The Union government on July 29, 2020, announced the new National Education Policy which said that the quality of the education system can be improved through the development of a National Curriculum Framework (NCF).
Work on designing a new NCF to align with the National Education Policy (NEP) 2020 has reached different stages in different parts of the country.
This is a Fundamental Policy that may drive the profitability of this company. just started studying this company. A brief snapshot of the company from Screener and my notes from Q1FY23 Concall
S CHAND & COMPANY
ABOUT
Incorporated in 1970 and listed in 2016, S Chand & Company is principally engaged in publishing educational books with products ranging from school books, higher academic books, competition and reference books, technical and professional books, and children’s books. The company provides its products and services in printed as well as digital forms.
Business Overview: [1]
The company is primarily engaged in the
publishing and distribution of books for K-12 [2] segment for the CBSE/ICSE affiliated schools. The company sells products in categories viz., competitive exams & reference books, technical & professional books, KG to 12th school books, higher academic books, educational CDs. Apart from this, the company has also invested in startups offering digital solutions in exams and test preparations.
Distribution Network: [3]
The company has an in-house sales team of over 500 professionals working from over 50 branches and marketing offices. The company has more than 11,000 book titles and has sold over 50 million books to date with the help of more than 5,000 distributors and dealers . It also has a 90 TPD i.e. Print Capacity in a number of sheets.
Robust relationship with Schools and Authors: [4]
The Co. has had a presence in the publishing industry for the past 8 decades and they have established a strong relationship with several schools and covers more than 40,000+ schools across India and The company also has arrangements with multiple best-sellers and has ~2400 author relationships as of FY -20.
Brand Verticals: [1]
The company has divided its offerings into the following verticals-
A) K12: The company’s K-12 content portfolio is offered to students from ages 4 through 18 years and includes various instructional resources across hundreds of programs, covering the subjects offered in the K-12 segment. Company’s brands in this space include print content, such as S Chand, Vikas, Madhubun, Saraswati, Chhaya, and IPP as well as digital platforms and services such as Destination Success, Intellitab, Ignitor, Mystudygear, and Flipclass.
B) Higher Education : This comprises two components: test preparation, college, and university/technical and professional. Key brands Vikas, S Chand and Test Coach
C) Early Learning: This caters to the youngest customer market (0-4 years of age). Brands in this segment include BPI, Smartivity and Risekids…
Digital Offerings: [5]
A) Learnflix app (Android Playstore & Apple iStore), is a learning platform currently available for Grades 6 to 10 for maths and science subjects. It has been downloaded over 80,000 times and has over 18,000 paying subscribers.
B) Mylestone – This is a digitally enabled end-to-end school curriculum solution for the K-8 segment. Approximately 400 schools have signed up at the end of FY20.
C) Educate 360: Madhubun Educate360 is the newly conceived K-12 blended learning solution (LMS) for enabling schools to conduct online classes, student assessments, e-book support, etc. as a response to the COVID-19 crisis
Other inhouse digital offerings:[6]
D)Test Coach – Has been downloaded over 10,000 times for competitive exam preparation
in recent months.
E) MyStudygear App – Blended learning app with books and over 1 million users currently.
VRX – Virtual Reality with books with over 50,000 users
F) Chhaya Learning App – Bengali/English Learning with books with over 500,000 users
G) Destination Success – Enabler of Digital classrooms
H) Nuri Nori, Risekids, Smart K - Only for Early Learning
Upcoming Projects: [7]
The company is working on the development of new content based on the National Curriculum Framework (NEF) after the announcement of the Draft New Education Policy (NEP).
QIFY23 CONCALL
Raw material inflation ?
We have procured paper I think for most of our requirements for this year. We’ve ordered and secured paper supplies for around 80%-85% of our current year requirement and rest 15%-20% we will be also securing very soon, so we don’t see any problem in the availability front, yes the price is increasing, and I’m hearing from the market the price might stabilize by maybe October or November hopefully
paper is how much of our input cost from percentage point of view?
It is around 18% to 20% normally in a normal year. This year it might increase to maybe 24%-25% depending on the final outcome,
OPM impact?
We are estimating a maximum of 200 bps impact on the gross margins, although I mean the bottom line and EBITDA may not get impacted because we feel that we probably will get higher volumes this year, so overall while gross margins my contract 100 to 200 bps EBITDA targets and profits maybe well very in line because you feel volumes will be much higher this year.
New acquisitions, how much capital will be allocated towards it?
Testbook will reflect in q2, 15 cr of realization from the sale. See we would continue to invest at a maximum Rs6 to Rs8 crores in businesses where we really feel there is a strong traction and it’s not that we have to do an investment every year. We will do it as and when we find something, which is very compelling. We will take our time and invest over a period of time. Last year we did iNeuron. We started the process in March 21, we ended it in December 21 because we wanted to ensure that we are investing into people who have a great idea and want to build a sustainable and profitable business and those who are making a difference and actually there is an impact of the kind of work that they are doing and that is what we found with both with iNeuron and with Smartivity, yes as and when there is an opportunity to exit, we will definitely exit because we are creating both this as a strategic and financial investment. r. I think that was your initial question there, so we would only be investing in education sector.
Debt & OPM guidance?
Yes, so if you look at net debt right now, if you saw June end, we were at Rs27 crores and with these 18 crores coming in with the TestBook stake sale, we are down to about Rs 9 crores or single digit. So, seeing a debt free status at the end of the year is almost certain, of course unless something happens on the COVID front or something, but other things remaining the same, we will definitely be debt free by the end of this year
And in terms of margin, as far as gross margins may get impacted by 100 to 200 bps that we’ve already given the guidance, but I don’t see impact on EBITDA because volumes will be higher and operating leverage will kick in because our fixed costs are not moving that much, revenues will definitely move higher.
NCF f National Curriculum Framework ?
So, we cannot be 100% sure that NCF will come out this year, but if it comes out at the right timing which means that if it comes out early then it will help us to grow the business more, but if it comes out late then it will be not implemented fully this year. So, depending on the timing that the government announces, but we feel and from our sources that the government might announce this year,
how many subsidiaries do we have now and what is the plan to consolidate these numbers because some of this came in in form of acquisitions as well or some of this we would have created to enter into new areas?
Yeah. So, we have about 12 and we are in the process of already merging 3, the application is already done. One consolidation last year, three of them are under process pending with NCLT. Long-term vision I think we should be down to four entities by the end of next year, by the end of FY24 is what I’m anticipating. We don’t want many entities. So, by end of FY24, I’m assuming we will be down to 3-4 or maximum 5.
Books which are returned from the market?
Yeah, traditionally during COVID last two years were very high, I mean we had gone up to almost 30% at times, but this year we’ve been very strict. We’ve given prior intimation that we will not be accepting anything above 15% and that is what we are doing at the moment. Considering the kind of collections that we’ve had in the first quarter and even in July, the way things are moving it seems it’ll be well within that and going forward we will further try to reduce it to 12% and then maybe 10% in the next year
Revenue & EBITDA Guidance ?
It should be around I would say between Rs100 crores and Rs120 crores.
Operational Improvement?
Yeah definitely they’re going to be sustainable because I think there’s been a complete shift in the internal mindset, process of doing things, lot of places we’ve reduced the number of locations that we are servicing from, and that is brought in efficiency. We’re concentrating on 5-6 locations where we are servicing customers from and building efficiency around that. So, in terms of other expenses, yes sustainable. Our employee costs not to that level, but of course then with revenue growth we will try and see whatever best possible because again you have to keep in mind inflation and motivation of people, so there may be a slightly higher than what we had anticipated, but with revenue growth and volume growth, I think that can be taken care of
NCF contribution to guided revenue or will it be higher ?
So, if that come late then the revenue guidance might not shift the goal post too much, it might shift some bit. It is difficult to say how much, but not much, but if it comes early, let’s say October or so then the revenue guidance might shift more. So, again depending on the government’s policy, so we are hopeful that should come little early also, but if it comes late then the implementation and the taking out books and the whole process will be 2-3 months and that will not get implemented fully, very partially it will get implemented next year, next academic session. But needless to say, it gives you a longer runway of I would say three years at least and that will have a good growth over the next three years and that is good for us, but even without the NCF, the growth, the volumes and the margins look decent because there is a pent up demand in the market and as the paper scarcity is there in the market that is helping larger organized players to take more market share this year. So, that again is going to help us in achieving our numbers or even crossing that.
So, again whatever revenue adds, it all goes to the gross margin goes to the bottom line, yes, but initially they might be slightly higher specimens given to schools, but I think definitely most of it would go to EBITDA, so your EBITDA would expand. So, my suggestion in this is NCF we should not look at the first one-year kind of trajectory, we should be looking at least three-year kind of a run. So, when we plan for a syllabus change, it’s going to have a short-term to medium-term impact for the industry.
I’m just recently started covering S Chand, so I just wanted a breakup between traditional sources and what would be from a digital sources?
Yeah, to be honest we’re not really breaking it up between traditional and digital because it’s all got combined into a single hybrid and blended learning. Pureplay digital at this point of time, I’m not sure how much it is working for any of us. Most of our products already are hybrid, each of the printed books that go out, do go out with the digital imprint whether it’s a QR code, whether it is website support or something along with that. So, each of these books have already been enabled to be digitally enabled, so we’re not really segregating that at this point of time.
Okay and where do we choose the paper from exactly like who would be our vendors or is it imported or domestic?
So, we import I would say 30%-35% paper from Indonesia a mill called Aprilfine and then we take paper from Indian mills like TNPL, West Coast, we take it from Shah, we take it from the Kuantum, we take it from around 10-12 mills we take paper from in India as well. So, around 60%-65% people we procure domestically.
NEP, so basically even new policy which is coming up, so in the political phase where is it right currently, like it has been passed by Rajya Sabha and what is the bottleneck here?
So, NEP is already passed by the government. NEP is already getting implemented. It is NCF which needs to now get approved by the government.
Price Hike?
Yes. –for our business, we do pricing of our products once in a year because again our catalog goes out to schools once in a year, so we don’t do incremental price increases around the year except for maybe the Test Prep segment. So, you’ll start seeing the realization coming in from quarter 3 onwards because the price realization changes from September onwards and since the session sales starts only from November-December onwards.
And price hike is not the only lever that we have for either increasing or defending our margins. We have also reduced discounts in the channel so that also adds to our margin profile, so there will be some other internal efficiencies which we are planning to bring in this year, so I mean all these together will help us in our margins.
Alright and what would be the full capacity of our current plant, so what kind of revenue can we generate?
There is no capacity constraint as far as we are concerned, but again we have to be very prudent with whom we are selling. We have in fact over the last three years reduced the number of channel partners by almost 30%, which reflects well in our working capital. We do not want to be very aggressive with revenues because again we do not want to compromise in the quality of our sales because that impacts both realization, impacts cash flows, and overall even servicing of the schools plus anything extra that goes will come back as inventory, so it’s pointless.
What are the accumulated losses we have currently for tax computation?
It should be around Rs130 odd crores
Categories of Books?
Okay, so basically school category is divided again into 3 categories - ICSE, CBSE, and then the state board. ICSE compared to CBSE is only 10% of the market and CBSE we are leaders in lot of products like Lakhmir Singh in science, we are leaders in Maths, we are leaders in Hindi, we are leaders in Sanskrit, we are leaders in French, we are leaders in physical and health education plus if you talk about ICSE, Wren and Martin is used both in ICSE and CBSE space. We are again leaders in Math there and ICSE plus we are leaders in higher education space. We have a series by the author name of R.S. Aggarwal which is also a very famous author and again we are leaders in accounts Shukla and Grewal in CA. We’re leaders in engineering space. We have Thareja, Khurmi, V.K. Mehta, lot of good books there. We have some good books in management as well. So, these are lot of spaces that we are leading in through our offerings and through our books and through our brands and these are some of the categories which I have mentioned, there are many more, the list is quite long, I can’t fill it out right now, but yes definitely S Chand as a group is leading in lot of spaces. We are also leading in Bengal as a state board Chhaya which is a very popular brand, like Navneet is in Maharashtra and Gujarat, Chhaya is in Bengal and that is one of the most popular books there and it’s a biggest brand and the biggest publisher in that part of the country and we’re leading there as well. So, these are some of the categories I just mentioned.
all these things are definitely being used and people are using it and going forward we feel and we had launched some books for higher education for students last 1½ years back and we’re seeing good traction in the market, which are called low priced student edition and which are priced much lower than normal books or normal book was priced at let’s change engineering book of ₹800, we’re pricing this student edition at ₹500 and that the student buys it for one semester and uses it so basically the idea is read and throw kind of idea. So, you don’t need to keep that book for long, maybe you use it for only one semester, but that book because it’s cheaper than it reduces the chance of photocopy and online piracy in the market.
Okay. So, any idea of core valuations if you had done for the Smartivity like current valuation of that investment?
So, the last round happened at about Rs100 crores last year in June and then the revenues have only multiplied 2X-3X since then, so I mean currently I don’t know whether they’re going in for funding because they finally, they’re also cash flow positive from first quarter and very well and they’ve had a huge first quarter this year, so they are doing exceedingly well. Till the time they actually need capital, they will not tap the market, so my chance is they’re going well and they should probably do Rs50 odd crores plus revenues probably this year or by mid next year. That has been going good and great set of people in that so I think long term it’ll take my sense is that it will take about a year and a half or two years to get something from there.
My second question is on NCF implementation like we have discussed multiple times that post NCF our revenue will grow, but I had a question on that, but since the new course was introduced and the syllabus would change, so then we need to hire more authors as well our employee costs will also increase substantially, so our bottom means I just wanted to know like since we are planning for after NCF implementation we are guiding for 20% to 25% revenue growth, so this revenue growth will also come in the bottom line as well because of this author costs and all our bottom line may not increase substantially,
We believe the bottom line will definitely increase with the increase in sales and the content creation costs will not be much including the authors and all we already have on board including the editorial team, we already have on board, maybe some part we need to spend to create new content, but it will not be very substantial. So, it will be a small part of it, yes, the only major cost that will come in is obviously to produce the new books and to sample the new books.
Can you give us the revenue mix from the CBSE or ICSE and State Board as well like if you had any idea on those?
he CBSE sales would be the majority of the sales for the group and CBSE would be doing around I would say close to 60%-65% should be coming from CBSE and then I would say 15%-20% coming from ICSE and 15%-20% coming from state boards
K12 business accounts for almost 80% of the overall, approx 15% comes from higher education
Capex?
o, I think we haven’t taken that up earlier. Thank you for the question. I would say a maximum of 10% to 15% would go in capex not very large amount because we’re not building any further capacity especially on the print side because there’s enough capacity available in terms of printing outside and again content development is not such a big high cost. We should have good cash flows by the end of this year and definitely decide on the dividend policy.
Working Capital ?
There’s definitely further scope of improving it especially on the inventory side and we will continue to work on that. I think the market is getting especially with the way paper prices are going and supply is going to be a challenge for other people in the industry, we’ll take advantage of that and squeeze as much as possible out of the market. So, I think we are 80% there, another 20%-25% we can further push.
Revenue Concentration, Geography wise?
We are not concentrated, but yes North India is the largest market because North India has largest chunk of schools and larger chunk of population in a region.but having said that I think the question you’re coming from is in terms of risk. I don’t think any customer or any school accounts for more than 0.5% of my revenue, so I mean that risk is not really not there in terms of customer concentration.
Book Price increase?
The book prices do not go down. The book prices have only increased, so basically this year it is abnormal increase of 15% maybe 16% of increase in book prices, but under normal circumstances price increases by approx. 8%-9% annually.
No, I haven’t seen any publisher bringing down the prices till now. They might not increase or they might slightly increase that is a possibility, but I haven’t seen publishers bringing down prices ever.
Dealer Discounts?
It is not only about the margin to the dealer. See the dealer definitely wants his margin, but obviously from the brand also on the product which is selling in the market. If he gets a higher discount and he takes up the product and keeps the product upward and if it does not sell, it is no use to him. So, he also wants to rotate his inventory very fast and he also wants to sell those things which are selling in the market.
Corpus set aside for edtech acquisitions?
At max Rs10 crores to Rs 15 crores and that’s also a huge thing, we just done one in the last three years. We have to find the right one, I mean it may not only happen during any year, but at max Rs10 crores to Rs15 crores, that’s also a stretch. We’ll always do the first series, we will never do a follow-on series, we will never do valuations in excess of 50 crores, so we’ve got all that inside and we will not invest beyond a certain point.
Concall link - https://www.bseindia.com/xml-data/corpfiling/AttachHis/14fdd4f1-08fd-44c5-9ca2-67ee21064a01.pdf
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