The annual exam season is around the corner and competition in test preparation heating up. As a result, the education sector and the stocks in this segment are in focus. Domestic brokerage house JM Financial has initiated coverage on the recently listed edtech platform PhysicsWallah. This edtech stock has built a strong presence in the online coaching space, especially for engineering and medical entrance exams.
They have initiated coverage with a ‘Buy’ rating and set a target price of Rs 110. This implies an upside of nearly 24% from the current market price.
Let’s take a look at the brokerage say on this stock and what is the rationale behind it –
JM Financial on PhysicsWallah: Strong revenue momentum likely
According to the brokerage report, PhysicsWallah is expected to deliver a revenue Compound Annual Growth Rate (CAGR) of 28% between FY25 to FY28. Growth is projected to come from both segments, that is, around 30% from online and 27% from offline operations.
JM Financial also expects profitability to improve gradually. EBITDA margin is likely to expand to nearly 13% by FY28 from 3.2% in FY25, indicating operating leverage as scale increases.
JM Financial on PhysicsWallah: Opportunity with execution risks
As per the brokerage report, PhysicsWallah has “all ingredients to succeed offline such as dominant brand equity to drive footfall, massive student reach to ensure day-one offline occupancy, and a robust balance sheet to absorb the high capex and operational burn.”
However, the brokerage also underlined that offline expansion is not easy. It noted that “history suggests offline expansion is gruelling – securing prime real estate in crowded education hubs is a logistical nightmare while finding top-tier faculty that can authentically deliver the brand’s narrative is even harder.”
In simple words, while the brand recall helps, managing physical centres across cities brings higher costs, operational complexity and local competition.
JM Financial on PhysicsWallah: Online business drives value
JM Financial has valued the company using the Sum-of-the-Parts (SotP) method, where different segments are valued separately. The brokerage assigned a 30 times adjusted EBITDA multiple to the online business and 15 times to the offline business.
According to the brokerage report, “the digital segment remains the primary workhorse and valuation anchor.” In fact, nearly 96% of the implied valuation is attributed to the online business and cash.
The brokerage stated, “PhysicsWallah is poised to deliver a revenue CAGR of 28% over FY25 – 28 estimates driven by its online (~30%) and offline (~27%) business.”
It has initiated coverage at “Buy with an SotP-based target price of Rs 110 (implying an FY28 PER of 70x).”
JM Financial on PhysicsWallah: Premium valuation, but risks remain
While the target multiple may appear high compared to global education technology peers, the brokerage said many such companies “commanded similar premiums during their peak growth phases.”
According to the brokerage report, PhysicsWallah “warrants this premium as it is in early stages of the monetisation curve.”
However, the brokerage houses has also flagged risks including market saturation in major categories such as medical and engineering entrance exams, operational challenges in offline expansion, geographic concentration risk and possible regulatory hurdles.
Conclusion
Overall, JM Financial sees strong growth potential driven mainly by the online business, while noting that the offline expansion will be closely watched.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.