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Education firms have lessons to learn, investors can wait

In December, Zee Learn called off its proposed merger with the company after reports surfaced that Tree House abruptly closed down hundreds of its play schools.

, ET Bureau|
Updated: Apr 12, 2017, 08.31 AM IST
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In December, Zee Learn called off its proposed merger with the company after reports surfaced that Tree House abruptly closed down hundreds of its play schools.
In December, Zee Learn called off its proposed merger with the company after reports surfaced that Tree House abruptly closed down hundreds of its play schools.
MUMBAI: The recent listing of CL Educate at a discount to its issue price did not come as a surprise to many , with education sector-linked companies having underperformed the market in recent years due to diminishing profits, increasing competition and high leverage.

Analysts said investors chasing the liquidity-driven momentum in the market may be tempted to buy , but it would be best to stay away from the space. “Core education businesses of these companies have not been growing and they diversified into unrelated businesses. For example, Career Point got into hostel business. All this is not liked by the market,“ said SP Tulsian, founder, Premium Investments.

Shares of many education-related firms are even trading below their IPO prices. Educomp Solutions, which listed in 2006 and commanded a market-cap of `9,500 crore at its peak in 2008, is trading at `10.7, around 91.4% below the IPO price of `125.

Similarly, Career Point which closed at `112.9 on Tuesday , is 63.6% below its offer price of `310.

Tree House Education at `19 is 86% below its IPO price of `135. In December, Zee Learn called off its proposed merger with the company after reports surfaced that Tree House abruptly closed down hundreds of its play schools.

“Competition in the education sector is very heavy and there are accountability issues due to which they have underperformed over the years,“ said AK Prabhakar, head of research at IDBI Capital Markets.

Shares of CL Educate continue to remain below issue price after listing on March 31. It closed at `419.5 on Tuesday -16.4% below its issue price of `502. “One should exit education stocks and get into more visible areas such as banks and consumer,“ said Sanjiv Bhasin, executive vice president-market and corporate affairs at IIFL.

With education technology firms reeling under losses, experts advise looking at companies such as Navneet Education that are involved in publishing educational books. “Even though valuations are slightly expensive, it can rise 25% more in one year,“ said Prabhakar.

Motilal Oswal recently initiated coverage on stock with a target price of `210.

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