CL Educate IPO – What are the hidden facts in this IPO?

CL Educate IPO – What are the hidden facts of this IPO?


New Delhi based, CL Educate IPO would open for subscription on 20th March, 2017. CL Educate Ltd is engaged in various educational products and services. Its revenues grown at 14% CAGR in last 5 years. It earned 2.6% profits in FY16. What are the positive factors in CL Educate IPO? What are the hidden factors in CL Educate Limited IPO?  In this article, I would provide some interesting insights and hidden facts about CL Educate IPO.

About CL Educate Limited


They are a diversified and integrated technology-enabled provider of education products, services, content and infrastructure, with a presence across the education value chain. They operate across a broad spectrum of segments in the education industry, including test preparation & training services, publishing & content development, integrated business, marketing & sales services for corporates, vocational training, integrated solutions to educational institutions & universities and K-12 education. They have state of the art infrastructure across 162 test preparation and training centers (Of which 4 are temporary ‘Smart Career Centers’) spread over 22 states in India.  

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Issue details of CL Educate IPO


  • IPO opens: 20-Mar-2017
  • IPO closes: 22-Mar-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 500 to Rs 502 per share
  • Issue size: 47.6 Lakh Shares @ 500 = Rs 238 Crores
  • Market lot: minimum of 29 shares
  • Minimum investment: Rs 14,500 on lower price band
  • Leading Managers:
  • Listing: BSE / NSE
  • CL Educate IPO DRHP Prospectus link (would be available soon).

Objects of the CL Educate Limited IPO issue


1)  Funding Working Capital requirement of the Company:

2)  Acquisitions and other strategic initiatives;

3)  Pre payment of outstanding amount of a debt; and

4)  General corporate purposes.

Company Financials (reinstated-standalone)


  • The company generated revenue of Rs 101.3 Crores for the year ended Mar-12 and Rs 172.9 Crores for the year ended Mar-16.
  • The company posted a loss of Rs 5.8 Crores for the year ended Mar-12 and profit of Rs 4.4 Crores for the year ended Mar-16.
  • Its standalone restated basic EPS for FY ending Mar-16 is Rs 3.74 and last year EPS was Rs 6.14.

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Financials of CL Educate IPO-min

What are CL Educate Key Strenghts?


  • Diversified and integrated education products, services, content and infrastructure provider, with Pan-India presence and a focus on knowledge-creation
  • Reputed courses, particularly in the aptitude based test prep segment
  • Asset-light, technology-enabled business model
  • Strong brand equity
  • Track record of successful inorganic expansion
  • Professionally qualified, experienced and entrepreneurial management team, and quality human capital.

Reasons to invest in CL Educate IPO


Revenue grew at 14% CAGR in last 3 years.

Reasons not to invest in a CL Educate Limited IPO


  • Its profits are low and fluctuating. Its profits were 4.2% in FY15 and 2.6% for FY16. It incurred loss in FY12.
  • As per its annual report, auditors made comment that the Company does not have a comprehensive procurement policy for purchase of goods and services, which could potentially result in the Company procuring unnecessary goods and services, or procuring goods of lower quality, or procure goods and services at unreasonable prices.
  • The Company has granted unsecured loans to companies and other parties covered in the register maintained under Section 189 of the Act and auditors of the opinion that the terms and conditions of loans granted by the Company to 2 parties covered in the register maintained under Section 189 of the Act, (total loan amount granted Rs. 10,000 and balance outstanding as at balance sheet date Rs.61,472,802 are prejudicial to the Company’s interest on account of the fact that the Company is not charging any interest on such loans.
  • A significant portion of its operating revenues is derived from its test prep business. Failure to attract students in our test prep business, including due to an unsatisfactory success ratio, may adversely affect its business and prospects.
  • Company business and prospects may be adversely affected if they are unable to maintain and grow its business and brand image.
  • Its competitive and growth strategies are subject to execution risks that may impact its business and prospects.
  • They operate in a significantly fragmented and competitive market and any failure on its part to effectively compete may adversely affect its profitability and market share.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – CL Educate IPO


On the upper price band of Rs 502 and on FY16 EPS of Rs 3.74, P/E ratio works out to 134x. Even based on FY15 EPS of Rs 6.14, P/E ratio works out to be 81x. Its peers like Career point is trading at P/E ratio of 14, MT Education at 26 and Tree House at 12. Hence issue price of Rs 502 at P/E Ratio of 81x to 134x is very very high.   

Company revenues grew at 14% CAGR in last 5 years. Its profits are fluctuation and low and not consistent. Its issue price is very very high. I do not know how such companies can fix such high issue price with such inconsistent financial performance. Investors should be very cautious and stay away from such IPOs.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

CL Educate IPO – What are the hidden factors

4 comments

  • ankur

    thank you ..good observation

  • Nimesh

    Please use consolidated eps to get a better understanding of Valuation

  • Siddharth taneja

    Little growth low return

  • Prakash Kundur

    This IPO is trying to ride on the current craze of retail and other investors.

    Better to let this issue pass.

    The valuations are unreasonable and unrealistic.

    Patience pays in stock market investing. Surely this IPO will not give any listing gains.

    Let's ensure that the issue is under subscribed, withdrawn and humiliated.

    And teach a lesson to the greedy promoters and especially the merchant bankers who promise the moon and beyond to the promoters. It is they who fix the IPO price.

    Let's boycott this issue.

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