Mumbai: Test preparation institute FIITJEE Ltd is planning to list on stock exchanges in India and the US, and has invited investment bankers to run the issue.
The company, which helps students prepare for competitive entrance tests for professional courses, is looking at a valuation of $2 billion (Rs 8,960 crore), five investment bankers said.
“They are looking at an initial public offering (IPO) by next financial year,” said an investment banker who pitched for handling the issue.
FIITJEE is yet to award the mandate, the bankers said.
“We have no comments to offer till February of next year,” a company spokeswoman said.
The company plans to use the IPO proceeds to expand in India and set up centres in the US, a second investment banker whose firm pitched for the mandate.
“The company would want to expand into other key markets outside India, including US,” said a third investment banker, who works for a domestic firm.
It will be difficult to market IPO overseas because of poor market conditions and the high valuation the company seeks, said a fourth investment banker, who works for a foreign investment bank.
FIITJEE’s revenue grew from Rs 100 crore in fiscal 2008-09 to Rs 150 crore in fiscal 2009-10, while profit increased from Rs 20 crore to Rs 35 crore, said a July report by FinPac Financial Information and Resources of India’s test preparation industry. FinPac Financial is a Delhi-based research firm that focuses on companies that have attracted private equity (PE) investments.
“The company, being an education institute, predominantly its total income comes from fee income from students,” the report said. “In the last six years, on an average about 94% of total income has been fee income. The company’s top line has been growing at a CAGR (compounded annual growth rate) of 37% in the last six years, whereas the profit after tax has been growing at a CAGR of 73%.”
In 2009, FIITJEE raised Rs 100 crore from Matrix India Asset Advisors Pvt. Ltd, a PE firm that then valued the company at Rs 1,500 crore.
FIITJEE raised a second round of Rs 90 crore in 2010 from Q Learn, which valued it at Rs 1,900 crore.
The test preparation segment has attracted the largest chunk (21%) of the total PE investment of $183 million in India’s education sector between 1 April 2007 and 31 March this year, according to a June report Private Equity Pulse on Education by Venture Intelligence, which tracks PE and venture capital (VC) investments in India.
But some investors also fear that growth is nearing its peak in tutorial and test preparation sectors, the report warned.
“As long as the gap between gross enrolment ratio and number of seats available is not bridged, test preparation companies will continue to grow,” said Narayanan Ramaswamy, executive director—education for KPMG India Ltd. “Test preparation companies in India have now diversified into tutorial, publishing and own channel businesses, protecting them from any future shocks.”
Dinesh Kumar Goel-promoted FIITJEE, launched in 2002, has been no exception. It has, among other things, launched junior colleges in Hyderabad and started programmes for coaching school students.
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