SMC Investments neutral on Tree House IPO

Public offer of Tree House Education and Accessories , a educational services provider, will open for subscription during August 10-12, 2011.

Company has fixed price band between Rs 135 and Rs 153 a share for its initial public offering of upto 84,32,189 equity shares, which shall constitute 25.01% of the post issue capital.

SMC Investments and Advisors put neutral rating on the issue, in its research report dated August 8.

The report says, "There is a strong demand outlook for education services in India, especially in the preschool and K-12 schools the company is present in. The company has a strong brand recall in a highly fragmented market and has witnessed very high growth rates in the past. However, compared to other listed players in education sector the IPO is priced to perfection."

The company operates the largest number of self-operated pre-schools in India. As of June 15, 2011, it has 223 pre-schools under the brand name of “Tree House” across 33 cities in India. As of March 31, 2011, 110 self-operated pre-schools having 370 teachers served more than 5,000 students. The company has also branched into providing educational services to K-12 schools and provides such services to 12 schools which have over 5,000 students, in 4 cities in India.

"Considering the P/E valuation on the upper end of the price band of Rs 153, the stock is priced at pre issue P/E of 42.07x on its annualised FY11 EPS of `3.64. Post issue, the stock discounts its FY11 annualised earnings per share of Rs 2.73 by 56.10x. Looking at the P/B ratio at Rs 153, the stock is priced at P/B ratio of 3.15x on the pre issue book value of Rs 48.51 and on the post issue book value of Rs 74.64, the P/B comes out to 2.05x. On the lower end of the price band of Rs 135, the stock is priced at pre issue P/E of 37.12x on its annualised FY11 EPS of Rs 3.64. Post issue, the stock discounts its FY11 annualised earnings per share of Rs 2.73 by 49.50x. Looking at the P/B ratio at Rs 135, the stock is priced at P/B ratio of 2.78x on the pre issue book value of Rs 48.51 and on the post issue book value of Rs 74.64, the P/B comes out to 1.81x," according to report.