CL EDUCATE - Less Down side and unlimited upside

Stock Opportunities Untested - but worth a good look
1

CL educate among the largest organized listed player in education market which trading at deep discount. Though of initiating thread to jointly collaborate on this thread.
There is no moat in this business and hence it will rely on execution capability of management.
To me this opportunity looks very simple and it is available cheap to avoid deep analysis as the downside risks are very limited over 3 years period and upside is unlimited or at least 3 times . So i will present very basic framework and hypothesis. Here goes my simple checklist.

About the company: http://www.cleducate.com/about-us.html and analyst call transcripts to get hang of what they are trying to do.
I am more interested in their consumer business and hopefully it is biggest contributor in years to come and hence no point wasting time on analyzing their enterprise business which eventually they will realize and hive off.

CHECKLIST:

  1. Honest Management with Considerable experience: YES
    IIM educated management who have built business in education due to passion. There is no sign of fraud or short-changing minority shareholders. They have built and scaled MBA CAT business in last 20 years.
    Integrity: Good till now
    Experience in scaling: 20 + years built CL to top 3 in MBA.
    Power of incentive: less - Share in company 15 % by Sathya and 15 % Gautam - less than usual
    Drive: Wants to build HDFC in Education. Focus on ROCE of 18 % or more
    Capital allocation capabilities: Average

  2. CONSUMER MOAT BUSINESS WITH LONG RUN WAY- YES : Consumer business which can pass inflation to customers. The market is 37,000 crores growing more than 14 % annually.
    Porter:
    • Threat of substitute: Very less probability although technology disruption is another market segment where big Unicorns are already born like BYJU
    • Threat of new entrant: No entry barriers
    • Buyer Power: Consumers power low in dictating prices
    • Supplier Power: Although suppliers (teachers ) have reputation power but this can be overcome by making them partners in business (Franchisee ) model. CL is doing this
    • Competition rivalry: Competition is high but cost structures remain same for large players and everyone will have raise prices with inflation. Only very large players can distribute and spend on advertisements and expanding franchise centers. It takes lot of years to build reputation and hence acquisitions become very important to scale

     MOAT:

• Pricing power: Present
• High Switching cost: Once Customer signs up usually fees are taken upfront and batch start dates are time bound and hence switching cost are high with customers as well as Franchisees.
• Network Effect: Opening more centers across cities with more products has effect of availability bias and develops a kind of network effect both students and franchisees reducing cost of advertisements and customer acquisition cost
• Low cost producer: Not yet known
• Negative working capital: Yes and requires almost no capital to expand

  1. DOES Company stay in it Circle of competence (Specialist): YES
    Yes, kind of although they did branch out in Schools business and Corporate side which are low ROCE business but it was done during recessions in CAT business.

  2. Target Market size must be huge with respect to company size- YES

37,000 Cr growing at 14 % per annum.

Fy18	 	 	 	 
CL Student	Total Student appearing for test 	CL Market Share  	Addressable Market (50%)	CL Market Share

GATE 25000 800000 3% 400000 6%
CAT 30000 300000 10% 150000 20%
civils 50000 1000000 5% 500000 10%
MBA 25000 200000 13% 100000 25%
CA 30000 300000 10% 150000 20%
Tutions & Engg 50000 2000000 3% 1000000 5%

  1. FINANCIALS and RATIOS representing good business with reinvestment opportunities -YES

LOW leverage: YES: Almost zero debt in fact cash positive
HIGH ROCE: Test Prep is 21 % while publishing and Enterprise
WORKING CAPITAL: Negative and float to expand. Virtually needs no money to expand

Consumer Business
2018 2017 2016 2015
Centres 200 162 161 146
Owned 91 60 54 49
Franchise 109 102 107 97

Students 86636 88462 77953
Digital 26857 24769 10134
Centres 59778.84 63692.64 67819.11
Students per centre 369 396 465
Rev per centre 0.93 0.83 0.84
Test Prep in cr 150 133 122
13% 9%
Publishing in cr 20 16 17
Rate 17,314 15,035 15,650
15%
ENTERPRISE in cr 97 71 60
University in CR 9 6 4
106 77 64
38% 20%
University 82 68 96
Per university 0.1097561 0.0882353 0.0416667

Total 276 226 203

Adjusted EBIDTA 53 52 39

EBIDTA % 19% 23% 19%

ROCE 14% 14% 11%

 Guidance on ROCE - 17 to 18 %

  1. CHEAP PRICE –- YES -FINALLY VALUATION MATTERS - can I get 15 % post tax returns over 10 years
    Taking Seth Kalman method to find various scenarios of return expectations
    Current Market CAP - 256 CRS - Price – Rs 180 Market cap < Sales

  2. Hitting of hammer on head valuation method - PE of 4 for business with ROCE 17 to 18 % and good potential growth without any requirement of capital

    Cash on book s- 50 crs , Receivables and sale of school business is close to 100 Crs = 150 cr
    EV = Market cap – 150 CR = 100 CR
    Business avaible for less than 100 Cr and if we assume it does historical business with profit of 20 CR (Adjusted normalized profit ) so business is avaible at PE of 4 taking cash into consideration or even without cash PE is 12 So if business does ROCE of 18 % - we can easily expect return of 18 % for very long term

  3. VALUTAION BY MANAGEMENT GUIDANCE for 2020 - 60 Crs * 18 PE (Assuming 18 % ROCE ) = 1080 Crs - Basically 4 X from current price in 3 years

  4. DCF Valuation without considering of cash and receivables - 20 % Return with growth of 10 % in Profits

    	25 cr

Initial FCF /OE 20 Assumed 5 cr for Maintnence capex

Years 1-5 6-10
FCF Growth Rate 10% 10%
Discount Rate 20%
Terminal Growth Rate 2%

Shares Outstanding (Crore) 1.42
Net Debt Level 52 crore of Cash

Year OE Growth Present Value
1 22 10% 18
2 24 10% 17
3 27 10% 15
4 29 10% 14
5 32 10% 13
6 35 10% 12
7 39 10% 11
8 43 10% 10
9 47 10% 9
10 52 10% 8
10 934 151

10 Year Valuation Multiple 18
Present Vaue of FCF Cr 128
Present Value of valuation Cr 151
Total present value minus debt Cr 279
Number of Shares 1
Present Value per Share 197

Finally, I think there is high probability that we will end up 15 % return over long term which is 5 times our money in 10 years and 25 times in 20 years unless management is totally fraud or they commit great mistakes.

Please let me know your views.

Disclosure : Invested 6 % of Portfolio and plan to make it 10 % .

4 Likes
2

In my limited understanding education companies have seldom generated wealth for investors. I know little about CL Educate’s business. But, I’m fairly certain of one transition that India is currently witnessing- Digitisation. And it’ll only grow. Online education is the future.
I’ll share with you my experience- When I was in the 12th grade few years ago I had enrolled in coaching classes. The teaching was mediocre. By a stroke of chance I came across lectures on YouTube. Excellent lectures for no cost. I was delighted. My happiness knew no bounds. It saved me the expense of trevelling and also saved time. And teaching was top notch. There was no reason I’d ever attend lectures at classes. Unless, online lectures weren’t available for the subject. For the core courses offered by CL Educate there are plenty of fine lectures available online. Great quality at an affordable price. A perfect combination for any aspirant. If CL Educate can’t offer these services the company has little chance of survival. And, frankly I don’t think CL Educate possesses the ability to migrate to online courses. Also, there’s the absence of willingness to change. Most companies refuse to adapt to changing circumstances and cease to exist. Market seems to have sensed it and thus it’s available a cheap valuations. There’s a good chance their performance will deteriorate. I personally don’t have the courage to invest in education companies.

5 Likes
3

I second Shreys. Education sector did not make money for investors. Moreover, the entry barrier is nil. Anybody can take a room on rent and start coaching. The brand names do not count as much as the faculties. Any teacher can leave the coaching center and take away all the students.
This happens frequently in coaching business. Moreover, finding the right faculty is extremely difficult. You have to pay them extremely well. Even then, there is no guarantee that they will stay in your institute.

This is true for digital education too. Most of the people look for free content or at a very low fee. Hence they do not make money.

4

i dont think youtube lectures or online lectures can ever be a reliable source for preparation for competitive exams like IAS, CAT , GATE , etc. There is a difference between 10th , 12th exams which you just have to pass (or get good marks on an absolute scale)and competitive exams where getting a good rank is sole criteria. People join classes in such exams not just for learning the subject but also interacting with other students and assessing their potential to get a good rank in the respective examination.
Its a bit hard to imagine someone who is preparing for an exam like CA/ IIT /CAT not opting to go for classes when its a fashion for the students to rush for classes to prepare for these exams. Even 10th /12th board students enroll in classes for a simple board exams.
Hence if the company is available at decent valuations is surely worth digging more.

3 Likes
5

Dear @Shikhar
I politely disagree.
A cursory look on Google and YouTube will highlight the emergence of online coaching.
I’ll elaborate.
A couple of years ago, the K12 coaching classes segment was a highly fragmented industry. There were multiple small coaching classes in a locality. But, online education was insignificant. Local coaching classes don’t necessarily provide good quality education. But, it was convenient and affordable. And, that was the convention. Students attended ‘tuitions’. But, then something changed.
Online education portals such as Byju’s, Toppr emerged. Today, there are at least 3 major online players in K12 segment- Byju’s, Toppr, TCY.
Byju’s is valued at around 5000 crores.
Byju’s will clock revenue of around 500 crores in the year ending March,2018.
That’s massive. They’ve showed the proof of concept. 5-6 years ago online education wasn’t even in the reckoning. Today, there’s a unicorn in that space- Byju’s.
Now, coming to the fees- It may be more expensive than the conventional coaching programs. But, one aspect of life that Indian parents never compromise on is education. They’ll spend more if it ensures a better learning experience and subsequent improvement in academics. It’s India’s middle class and upper middle class that’ll fuel these companies.
Byju’s and other online K12 coaching are a real threat to offline coaching. And, these companies are very well funded.
Here, the brand plays an instrumental role. These brands are associated with good quality education.
Now, coming to IAS, CA,CAT coaching.
I agree with you that students prefer offline coaching for these courses. But, that’s the situation today. It’s entirely possible that preferences will change in a few years.
A quick Google search reveals the multiple online coaching providers for IAS, CA, CAT.
On YouTube, a channel called Unacademy is subscribed by lakhs of IAS aspirants. They provide high quality education online. There’s a channel by Mr. Mrunal Patel having around 450000 subscribers. Mr. Mrunal Patel shares lectures for civil services.
The comments posted are highly encouraging. There definitely is a trend- It’s subtle but it’s present. Students are slowly but surely transitioning from offline to online coaching. Cheaper data is aiding it. Online education has tremendous tailwinds.
Most IAS coaching classes have launched online divisions.
Why?
Because they too have realized the importance of having an online presence.
We must remember that change is the only constant.
Who could have imagined 15 years ago that we’d have such advanced communication devices?

1 Like
6

Cash balance as on Sep 2017 was approx. Rs.57 Cr.
Short Term borrowings - Rs.33 Cr.
Other Current Liabilities - Rs.53 Cr. (This may include Current maturities of long term borrowings and interest accrued on borrowings)

Receivable from Government is approx. Rs.50 cr. and there is no clarity as to whether and when will this be recovered. The K12 asset sale deal did not happen although the agreement was in place. This will release approx. Rs.40Cr. but now when this will happen is anybody’s guess. Company has also clarified in recent concall that they may explore leasing out as the market for ultra-edge sale is still not right. As a prudence, both these amounts should not be considered in calculations IMO. Your numbers would drastically change if you take out these assumptions.

Discl.: No holdings.

1 Like
7

Unfortunately CL is primarily in CAT/GMAT/GATE space (post graduate entrance coaching). This segment especially is vulnerable to online coaching because of two reasons.
One: The students are graduates and hence more serious about what they are looking for. Their main concern is knowledge gathering. Hence it is difficult to woo them except providing good faculty which are hard to come by. Moreover, there is the risk of losing your topmost faculty and subsequently the students. This is unlike JEE and NEET where students are just evolving and it is easier to woo them with marketing, AC halls, a fun environment etc. You can simply hire a set of great faculty for top 200-500 students with big salary and mediocre ones for the rest. This is the reason why local players are almost gone in JEE coaching space.

Two: The tests are easier than JEE Main and Advanced or NEET. The tests are looking for speed than depth. These are something that can be learnt online. Moreover, you do not need constant presence of a faculty to do well. An interaction in 1-2 weeks should be more than enough to clear your concepts. Unlike JEE and NEET where the syllabus is truly vast and requires humongous preparation. This requires frequent interaction with faculty with a number of doubts and questions. You would rarely find someone depending on only online coaching for JEE (unless they have no option).

If Allen comes to market with their IPO, that could be preferable.

8

Undoubtedly, there is emergence of digital education and will only grow in future. However, I think it is far from eating away significant market share of large and established players such as CL Educate. Having said that, over the years the Company has grown from providing only offline courses to providing education through various media viz. offline physical centers, VSAT and online (VoIP)

Few notes:

  1. In its core business of Test Preps for MBA and Law, the Company has been consistently growing. Last quarter they recorded over 10% growth in fees

  2. The Company is focused on increasing its presence in the digital education space. Over 30% of test prep enrollments are digital; over 22% books are sold digitally

  3. The Company’s focus is to scale the business on an asset light model. The company currently has 215 test prep centers of which 166 centers (57 owned CL centers + 109 partner centers) provide traditional CL products such as MBA, Law, medical, engineering etc.; 36 centers are pure ETEN centers with VSAT technology for civil and CA courses; 13 centers are from their recent investment of ICEGATE (training institute for engineering with presence in 13 cities).
    a. The company is gradually selling owned centers and expanding on partnership based model
    b. They are also adding VSAT technology into traditional CL centers. Currently they have ETEN facilities in c. 60 centers, wish to take it to 100 centers over the next few quarters

  4. The Company is riding big time on ETEN business. The business was set up by Educomp sometime in 2007 or 2008. It got acquired by Pearson’s India Can Education. CL Educate acquired it from Pearson in mid-2017. Though the erstwhile owners could not run it successfully, ETEN seems to be a better fit for CL’s business given their experience and synergies. When acquired, the platform was primarily focused on providing civil services (had reduced providing CA courses). The Company has reintroduced focus on using ETEN for CA and has also added CS courses. They plan to use the platform for their current products such as MBA, Law, Engineering, Medical etc. If they are able to run it successfully, it could be a game changer for them. Management expects to record consolidated revenue of Rs. 500 crores and PAT of Rs. 66-69 crores by FY2020. Though these numbers seem fairly optimistic, if ETEN is successful the company can grow exponentially from current levels. ETEN center can be run with low number of students (10-15) as against physical classroom as delivery happens from one center to multiple locations.

  5. In publishing business, they have increased their titles by 40% over the last year but have not made much growth in # of copies sold. Hopefully, coming quarters will see the growth in publishing business. Q4 is usually the strongest and accounts for approx. 40% of the publishing business.

  6. Currently, the profit numbers are depressed on account of:
    a. costs from ETEN acquisition are taking the profits down. Over the next year or so, they should enjoy full potential from various acquisitions and the profit margins should improve
    b. deferred revenue of Rs. 4 crores (after adopting INDAS)

  7. The Company has decent balance sheet – it has reduced its debt and is net cash positive. Currently, they have over 90 crores stuck in
    a. real estate (k-12 school building worth Rs. 44 crores as per last negotiations); and
    b. Govt. receivables (c. 50 crores).
    As and when they monetize these assets, the balance sheet will become stronger

  8. The Company has recently made a few acquisitions (as shown in the table below). As per the management, in the coming quarters, the focus would be on integration of and profit maximization from these acquisitions.
    They expect to earn close to Rs. 37 crores of revenue and Rs. 4 crores of EBITDA from these acquisitions in FY2019

image

  1. Even though Enterprise business has lower margins, it still accounts for 35% - 37% of revenue. The Company has made good progress on corporate business with new clients such as Google and Samsung. They have also expanded the business to Singapore and are planning to expand it to Dubai. The international business grew 3 times last year with total billing of $750K – the business is a high margin business and is more like extending services to an international office of an existing client

  2. The Institution business is small but has high margin and has grown at 60% in 9MFY18 over 9MFY17 albeit of low base.

To sum up, I would say the Company has many moving parts currently. They have made strategic investments / acquisitions and have filled major gaps in the portfolio. Next 2-3 quarters are critical – as they need to exhibit the capability to maximize revenue and profits from these investments. The Company may have depressed earnings over next few quarters and should normalize in 2HFY19.

The stock price has remained under pressure due to subdued numbers and IPO was done at very high valuation. The recent correction may be related with the Foreign investor MACQUAIRE exiting. There is substantial holding by other Foreign investor / VC and MF as well. If for some reason (like market cap going below certain limit) they start offloading then the stock price will continue to remain under pressure.

Discl.: Tracking, no holdings

4 Likes
9

What i am looking at 2 things do i have high probability of making 15 % for next 10 to 20 years assuming only 10 % growth and the business does not need any money in future to expand .

Even if you dont assume any money which is from (50 Cr Land , 50 Cr IPO left over and more more 50 Cr Govt Receivables)

There Revenues will be close to 270 to 300 cr and normalized PAT is 10 % = 27 cr to 30 cr PAT so what you are getting is less than 8 PE .

Other Metrics are simple

By end of this year no of centres = 250 ( New Centers added around 100 this year )

Number of students apporx = 87 K

Avg fee = 17K

Lets say they are able to achieve 7.2 % Volume growth and 7.2 % rate increase to cover inflation

10 year Students = 174 K
Rate 10th Yeay = 34 K

Revenue from Test Prep = 591 Cr and PAT 10% (Althouh currently PAT is 12 % and with digital they will have more PAT in future ) = PAT 59 Cr and PE 14 ( assuming ROC is 14 % )

So Market cap with test prep alone comes to 828 Crore which is 14 % Return on your money or close to 3.3 times money .

i have not taken Enterprise business and publication business and other start ups that they are adding .

They don’t have to best in Industry or be innovative just Indian students volumes , job issues and inflation will get them to these levels.

Management guidance is 60 CR PAT by 2020 .

DCF without taking into cash and with just 10 % growth is giving me 18 % to 20 % return for long term.

Education is difficult to scale and it will not be straight line but they are one of companies which is developing scale and has good management pedigree.
.

BIASES which are driving stock down : No likes to buy when stock has fallen 50% (Fear of loss is greater than Gain) , Education sector destroys value,

Stock is down as MFs are selling thier stake and today there was BSE notice for restating Q3 numbers . All these MFs (HDFC, Ocean Dial Sanjoy Bhattacharya etc ) got into CL educate at IPO stage and it is ill liquid so small numbers can draw stock down easily.

We need bit of research data and scuttlebutt then just giving anecdotal and presenting our opinions. I am not in India and hence not able to do that but if we do good job here this one stock is enough for long term success of portfolio.

It is becoming more attractive with current fall. Lets collect some evidence and develop the thesis and then make judgement ,

I am obviously biased

Disclosure : Added at 279 4 % and added 190 another .5% and added 170 another 1.5 %

1 Like
10

Sathya CEO and Founder bought 5000 shares yesterday …looks like he and i was only people buying :slight_smile:

3 Likes
11

My two cents…

  • Formal Education is a regulated, asset-heavy, long-gestation business. Technically, it cannot be a business, as education is not-for-profit, by definition. The management had grappled with a school education venture – investing time, effort and plenty of money – before deciding a few years ago that it was not a viable, long-term proposition. They have now exited the “formal school” vertical completely.
  • The company is also in the process of exiting the vocational education business – a low-margin vertical primarily driven by government projects.
  • In the test-prep business – the core vertical – the company is moving away from operating its own centers to a franchisee=operated, asset-light and scalable model.
  • Over the last few years, the company has evolved from a Management / Law focused provider to one with the ability to cater to the whole spectrum of test-prep services. This has been achieved primarily through acquisitions.
  • They have also acquired a couple of small edutech firms to support a variety of formal & informal players in the higher education space, college students and recruiters.

The management has shown resolve in making difficult decisions, and has executed on these structural changes; the last two quarters reflect the improved performance. The company seems to be one of the few large players – listed or otherwise – with a 360⁰ presence in the non-formal (no or minimal govt. regulation) higher education space.

Key negatives: 1. Real risk of technology-led disruption. 2. Perceived risk of education companies as wealth destroyers. 3. They have an insignificant presence in coaching / test-prep for school students.

Anyone else on VP tracking / still tracking this company? Do share your thoughts.

Disc: Invested; views biased.

2 Likes
12

As quoted in ur post ‘They have now exited the “formal school” vertical completely.’…is this really true… The school business was announced as being disposed in the month there IPO was coming out… The deal though signed then is still not actually completed I guess… Can you confirm…

13

Effective Jul. 2017, they are no longer involved in operating the school business. I think the school business is reflected as “Discontinued Operations” in the P&L.

The management was looking forward to about 50 Cr. from sale of the company’s stake in the school business. They were also looking to sell the school campus in Greater Noida for about 45 Cr. Neither of these monies has come in.

IMHO, this 95 Cr. is unlikely to materialize anytime soon; in fact, it may well be written down / off. Obviously, I will be happy to be proved wrong on this assumption.

14

If my calculations are right, at CMP of 105, the company is available at 2/3 of tangible book value (might have to adjust further for future expected write-downs of receivables, value of land, etc.), and at a trailing P/E of 7.5x.
If we take the worst 4 consecutive quarters in their recent history, they still had an EPS of over Rs 5.5 (as per screener).

Valuations seem to be attractive, but for me, there isn’t enough information available to develop conviction. In fact, in their latest concall, there were no questions asked by anybody at all!

PS: I also believe that Mr Paresh Thakker, partner at Valuequest (Sanjay Bakshi) was on the Board of Directors, but he resigned in late 2018.

1 Like
15

It may not affect the stock… But in CLAT 2019 their students have got top 2-8 ranks …

16

Do go through my post of Jan 2019 for context.

Management has once again proved to be agile and adaptive, transitioning the company from a “franchisee” business to a “digital + franchisee” business during the course of the pandemic. 9M results make this clear; I expect the trend to continue in CY2021 as well.

Career Launcher has been a strong player in MBA, IPM and law school entrance; now, they are competing in the “jobs” market as well – coaching for UPSC, SSC and bank exams. They are also making a play for school students preparing for JEE & NEET. These as much larger markets; even if they are able to take away a small share, it would make a meaningful difference to revenues and profits. CL remains one of the (very) few “EdTech” companies which focus on real-world outcomes: students getting into, say, an IIM or an NLU.

Kestone, the corporate / institutional arm of the company, has launched a Virtual Events Platform (VEP) during the pandemic. This is seeing good traction among client companies, and is already contributing to revenues. This is another “geography free” business opportunity for the company.

The company is trying to monetize its digital assets – CL Digital (consumer) and Kestone VEP (corporate). They have released a Fundraise FAQs along with their 9M results which gives meaningful info on this. Presently, the listed parent owns 100% of both.

I cannot claim to know the fair value of these digital WOSs; however, I do believe their value alone is much higher the present MCap of the listed parent.

Disc: Invested and adding; views biased.

2 Likes
17

Unfortunately they have a history of destroying shareholder money eg investment in schools, large bad debts in training services to government and others…
Promoter may be sincere but i guess not young enough in ideas and tech ability to have failed to tap the edtech wave that they have totally missed.
Disclosure - invested and waiting for miracles

1 Like
18

Thanks Rezang_La this summarizes the changes taking place at the company.

At the outset they seem to have been made a lot of mistakes with a history of destroying shareholder money. But I think they have used the COVID-19 pandemic to kitchen sink most of the problems and provisioned for almost all of the possible write-offs.

Their recent quarterly results show a definite pivot in their business and if they execute well there is a chance of a non-linear growth in their earnings. The adjusted profitability ratios in the latest quarterreflect the underlying strength of the business and they stand to benefit if the opening up theme is applied to schools.

A few things which piqued my interest and make my initial investment:

  1. At the con-call they alluded to being in advanced talks to acquiring a leading player in the UPSC test-prep segment which could expand their bouquet of offerings.
    http://www.cleducate.com/audio/CL-Educate-Investor-Conference-call-Q1-FY22.mp4

  2. Possible fund raise in the next 2-3 months for which they have been quite transparent on the progress.
    http://www.cleducate.com/pdf/2020-21/q3/CL_Educate_Q3FY21-Investor%20Presentation.pdf
    http://www.cleducate.com/pdf/2020-21/q3/Fundraise_Strategic_Initiatives_FAQs.pdf

Going by the details in these presentations the value of the WOS is substantially higher than the existing M.Cap but remains to be seen how realistic these turn out to be

  1. They seem to be doing impressive work on the Virtual Events Platform (Kestone) with some marquee clients. A look at the LinkedIn page of Kestone gives some ideas given they can now offer both a Physical +Virtual environment.

https://www.linkedin.com/company/kestone-integrated-marketing-services-pvt--ltd/videos/

I think this platform itself can attract decent valuations. While on the face of it the business seems unrelated- watched an interview where Satya Narayan mentioned that with most past CL students being in fairly senior positions in the Corporate World it opens up a lot of avenues to market the platform for corporate events.

  1. The recent shareholding update indicates that ‘Elizabeth Mathew’ purchased a 3.53% stake in the company in quarter ended June-21. This looks to be related to Mathew Cyriac the former MD of Blackstone who has a reputation for investing in turnaround stories (she previously had a stake of 3.03% in March -2020 and did not appear in the shareholder list thereafter so am assuming this was an exit and re-investment)

  2. Present market cap is Rs. 179 crores with a Net Cash Balance of ~ 30 crores and assets for sale of Rs. 50-80 crores (which may or may not materialize). Additionally they also hold a ~12% interest in a company called 361 degree minds which as per the latest con-call had a pre-money valuation of Rs. 107 crores and is in final stages of raising USD 1 million.

https://www.361dm.com/

Even if these are adjusted conservatively the value being attributed to the core CL digital business and Kestone Business is minimal.

That said there are a lot of opportunities for CL if they execute well but the caveat being their not so stellar history - but this pandemic possibly provided them with a chance to completely re-engineer their business that’s what makes this a possible turnaround story.

Disclosure: Invested a initial position and plan to add further. Views biased

6 Likes
19

I agree with you on the turnaround part. I foresee a lot a growth and value creation if the management walks the talk and executes everything properly.

https://www.ciol.com/cl-educate-new-edtech-subsidiary-career-launcher/

In this recent article, their Chief Sales officer is saying that they are trying to scale the company 10x. This would lead to a lot of value creation and given the crazy valuations in ed tech segment, a 25-30 PE for this firm after being profitable doesnt seem unreasonable. The only hard part here will be the patience required since i think a proper turnaround and then a re-rating will take a lengthy period of 2-4 years. In my opinion, there isnt much downside here and it can definitely be a multibagger. I may be a bit optimistic here so dont take this as a green flag to invest or anything.

1 Like
20

Yes, their CSO’s comment at this point will have to be taken with dollops of Salt until we see a consistent return to profitability in their core operations.

Looking closely at the results the losses in previous years were largely driven by one off write offs of receivables and they have since provided for and also exited from several of the businesses where these bad debts occured.

The next immediate trigger will be if they get someone to invest in the Digital Ed subsidiary and the Kestone business which they are fairly confident on but remains to be see if what valuations they are indicating are realistic. As per the last Concall the CEO had indicated a timeline of September where they would possibly be in the position of accepting or rejecting an offer.

The Fund Raise is being handled by Edelweiss and even if they achieve half of the projections specified in this offer document they should see a significant jump in profitability.
http://www.cleducate.com/pdf/Project-Elixir_Digital-Business_Investment-Opportunity.pdf

Again a turnaround is a long way away, they have a history of making many mistakes resulting in loss of Shareholder value and also a lot of things could go wrong between now and the fund raise so will need to closely track progress.

Disclosure: Invested and view Biased

2 Likes