Management Speak: S Chand & Company (Outperformer) - Strong in core business, getting digital ready…

We attended S Chand & Company Ltd.’s (SCHAND) maiden analyst meet post its listing. The event was mostly to layout the future growth path and its digital strategies. The following are the key takeaways:

• SCHAND currently targets ~40,000 schools out of its potential private school target market of ~400,000. Private schools are growing at a 8-10% annual rate, while the private student population is growing at an additional 7%, thus providing a large growth runway for the company.
• By FY23E, SCHAND aims to cover ~100,000 schools (organic + inorganic) and is also targeting to improve its student wallet share (given that K-12 schools restrict publishers to 1-2 courses per academic year).
• The company admits that digital offerings are the need for the future, even though print content would continue to co-exist (no precedent globally where digital has completely taken over print). In this regard, it is launching innovative digital solutions across its product segments (K-12, early learning, test-prep).
• SCHAND is also planning to launch an on-demand subscription-based education app (kind of ‘Netflix’ for Education) which would allow a student to tap eBooks, videos, assessment & practice tests, as well as other study tools. SCHAND plans to leverage its existing captive base to increase usage of this app.
• Digital investments to range ~Rs100-150m per year in the near future.
• Paper prices contracted at 4-4.5% inflation in FY19E (17% up in FY18).
• SCHAND is aiming to grow rev. to ~Rs20bn by FY23E (Rs8bn in FY18) through both organic and inorganic route. RoCE is exp. to improve to 25% during this period (vs 19% in FY18, as per the management) led by improving margins (esp. digital businesses becoming profitable).

Valuation & View

SCHAND remains an underappreciated but strong play on India’s rising consumer spends on education. Given the strong wicket on which the K-12 market is poised, and SCHAND’s dominant position in the same and its strong content line-up provides it a strong competitive moat to capitalize on growth in this market. We remain positive on the company’s long-term prospects. Our estimates bake in a ~23% LTL earnings CAGR led by ~15% K-12 revenue CAGR over FY18-20E. Maintain Outperformer (TP Rs576; 13.5x FY20E EPS).