1 AUG 2017 / Quarterly Update

BUY
ZEE LEARN Target Price: Rs 72
EDUCATION

Q1FY18: Revenue up 44%, Profit up 91% Y-o-Y, Business model paying rich dividends
CMP : Rs 43.3
Zee Learn (ZLL) in 1QFY18 posted revenues of Rs. 67 Cr (up 44% Y-o-Y) on a consolidated Potential Upside : 66%
basis due to consistent growth in both Kidzee (pre-school) & MLZS (K-12) segments, and Relative to Sector : Positive
an additional revenue stream from manpower recruitment and training from the newly
incorporated subsidiary. ZLL posted PAT of Rs 12.8 Cr (up 91% Y-o-Y) due to operational
MARKET DATA
leverage coming into play bringing about economies of scale and the franchisee-based
asset light business model paying great dividends for the company. The improved No. of Shares : 32.4 Cr.
capacity utilizations at schools helped them monetize their network better, thus helping to FV (Rs) :1
post EBITDA margins of 37.5% in Q1FY18 vs. 34.4% y-o-y. Market Cap : Rs. 1426 Cr.
Kidzee, the largest chain of preschools in India, with over 1741 operational centres, has 52-week High / Low : Rs 51.3/ Rs 29.7
crossed the 1 billion mark in terms of revenues annually and is rapidly growing. Mount Avg. Daily vol. (6mth) : 687714 shares
Litera Zee School (MLZS), one of the fastest growing K-12 school with 108 schools, is
Bloomberg Code : ZLL: Natl India
likely to benefit most from structural shift in favour of organized K-12 industry in India.
Reuters Code : ZEEE.BO
The increasing number of signups and strong outlook indicates revenues visibility.
BSE Code : 533287
ZLLs PAN India presence with aggressive expansion in footprint, asset light business
model and earnings visibility of 25% CAGR over FY17-FY19E makes it a perfect play to NSE Code : ZEELEARN
participate in the growing opportunities of Indian education industry. We maintain buy
on Zee Learn with a target price of Rs. 72. (DCF valuation)

Key Highlights
Strong growth outlook in both Kidzee and MLZS: In Q1FY18, the number of enrolments grew by 15-16% y-o-y. Revenue from
educational services accounted for 75% (Rs 57 Cr) of the total revenues on a consolidated basis. The number of pre-schools stood at
1741 and the company would maintain a run-rate of 300 pre-schools sign-ups every year. It thus looks to cross 2000 operational pre-
schools in the next 2 years. The number of K-12 schools stood at 108 and with an annual run-rate of 24-25 schools every year, Zee
Learn would almost double its K-12 schools network over the next 4 years. This ensures revenue visibility and we expect Zee Learn to
post 16% revenue CAGR in the preschool segment and 20% revenue CAGR in the K-12 segment over FY17-FY19E. Due to low pre-
school penetration and high demand supply gap, Zee Learn will consider opening some self operating pre-schools (COCO schools and
not the franchisee route) in strategic locations.
Entry into manpower recruitment and training activity: Zee Learn has entered into a new strategic line of manpower recruitment and
training business through the newly incorporated subsidiary Liberium Global. In Q1FY18, ZLL has been successfully able to train and
place about 2000 people servicing largely the Essel Group companies. This business is a high ROI, zero capex but a low margin one.
However, it can draw huge synergies within ZLL as well as cater to various training and business specific needs of the Essel group and
address outside opportunities too. It looks to differentiate its offering through value added services and the management is confident
that this business will provide robust growth in the future.
FINANCIAL SUMMARY (Consolidated)
Y/E Sales EBITDA PAT EPS Change P/E RoE RoCE EV/EBITDA
DPS
March (Rs Cr) (Rs. Cr) (Rs Cr) (Rs) (YoY %) (x) (%) (%) (x)
FY16 151 45 15 0.5 - - 6.2 6.2 - 0.0
FY17 179 64 37 1.1 141 - 13.5 8.8 - 0.0
FY18E 245 92 45 1.4 22 31.7 14.3 13.1 13.2 0.0
FY19E 302 115 57 1.8 28 24.8 15.7 14.8 10.3 0.0
Source: Company and Axis Direct Research

PRICE PERFORMANCE
200

150

100

50

0
Aug-16 Dec-16 Apr-17 Aug-17
Rohit Chawla
[email protected] BSE Sensex Zee Learn

01

Rinki Gureja
[email protected]
 1 AUG 2017 / Quarterly Update
ZEE LEARN
EDUCATION

Debt and interest rate reduction: Zee Learns Standalone debt stood at Rs 103 Cr in FY17, after Rs 25 Cr had been repaid
during the year. For the subsidiary Digital Ventures, Rs 125 Cr term loan had been restructured, bringing the total debt to
Rs 125 Cr. Also there was a marginal rate decrease for Digital Ventures from 13% to 11.5%. Zee Learns rate reduction by
way of loan restructuring is expected in FY18E, and substantial rate reduction is expected as the company is actively
negotiating with bankers. This would bring the interest rates to single digits thus positively impacting the margins of the
company. Management has indicated that the debt profile would remain at the same level going forward, while they
reduce their interest burden.
Other initiatives: Zee Learn has invested considerable resources in developing learning designs, students learning
materials and e-content for preschools and K-12 schools. With new technologies on Augmented Reality and Virtual
Reality coming into play, the company has a vision of digitizing the entire delivery leading to superior learning outcomes
and better engagements with key stakeholders. It would be a combination of both brick and mortar as well as online,
which will help the company make better offers to potential customers. Thus, books supplemented with digital content,
which would be available to students and teachers all round the clock, would enable a blended learning approach and
learning on demand for students. Also, the company is looking to partner government in various initiatives, as they have
a strong presence on vocational side through ZICA and ZIMA, thus expanding their reach.

Operational Kidzee Schools (Pre-school) Mount Litera Zee School (K-12)

2500 250

200
2000 200
2000
1741
1550 150
1500 1350 108
1250 1200 100
1000
1000
750 50 28

500 0
FY12 Q1FY18 FY21E
FY20E
Q1FY18
FY11

FY12

FY13

FY14

FY15

FY16

Revenue break-up in Q1FY18 Consolidated Revenue and EBITDA (%) trends

400 37.5% 38.3% 50%

34.8%
40%
14% 300 24.0% 28.6%
30%
9% 10.0% 20%
16%
200
61% -7.8% 10%
100 0%
95 117 127 151 179 245 302 -10%
0 -20%
FY19E
FY 13

FY 14

FY 15

FY 16

FY 17

FY 18E

Kidzee (Pre-school) M L ZS (K-12)

C o nstruction and L easing M anpower recruitment and training Consolidated Revenues EBIDTA %

Source: Company, Axis Securities

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 1 AUG 2017 / Quarterly Update
ZEE LEARN
EDUCATION

Results Update (Consolidated)

Quarterly Performance Financial Year Ending

% Change
(Rs. cr) Q1FY18 Q1FY17 FY17 FY18E FY19E
(YoY)
Sales 67 46 44 179 245 302
Other Op. Inc 0.0 0.0 0 0 0
Total Revenue 67 46 44 179 245 302

Expenditure
Net Raw Material 14 11 26 35 40 45
Employee expenses 16 8 99 25 54 77
Other Exp 12 11 4 56 59 64
Total Expenditure 42 31 37 117 153 186

EBIDTA 25 16 57 62 92 115

Oth. Inc. 1.3 0.7 2.0 5.0 3.0

Interest 4.2 5.7 (25) 19 19 19
Depreciation 2.8 3.2 (10) 10 10 12
Exceptional Item 0.0 0.0 0.0 0.0 0.0
PBT 19 8 146 36 68 87
Tax 6.5 1.1 -1 23 30
PAT 12.8 6.7 91 37 45 57
Share of profit of Associates 0.0 0.0 0 0 0
Adjusted PAT 12.8 6.7 91 37 45 57
EPS (Rs.) 0.4 0.2 1.1 1.4 1.8
Source: Company, Axis Direct Research.

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 1 AUG 2017 / Quarterly Update
ZEE LEARN
EDUCATION

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the
Regulations).

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 1 AUG 2017 / Quarterly Update
ZEE LEARN
EDUCATION

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%

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