The deal, if it goes through, will help Subhas Chandra-promoted Essel Group further deleverage its consolidated balance sheet, sources said.
The group that owns broadcaster Zee Entertainment Enterprises, direct-to-home service DishTV and specialty packaging firm Essel Propack is battling with a debt repayment issue of close to Rs 7,500 crore, across its diversified businesses.
New York-headquartered KKR — which bought 92 per cent stake in Euro-Kids for about Rs 1,500 crore in September — is believed to have made a non-binding offer to acquire educational portfolio of Zee Learn, particularly Kidzee, and is awaiting a response from the management, people cited earlier said.
“EuroKids and Kidzee complement each other, so that’s the key target,” said a person involved in the talks. “Adding Mount Litera into the negotiations could take more time, something the Zee Group can ill-afford at this time.” The person requested anonymity because the talks are in private domain.
The transaction involves demerging the preschool business from the listed parent company Zee Learn and subsequently hiving it off through a slump sale, sources said.
An Essel Group spokesperson said both strategic and financial investors have shown interest in its education vertical Zee Learn and that the group is “actively evaluating” those offers.
“The divestment of Zee Learn Ltd is in line with the overall asset divestment process undertaken by the group,” the person said. “Any additional details cannot be shared at this stage due to confidentiality agreements.”
EuroKids declined to comment.
Zee Learn has more than 1,900 Kidzee preschools in more than 750 cities across the country. It also has the country’s fastest-growing K-12 school chain, Mount Litera Zee Schools (MLZS), with more than 120 schools in 110 cities in the country, besides Zee Institute of Media Arts, Zee Institute of Creative Art, and Himgiri Zee University, an UGC approved state private university in Dehradun.
EuroKids is looking for aggressive expansion of its portfolio.
In an investor call in October, Punit Goenka, CEO at Zee Entertainment, had said, “We have been approached by some marquee investors, both strategic and financial, for the Zee Learn stake and we are considering their offers seriously.”
The group is already selling noncore assets in infrastructure and financial services as part of its efforts to pare debt. It may also sell part of promoters’ shares in flagship Zee Entertainment pledged with lenders.
Essel Group in an exchange filing in September had said the group is in steady and progressive dialogue with all lenders and had sought an extension of deadline for repayment of debt to few mutual funds and nonbanking institutions.
Zee Learn more than doubled its consolidated revenue for the year ended March at Rs 549 crore against Rs 272.50 crore in FY18. Its profit after tax rose to Rs 83 crore from Rs 49 crore in the previous fiscal. Its revenues from educational services and related activities stood at Rs 398 crore in FY19 against Rs 186 crore in FY18. Kidzee’s FY19 Ebitda was around Rs 70 crore.
The current market capitalisation of Zee Learn is Rs 755 crore. Promoters own 57.17 per cent of the company, of which 82.74 per cent is pledged with lenders.
Zee Learn shares have fallen 37.84 per cent in the past one year, significantly underperforming the benchmark Sensex, which gained 12.61 per cent during the same period .
In February 2018, Zee Learn had acquired a controlling 44.5 per cent stake in MT Educare, a Mumbai-based firm that runs the popular Mahesh Tutorials coaching classes, for about Rs 200 crore to expand its footprint.
“The overall financial performance has remained stable keeping in view the acquisition of MT Educare which has supported the revenues and profitability,” Brickwork Ratings had said in a note in July. “The total debt has increased to Rs 379 crore in FY19 versus Rs 258 crore in FY18.”
Zee Learn’s Mount Litera Zee School partners with local educational trusts and offer services such as school set up assistance, teacher training, assessment, teaching materials, student learning resources, and branding. It also runs five CBSE company-owned company-operated schools and an IB school at BKC Mumbai.
EuroKids is one of India’s largest education services providers in the preschool and kindergarten to K-12 segments. Its portfolio brands, including EuroKids, EuroKids DayCare, Kangaroo Kids, EuroSchool and Billabong International, serve more than 120,000 students from 1,115 preschools and 35 K-12 schools across five countries.
There is a wide potential for foreign investments in Indian education that is estimated to reach $144 billion by 2020 from $97.8 billion in 2016. The country allows 100 per cent foreign direct investment in this space under automatic route. An estimated investment of $200 billion is required to achieve the government’s target of 30 per cent GER for the education sector by 2020, according to Zee Learn annual report.