S Chand & Company's Q2FY19 results (Outperformer) - Valuations compelling!
Q2FY19 Financial Results Highlights
- Q2 is a relatively insignificant quarter for SCHAND (~1% of total revenue). EBITDA/PAT losses accrue over the 9M period before recovering it entirely and posting a full year profit in Q4.
- Revenue: Cons. Revenue fell ~6% yoy to ~Rs106m.
- EBITDA: EBITDA loss increased to ~Rs775m (vs ~Rs666m yoy) during Q2. During the quarter, SCHAND has taken ~Rs60m provision for doubtful receivables (vs Rs30m in base quarter yoy) and also hired Saurav Ganguly as a brand ambassador (as a result higher A&P costs).
- PAT: Net losses increased from Rs571m to Rs551m yoy.
- NWC: Overall WC days was down to 202 days (vs 207 days in Q2FY18 and 253 days as of March 2018). Debtor days increased to 178 days from 151 days in Q2FY18 and fell from 290 days in March 2018.
Acquisition Updates
- Chetana LLP: Acquired 51% stake for ~Rs585m (valuing the company at ~6x EV/EBITDA). Pro-forma revenue (FY18) as ~Rs750m (with normalized EBITDA margin of 28%). Chetana is largely in the Maharashtra supplementary books market and derives 85% of revenue in April-June quarter (lean quarter for SCHAND currently). Acquisition to be concluded by early January 2018.
- Chhayya Prakashani: Balance 26% stake to be acquired by Dec. 2018.
- Overall management expects a payout of Rs1.2bn towards these two transactions before the end of this fiscal.
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 OP (TP Rs356; we change the valuation methodology to 1x book value given the 13% RoE profile for FY20E backed with ~18% CAGR in EPS. We haven’t factored in Chetana LLP acquisition in our estimates as we await further financial details (BS).
S Chand and Company Ltd. S Chand and Company Limited, formerly S Chand And Company Private Limited, offers publishing and education services. It publishes educational books including school books, higher academic books, competition and reference books, technical and professional books and children books. It operates through three business segments including K-12, higher education and early learning segment. K-12 content portfolio is offered to students from ages four through 18 years and includes numerous instructional resources across hundreds of programs, covers all subjects offered in the K-12 segment. Higher education segment includes two components namely test preparation and college and university/technical and professional. Test Preparation provides print content and digital products required by students, instructors and institutions for test preparation in competitive exams, including entrance examinations. Early learning business caters to youngest customer market zero to four years of age.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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