Industry Market Price Recommendation Target

Education 27.85 Sell 22.28

Zee Learn Ltd (ZEELEARN), incorporated on 4th January 2010, is one of the leading education providers
in India with the fastest growing chain of K-12 Schools. The company operates through its various
brands, namely, Mount Litera Zee School, Kidzee, Braincafé, Zee Institute of Creative Art (ZICA) and Zee
Institute of Media Arts (ZIMA), so as to impart better education to today’s youth. It helps children in
realizing their unique potential through their state-of-the-art, infrastructure and facilities, well trained
teachers, and a proprietary pedagogy. Mount Litera Zee School, chain of schools with over 103 schools
in approximately 98 cities, also runs a chain of pre-schools, Kidzee, with over 1,500 pre-schools in
approximately 550 cities. Its offerings also include Zee Institute of Media Arts, which is a television and
film training institute, and Zee Institute of Creative Art, which is a classical and digital animation training
academy.

Investment Summary

CMP (Rs) 27.85

52 Week H/L 48.65/  Company’s promoters’ have 95.45% of their
24.40 holding pledged.
908.13
 Company had a low ROCE of 5% during the
Market Cap (Cr)
previous financial years.
Face Value (Rs) 1.00
 Acquired MT Educare through a preferential
Promoter Holding (%) 57.52
allotment
Non-Promoter Holding (%) 42.48  Lower operating profit margin.
Total (%) 100.00

Financial Summary
Particulars(Rs. Cr) FY18 FY17 FY16 FY15 FY14
Total Assets 937.21 746.06 705.08 682.96 609.72
Total Revenue 272.54 272.54 184.28 153.31 131.62
Profit after Tax 49.28 49.28 33.51 15.08 9.89
EPS( Rs) 2.00 2.00 1.00 0.00 0.00

Outlook and Valuation

The company’s Q2 results were in line with estimates, company’s net sales decreased for this quarter
compared to last quarter by 10.58% YoY. Net profit for the quarter stood at 139.30 crores, which is
1.16% lower than the previous quarter. The company’s promoters have pledged 95.45% of their holding
and return on equity is considerably low. Considering all these points, we have recommended an AVOID
rating to ZEE Learn, as the high risk doesn’t justify sufficient upside.
Company overview:
Zee Learn Ltd was incorporated on January 4, 2010, is one of the most diversified premium education
companies which deliver learning solutions and training to various segments of society through their
multiple products including Kidzee, Zee Schools, Zee Institute of Media Arts, Zee Institute of Creative
Arts and E - Learning Online Education and Testing. Zee learn’s main purpose is to improve human
capital by providing quality education through their chain of Schools, pre-schools, youth vocational
institutes and online ventures. Mount Litera Zee Schools are the fastest growing chain of K-12 schools in
India with over 65 schools coming up in the country. Kidzee is the largest chain of preschools with over
700 pre-schools.

On January 20, 2010 the company obtained certificate of commencement of business. As per the
scheme of arrangement between ETC Networks Ltd, Zee Entertainment Enterprises Ltd and the
company, the erstwhile ETC Networks Ltd merged and vested in Zee Entertainment Enterprises Ltd on
March 31, 2010. Upon such merger, the education business undertaking of Zee Entertainment
Enterprises Ltd was de-merged and vested in the company with effect from April 1, 2010. In accordance
with the Composite Scheme, upon merger and subsequent de-merger, the entire Business, assets,
properties and liabilities of the Education Business Undertaking of Zee Entertainment Enterprises Ltd
was transferred to and vested with the company with effect from April 1, 2010. The company shares
were listed on the Bombay Stock Exchange Ltd and National Stock Exchange Ltd with effect from
December 20, 2010.

Zee Learn has entered into a new strategic line of manpower recruitment and training business through
the newly incorporated subsidiary Liberium Global. Liberium provides these essential services around
training, lateral hiring, temporary staffing, human resource business process outsourcing and ensures
quality services through soft skill training, pre-screening, better understanding of customer needs and
absolute adherence to compliance.

Zee learn leading Brands

Kidzee:

Kidzee is a market-leader in the preschool division of the Company which brings a structured and
research-based curriculum to help preschoolers discover their potential. The Company’s proprietary
pedagogy, Interactive Illume, has become a clear differentiator and with the launch of ImaGenie, it has
become India’s first preschool to integrate Augmented Reality in Learning. But Kidzee is having a tough
competition and it becoming very difficult to maintain that position as there are other brands which are
growing rapidly like, EuroKids, Bachpan Shemrock, Hello Kids, etc.
The Mount Litera Zee Schools:

The Mount Litera Zee Schools is a leader in the field of providing holistic, quality and state-of-art
education and covers the entire spectrum of education from kindergarten to K-12. It is the second
largest network of schools in the private-unaided category in India with over 122 schools across 100+
cities in India. A proprietary K-12 education model, Litera Octave gives every student an opportunity to
achieve his/her true, unique potential.

The ZIMA:

The ZIMA division is a creative and training academy for the film making and media industry. It has the
best in class and international standard curriculum for its courses coupled with cutting-edge technology
and infrastructure and highly experienced faculty from the Film, TV and Journalism industry. Currently,
the courses in ZIMA are available in Mumbai, Noida and Jaipur.

ZICA:

ZICA is India’s first full-fledged Classical and Digital Animation training academy offering training in 3D
Animation, Visual Effects, Graphic Design and Web Design. Courses in ZICA are available in 14 centers
across the countries and include major cities like Mumbai, Pune, Noida, Bengaluru, Chennai, Kolkata,
Mangalore, Ranchi, Bhubaneswar, Guwahati, etc.

Liberium:

The division offers entire gamut of HR services including Remuneration Management & Solutions, Talent
Management, Skill Development and HR Business Process Outsourcing.

MT Educare:

The division fulfils the educational and aspirational needs of a diverse range of students from Class V to
students appearing for Engineering and Medical entrance exams, exams for CA and MBA aspirants. Even
in this division, there are lots of other institutions and online coaching centers which are providing best
quality and with low fees.
Management Profile

Key Personnel Designation and Experience

Non-Executive Director: Mr. Himanshu is a Non-Executive Director of the Board,
currently heads Group Finance & Strategy for the Essel Group. He has almost 12
years in the industry. After his MSc in Finance from University of Strathclyde,
Mr. Himanshu
Glasgow, he started his career as a management trainee with Barclays Bank,
Mody
London city office. After a 2 year intensive course, he returned to India to start
the Fun Republic chain of multiplexes as a senior member in the finance team.
Independent Director: Dr. Manish Agrawal is a Non-Executive Independent
Director of the Board. He completed M.B.B.S. from University of Bombay, D.
Dr. Manish (Ortho) from College of Physicians & Surgeons, M.S. (Ortho) from University of
Agrawal Bombay, D.N.B.(Ortho), National Board of Examination, New Delhi and Diploma
in Tissue Banking from National University of Health, Singapore.

Independent Director: Zee Learn has appointed Mrs. Sangeeta Pandit as an

Additional Director of the Company with effect from December 01, 2013. She
Sangeeta Pandit
also holds Directorship in The Indian Card Clothing Company Ltd.

Independent Director: Surjit Banga, a Non-Executive Independent Director, is a

highly experienced, senior banker. He was the Managing Director of SBI Factors
and Commercial Services Ltd and has been associated with several other
Surjit Banga
institutions with a professional career spanning almost 40 years in India and
abroad.

Key Ratios

Key Ratios FY18 FY17 FY16 FY15 FY14

Debt-Equity Ratio 0.68 0.68 0.82 1.49 1.41
Current Ratio 0.79 0.79 0.90 0.83 0.45
Inventory Turnover Ratio (x) 28.78 28.78 13.22 13.84 4.66
Total Asset Turnover Ratio (%) 28.68 28.68 24.19 21.46 18.71
PBDIT Margin (%) 39.34 39.34 34.86 29.90 26.95
PBIT Margin (%) 35.21 35.21 29.43 23.16 19.64
ROCE (%) 5.89 11.32 8.30 2.49 1.86
RONW (%) 13.94 13.94 11.45 6.02 4.23
Price/Book Value (x) 3.24 3.24 5.32 3.92 4.95
EV/EBITDA (x) 12.87 12.87 28.24 29.64 42.75
Market Cap/Sales 4.25 4.25 8.62 6.48 9.07
Recommendation Rationale
The company’s promoters’ holding is around 57.52% out of which promoters have pledged
95.45% of their holding, which is a negative point for the company. If the promoter is holding
50% and if the pledged share is 50% of his total holdings, then ultimately the promoter is
holding only 25% because at any point of time the lender can sell those shares in case of any
correction in share price or in the market. There are many options available for a promoter to
raise money. Shares pledging is considered as the last option to raise funds. So, share pledging is
a clear signal of high levels of leverage and such stocks are better to be avoided.

Recently the company acquired a controlling 44.5% stake in MT Educare, a Mumbai-based firm
that runs the popular Mahesh Tutorials coaching classes, for about Rs 200 crore as the Subhash
Chandra-controlled Zee Group looks to expand its footprint and make inroads into the
government-supported skilling and vocational segment. Zee signed a definitive agreement to
invest Rs 200 crore in MT Educare through a preferential allotment of equity shares at Rs 62.57
a piece. Zee Learn also made an open offer to the shareholders of MT Educare to acquire up to
1.86 crore fully paid-up equity shares, constituting 26% of the share capital, at a price of Rs
72.76 per share. Zees learn high margin business was around 37-38% for the first 9 months for
that year and had acquired a debt company for a premium price.

Operating profit margin for the year ended Sep 2018 was 26.42% and 38.85% in 2017, this year
operating profit margin is almost 12.43% lesser than the previous year, which is again negative
point for the company.

Company has a low ROCE of 5% for last financial year.

The company’s consolidated debts as on September 30, 2018 is around Rs.444 Crores versus
same period last year it was about Rs.254 Crores, but that was excluding MT, so if we add Rs.180
Crores of MT at that point of time the picture is more or less comparable. The company breakup
of their debt of Rs.444 Crores, about Rs.164 Crores comes into Zee Learn Ltd about Rs.120
Crores comes into digital venture, which is over 100% subsidiary and Rs.159 Crores comes from
MT.

The company’s capital expenditure for the Q2 was around Rs. 4.5 Crores excluding MT. MT
generally have capex of about Rs. 1.5 Crores, which is essentially some part of content and
largely in the capex goes into the new centers or the centers, which get shifted to new locations.
Industry Overview
Education Industry

The education sector in India is estimated at US$ 91.7 Bn in FY18 and is expected to reach US$ 101.1 Bn
in FY19. With approximately 28.1% of India’s population in the age group of 0-14 years, educational
sector in India provides great growth opportunity. With evolving times the purpose of education has
evolved from imparting knowledge to all-round development of students to groom them to be literate
citizens. The schools guide the students to explore their potential and understand their passion while
also developing their skills like language, technology, cross-cultural understanding etc.

Schools are adopting innovative and practical teaching methods and have brought about a sea change in
the teaching methodology with the use of technology.

India holds an important place in the global education industry. India has one of the largest networks of
higher education institutions in the world with 850 universities and 42,026 colleges. With both the
Government and the private sector stepping up to invest in the Indian education sector, the number of
schools and colleges have seen an uptrend over the past few years. A total of 35.7 Mn people were
enrolled in higher education institutes in FY17. India ranks 124th in literacy rates with literacy rate
estimated at 75% in 2016. In 2017, 8% of the schools in India were RTE (Right to Education) compliant.
Education spending is close to 2.7% of GDP in India in FY18 versus global average of 4.5%. Gross
Enrolment Ratio (GER) in higher education was 25.2% in FY17, which the Government aims to increase
to 30% by 2020. The country has become the second largest market for e-learning after the US and
online education is expected to reach US$ 1.96 Bn by 2021 with around 9.5 Mn users.

The Indian education system can be broadly classified into formal and informal with K-12 (schooling of
lower primary, primary and secondary sections) and higher education (graduate and post graduate
colleges) falling under the formal sector. The informal sector mainly comprises of pre-schools, coaching
institutes and vocational education. Slowly with rising interest of parents and growing demand for
quality, pre-schooling segment is becoming a part of formal education with many schools having pre-
schools.
K12

The current K-12 school system in India is one of the largest in the world with more than 1.5 Mn schools
that have more than 250 Mn students. Private schools account for about 25% of total schools.

Based on the differential geography and income-levels of Indian population, three different sub-markets
have emerged within private school segments namely:

 High-End Schools (having fees >Rs 60,000 per annum),

 Mid-Market Schools (having fees between Rs 12,000 - 60,000 per annum) and
 Affordable Private Schools (having fees <Rs 12,000 per annum).

As per rules, schools are formed as non-profit organizations and any surplus generated is needed to be
ploughed back into the improvement of the school. With increasing awareness, private Indian players
are collaborating with international brands to provide international standard quality education. Schools
are investing in information and multimedia education technologies to provide better education
infrastructure to students. Increase in technology has also influenced the education sector due to which
smart classes are gaining acceptance. Technology-driven learning is introducing a qualitative and
quantitative difference to education. The introduction of online learning in Indian education system has
changed its scenario, with its reach and economical access.

Higher Education

India’s higher education system is the largest in the world with over 70 Mn students and it ranks second
in terms of student enrolment in higher education. By 2025, the segment is expected to reach US$ 35.03
Bn. This includes various institutions providing graduate courses in various streams and post graduate
courses. Mostly higher education is controlled by government under various Central and State
universities. However private players are foraying in a big way in post-graduate courses. With increasing
need for formal education, higher education has become common place and increasing number of
students are opting for post graduate courses with a view to secure more competitive jobs.

Pre-schools

There are close to 106 Mn children in 2-5 age group, out of which 60 Mn children go to pre-school or an
early childhood education centre. With a market size of US$ 1.18 Bn, India has the highest number of
preschool children enrolled globally (Source: Kaizen Education, 2014). Currently, India has close to 0.5
Mn private pre-schools including both organized and unorganized. The segment is majorly unregulated
in the country with pre-school education not being compulsory. The National Commission of Protection
for Child Rights (NCPCR) has formed guidelines for private pre-schools to ensure child safety and bring
uniformity and inclusiveness. All pre-schools are required to be registered with NCPCR and ensure police
verification of all employees.
Coaching institutes

With child development becoming the priority for parents, there has been a tremendous rise in coaching
institutes which offer both curricular and extra-curricular activities. Coaching classes offer tuitions for all
grades, preparation for entrance exams and coaching for higher education as well. In extra-curricular,
coaching institutes cover everything from day-care to soft skill development to dance, art, craft,
computer training, etc. There has been a tremendous rise in coaching institutes with increasing
competitiveness and growing need for all-round development. Many schools offer extra-curricular
activities in their campus to formalize these activities and provide an element of security and assurance
to parents.

Manpower training

Teacher training is emerging as a huge demand area, as teacher quality is a big barrier to improvement
in learning outcomes. Despite being the second largest education system in the world, there is serious
shortage of good faculties in India. There is a huge requirement for both pre-service and in-service
training for teachers. Of the 9 Mn teachers working in schools (K-12), only 80% are professionally
trained. Pre-service teacher training has mainly been in the hands of government and private institutes
that provide Bachelor’s and Master’s degree in education. Social enterprises have mainly been driven by
non-profit models with some for-profit models emerging, given the need of the hour. While there is a
strong need to change the policy to revamp teacher training in India, there is huge opportunity for
entrepreneurs to design solutions that can help train teachers to be more effective in the classrooms.

Peer Review

Name Last Price Market Cap. Sales Net Profit Total Assets
Turnover
NIIT 85.85 1,436.57 361.87 5.15 902.86
Zee Learn 27.75 904.87 186.34 45.76 478.66
Aptech 171.50 684.17 159.14 19.06 243.98
MT Educare 55.55 401.23 181.11 -121.47 353.77
Career Point 69.00 125.32 71.09 12.99 447.70
Everonn Edu 12.15 29.22 17.62 -947.06 -409.69
Educomp Sol 2.15 26.33 177.48 -475.56 2,113.19
CORE Education 1.75 20.05 152.12 -534.57 192.52
Stock Performance Chart

Sofiya D
Equity Research Analyst
Ph: +7676173344
Email: sofiya@adityatrading.com

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