Buy Physicswallah Ltd for the Target Rs 200 by Motilal Oswal Financial Services Ltd
Multiple legs to the growth story: Key takeaways from our Singapore NDR
We hosted the Physicswallah’s (PWL) Co-founder, Mr. Prateek Maheshwari, for a three-day NDR in Singapore. Discussions centered around five themes:
1) online growth drivers
2) the K-12 opportunity
3) the path to offline profitability
4) AI and the TUTO launch
5) capital allocation. PWL reiterated its FY27 guidance of 30% YoY total revenue growth and 100% YoY pre-Ind AS EBITDA growth. The team highlighted that online growth is no longer tied to JEE/NEET, as newer categories, including K-12 and state boards, scale at high margins. Offline is expected to near break-even in FY27, and admissions for the year are already closed. For online, we expect pre-IND AS EBITDA margins to remain in the 30-35% range over the next 4-5 years, with the potential to reach upwards of 40% over the medium term. Management also showcased several new initiatives, such as an AI-driven one-on-one tutor.
We believe PWL's multiple independent growth legs provide comfort on ~30% online CAGR for the next 3-4 years, with a clear path toward sustained EBITDA improvement over the same period. We value PWL on an SoTP basis. We assign a multiple of 50x FY28E EV/EBITDA to the online business, reflecting its market leadership, scalable business model, and superior unit economics. We value the offline business at 15x FY28E EV/EBITDA to reflect its execution intensity, time to maturity, and lower margin profile. We value other businesses at 1x FY28E EV/sales. Adjusting for cash, we arrive at a TP of INR200, implying a 43% upside. We reiterate our BUY rating on the stock.
For our detailed investment thesis, business outlook, industry assessment, and valuation framework, please refer to our initiating coverage report
Online: Growth no longer hinges on JEE/NEET
* JEE/NEET now accounts for only ~30% of enrollments, and PWL leads in 11 of the 16 exam categories it reports. The funnel remains largely organic, with one of the lowest marketing spends in the industry (Exhibit 8), which we believe is a key structural advantage over peers.
* ARPU growth has been driven by premium attach rates rather than price hikes. Base batch prices have risen only ~4-5% a year, but ~30% of base batch students now opt for the Infinity or Infinity Pro tiers.
* The South remains an untapped lever, with PWL's share <8% vs. 35-40% in the Hindi belt (Exhibit 4). It has set up regional offices in Chennai, Bangalore and Vijayawada. The current growth framework assumes only nominal Southern penetration, which leaves an upside to our estimates.
* Online Pre-IND AS EBITDA margin stood at 26% in FY26. We expect margins to remain in the 30-35% range over the next 4-5 years, with the potential to reach upwards of 40% over the medium term.
* A mature JEE/NEET batch earns 45-50%, as one online teacher serves ~12,000 paid students. Excluding NEET PG, Skills, and Curious Junior, which remain in investment mode, online margins are already at 30-32%.
K-12 and state boards: The next leg of growth
* Online K-12 penetration remains at only ~0.5% (Exhibit 6) of the 165m student TAM. Management highlighted that K-12 extends the student lifetime on the platform to 15-18 years from ~2 years in test prep. It expects the segment to eventually outgrow test prep.
* Curious Junior, PWL's premium after-school offering at INR24,000 a year, has reached ~50k students and INR1.25b of collections within 18 months. The business should near break-even this year after a loss in FY26. Management believes it could eventually match test prep in scale.
* State boards are scaling rapidly, with 400,000 students across six states within 18 months of launch. The addressable base of ~60,000,000 students compares with ~2,000,000 CBSE exam-takers a year. Margins are ~27% today, and management expects them to exceed JEE/NEET at maturity, given the lower faculty costs. Six more states, new streams, and foundation courses are in the pipeline
Valuations and view
* We believe PWL combines a near-monopoly position in online test prep, negative working capital, and multiple independent growth legs in K-12, state boards, new categories, and the South. With offline nearing break-even in FY27, we see EBITDA compounding from ~INR6b in FY27E to ~INR20b in four years.
* We value PWL on an SoTP basis. For the online business, we assign a multiple of 50x FY28E EV/EBITDA, reflecting its market leadership, structurally superior unit economics, and scalable technology platform, resulting in a per-share value of INR172. We value the offline business at 15x FY28E EV/EBITDA, reflecting its execution intensity, lower-margin profile, regional competition, and capital requirements, contributing INR4 per share.
* We value other businesses at 1x FY28E EV/sales, contributing INR1 per share. After adjusting for cash, we arrive at an SoTP-based TP of INR200, implying a 43% upside. We reiterate our BUY rating on the stock
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