - he does however own many other companies and pledging shares in his listed company to raise money to infuse in any of his companies.

(Prash) #25

You mean we as the shareholders we should not be concerned on why the promoter is pledging his shares and we don’t need to know where the fund is used? This is new to me.

If the promoter is pledging the shares and using funds for some of his other interests, the success or failure of those activities direct impact on Zee Learn.

You may not be keen to know where the funds are used by promoters, but I find it very important to know what the promoter is doing with the money.

(rvetri) #27

True…Agree with Prash…Particularly when the promoters keep doing this as
a hobby with all their group cos…As the promoters themselves are
occupying key executive positions, taking hefty salaries and get dividends
tax free…I see no need for them to pledge their shares…It is like
this…If any of us pledge our house, car etc and take loan, is it good or

(rvetri) #28

Whoever pledges their shares - except incase of taking debt for the pledged
cos expansion as security to the lender, is never good. Even if it is TATAs
it is going to be same perception. Pledging of shares is considered a
negative by all experts in the markets and they caution ordinary investors
on that…

(Prash) #29

You seem to be very keen to protect promoters and no need to care what promoter’s do with pledged money. First time I am hearing this. I don’t have to prove my knowledge of the difference b/w promoter and company. FYI, I own a company and I am the promoter.

In spite of legal difference b/w promoter and company, I am keen to know what the promoter does with the money he raised by pledging company shares.

You seem to be someone who just decides what the company is based on looking at financials of the company and nothing else. For me, financial is just one aspect and what equally matters is the promoter actions. In spite of great looking financials, models etc one bad action of the promoter can kill the company. I have seen this many times to ignore.

(Prash) #30

Right, I think there seems to be some sort lenience towards big holding company’s pledging the shares of one of their group company’s, compared to single company promoter pledging his/her shares.

The rationale is Zee or Tata group are so big that, they can pledge shares of one of their group company’s and nothing will happen.

But for an individual investor who has invested in Group company and then seeing the promoters have pledged close 78% holding and using that fund for other activities which is outside the scope of Group company means, we are just burdened with an unknown risk.

Disc: I have a tracking position and no plans to add

(mahabali3004) #31

Interestingly they redeemed all their shares in June 2017 and pledged it again. I think we should await/join conf. call for more details.

Disc: Sold off ZeeLearn Investments but tracking

(vivek423) #32

A Mauritius-based fund, Polus Global Fund has acquired 7.8 percent stake in Zee learn. Has anyone heard of this fund?

I tracked it back to this website - http://www.fidelis.mu/services.htm

No information available on the fund

(Alok Bhola) #33

MT Educare Acquisition:

Zee Learn shall be allotted 3.2 cr shares on preferential allotment basis @ Rs 62.57, aggregating Rs 200 cr. This allotment will expand the share capital of MT Educare from the existing 4 cr to 7.2 cr and Zee Learn will own 44.5% of the expanded share capital. Thereafter, Zee Learn, along with a PAC, will make an open offer to acquire an additional 1.87 cr shares @ Rs 72.76 (26% of the expanded share capital) for a total consideration of Rs 136 cr, thereby making MT Educare a subsidiary of Zee Learn.

MT Educare has written off a massive Rs 105 cr of credit loss this quarter (categorized under “Other Expenses” in the P&L Stmt). Although they claim this has been done to confirm to IndAS Accounting Standards, my own hunch is this has more to do with the directions they might have received from Zee Learn management to clean up their books before the acquisition. Their revenue has also fallen by 40% apparantly due to cutting down of the high receivable business.

The acquisition is likely to be completed by 31-May-2018.

Zee Learn is currently present in Pre-School (Kidzee - largest pre-school chain in Asia with 1800 centers) and K-12 schools (Mount Litera Zee School - second biggest in India with 115 schools).

MT Educare is fairly strong in the coaching business (Mahesh Tutorials) for JEE, Medical Enterance, etc.

This acquisition will enable Zee to expand its footprint in the coaching business where it has no presence.

(naruto) #34

Is loss making MT Educare a good acquisition for the asset light model of Zee Learn?

Disclosure: Own 2 shares for tracking purpose.

(srikanthg) #35

Stock has corrected and no signs of bounce back, can anyone please tell if it has any moat, I have a small position, on my initial thesis,listed companies have a long way to go in education services and decent results in past 2 qtrs yoy basis, also promotors have pledged shares.

(SSRN) #36

Have seen promoter pledges as a regular feature across many Zee group companies. They have a pretty big unlisted infra company which probably needs quite a bit of funding on short term basis which is probably met by pledges. On the whole whatever view one may have of the promoter it cannot be disagreed that they have created value for the shareholders in the flagship company Zee entertainment. Pledging is something which shareholders have to live with if investing in any of this group’s companies. Position sizing is the only way out if exposure is taken. If you see Zee learn, the way they have ramped up the business is commendable but digesting MT Educare can spoil near term numbers. Market is probably pricing this uncertainty.

(naruto) #37

any information provided on how the aquisition will be funded?

(naruto) #38

Results out -

Highlights of the conf call -

  1. School assets will be moved away from the company which will free up 600-700 Cr for future investments.
  2. Next 5 years, they will be able to bring the company to 3 times the current company.

MT Educare to complement the schools and explore further synergies.

Announced a dividend of 0.1/-

Disclosure: tracking position.

(Dinesh Sairam) #40

Can you kindly elaborate on this point? What do they mean by school assets being moved away?

(lalani123) #41

Improving margin, reduced debt, decent growth, improving ROE, are there any adverse scenario for this stock anymore.

(Amit K) #42

Zee Learn has strong franchisee model with abilities to generate high free cash flows (paid in advance) with almost annuity kind of model (inflation built-in) and not to mention strong entry barriers (long gestation for K-12, Brand recognition), high operating leverage and huge market etc

I think the biggest concern is potential usage of the free cash flow generate from their school business. Will the MT Educare bet work ? Are there any more capex/acquisitions in pipeline ? In general the education sector hasn’t seen much love from the market after Treehouse, Educomp, Everonn etc. Also as the company didn’t had the “IPO PR”, in my (anecdotal) experience the story is not well discovered.

One of the near term trigger could be hiving off the real estate of owned/operated schools, which will both lighten the BS and also provide some transparency into capex so far.

IMHO if the company continues the topline growth of last 3-5 years (18-20%), the bottomline growth would be higher by 5-7% almost all of which will be FCF. Also management recently shared pretty ambitious 5 year vision for the company.

This could turn out to be a very interesting story over next 3-5 years once the company and the business model gets discovered. Biggest risk is management doing something stupid to kill the golden goose.

Disclosure: I am obviously interested and invested.