MT Educare Ltd today said it will sell its Mangalore-based pre-university campus for Rs 55 crores. Speaking to CNBC-TV18, Yagnesh Sanghrajka, CFO, MT Educare said the asset will be sold and leased by the company later.
The asset is a campus that the company set up from the proceeds of the IPO and runs a college for 11th and 12th standards.
However, he rules out selling any other asset for now.
Below is the transcript of Yagnesh Sanghrajka's interview with Anuj Singhal & Ekta Batra on CNBC-TV18.
Anuj: I am just going through he news and not able to understand it fully. You have sold your pre-university campus for 55 years but, you continue to operate and hold management right for 30 years. If you could explain the entire process?
A: This is the campus that we set up from the parts of the proceeds of the initial public offering (IPO). This is a pre-university campus which basically runs 11 th and 12 th college. So we set this up in 2012, we have got around 3000 students.
It consists of a college and a hostel, it is a whole campus of about 2 acres which has a college and a hostel. And, college the capacity of the student is about 3000 students and hostel has a capacity of about 900 students. So, we were running this college, we had taken this MT Educare and spent on the… had bought the land as well as did the construction. So, now based on that concept, we have got around 14-15 college tie-ups already. So, the Karnataka business has basically grown on the back of this campus. So, now we have decided to sell this and lease it back.
MTL will continue to operate and manage in the campus, it will run its test prep services for the KA CET and in future, of course, IIT business as well. So, these businesses will be run out of this campus and the 14 other tie-ups that we have in Karnataka.
Ekta: Can you just explain to us for the benefit of our viewers, what the rationale or the benefit to MT Educare would be with regards to a sale and lease back?
A: It is very beneficial because, as you know, we are a very asset-light kind of business model. We normally take premises on lease in all our coaching centres as well as all our trading centres. This was a proof of concept set and which is why we did this entire campus. Now we are selling it, so MT goes back to its asset-light model. So, one is it makes our gross-block of fixed-assets turn into almost half of what it is right now. Let us say currently my gross-block is about Rs 100 crore, I would be selling almost 50 percent of the same.
Though I am continuing the business there, MTEL will continue the business there, and so the PnL of the Karnataka business still continues, we will just be paying rent for a fixed period of 15 years. That is the lock-in here with the buyer and with an option to continue for further 15 years because this is a long term business for us and we are continuing this premises for the next 15 years at a 15 year lock-in with the buyer.
Anuj: So, how will you show this amount that the Rs 55 crore in your PnL this year?
A: Rs 55 crore goes out as the proceeds. So, there will be a minor profit of the PnL because we spent almost about the same amount. Now we are just coming out of this so it releases a lot of cash in the system for us. So, that kind of gets utilised for the business purpose. That is basically what the essence of the deal is. It has a positive impact on the MTEL profit-loss log also because earlier let us say we were paying some interest at about 12 percent to the banks, now I can repay this amount and save that 12 percent. So, it is a positive impact of almost about Rs 3-3.5 crore on MT PnL for the next year.
Ekta: And this Rs 55 crore, how exactly will it be utilised? You did touch upon the fact that it will be utilised, but how so?
A: Partly we have done a particular strategic tie-up in the state of Andhra and Telangana with Sri Gayatri Society. It is a large educational institution. We have invested that amount from taking a temporary loan from the bank. Now with these proceeds, we are going to repay the entire loan. So, that will be the utilisation of the proceeds and there will be something left for the business as well. So, we are going to invest in the various technology initiatives that we are currently doing. There are a lot of initiatives that the company is doing. So, this will be utilised for internal expansion and organic growth as well.
Ekta: And any more such sale and lease back deals that we can expect from the company?
A: We do not have any other assets on the books. This was the only asset that we built for strengthening our Karnataka business. So, we are no longer in any other real estate business or in fact in infras. We do not invest in infra, this was the only asset which was there on our books.
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