Tree House Education & Accessories Ltd Management Discussions.

Overview of Operations of Our Company

The company has earned income of Rs.117.93 lakhs from pre-school business and Rs.86.85 lakhs as royalty from franchise centres. In addition the company has earned rent of Rs.62.67 lakhs from the school buildings rented to K12 schools.

Companys Strengths:

The Brand is owned by the Company and is earning Royalty income for the company.

Financial Highlights for 2019-20

Rs. in Lakhs

Particulars Year Ended 31.03.2020 Year Ended 31.03.2019
Revenue 276 366
Operational EBIDTA (210) (3)
Profit (loss) before tax (2870) (3716)
Profit (Loss) after taxes (2815) (4207)
Earning Per Share (6.78) (9.93)

Impact of Covid-19:

In March 2020, the WHO declared COVID-19 outbreak as a pandemic which has wreaked havoc across the country and the world. On 25th March, 2020, the Government of India declared the said pandemic as a health emergency and ordered temporary closure of all non-essential businesses, imposed restrictions on movement of goods/material, travel, etc. As the nature of business performed by the Company fell under non-essential category, these restrictions had stopped the operations of the company along with its owned and various franchisee centers .

As companys owned and franchisee centers were closed due to lockdown, the admissions of the student have been severly impacted for the current year.

The current Covid-19 pandemic has also severely impacted the services provided by the company and the liquidity flow of the Company.

Some of the major factors which the company estimates will impact it due to CoVID-19 are as follows:-

1) Cash flow crunch.

2) Closure of centers.

3) Reduction in collection of royalty payments.

4) Decrease in number of students for the current academic year 2020-21.

5) Reduction in fees structure due to closure of centers and hence less number of working days.

6) Delay in serving debt obligation to the banks.

7) Due to closure of franchised branches impairment of assets situated at franchisee branches whereever applicable.

It is important to note that the current Covid 19 impact will affect parent behavior towards sending children in the age group of 2.5 years to 6 years (PG, Nursery, Junior KG, and Senior KG) and the reluctance of parents to send children to school will have a meaningful impact on the revenue streams of the company.

Internal Control system and Risk Management:

The Company has adequate internal controls and processes in place with respect to its financial statements which provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. The processes and controls are reviewed periodically. The Company has a mechanism of testing the controls on regular intervals for their design and operating effectiveness to ascertain the reliability and authenticity of financial information. During the year such controls were tested and no reportable material weakness in the design or operation was observed.

Opportunities & Threats:

Opportunities:

• Due to the Covid19 pandemic, the company does not see any business opportunity in the near future. However the companys existing business is continuing.

Threats:

• Company sees Covid-19 as the major threat to the business.

• Competitors may reduce franchisee & royalty fees putting pricing pressure.

• Brand name is in risk due to bad performance of franchisee owners.

• Unskilled staff at franchisee centres.

• Non payment of royalty and shifting of brand loyalty.

Industry Structure and developments.

Industry Overview

India - One of the largest education markets in the world

The Indian education sector is one of the largest education markets (in terms of the potential number of students) in the world..

Key Market Segments

Pre-school Market

While science and child development experts have long proven that, first 6 years of a human beings life are the most critical, in India this is still a nascent concept, there is need to spread higher awareness of importance of early childhood education.

K-12 Market

K-12 schools form the core and largest segment of the Indian education system. India has one of the worlds largest networks of schools. Still, the country needs new schools to meet the demand of quality K-12 education.

Supplemental Education

While the number of schools in India makes for impressive reading, the quality of education imparted in these schools leaves a lot to be desired. There have been multiple reports in recent times that point to the low learning levels of students in Indian schools. The challenge here however, is not to repeat what happens in school but to create a more customized and hands on learning environment.

Segment - wise or product -wise performance.

The activities of the Company comprise of only one business segment i.e. "providing education and related services including leasing of education infrastructure". The company operates in only one segment.

(i) details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including:

Changes in Key Financial Ratios:

Particulars 2019-20 2018-19 Change Remarks
(i) Debtors Turnover 0.14 0.16 (15.22)
(ii) Inventory Turnover - NA - - NA - - NA -
(iii) Interest Coverage Ratio (5.88) (6.27) 6.16
(iv) Current Ratio 0.64 0.36 78.19 (Repayment of bank loan has reduced the current liabilities)
(v) Debt Equity Ratio 0.14 0.27 (49.52) (Liability towards the bank loans have reduced due to repayment of loans)
(vi) Operating Profit Margin (%) 89.90 91.88 (2.16)
(vii) Net Profit Margin (%) (295.80) (855.94) 65.44 (Due to Profit on sale of Land and Building, the net loss has drastically reduced)
(viii) Return on Net Worth (%) (9.56) (13.04) 26.68 (Reduction in Loss due to profit from sale of Fixed Assets and this has resulted in reduction in Net worth)

For Tree House Education & Accessories Limited

Sd/- Sd/-
Jugal Shah Deepak Valecha
Director Director
DIN: 08334114 DIN:07736480