S Chand- Transforming into a Complete Education content provider

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Hi guys! This is my first post on this forum so please be gentle:) As this is a turnaround story its best to start with a bit of corporate history to see what went wrong here.
PART1
HistoryS Chand came out with an IPO in 2017 before which it was on acquisition spree and this helped the company grow its revenue at 33% between fy12-fy16 .In this business its very difficult to grow organically because its hard to incentivize schools to change books in their existing curriculum. Most brands have long relationships with schools. So the plan was to increase market share by acquiring new brands . It made its first acquisition by buying out Madhuban in 2012 . Subsequently, it acquired New Saraswati House that has a strong grip in Sanskrit, French and Indian regional languages. S Chand acquired Chhaya Prakashani in 2016, which has a significant presence in the West Bengal board.
But acquisitions came with challenges. At the same time it was investing in digital. 2018 is when one saw early signs of trouble started reflecting in their numbers. Receivables started increasing. There were sales returns from select dealers resulting in bad debt. Also there was a lot of confusion around the national education policy which was originally supposed to be adopted in 2019 because of which a lot book sellers did not buy books as they wanted to clear their existing inventory . (Right before an IPO theres a tendency to push sales aggressively . I am not saying thats what happened here but its possible)

S Chand 3.0 In FY19 Management started working on cost optimization through following measures

  • Stopped working with dealers with bad credit history
  • Rationalization of number of offices and consolidation of warehouses .Resulted in warehouses from 19 states to 4 locations.
  • Inventory management- Focus on portfolio of faster moving titles and rationalizing number of printed SKU’s on basis of sale.
    *Reduced their employee count thus lowering employee cost from 151Cr in FY19 to 99Cr in FY21 • Further due to covid .Travel expense of sales team reduced.Also educational events for teachers/schools like academic conferences were conducted online at a fraction of cost.Some of these cost will not come back as like a lot of companies S Chand too has learnt to do business in the digital way. All these let to a turnaround n FY21 this is despite collections being effected by covid
    I will let the numbers speak for themselves. Pls see pictures below from investor presentation
    inv
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Cashflows have more than doubled while revenue remained flat YoY

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PART2

business
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PRINT BUSINESS S chand derives 80% of its revenues from the k12 segment.thats class 1 to 12.They have 2400 authors some of them are leading authors in their field. They have 10000 active titles and are present in almost 40000 schools.Its target market comprises of private schools. And there are 300 thousand such schools in our country…This segment is currently growing faster than govt schools at a rate of 8% annually. Theres a marked preference for private schools. Student share of private schools vs. government schools is rising not just in metros but even in rural areas.This is despite subsidized fees, free meals and books in government schools.
They are also present in graduate n post grad colleges where they supply content to students as well as tailored content for educators. They also produce books for test preparation like IIT,AIEE,civil services exam,etc
Value chain. S Chand creates content by working along with the authors n its own editorial team.It leverages its distribution strength to reach out to students, and educational institutes. Authors are compensated through royalties linked to sales( which over the last 5 years has been around 10% of the revenue). .S Chand also has an in-house sales team who are the point of contact with the educators, educational institutes, distributors and retailers .These guys give feedback to the editorial team which supports its authors by assisting them to upgrade and update their content and to develop new content in conjunction with faculty members and experts
Growth triggerNEP New Education Policy (NEP) was formally adopted by the Union
Government in July, 2020. the last National Policy on Education (NPE), was 35 years ago in 1986 . Theres a lot in the NEP but whats of interest to us is the release of the NationalCurriculum framework (NCF). Since the New Curriculum is being developed after a gap of 15 years, this will eliminate use the pre-used books which is about 20% of the market and lead to 20-25% growth for 2-3 years. I Say 2-3 years because not all grades will move to the new syllabus in the same yr . This got delayed because of covid. Also there is a case for market consolidation here as smaller publishers should find it difficult to transition to new content compared to the bigger players. Hoping to hear on NEP later this year

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PART3

Digital business I wont go too much into detail here as the reader can get finer details from their latest investor presentation.
Learnflix launched n January, 2020 is an affordable digital learning mobile app.This app is similar to Byju’s. The difference is S. Chand is not marketing it to students but to schools.S. Chand sells books to 40,000 schools and That’s the position it wants to leverage.App includes videos, quizzes, revision notes, assessments, samples and ebooks.Learnflix is currently targeted at students from Class 6th to Class 10th for the key subjects Maths and Science…Learnflix got a strong response during lockdown. There has been robust subscriber addition and the App has received a high review rating of 4+ on the Playstore .

  • the current product covers Maths and Science. Learnflix is currently priced at INR 1,999 per year (for classes 6 – 8) and INR 2,499 per year (for classes 9 – 10) while Byjus is 20000 plus
  • Future Outlook:Adding English and SST as a subject, Classes 11th & 12th and launching Learnflix Bangla by Q2FY22. Schools provided with Free usage during Covid-19 would convert to paying customers in Fy22.
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PART 4

Mylestone,Started in 2015,is a Digitally enabled School curriculum solution. In other words one stop solution for all their curriculum, content, teacher trainings and assessment live classes, e-books,teaching tools,planning etc. targeted at affordable private schools.

  • Affordable private schools can be defined as schools charging annual fee in the range of 12k to 60k.That is around 92,000 schools .
  • Mylestone is priced at between INR 1400 – INR 4000 per student, and the school has to pay INR 1 Lakh for curriculum implementation and teacher training that the S. Chand’s inhouse team provides. Mylestone content different from s chand but is reviewed by s Chand.
  • Currently present in 300+ schools.Targets to reach 1000 schools in 2 years .
    My understanding is that mylestone is for affordable private schools where there is a problem of quality teachers. Theres competition here.Theres a company called LEAD which seems to be doing way better than them. Personally not too excited abt Mylestone.Good news is that Mylestone broke even this quarter

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PART5

Educate360 ,launched in oct 2020, is K-12 Blended learning solution for enabling schools
to conduct online classes, student assessments, e-book support etc. as a response to the Covid-19 crisis. We had done pilots in over 50 schools during 2HFY21.Won paid implementations in 15 schools for FY22 post pilot phase.

  • The schools have given very positive feedback and we are hopeful of a more conversions going ahead through the year.

I see a lot of overlap between Mylestone and Educate360.My own guess is that its a newer better product. Planning to connect with Management this week to understand this better

Smart K - Early Learning Curriculum solutions – (B2C package to be launched).A pre-school in a box concept including interactive educational toys, curriculum, multimedia content, teacher manual, tablet PC and a soon to be launched mobile app. It is a balanced games and activity-based program which provides a stimulating environment for the language, intellectual, social-emotional and physical development of the child

INVESTEE COMPANIES These are strategic investments. S Chand helps with content. Investee companies help with technology

Testbook is an app for online test preparation of govt exams.It has **1 cr downloads.**and is the number one sarkari app.S Chand holds ~8% stake in the company; valued at approx 20Cr(initial investment 2.5Cr in 2016). To capture the test preparation market s chand invested in onlinetyari and testbook. Theres no mention of online tyari in the last 2 yrs so i m guessing it hasnt done well.S chand also has its own App called Test Coach(launched in FY19) which is also Focused on govt exams.It has just 50K app installations and very poor reviews on the playstore.They have plans to introduce vernacular versions this year

Smartivity founded in 2015 specializes in STEM (science, technology, engineering, and math) educational DIY toys, augmented reality-enabled activities, and internet-connected toys.

  • Other marquee investors include Ashish Kacholia (26% stake), Hemandra Kothari (8% Stake)
  • Angel funded approx. Rs2 Cr.As per the last valuation round, our investment is valued at approx. Rs15 Cr

A subsidiary called Convergia has been formed to house Mylestone and Learnflix. Company is looking to raise US$8-10 Mn.This capital raise is for a b2c push. They can grow b2b like they have been doing so far through internal accruals. Would be interesting to see what kind of investors they rope in

*There are other digital offerings but personally i have assigned zero value to these in my analysis. Most of them have been there since IPO. After going through all the concalls i got a sense that management doesnt talk much about their not so successful ventures unless questioned and there hasnt been much questioning by analysts here so far *

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PART6

RISKS

  • Seasonal nature of the business . Q4 accounts for ~80% of annual revenues. so a covid 3rd wave is the biggest risk.

  • K12 education is regulated so they are vulnerable to any unexpected announcements by educational regulators. For example, in recent times, the CBSE Board issued a notification stating ncert books should be made mandatory by all schools. State governments have insisted on reducing bag weight for students

  • Piracy (physical and online) continue to be a large risk for all publishing companies.

  • Delay in implementation of NEP

  • Books are often bought based on authors reputaion n inability to retain such authors can effect business. however theres a counter to this point as well, which is democratization of knowledge. today a lot of content is open sourced and made for available for free. So maybe authors may not matter that much in the future.Just a thought

Valuations Let me make this simple. Management has guided for 500 CR topline for FY22 with 20% EBIDTA margins, basis which stock is available at less than 6 times EV/EBIDTA.

Final Thoughts

  • S Chand is transforming itself from a publishing company to a complete education services provider

  • digital business currently contributes 7% should contribute 20-25% in next 3 YEARS

  • the new curriculum once implemented should provide 20-25% growth for 2-3 yrs.(Mgmt guidance)

  • In 2 yrs they aim to be debt free

  • promoters have been buying shares from the open market over the last 3 yrs. Theres also been buying by relatives of board members.

  • A lot of schools are willing to adopt learning management systems,not just for convenience but also to separate themselves from their competitors. Just like any other business they too need to impress their customers and we all know the willingness of Indian parents to spend more on education :slight_smile:

If LEARNFLIX SCALES UP THEN THIS BECOMES A ED-TECH PLAY SO THE VALUATIONS CAN GO UP SUBSTANTIALLY. Valuations are cheap so basically heads i dont lose much but tails i win big. As this is my first post i am bound to have missed a few things. Please let me know

Disc: Invested with no transactions in the last 30 days

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Thank you for collating all the information about the company and sharing it across.

One general observation - When using the concept of heads I don’t lose much, and tails I win a lot to justify making an investment… Do not assume it is a fair coin!

Need to also think about the odds of the coin landing heads or tails alongwith the win-loss sizes.

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Well said Amit :slight_smile: Odds matter and I don’t invest unless theres a good chance of expectations turning into reality.Been tracking this one for 2 years now. Before investing I assumed that digital offerings won’t work out and NEP will take longer than expected. Considering that and an Organic revenue growth of 10-12% makes this an attractive bet in my opinion. Usually I favour stocks with high earnings growth but some opportunities are too good to be missed. If digital works out then it’s a bonus

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Discl. : Newbie here and new to investing. And not holding S.Chand

First, that is an amazing write up and I really enjoyed reading. Thank you.

Having burnt my fingers with turnaround stories (BPL), I am wary of expectations. I haven’t tracked this company but here are my 2 main concerns from what I read in your write up:

  1. S.Chand’s competitive moat seems to be in content side. They have a very strong brand (I have used so much of S.Chand myself). It is interesting to see the management focussing more on distribution than content generation. Digital might be the flavour of the day but tech products require fundamentally different DNA, sales process & execution. Hence I am wary of execution ability here.

  2. Management commentary is focussing very little on authors side which is generating their strong moat (correct me if I am wrong). Distribution is a highly competitive game and going against Byjus who have a war chest is going to be an uphill battle to say the least. To your point on democratisation of knowledge - S.Chand’s moat in content is specifically on testing (rather than learning) i.e worksheets, problems digest etc.

Would definitely wait and track this company.

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Thanks! You are right to be wary of turnarounds. Theres a saying- turnarounds seldom turn :slightly_smiling_face:. most of the times its just management correcting their past mistakes. No reason to congratulate someone for putting band aid on self inflicted wounds. but i also believe sometimes it’s just bad luck.
As to your point about competitive advantage- you are right about the author part.didn’t realise i missed it in my orginal post. Authors, distribution, relationship with schools they all matter in this business. Even though sales via e-commerce channels is 10% of revenues most students still purchase it physically via schools n local sellers.
Learnflix Is not competing with byjus. .A decent package would cost you 20k-30k. Not everyone can afford it. Learnflix is 2k per year. So different audience. Their subsidiary Convergia which houses Learnflix and mylestone is looking to raise 60-70 crores via equity dilution of 20%. That would make the subsidiary alone worth 300 Cr. Company claims Raising capital is not an issue and they are looking for investors who can help accelerate growth via B2C route. They can continue to grow the B2B way without any capital raide.Let’s see what kind of strategic investors they bring in. hopefully someone with experience in Ed tech.
They have a separate team and CEO heading their digital initiatives but you r right that digital is a different game. Execution needs to be monitored and hence i have a small 2.5% allocation here. Will scale up based on progress on the ground. Hope this helps :slight_smile:

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My son is in class x , in DPS Haryana . DPS use learnflix . Considering the large chain they have and brand name associated here, learnflix should take off .

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It’s a long term story with its digital business a dark horse.print business restructuring and cost cutting has been done and may reap rewards once schools open new nep comes into force.

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Interesting company and turn of events for it. Seems it has been responding nicely so far to the digital era. I have not tracked closely, but with basic understanding, S Chand would have the advantage of having strong ready content while its competitors would have to create or buy content?
Ideally, who would be the competitors of its digital business…byju, unacademy? or some other publishing company going digital?

Some points to ponder on first look, What is the strength area of byju and unacademy? Is it -

  1. new innovative content
  2. the UI
  3. the way of rendering those contents - for eg. recent epic books purchase by byju has simple yet innovative way of learning via stories
  4. Will old content of S Chand be meaningful beyond a scale or they would need innovative new contents - unlike say music which can be reused eternally
  5. Can it be a buyout candidate in ed-tech space. Are promoters willing to let go if need be to compete with PE backed Byjus etc.
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Interesting set of questions. I ll try and answer them to the best of my knowledge

Byjus sells direct to students. S Chand sells to them through their network of schools.And ofc Byjus is a much more premium product at a way higher price point. Not every parent can spend 20000-30000 per year on an learning app. however they can spend 2500 Rs.So Byjus is not a direct competitor
However their Listed peer Navneet started their Edtech journey last year. Navneet has a stronger presence in State board shools but They are trying to expand their footprint in CBSE/ICSE which is where S Chand is strong.

All of the above and the fact that they have money to burn. S Chand has no plans to do that yet. It already has content that it can leverage. It can also collab with other Edtech companies. We already saw something like that last quarter and during Q1FY22 concall, Mgmt indicated that we can expect more of that going forth. They also plan on acquiring minority stake in new Ed tech companies.(They are already invested in a few start ups)

They will have to refresh their content. The New Curriculum based on National Education Policy should officially come out after schools start and normalcy returns. There is a case for Market share gains as a lot of publishers dont have the B/S strength to adopt the new curriculum

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KEY THINGS TO WATCH OUT FOR HERE:

  • Adoption of new curriculum which will result in 20% plus revenue growth for 2-3 years.
  • They plan to raise 10 Million dollars for convergia (their subsidiary with LEarnflix and mylestone) via equity financing. This wont be about money. This will be strategic.So we ll have to see what kind of investor they rope in
  • Learnflix value proposition is clear and i can understand why it can succeed. Downloads and paid conversions should pick up once schools resume.However i m not so sure about their other digital initiatives .Will cash flow from print business be used to fund Convergia as it scales up? or will convergia fund itself?

Its an evolving story. Q1FY22 was on expected lines. however the improvement in WC cycle is heartening. Book sales should pick up by Q3Fy22 . If Ed tech scales up, huge wealth creation can happen. Else even if book sales resume to normalcy, then re-rating can follow (company is trading at 0.5x Book value)

Disc: Invested

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@GARP_niveshak
Thanks for this excellent write up on S Chand!

Feb’22 investor presentation also pegs their stake in Testbook at 20 Cr. But I think the Testbook valuation of $36M is a bit dated (Dec 2019).

With the run up in ed tech start up valuations in the last couple of years, I feel this number should be at least 2x if not more.

https://tracxn.com/d/companies/testbook.com

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Just curious if any education or edtech company has made money for shareholders in India. There are a number of them which has destroyed shareholder value. Says a lot about industry structure. Even Schand has destroyed more than 80% value since listing in last 4 years.

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Excellent analysis from @shubham_sethi

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NCF implementation could be the next big trigger as second hand market temporarily is finished.

Can be a huge trigger here, positive policy change

Disclaimer:- Invested.

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How you guys value it ?
In latest concall they guided for 600 crore sales.
Current Mcap is around 500 crores.
Management emphasize on maintaining quality distributors, working capital cycle where they went wrong in past years as per them.
Seems going in positive direction as per latest concall.

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