So They own both captive coal and iron ore mines or alone?
Disc, invested in godavari and prakash industries
CAREER POINT Ltd
Career Point Ltd. (CPL) is in the process of restructuring, wherein the education business will be demerged into a separate listed entity (CP Edutech Ltd.), leaving CPL with the NBFC business.
CPL offers diverse products & services across the entire spectrum, starting from Pre-school, right upto Engineering/ PHD courses. Apart from the Universities managed by them, it offers numerous distance learning courses. The Company has established a niche in test preparation and school curriculum tutoring through a nationwide network of branches. It runs an asset light model & is growing at a fast pace. Apart from a few owned centres, there are a number of franchisees & school association centres, currently a network of about 86 centres in 73 cities across 21 States & counting.
CPL is also running schools & universities in Kota, Jodhpur and Hamirpur. Education is a negative working capital business. Every time a student is enrolled, cash flows are received upfront, and are assured for the entire duration of the course which could run over a number of years. Setting up a university also has huge entry barriers as it requires a state legislature approval, entailing a huge amount of liaisoning, in addition to the capital investment.
The NBFC part of the business funds the institutions (schools/ colleges) & is entitled to interest income while the education business manages them for a mgt. fee. The entire operations are managed from internal resources (including the NBFC business) as the Co. is pretty much debt free.
It is pertinent to note that while some more illustrious names in the industry have been burning money, threatening their very survival, CPL has always been profitable, even during Covid times.
For the current year, CPL should do revenues of about 107 crs with profits of about 58 crs. The market cap is only about 457 crs so the investment is available at rather attractive valuations. Further, the Company is currently available below its book value, leaving enough margin of safety.
CPL announced a second interim dividend along with its Q3 numbers, something not done before. It could well be an effort at catching investor fancy/ interest for the stock & following on in the same vein, a decent final dividend could very much be on the cards. Besides, the Co. has invested enormous efforts & time at the ongoing de-merger exercise. A pre-curser to the value unlocking going forward?!
Disc: Invested.
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Thanks for putting out your analysis sir, would like to ask few questions.
First revenue of CPL hasn’t grown over the period of 12 years, in 2012 It did around 80 cr and last year revenue was 85 cr, Hardly any growth over such a long duration when there was a boom in edtech in last 4-5 years during and after COVID.
And i see huge short term loans given by them which is far more than their revenue which I am not able to understand.
Would like to know your view and how you read such financials ?
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@ca.rishab
The issues raised by you are valid. One of the problems of small cap investing is that info is always scarce & is perhaps one of the reasons for low market caps for small caps. Another factor that I personally follow for small caps is not to go back more than five years, usually not beyond 2 to 3 years. That’s my style, not necessarily the correct one! Of course the more historical info one has, the better equipped one is in taking a call. Ultimately, it is always a trade off & the investing decision at the end of the day is largely a gut call. If after weighing the pros/ cons, I’m not comfortable with the story for any reason, I too will refrain from investing.
It is perhaps for this very reason that the education business is being hived off. It will probably have no legacy issues in the balance sheet & so would be lean. I feel that the education business itself could value about the same, if not more, than the current market cap, given it high operating margins over the last 6-7 qtrs of over 50% (Stand alone numbers as the NBFC is in a 100% owned subsidiary). A lean balance sheet would also means attractive return ratios. All this if backed by a decent dividend payout ratio, would mean sending positive signals to investors. That said, we have to wait & watch closely, how the story unfolds over the next 3-4 qtrs as nothing is a given.
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Redtape at 720 seems richly valued & I have been reducing my position upwards of 700. Its a great Co./brand & can surely continue to perform well, but as profit booking is a part of the game, I am happy with the returns. It (Redtape) has been an awesome two year ride!!
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The Career Point investment thesis is playing out well. The stock hit a new high of Rs. 422 today, taking its current market cap to about 763 Crs. Even though the stock is up about 70% in the last two months, the demerger leading to two focussed entities should create more vale going forward. Besides, if the Co. can do profits of about 58 crs as mentioned in the investment thesis above, it will be still available at about 13 times its trailing earnings.
The NCLT date for demerger is due on May 17th. It’s just a matter of time & should go through in the next few months. It will be very interesting to see how the markets value a focussed profit making, asset light education entity with decent financials in terms of return ratios & a lean balance sheet.
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