Here under this post we will BE updating all about Zee Learn and do not forget to see the comments where you will find the latest information of the stock.AS ON DEC 2015; Earnings performance lagging our expectations: Our investment rationales on the stock of Zee Learn Ltd (ZLL) were based on the possibilities of a sustainable turnaround and growth potential in the ZLL bottomline in the next three years. However, looking at the recent quarterly performance, the numbers were way below our earlier expectations. For Q2FY2016, though revenues were higher by 35% YoY to Rs30.7 crore, OPM was down by 460BPS and net profit was down by 5% YoY to Rs1.08 crore.
Expect delay in earnings acceleration: Our investment rational was based on the management’s four-point plans to improve its bottom-line performance; (1) ZLL’s investment in pre-school segment (70% of revenues, expect OPM to improve to 40% in the next five years); (2) significant number of K-12 school properties are maturing (18% of revenues, expect OPM to touch 23-25% in the next five years); (3) cost rationalisation in loss-making vocational training segment (ZICA and ZIMA) and also lower emphasis on Brain Cafe (strategic JV with Gakken Education Co) will see losses minimise in FY2016-17E. However, looking at the recent quarterly performance, we expect a delay in the earnings acceleration for FY2016-17E.
Exit with 19% gains from our recommended price: We had initiated our value-point report on ZLL on July 7, 2014 with a positive view at a price level of Rs36. Given the delay in earnings acceleration and company lagging our growth expectations. We recommend investors to exit from the stock at the current price level of Rs42.7 with a gain of 19% from our initiation level.
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