Career Point Infosystems IPO Analysis

Promoted by Pramod Maheshwari, Om Prakash Maheshwari and Nawal Kishore Maheshwari, Career Point Infosystems is one of the leading providers of tutorial services in India, with the main centre in Kota, Rajasthan. It operates in two core business areas: tutorial services and education consultancy and management services (ECAMS).



Career Point Infosystems provides tutorial services to high school and post high school students for various competitive entrance examinations including All-India Engineering Entrance Examination (AIEEE), Indian Institute of Technology-Joint Entrance Examination (IIT-JEE) and All-India Pre-Medical and Pre-Dental Test (AIPMT). The tutorial services are provided through its classroom training programmes conducted through a network of company-operated and franchisee centres. Till July 2010, it had 17 company operated centres and 16 franchisee centres. The franchisee centre numbers will come down as the company concentrates on its own centres. It also offers distance-learning programmes comprising correspondence and test series courses.

Career Point Infosystems had close to 31,798 students enrolments end of fiscal ended March 2010 (FY 2010). Of these, over 40% were from the company-operated Kota centre. It received 28,626 enrollments in the four months ending July 2010. The Kota centre accounted for over 60% of the company's consolidated revenue in FY 2010.

The Kota centre's average fee for each student for IIT-JEE course is Rs 64000, for AIEEE Rs 35000, for AIPPMT Rs 40000, and for distance learning Rs 5000. Each year, the Kota centre's fee is hiked by 6%, while a new centre's fee is hiked by 20% after a year, by 10% to 15% after three years to 15%, and by 6% susbequently.

Career Point Infosystems has introduced technology-enabled education delivery platform for delivering content through TechEdge Class, enabling students to interact with instructors online using audio and video conferencing facility. The classes are equipped with computer systems, headphones, software to provide synchronous learning environment. Through this delivery platform, it is able to deliver lectures at multiple locations simultaneously. The company has also designed and developed Synchro-School programme to synchronize preparation for competitive examination with formal school education.

The academic requirements of students tend to be diverse. To meet them efficiently, Career Point Infosystems has launched a technology-based personalised learning solution. This is provided at Career Point Knowledge Labs. The labs intend to supplement existing learning process as a reinforcement of knowledge learnt. Apart from content created exclusively for Career Point Knowledge Labs, content developed by faculty members in TechEdge Class will also be distributed through these Career Point Knowledge Labs.

Career Point Infosystems recently forayed into ECAMS, providing management services including laying strategic plan, human resource management services, administrative services, advisory services and information technology related services to schools, colleges and universities. Presently, it is providing ECAMS to Kota-based Global Public School, off-campus of Singhania University, and Gopi Bai Foundation Trust and for their proposed university at Kota, called Career Point University.

Career Point Infosystems has two subsidiaries: Career Point Infra (CP Infra) and Career Point Edutech. CP Infra renders infrastructure and allied services for setting up physical infrastructure for educational institutions. Edutech develops technology-based educational solution and software. Both subsidiaries are yet to make money.

Career Point Infosystems has a team of 231 faculty members, excluding faculty members of franchisees, comprising graduates in engineering and science. It has over a period of time built content repository of over 10,000 pages of text content and over 12,000 minutes of video content for various tutorial services.

Net sales increased 37% to Rs 61.66 crore and net profit grew 19% to Rs 17.8 crore in FY 2010. It is a debt-free company, earns most of its revenue in the first six months of the financial year.

Career Point Infosystems is entering the capital market through an initial public offering (IPO) of Rs 115 crore at a price band of Rs 295 – Rs 310 per share of face value Rs 10. The funds being raised will be used to finance the following:

1) An integrated campus spread across 8.6 lakh square feet at Kota for 3,000 students, with investment of Rs 68.25 crore. This facility will have accommodation to students and visiting parents, library, recreation and other such facilities.

2) Expansion of campus and office across 45000 square feet at Kota, with investment of Rs 16.49 crore.

3) Strategic acquisitions worth Rs 15 crore in FY 2011 to reach new geography and expand course offering. However, no targets have been identified

Strengths

* Has a well recognized brand.

* The private education sector is expected to grow at an accelerated rate.

Weaknesses

* Operates in highly fragmented and competitive market.

* The business is seasonal as most of the enrollments happens in the first and second quarters of any financial year.

* Operating profit margin has continuously slided in the last four years, from 59.7% in FY 2007 to 38.6% in FY 2010.

* One of the group companies and entities, Wellwin Technosoft Pvt. Ltd, has similar business activities and there could be a conflict of interest.

* There are 74 legal and other proceedings pending against the company and 22 legal and other proceedings involving promoters for claims, to the extent quantifiable, amounting to Rs 4.03 crore and Rs 0.7 crore, respectively, If decided against the company or promoters, these could have an adverse effect on reputation, business prospects and results of operations.

* Undisclosed income of about Rs 6 crore has been detected by the income tax department during search and seizure of office premises as well as residence of directors and their relatives in December 2009. It is not clear how much of this belongs to individuals and how much to the company.

* The recent removal of Kota from the list of IIT-JEE exam centers may have a negative impact on the inflow of students from outside Kota for preparation of IIT-JEE.

Valuation

At the lower price band of Rs 295 per equity share of Rs 10 face value, the P/E works out to 30.4 times the EPS of Rs 9.7 for FY 2010. At the upper band of Rs 310, P/E works out to 31.6 times the EPS of Rs 9.8 for FY 2010. Listed companies in the education sector, Everonn Education, Educomp Solution and NIIT, have PE of 21.1, 19 and 16 times EPS of FY 2010. However, Career Point Infosystems is the first company from the tutorial education field, tapping the capital market.


via CM