Career Point Infosystems IPO Review

Investors can consider taking exposure to the initial public offering by Career Point Infosystems, a tutorial services provider, given the encouraging prospects for its business with sustainability and visibility over the long-term.



At the upper end of the price band (Rs 295-315), the offer discounts the company's estimated FY-11 per share earnings by about 25 times on a fully diluted equity base. This makes the offer expensive and investors may have to hold on to the shares for a two-three year period for reasonable capital gains. Although there are no comparable peers, companies that broadly come under the ‘education' category have enjoyed superior valuations.

Career Point saw its revenues grow at a compounded annual rate of 31.2 per cent over a three-year period to Rs 67.8 crore in 2009-10, while net profits expanded at the rate of 18.4 per cent during the same period to Rs 19.9 crore.

These figures may have been better but for FY-09, when the profits grew a mere 4.5 per cent due to a spike in manpower costs.

In FY-10, profits have grown by 22.8 per cent over the previous fiscal, which is more in line with the rates at which Career Point has historically grown its profits. A strong enrolled student base, a business that may be sustainable given India's competitive entrance-exams' dynamics and the ability to innovate with the latest audio-visual technologies in its pedagogy, are key positives for the company.

Besides, a strong presence in Kota, the hub for ITT JEE coaching, and a near debt-free balance-sheet are added attractions.

competitive exams

Career Point provides coaching classes for students appearing for engineering/medical college entrance exams such as the IIT JEE, AIEEE and AIPMT. These are done mostly through its own 17 centres across the country with Kota (58.8 per cent of revenues) being the main contributor. There are also 16 franchisee centres, accounting though for only a fraction of the revenues.

The tutorial services business for engineering/medical entrance is a highly fragmented one with no clear dominant players. There are those who come under formal brands such as Bansal Classes, Brilliant Tutorials, FIIT JEE, Akash Institute and the like. In addition, there are several individual teachers and professors who coach students for these exams. The success rate for each of these institutes remains a function of the vagaries of student performance, which in turn is largely driven by ‘star' faculty for a subject or a group of subjects. These teachers are also susceptible to poaching from rival institutes, a key risk.

Despite this, the business remains lucrative thanks to the many entrance exams, and limited seats in premier institutes such as the IITs, NITs and AIIMS. Matrix Partners' recent stake buy in FIIT JEE by investing Rs 100 crore reinforces this point. In fact, there have been several other deals by private equity players with coaching institutes providing training for post-graduate entrance exams.

To ensure high success rates, Career Point conducts an entrance test for students applying to its courses. Enrolments have remained steady over the years and for this fiscal it had 28,626 students across competitive exams as of July, with more expected in August and September. The first two quarters typically account for a bulk of all enrolments.

The number of students appearing for IIT JEE and AIEEE has been increasing over the years, which translates into good growth potential for tutorial service providers such as Career Point. Even if measures such as reducing the number of entrance tests is taken by the HRD Ministry, entrance exams in one form or the other are expected to continue, given that students passing out from different state boards, CBSE and ICSE compete for selection and admission to elite institutes.

The issue

Career Point is looking to raise Rs 115 crore from this issue, of which Rs 68.2 crore is for development of an integrated campus in Kota, which would help it mine further into its chief geography in terms of offering as well as ensuring higher realisations. The rest is for augmenting infrastructure of its classrooms across the country and potential acquisitions.

The IPO is open from September 16-21. Centrum Capital and JM Financial are book running lead managers to the issue.