Valuations are quite personal tbh but just to tell you how I look at it, it is trading 4x market cap to cash flow. The company is reducing its expenses and focusing on better cash conversion. The near term triggers like NCE/NCF Implementation might help the company to grow 20-25% for couple of years from current levels, in this scenario, the bottom line will grow much faster than top line.
While valuing I considered above points and added some margin of safety due to underlying risk and past track records before coming to a right valuations for me(There is no right answer). At the end, itâs a game of probabilities.
Disc: Invested, no recommendations
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Some of the things which came to my mind -
During my school years, SCHAND books mostly came into my radar after 9-10th when focus shifted away towards science and mathematics stream. With the NEP, initial sense that I have got is that focus would be on wholistic dev of child and new age tech stuff and that would lead to more educational material related to -
- Giving proper knowledge of history of India and world
- Bolstering multi disciplinary thinking in child
- Focus on ethics and values in child
- Focus on life skills
- Focus on ethics and values in child
- Focus on new age technology skills
Initial sense I have gotten is that new curriculum will add new stuff to what is currently in the educational system and there will be some modifications as well. I do not know if there will be significant modification in science and maths where SCHAND is strong per my experience. Ofcourse I do not have any experience with other streams - Arts and Commerce if SCHAND books sell there as well or not.
Also, in the past CBSE used to say to schools that use NCERT books to teach students. And over time NCERT books got better as well to cover more material. If NEP comes, there can be similar risk again where NCERT updates all the curriculum and initially students flock to buy more NCERT material until SCHAND authors catchup. Some random thoughts while thinking what are NEP related risks⌠(can prove to be completely wrong)
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Q1FY23 Revenue is 107 cr. Itâs very nice to see the management is walking the talk. Last concall they said they should be able to do 90 cr revenue in Q1FY23 and also told the reasons that made sense. Now itâs showing in numbers too. Hope they will be able to meet the guidance given for FY23 excluding NEP/NCF being implemented.
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In the recent concall, the management stated that they wish to focus on their core publishing business rather than edtech businesses. They mentioned additional spends on edtech business wonât scale the revenues by significant amount. Hence, they will cut back on edtech spends.
Secondly, they mentioned that paper was no more available on credit to entire publishing industry. This will really help the big players becoming bigger, if the big players will be able to secure raw material timely and lead to market share gains. So far, they have secured most of the raw material supplies for the year and only 20% or so it left to be procured. (They import paper and buy from West Coast, Kuantum Papers in the domestic markets). Paper cost is 20-25% of their total cost as highlighted by management in the concall.
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testbook was sold for 15 cr recently. according to q1fy23 concall
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This stock is making a strong comeback. Significant improvement in fundamentals (both in P&L and Balance sheet). After multiple years of under-performance, looks like the company is poised for multi year growth. Their cash flows, debt and debtor days have shown remarkable improvement.
In the last quarter, FII âThe Miri Strategic Emerging Markets Fund Lpâ has taken 4.3% stake. Money control have included this stock in their latest coverage. https://www.youtube.com/watch?v=JhOLXeBFoNw
Anyone tracking this stock?
Disclosure: Invested
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Yes, have been tracking.
Not sure if itâs a multi-year growth story - but looks undervalued for sure
- Q1 FY25 was a steady quarter despite national elections and heatwave impacting school operations
- Consolidated operating revenues were Rs 1,107 million, similar to Q1 last year
- Highest ever gross margins at 72% vs 69% last year
- EBITDA of Rs 84 million vs Rs 136 million last year
- Minor PAT loss of Rs 30 million vs Rs 11 million profit last year
- Lowest Q1 working capital metrics in company history - receivable days below 100 for first time
- Net cash position of Rs 882 million, up from Rs 600 million in Q4 FY24
- Engaged in content licensing partnerships with tech majors for Gen AI/LLM models
- Forging strategic partnerships in test preparation segment
- Focus on hybrid/blended learning model combining physical books and digital content
- Limited adoption of new NCERT curriculum by schools so far
- Expecting 40-50% adoption of new curriculum by schools this year if NCERT releases books on time
- Full adoption expected to take 2-3 years
- Expecting double-digit operating revenue growth in FY25
- Upgraded EBITDA margin guidance to 17-19% range
- Gross margins expected to be higher in FY25
- NCERT expected to release new syllabus books for more classes by end of 2024
- S Chand has books ready for all classes under new curriculum
- Timing of NCERT book releases crucial for adoption and revenue impact
- Full benefit of NCF expected to reflect in 2-3 years
- Focus on blended learning approach with digital supplements to physical books
- S Chand Academy, TestCoach and other digital platforms currently free, monetization expected in future
- New revenue stream from content licensing for AI models
- Maintaining strong cash position, not considering share buybacks currently
- May look at buybacks next year if cash reserves cross Rs 100 crore threshold
- Well-positioned to benefit from NCF implementation over next 2-3 years
- Focusing on blended learning and digital content alongside core publishing business
- Strong working capital management and cash position
- Confident of double-digit growth and margin expansion in FY25
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In a way itâs so true! Difficult for this age bracket to overcome temptations and focus on what truly matters.
Sweden story is a good case study in itself.
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I could not find this announcement officially. But it was expected.
Official circular from NCERT.
Private schools may take a year or 2 for implementation. At this point of time it is by default considered adopted by KVS, NVS and other government CBSE schools. These school do not follow reference materials and private publication like S Chand. Thus full affect of change may be visible from next year only.
Mar 10, Doc 1.pdf (3.3 MB)
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You are right, Management have themselves said that coming academic years book have already been printed and any change announced now would be of benefit in next FY results.
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S chand is a company whose products have been of use to us at some point in our lives, although we may not know of it? Remember lakhmir Singh, rs agarwal and other supplementary books during school days, s chand is the publisher of all these books.
Just a brief on the company, S chand is a printing and publishing house which caters to the k12 segment ( kg to 12th class ) and higher education segment by providing study material and books through their authors and content rights, recently theyâve ventured into the digital side of education although that constitutes a minority of their revenue chunk. Their aim is to diversify themselves in the education setup by not just being a publisher but being a holistic player in the education segment by providing everything right from test prep, to educational toys, study material, ai content licensing etc..
So, now that we know of their business, I ll dive a bit into their financials and a brief breakdown of their business, they primarily revenue from the k12 segment which is roughly 80-85%, while their costs are a mixture of employee costs, manufacturing costs and materials which mainly consists of paper ( varies between 30-37%) hence making the company highly susceptible to paper prices. ( Bonus suggestion : Potential for a great hedge if you own paper stocks).
The business has remained highly unreliable over the last 5-7 years due to modest revenue growth and volatile margins, ebitda margins have fluctuated right from -5% to 25% for a relatively safe business model.
Now Iâll get into the specifics of why this is interesting to me
A closer look on the revenue numbers shows constant growth over the last 4 years ranging around 8-10% yoy while ebitda margins have expanded from 13% to 19% during the same time period, the reason : PAPER PRICES!!
As you can see the sudden spike in paper prices due to supply chain disruptions caused a sudden rise in raw material cost ultimately affecting the bottom line and significantly rupturing margins. But now that prices have reverted to sustainable levels there doesnât look to be any substantial pressure on margins ( ebitda at 18.8% currently).
Revenue on the other hand has modestly grown although a key factor that people may be missing is the introduction of the new curriculum framework for school education due to which educational institutions will have to adopt new books with revised curriculums, in my opinion this is a massive plus point for S chand, as this gives S chand the oppurtunity to take the first mover advantage in respect to study material for new curriculum based books, the reason: the unorganized market is very prevalent although they canât adjust as fast or as efficiently as to organized players such as s chand who collaborate with original publishers. This provides an opportunity for s chand to push out revised books to new students without the need to counter unorganized players giving them a 2 pronged benefit : Revenue gain and Bargaining power.
This should ideally help grow revenue even beyond 10% to potentially 13-14% yoy, furthermore this coupled with margin expansion ( ebitda margins in the past have been as high as 25% - management is expecting reduction in employee cost by 4%, and growth to 19-20% ebitda by the end of this fy itself) can lead to substantial value creation.
Furthermore the company has become net debt free with constant reduction in debt levels ( reduced by 60% over 4 years) and reducing interest payments ( down from 32cr to 13cr in 4 years) signaling moderation in non operating expenses as well.
The tax rate for this financial year stood at an alarming 35% although during their q4 concall the management has given guidance regarding the same, saying that the rate should be down to 27-28% within 1.5-2 years ( increased rate due to non recognition of deferred tax on loss making subsidiaries which the company is trying to collapse over the next 1.5-2 years) hence signaling towards further gains in bottom line estimates.
One of the most important point I want to highlight - The companyâs cash conversion cycle is down from 383 days to 175 days with a cfo/ebitda of around 80% roughly , signaling top notch cash flow as compared to previous periods where they were working on a highly. credit dependent model with debtor days as high as 311.
Lastly, the company is majorly focusing on inorganic acquisitions to grow with a recent acquisition of stake in a test prep company and stakes in other education based cos such as smartivity, Ixambee etc.. Virtually meaning that youâre investing a part of your money in a small sized education based pe firm.
My final thoughts and thesis regarding the same :
Positives :
- Imminent revenue growth ( > 11%)
- Possible margin expansion ( 20-22%)
- Eventual reduction in tax rate ( 35% to 27-28%)
- Tailwinds in the form of ncp-se
- Valuation at Pe of 13.6 and Ev/ebitda of 5.5 ( both below median)
- Incase goodwill is impaired at any point in the future, roe can potentially shoot up from 6% to 10% which would ideally drive institutional attention
Risks/ Negatives :
- Supply chain disruptions in paper industry
- Adoption of new books slower or lower than expected
- Inorganic strategy is highly risky
- Organic growth highly limited
- Management compensation as % of Pat quite high, ( md is payed 2.2 cr alone with pat of 60cr)
- Low roe may limit institutional interest
- Increasing rate of digital adoption in educational institutions ( medium to long term)
This is my first article and I would love to know everyoneâs views, criticism and feedback regarding the same in order to refine my investment thesis.
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