In conference call, it sounded like - Moving to another group company and paying lease to become asset light.
there is a good possibility of lenders selling zee promoter shares in the market , as promoters are finding difficulty in servicing the debt (consequence of ILFS default) & about 90% of promoter shares are pledged. This is scenario i feared when i first invested here 2 months ago & is now becoming a very real threat.
@dineshssairam whats your take on the current scenario ? company looks very attractively valued.
Reason behind yesterday’s fall.
1 Like
Thank you @arunjacob,
I have a small position in this stock, however recent correction has made it look very very attractive. I am looking into adding to my position. The mess created by ZEEL debt exposure appears to hurt the stock in short term however, the story appears strong for a long term investor. Simply put, the number of school aged children and emphasis of Indian parents on better schooling presents a phenomenal opportunity. The downside risks are that competitors are catching up fast however I believe there is enough in the pie for everybody.
There’s no update here since Jan. Maybe I am too optimistic for no reason, can more qualified people throw light ?
I have been tracking Zee Learn for quite some time now. However, the massive pledge is deal-breaking. The promoters have essentially provided lenders with the power to massacre the stock if it drops considerably due to whatever reason. As WB says, you should only hold a stock you would be comfortable holding if it dropped 50% overnight. If Zee Learn dropped 50% overnight, it would drop 50% more because of the second order effect of the pledged stake sale by the lenders. And there’s plenty to sell from the ~95% pledge.
Besides this, another concern is that the business model is now more tuned towards franchising, rather than ownership, which I feel dilutes more than it adds to the brand. I have a colleague who runs his own school in his hometown, and he stresses on the direct involvement of the promoter/team in order to maintain the quality of the staff.
Also, I have talked with several parents to understand that Kidzee or Mount Litera doesn’t essentially hold a special place in their hearts. They tend to go for the school which is more famous in their immediate surrounding.
Overall, Zee Learn looks to me like a quasi-commoditized business, with a perpetually diluting brand image, sitting on top of a ticking time bomb. Of course, I agree with you in the sense that the runway is huge. But that’s the only reprieve.
4 Likes
[Portfolio stock, My view are biased]
Here are some of my thoughts (omitting some nuances for brevity and happy to debate) on Private schools and Zee Learn for next 3-5 years in India:
- Why Schools (and private schools): Schooling for Indian parents is next to Roti, Kapda, Makaan. For most families sending their kids to good schools is an aspirational and often a life goal. Other than some public/central schools the general view favors private schools over public ones.
- Enrollment Growth : Most research data suggest double digit enrollment growth in Indian schools over fairly long term. Private schools should do better than average and pre-school segment being under-penetrated should be higher growth (as industry) than K-12 segment.
- Competition:
- New/Existing schools: New schools supply is slow (High investment in K-12 setup, Affiliations, Land availability, Expertise etc). Unlikely to have sudden supply of several new schools at one location.
- Technology (Byju etc): From my experience (several cities and countries), Atleast in foreseeable future it’s very unlikely that technology will replace pre-schools or K-12 schools. More likely that these will augment the formal schools and potentially compete for “wallet share”. These places are not only for education, but also provide safe place for social interaction, learning (arts, sports), open playgrounds and last but not the least let parents have “free” time (whether parents are at home or office).
So, IMHO private schools (pre-schools & K-12) as industry should do well.
Why Zee Learn ?
- Pre-schools: One of the oldest and biggest player in preschool segment and has successfully scaled to ~2000 centers. Kidzee is very well established, high recall brand (I know of people using Kidzee as common noun). Operationally they didn’t had any significant issues over last 20 years and seem to have perfected the model. Scope to further add more offerings (add premium/basic preschool brand, daycares, value add services like health checkups, digital etc). I expect this to keep growing at 10-15% in value terms (5% price, 5-10% enrollment) for a very long time with high operating leverage and free cash flows.
- K-12 : K-12 requires high upfront investments and is almost like an annuity business once established in the locality. There are several competing chains (DPS, Ryan etc) and local schools, however if the location is selected carefully - Schools are like wine, they age well. My guess is that their board results are the variable to track and with a few good results they will get well established. Zee Learn has regional teams which help run the school to maintain quality and operations. Globally, many countries have K-12 schools operated as franchisees, so it’s been a proven model of scaling albeit does require right oversight and management inputs. In my anecdotal research (15-20 Mount Litera schools), parents had above average perception of the school facilities and education. My view is that there is a place for above average schools (with good infrastructure) in most non-metro cities in India and MLZS is filling that gap. There are also some network benefits and synergies with MT educare tuition/prep [leaving this segment for a future post] business which can further augment growth. This should have a 15-20% value growth for next many years again with high operating leverage and free cash flows (not realized yet)
Potential Issues:
- Franchisee quality: Very important for schools specifically K-12. The regional admin teams need to be on their toes. Last thing you want for schools is a bad PR. But again, I don’t think they need to be best schools but just above average to scale.
- Franchisee leaving network: They will have low single digit percent attrition, mostly in Kidzee segment. For K-12, CBSE affiliation is with Zee Learn, so unless franchisee closes/rebrands the schools they will stick
- Promoter group: Enough said and discussed in different forums. Pledge issue should get resolved in next few months if one believes the promoters.
- Govt regulations: Fee regulations. FWIW - In some of the states they operate, fees are already regulated
- Sector reputation: Many companies in this sector had dubious history and investors are (rightly) skeptical.
Potential Triggers
- Earnings: They have grown earnings at high pace (>30%) over last many years with high quality (bottom line << cash flows from operations). This trend should continue with further improving RoE. It’s available at single digit multiple of expected FY20 cashflows.
- Monetize O&O schools assets: Hiving off the schools into a REIT or similar, will make the business further asset light, increase transparency and improve return ratios
- Visibility: Company is still not well known as operator of Kidzee chain
- Shares Pledge: Promoter group claims to get this cleaned up over next few months
3 Likes
i feel zee learn is attractively valued now & i started nibbling (especially more confident now that promoter selling of zee entertainment is becoming a reality ). Zee learn as a company has a huge runway & are run by good management & only overhang was the promoter pledge & it seems that will be considerably reduced by september this year.
2 Likes
Few points based on Conference call -
- Promoter Pledge - Promoters are selling 4200 Cr in Zee TV. They are supposed to receive half of the cash soon and they will use to repay the loans proportionately.
- Looking to sell hard assets - talking to 6-7 players. Asset value is 650-700 Cr.
- Someone asked about MT’s 66 Crore. They said that they have received amount for 50% cheque amount and are confident about receiving entire cash. Article attached below.
1 Like
2 Likes
Quarterly results are released. Another good quarter with excellent numbers
Consolidated Revenue up by 11.7%
Consolidated PBT up by 61.4%
Consolidated PAT up by 73.1%
EuroKids in talks to buy zee learn’s kidzee business - https://www.cnbctv18.com/market/stocks/zee-learn-jumps-10-on-report-of-likely-deal-with-kkr-backed-eurokids-to-sell-kidzee-4723721.htm
Mount Litera Zee School opens new branch in Nagpur
1 Like
1 Like
Curious as to why Zee Learn is beaten down so badly. Is it purely due to pledge overhang or are there deeper issues like accounting / business quality? Would appreciate feedback @photon @sivaramtvl @dineshssairam @naruto. My preliminary observations
- Debt seems at manageable level so low solvency risk
- Has real estate assets > current market cap that they are trying to monetise
- Kidzee and Mount Litera are doing well and have a decent growth runway from new schools and operating leverage in existing schools
- Owns 60% of Mahesh Tutorials whose stock is currently wrecked… no view on MT but management claims that MT is fundamentally performing well
- Pressure on Essel Group to sell stake here as well. They are clearly out in the market for full / partial sale given the news reports since last year but I’m guessing their valuation expectation is much higher than current price. They have exited ZEEL, Essel Propack, and some infra projects already so the intent is real
- Stock is currently near all time lows
2 Likes
As far I understand, market is not comfortable with the pledge % and Essel group issues. The next market trigger will be the Essal’s stake sale to any strategical buyer. Stock will remain under pressure until some clarity emerge here.
Disc: Invested, ~1% of my portfolio holdings.
1 Like
Kidzee is the cash cow for zee learn . The rumours of selling kidzee is also one of the biggest hangovers. When asked about the kidzee sales to PE firms in Q2 concall , management gave a very vague answer instead of rejecting it , suggesting that kidzee might be on the table for selling.
2 Likes
Forget pledge n promoter , they are known knowns. I remember studying this stock 2 years back due to improvement in OM but still skeptic (having worked in education sector ). My list of questions ran in 9 pages. Result, did not have any motivation to research further with so much complexity . If one seriously wants to learn on reading annual reports, schedules, financial complexities , balance sheets , this is a classic one. I will try to search if I have that research work list of questions available n post. But do go through last 4-5 years of AR line by line , number by number. Lots of learning
4 Likes
Thanks will be super helpful if you can find your list of questions. Will delve into the annual reports as well. As you said, promoter and pledge are known and I’m comfortable with those risks. Just trying to decide whether it’s worth spending more time on this.
1 Like