Hi Hitesh,
Would you like to update on this please. I am aware that RS Software is also a stock preferred by you based on its fundamentals, any other stock which is showing good value growth in current market?
stock | percentage
1 | kaveri seeds | 15
2 | mayur | 12
3 | unichem | 12
4 | hawkins | 12
5 | page | 8
6 | fdc | 8
7 | atul auto | 8
8 | tbz | 5
9 | guj reclaim | 5
10 | muthoot capital | 5
11 | ajanta | 5
12 | cash
Answering even though the question is addressed to Hitesh.
BajajCorp: I read in one of their presentation that the brand is leased to them for 99 years from 2008. That is a long long way to go. I think it is a common practice to lease brand names. When Motorola split into two, one company leased the brand name to the other for 99 years.
@anubhav… I dont follow rs software so not much idea… about growth value… canfin currently seems attractive. It is not in a class of gruh or hdfc but looks undervalued and can continue to grow looking at loan book growth.
@ashwini damani… subbu has correctly answered your question… they will continue to face some headwinds due to acquisition related costs.
@rohit… inox flag seems to have failed. but broad uptrend looks intact till the recent low of 107 is not broken.
Hiteshji, and also other experience boarders.
I have spent some time on the weekend researching Tree House which as many of you know is a company in the business of owning and managing pre-schools and K12 schools all across India.
Here are my investment arguments with risks. Would love your comments.
The company currently has 379 pre-schools under management (300 are owned by the company). They earn revenues from these by way of fees paid by parents. The other model is managing K-12 schools for which the company pays as advance for sole management rights for 30 years and then is paid annually a consulting fee based on a per student basis. The company has been growing in the past 3 years at a CAGR of 50% plus and is currently trading at a PE of 23.
Investment Arguments:
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Company primarily operates in the owned model as opposed to franchise business which allows it to have a stricter control on quality |
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The advantage of own model is that the individual branch can produce a profit at a much lower level of capacity utilization as compared to. |
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Space for pre schools is generally taken on rent - cost for setting up is only 50 lakhs making it asset light |
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Last 3 years the company has stuck by its strategy and opened only 10 new franchisees as compared to 100 odd self operated schools |
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Own teacher training programs will result in managing shortage of quality teachers |
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Pre schools will act as feeders to the K12 schools thereby ensuring high occupancy - K12 schools are located close to Pre schools |
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Management doing things differently from competition such as offering ESOP's to teachers to reduce attrition, expanding reach through own school model as opposed to franchise model and having teacher training programs |
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Preschool on rental basis is an asset light model which only requires 50% utilization to have almost 50% ROC - with time the overall operation capacity utilization is expected to improve thereby improving EBITDA margins |
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Company has plans to add 513 new schools by the year 2016. At a capex of 60 lakhs per school and 2/3 own operated that is a capital outlay of 200 crores over the next 3 years. 75% of this expansion can be funded by internal accruals |
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The company plans to sell its 4 own operated and owned K12 schools (book value of land and building is 96 crore) which will reduce the asset base of the company and provide it with cash for expanding its pre-school business and improve return ratios by 20% (once all 4 land pieces are sold) |
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Further, it has almost completed its CAPEX cycle regarding acquiring of BCR for operating schools thereby reducing capital outla (as evidenced from the change in loans and advances of only 6 crores between March 13 and Sept 13). It has acquired rights to 12 schools in the last 2 years (taking total to 24) |
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The company has made investments of more than 110 crore in acquiring BCR but this is likely to start paying off only from 2014 onwards. While revenue from this stream is currently low (only 10 crore) this can be expected to rise steadily as capacity utilization of schools under management increase. This should again increase EBITDA at no additional cost thereby improving profitability |
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Schools started before 2011 have an average total students of 110 (50% capacity) and therefore as more and more schools become older, capacity utilization is expected to increase and increase EBITDA margins. National average is 75 students per school as compared to 55 in 2011. All schools started before 2012 have already reached profitability! |
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The ROCE of the pre school business was 21% in 2013 which is only expected to go up further |
Key risks include:
1. Low barriers to entry
2. All players in rapid expansion mode which might lead to a "price war" as schools fight for students
3.Pre schools which are not currently under regulation might come under it in the future.
Hiteshji, I request you to please post your comments on the stock
Thank Subbu and Hitesh Bhai
hi abhishek,
nice work up on treehouse… I had a brief look at it earlier. Problem with that is there is virtual overcrowding in the space it operates in… So I felt there are better options elsewhere and refrained.
hitesh.
Hi Hitesh Bhai,
Is kaveri a flag pattern ?
Regards
pankaj,
I think you will need to give it more time to confirm a flag pattern… 3-4 trading sessions dont provide a flag pattern.
hitesh.
Thanks Hitesh.
Thank you Jatin for your explanation.
Repco seems to be better choice but i yet to go for depth study including peer comparison.
Kunal
Hi Hitesh / Vicky,
I attached Dewan Housing and Repco quick comparison matrix for valuation. Can you comment on huge P/E difference ?
Kunal
I observed 2 main issues with Tree House or other Pre-school business
Kunal
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Dear Hiteshji and Kunalji,
Regarding where they will grow - penetration on pre-schools in India is abysmal. Only 2 million out of 150 million children from the age of 0 and 6 currently attend preschool and this concept is catching up fast among parents. Secondly, Tree House has 50% of its schools in Mumbai - it has a weak presence in South and EAst where they plan to expand over the coming 2-3 years.
Abhishek.
Hi Hitesh Ji,
The Q3 results for “RS Software” are looking good. On its 5 year-chart it is very near its 5-year High. Some big investor “Dolly Khanna” has increased her stake in this quarter. I have bought some decent quantity. Just wanted to know your views on this stock. Thanking you in advance and always appreciate you for sharing your knowledge so freely.
Regards,
Amit Goyal.
amit
I dont track RS software as my knowledge of software sector is very limited…So not much idea about it.
hitesh.
Hitesh - Based on current price, which do you think is better - PI Industries or Kaveri Seeds?
Thanks.
As a business there are less variables in PI but it is priced to perfection… Its likely to grow at 25-30% cagr.
Kaveri … I think there might be more juice left… And management categorically states that it is likely to grow at 20% cagr which we should consider as a base case scenario… Anything higher in terms of growth would be icing on the cake… If and when the company hikes dividend payout, there could be more re rating.
Based on cmp, kaveri is a better choice… But based on business quality PI has the edge.
Hi Hitesh Bhai,
Can you please suggest if attached pattern for orbit exports is flag or triangle pattern?
sunil,
I cant make out a definite pattern in orbit.
hitesh.
Sunil,
It’s too long to be a flag.
hi hitesh
what is ur call on granules india?..can i treat it as any other pharma co and value it according?..what could be the triggers in p/e re rating…granules look good at 150-200 levels…
