Given the fall in the share price, I spent 2. 5 hours leafing through ARs and listening to promoters. Like ritesh pointed out there's a lot of dissonance amongst data points

1. promoter claims he pledged shares to buy more share - but his shareholding has hardly moved. Since the AR does not indicate that for the debt the compay carries shares were pledged, it follows that he used bulk of the money for a purpose other than for the company. Given that education is a highly regulated industry and politically sensitive subject (greasing is common to get licenses to run pre-schools, pass inspections etc.), what was this used for ?

2. ROE's are just about a little north of 11-12 % - that seems low to me given EBITDA of 55%. I am surprised no one picked that up - the only industry that has this kind of margins are things like toll roads in their early years which are hugely asset heavy - most education businesses run at 20 % ROCE's and need very little dilution. Case in point is MT educare - which operates a similar decentralized model of not owning assets and are spread out through the city.

3. consistent capital raising of upwards of Rs. 300 Cr. cumulatively for a business at this scale is something I am just not able to explain

4. I read through the promoter interviews, he always talks of market size, opportunity, fast growth but seldom talks of profitability and keeps talking of QIP/money raising etc.

5. if receivables are more than 3 years old, why r they booking it upfront as revenues - why not recognize it pro rata or in the year in which they are actually due ? Seems absurd that they would recognize revenues more than a year ahead of time when they know money won't come in until much later. If they are taking up such contracts, its also not a great idea from a business perspective either

discussion points are welcome - I am considering investing if I can get answer/quantify the above risks.

To add to the ongoing perspective from Nellore: As I was there at home for Diwali, was able to see the situation on ground - but am late, as got severely sick:

Prawn and Fish lakes have in general lost heavily. Some clever farmers like my uncle have forecasted the weather and moved to place safety nets combined with high power pumping machines in place (though the idea is not new, but its about execution and timing) have not faced the wrath. But they are very few of them. The loss is estimated to be in higher double digit crore rupees. This effect will be visible both on the immediate demand, due to financial capability of the farmers and continuing rains that hinder the preparation of farms for the next round of corp.

Does this warrant a buy around 380? Is there any reason why it has fallen from 600 level?

Hi Prash - Please see attached Tree House.xlsx (15.1 KB)

Promoter is not as innocent as it sounds. Negative cash flow from investing (to support expansion) + rising receivables means either resort to debt or dilute equity. Debt is "dirty" and can impact net profit so promoter here diluted equity by 25% since mid 2012. However, to keep its stake constant at ~ 30%, it started to buy shares via borrowed funds and this resulted in rising pledge shares. Thus even after buying 2.7 mn shares since sept 2013, promoter stake in the company is close to the june 2012 levels i.e. ~ 30%.

So promoter now have to fix the receivable problem and generate more operating cash to strengthen its fundamentals.