Shares of ed tech firm Physicswallah will remain in focus today, April 21 as JP Morgan initiated 'overweight' rating citing its online market and low- cost model. The brokerage, in its recent note has set a target price of Rs 125 on the stock, marking a 16.8% upside from the last closing price of Rs 107.01 on NSE.
According to JP Morgan, Physicswallah has disrupted online test prep with a low-cost model for content delivery. It has a large online market that is expected to show a 29% growth (CAGR) over FY25-30 reaching $6-6.5bn (up to Rs 54,600 crore).
The company caters to a test preparation market in India that is projected to show a 13% capital adequacy ratio over FY25-30 and 29% CAGR.
Physicwallah's pricing model helps to gain share in the market, the note said. Some of paid test prep courses including JEE,NEET and UPSC offer the most affordable pricing in India. By offering courses at different price points from basic to premium, the ed-tech provider can cater to a large student population across income brackets.
According to the note, Physicswallah's online business enjoys attractive growth and margin, which is expected to grow at 30% over FY26-28 with margins rising from 30% to 33%, to primarily due to operating leverage driven by a combination of increasing penetration of new courses, student enrolements and higher realisations from premium courses.
Meanwhile, Physicswallah's asset intensity increase is likely to stabilise as online growth is likely to lead offline growth. The offline business can provide optionality if scale up is better than expected. Notably, the company's recent entry into schools adds potential regulatory risk. However, capital deployment is likely to be cautious.
Some of the key risks to business include competition, regulation and offline scale up. PWL's inability to control student churn in its online business, higher than expected capex, lower utilization in the offline business and any regulatory curtailment of test prep in India. Another key risk is if online growth slows down in favour of offline, which could result in the return on invested capital for the business.
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