We had initiated on Treehouse Education and Accessories with a target price of INR370. Certain investors have raised the query that a low promoter holding is a cause of concern. We therefore decided to elaborate on the shareholding pattern. The conclusion first – A relatively low promoter shareholding is not a matter of concern.
We wish to remind our readers that Treehouse Education came to the markets only in August 2011. Before that, the company’s growth was private equity funded and that is when the promoter’s stake has gone down.
Current Promoter Holding – As of September 2013, promoters has a stake of 29.27% in the company. This has increased from 27.75% in December 2012. What is more important to mention here is the fact that promoter holding in the company is expected to rise to nearly 33% when the next shareholding pattern is released. This will include the conversion of warrants into equity shares by the company. Clearly, the management is keen on increasing its stake in a business with strong growth prospects.
Open Market Purchases – If investors investigate the insider trading activity over the last one year, Rajesh Bhatia has mopped up over 2,00,000 shares from the open market in a price range of 220-270. This is another positive as it underscores the management’s confidence in the business and also shows that the management perceives current levels as attractive to buy and hold.
The Biggest PE Stake – Among the private equity players, Matrix Partners India holds 24.54% stake in the company as of September 2013. Matrix Partners has been associated with Treehouse Education for long and it exhibits the conviction of the PE player in the management, business model and the industry.
Investors Holding On – If investors view the price chart of Treehouse Education, the stock has been in a very narrow trading range over the last one year. Still, big investors like Unilazer Ventures, Aditya-Birla Private Equity and Omidyar Network are holding on to the stake. Private equity investors seem to have high confidence in the business and on the prospects of getting high returns.
We are not suggesting that retail investors buy the stock because big names are invested. All we want to establish is that low promoter holding comes from stake dilution to quality PE investors for business growth and should not be a matter of concern. Also, promoters buying shares from the open market speaks volumes on the confidence of the management on growth.