Four IIT pass outs make a killing in their six year old education venture

Earlier this week, Mumbai-based MT Educare (formerly Mahesh Tutorials) announced that it has acquired a 51% stake in an IIT coaching institute named Lakshya Forum for Competitions for an undisclosed amount.

The founders of Lakshya – Vamsi Krishna and his team of four IITans – would be a happy lot today since getting to a Rs. 100 crore top line and competing with Kota-based big shots like Resonance and Career Point would have been a difficult task for them.

Anyway let’s get to the moot point regarding the valuations they probably received for their six year old venture. Rough calculations indicate that the young entrepreneurs pulled off an enterprise value of USD10 million (Rs. 44 crores) for their coaching facility, resulting in net receipt of USD5 million (Rs. 22 crores) cash from MT Educare for the 51% stake sold.

This I would say is no small money.

Lakshya Forum for Competitions, which runs four centers at Patiala, Bathinda, Chandigarh and Panchkula, has about 2500 students. Assuming an annual average fee of Rs. 35,000 per student, Lakshya is likely to have raked in about Rs. 9 crores in fee this year. Considering that EBITDA margins for IIT coaching institutes is in the range of 40-50%, I assume Lakshya would be making a minimum Rs. 3.6 crores at the EBITDA level.

The two listed companies in the coaching space: Career Point and MT Educare are available at around 3.5x their revenues and 14x EBITDA. Placing these multiples for Lakshya results in an enterprise value of USD10 million (Rs. 44 crores).

Given the poor market conditions and small scale of operations, the founders of Lakshya probably could not get a higher valuation for their business. Any buyer seeking a majority stake in a company usually pays a premium for the purchase. Moreover, Lakshya earns much higher profit margins than MT Educare. It also provides MT Educare a ready presence in North India.

My best wishes to Vamsi Krishna and his team for their future ventures.