S Chand_08Nov2022_AlphaIdeas20-20Meet_Final.pdf

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Niteen S Dharmawat
Co-Founder, Aurum Capital
Website: https://aurumcapital.in
Twitter: @CapitalAurum / @niteen_india
Email: info@aurumcapital.in
Changes in the Education Sector…
New Education Policy after a gap of 34 years
New Curriculum after a gap of 17 years
8th Nov 2022

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IMPORTANT DISCLAIMER:
The information herein is used as per the available sources of bseindia.com/nseindia.com/brokers websites, company’s annual reports &
other public/private database sources. Aurum Capital is not responsible for any discrepancy in the data. Investors should seek advice of
their independent financial advisor prior to taking any investment decision based on this report or for necessary explanation of its
contents.
Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For queries /
grievances – support@aurumcapital.in. SEBI registration No: INH000008118
Readers/attendees/viewers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in. This
presentation indicates opinion of the author to understand the company and its business operations and it is not a recommendation
to buy or sell securities. Aurum Capital & its representatives have vested interest in above mentioned security/ies at the time of this
publication, and its partners / company have positions / financial interest in the security/ies mentioned above.
Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the companies
mentioned in the report.
Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock: yes.
Recommendation to client: this stock is not recommended to clients so far. Served as a director / employee of mentioned companies in
report: No. Any material conflict of interest at the time of publishing report: No
The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or issuers; and
no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or views expressed in the
report.

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Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No:
INH000008118) services company. Started by Jiten Parmar and Niteen
Dharmawat, who together have more than 4 decades of experience investing in
equities and guiding and mentoring fellow investors.
This rich industry background helps us understand companies, complexities of
business and tipping points that make or break a company. Our approach is not
limited to just number crunching but going beyond. We focus on the business,
strategic direction, the competitive landscape, the governance process, the
background of the promoters, turnarounds, to name a few. Often these are more
critical items than just numbers. Jiten and Niteen have successfully waded through
multiple bear and bull market cycles.

Twitter - @niteen_india
Education Policy: Last 75 Years
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Background…
Source: Publically available data
 University Education Commission (1948-49)
 Secondary Education Commission (1952-53)
 Education Commission (1964-66) under Dr. D.S. Kothari
 National Policy on Education, 1968
 National Policy on Education (NPE), 1986 (10+2 structure introduced)
 NPE 1986 Modified in 1992 (Programme of Action, 1992)
No major changes in
Education Policy after 1986

Education Policy: Last 75 Years
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Background…
 After New Education Policy (1986), 34 years had passed
 Technological advancements
 Significant gap in Education and Industry needs
 Addressing the influx of millions of students in Higher Education
 “High quality education to all”

Major changes from NEP 1986 in NEP 2020
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Background…
 Universalisation of Pre-Primary Education (Anganwadi + Preparatory class)
 New Curricular & Pedagogical Structure: 10+2 to 5+3+3+4
 Systematic tracking of students and their learning levels
 Equal weightage and no hard separation of subjects: ‘curricular’, ‘extra-curricular’,
or ‘co-curricular’; ‘arts’, ‘humanities’, and ‘sciences’, or ‘vocational’ or ‘academic’
 Home language/mother tongue /regional language as medium of instruction
 MULTI-DISCIPLINARY EDUCATION:
• 3-4 year UG with multiple entry/exit options
• Flexible Masters degree programmes
• Integrated 5 year programme

NEP followed by NCF (National Curriculum Framework)
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Background…
 NCF revised only four times so far
 1975
 1988
 2000
 2005
 2022: Fifth revision of framework
Henceforth, NCF may get revised every 5-7
years considering technological changes
NCF committee headed by
Shri K Kasturirangan, former Indian space
scientist & head of ISRO from 1994 to
2003. He was also Chairman of NEP 2020
draft committee

No of Schools
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Source: Publically available data, https://allschoolsinindia.in/how-many-government-and-private-schools-in-india/, https://saras.cbse.gov.in/
 The total number of schools in India is 14,94,052
• Government schools: 10,83,678
• Government Aided schools: 84,614
• Private schools: 3,25,760
 CBSE affiliated schools: 28,483 schools affiliated with CBSE in India
State Govt schools mainly state board

Trends in School Education & Printed Books
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Two trends are visible
Source: Publically available data, market research, scuttlebutt
 Move from State boards to CBSE schools
 Preference for English medium schools over vernacular
 Rising Paper prices forcing consolidation in publishing industry
 USA 40 years ago = today’s India: Curriculum books

What happens when Curriculum changes?
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Background…
 Staggered implementation of new curriculum across the country, e.g.*
• 1-5 standards in the first year
• 5-12 standards in the next year
 NCERT (National Council of Educational Research and Training) revises books
 CBSE adopts changes
 State boards (not mandatory) forced to adopt changes
 All second-hand books go out of shelf
 Shortage of books in the market: 3-4 years of high growth visibility
*For illustration purpose. Actual can be different

Current status of NCF
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Background…
 NCF 2022 for the Foundational Stage (3-8 years age group) launched on
October 20, 2022
 Subsequent age group NCF to be launched

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S Chand And Company Limited
NCF + Paper Prices + Operational Performance
This is a case study to understand business and not a stock recommendation
We own this stock and we may exit too without any notice

About S Chand
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Background…
 Long operating history of over eight decades
 Founded in 1939, third generation in business
 High brand equity across multiple brands
 Strong author relationships: ~2,400 authors (including some very very popular one)
 Sold 50 million copies of 10,000+ active book titles across various brands during FY20
 Major focus on CBSE curriculum, off curriculum books
 Print Capacity in number of sheets: 90TPD
 CMP: 163 (07 Nov 2022) 52H/L: 205/92.30 Book value: 237
 Ever High: ~675 (May 2017) IPO Price: 670 (May 2017)
 Market Cap: ₹ 572Cr.; Net Debt: ₹ 28Cr (Jun’22 consolidated) – repaid ~100Cr debt last year
 Enterprise Value: ₹ 600 Cr.
Source: The company announcements, Annual Reports/Quarterly results, Red Herring Prospectus, publically available data

About S Chand
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Background…
 Lumpy revenue, highly cyclical
 80% revenue in Jan-Mar quarter of the year; 20% revenue in
remaining 9 months
 Receivable cycle: 6-9 months; High returns/bad debts possible
 Promoter holding: 47.3 % (Pledged: 0.00 %)
Key Investors - As of Sep 2022 % Holding
International Finance Corporation 8.01%
Volrado Venture Partners Fund 2.39%
TrustLine Holdings 2.36%
Blue Diamond Properties 2.00%
Srinivasan Varadarajan 3.90%
 HDFC MF
 holding 7.27% in Mar 2018 quarter
 holding 2.57% in Dec 2021 quarter
 exited/went below 1% in Mar 2022
quarter
Small to-do:
Find out more about these
companies and if any
connections are found?

What went wrong?
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Background…
HDFC MF reduced holding
from 7.27% to 2.74% here
Price corrected from 181-36
Business
deterioration
started
S Chand 3.0
implementation
started
Covid hit industry
S Chand 3.0
implementation
results visible
• IPO price 670 (May 2017)
• Lowest price 35 (Mar 2020);
down 95% from IPO price
What went wrong here?

Narration Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Trailing
Sales 529.00 659.00 794.00 522.00 429.00 425.00 481.00 552.00
Expenses 404.00 496.00 602.00 554.00 452.00 371.00 419.00 459.00
Operating Profit 125.00 164.00 192.00 -32.00 -22.00 54.00 62.00 93.00
OPM % 24.00% 25.00% 24.00% -6.00% -5.00% 13.00% 13.00% 17.00%
Other Income + 3.00 3.00 12.00 -12.00 -1.00 20.00 12.00 24.00
Interest 30.00 35.00 24.00 27.00 35.00 32.00 27.00 24.00
Depreciation 26.00 26.00 19.00 24.00 41.00 42.00 42.00 43.00
Profit before tax 73.00 105.00 161.00 -95.00 -99.00 - 5.00 50.00
Tax % 0.32 0.41 0.33 0.30 -0.13 -323.50 -0.76
Net Profit 47.00 61.00 107.00 -67.00 -111.00 -6.00 8.00 46.00
What went wrong?
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Performance dropped…
Source: Screener website
This is not a projection of numbers

Why it went wrong?
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Cash is the king…
Source: Screener website, the company annual reports, CARE rating report
• Multiple acquisitions in the past: including Vikas Publishing (2012), New
Saraswati House (2014) and Chhaya Prakashani (2016)
• Acquisitions augmented product portfolio and marketing reach. But acquisitions
came with challenges and took time to settle down
• Also invested in futuristic digital offerings
• All these resulted in Cashflows issues, increased receivables, bad debts, returns.
Narration Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Cash from Operating Activity -31.01 -67.42 42.73 -17.52 38.15 32.41 38.95 38.62 48.44 107.65 106.55
Net profit 14.69 32.34 42.34 26.85 46.57 61.26 107.08 -66.92 -111.47 -6.49 8.04
Narration Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Trade receivables 71.00 174.00 231.00 342.00 398.00 470.00 631.00 445.00 335.00 322.00 292.00
Trade Payables 64.00 67.00 99.00 136.00 151.00 181.00 202.00 194.00 158.00 118.00 122.00

Hobson's choice: Difficult decisions taken
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Short term pains long term gains…
1. Employee rationalization
 Now 2000 employees v/s 3000
employees 4 years ago
2. Reduce non-productive expenses
 Closed 25 offices, consolidated
warehouses
3. Focus On Cash Flow Improvement
 Working with preferred channel partners

Year so far…
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Mark improvement in the financial performance despite COVID year
*Current inventory has
Rs301m raw material
paper inventory as well.
Target of becoming net
debt zero by Q4FY23.

What has changed?
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Impact of operational changes visible…
HDFC MF final
2.57% exited here
(gone below 1%)
S Chand 3.0
implementation
results visible

Some interesting investments in Ed Tech Platforms…
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Not in the focus so far…
 1st profitable exit from one of minority investments in July 2022
 Selling stake in TestBook for a consideration of approx. Rs18Crore.
 This translates into a 7.8x return over initial investment made in 2015
Source: The company announcements, Annual reports, media reports
 Co-founded in 2015 by IIT Delhi Alumni
 Rapidly growing company in the areas of Early Learning through Augmented Reality (AR) , STEM DIY Kits (Science ,
Technology and Maths) and also Virtual Reality (VRX) Content
 S Chand funded ~Rs2Crs in across various funding rounds & holds ~16% stake in the company as per last round
 Latest round of funding done in June 2021 at a valuation of ~Rs100cr. S Chand investment valued at ~15Crs
 Other marquee investors include Ashish Kacholia (26% stake), Hemandra Kothari (8% Stake) in the company.
Turned cashflow
positive in Q1FY23
 As per FY22 Annual Report, S Chand has a 54.86% (44.66% on 31 March 2020) interest in Edutor Technologies
 Edutor Technologies is a leading platform to deliver next generation digital textbooks on devices that engages students
and empowers teachers. It creates world class learning products for touch screen devices.
 It delivers digital education experience for K-12, Higher education institutions in India as well as globally
 Founded in 2019 with the focus on offering affordable online courses for College students and working professionals in
Data Sciences, AI, ML, CC. Affordable courses priced at INR3,000-25,000
 S Chand holds ~6% stake with an option to increase stake to ~10% during 2022.
 Company is in the process of raising Series B funding round
OnlineTyari
(Online test preparation platform)
Other platforms

Key Committees and Auditors
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Independent and Top Class…
Audit Committee
Nomination and Remuneration Committee


 Statutory Auditor:
• Walker Chandiok & Co (Grant Thornton)
• S.R. Batliboi (E&Y) – Till Dec’20
 Internal Auditor:
• KPMG


Summary
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 Guidance by the company for FY’23
• Revenue: 600Crs v/s 480Cr last year
• EBITDA: 100-120Crs v/s 76Crs
• Net Debt level: Debt free by FY’23
 New Curriculum could lead to a period of 3-4 years of high growth
 Possibility of consolidation in the industry
 Optionality in Ed Tech investments
Guidance as stated by the company and
not a projection of numbers by us

Risks
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& Mitigation…
 The company has a cyclical business and generates most of its revenue in the January to March quarter, just before the new
school session begins.
 Aggressive funding in EdTech start-ups: this company has stated that they will continue to explore start up investments where
there is a synergy with their main book publishing business.
 The stated investments to be limited to 5-7Crs max in a single company and limiting total such investments during the year
 Pressure on the cash flows and elongation of operating cycle leading to deterioration in its liquidity profile
 The company has taken several measures to ensure sustainability of cash flows and NEP business growth is close to
realization
 Any sizeable capex or acquisition
 Looks like a remote possibility as the company is now focused on cash flows and debt repayment
 Any government circulars resulting in reduction in adoption of certain non core subjects
 The company has made major inroads with monthly/semester wise books which addresses this issue.
 Any delays in NCF launch
 Remote possibility as NCF for foundation course already announced and remaining classes to be covered in due course

Thank you
Email: info@aurumcapital.in
Twitter: @niteen_india
@CapitalAurum
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