S Chand & Co Ltd (SCHAND) Q1 FY23 Earnings Concall Transcript

S Chand & Co Ltd  (NSE:SCHAND) Q1 FY23 Earnings Conference Call dated Aug. 10, 2022

Corporate Participants:

Himanshu Gupta — Managing Director

Saurabh Mittal — Chief Financial Officer

Atul Soni — Investor Relations

Analysts:

Jiten Parmar — Aurum Capital — Analyst

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Devraj Patel — HDFC Securities — Analyst

Niteen Dharmavat — Aurum Capital — Analyst

Riya Mehta — Aequitas Investments — Analyst

Akshay Kothari — Envision Capital — Analyst

Shubham Ajmera — Shubham Ajmera — Analyst

Saurabh Kumar — Scientific Investing — Analyst

Chintan Sheth — Samiksha Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to S Chand & Company Limited Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Jinesh Joshi from Prabhudas Lilladher. Thank you and over to you, Mr. Joshi.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Thank you so much. Good day, everyone. On behalf of Prabhudas Lilladher, I welcome you all to the 1Q FY ’23 earnings call of S Chand Limited. We have with us the management represented by Mr. Himanshu Gupta, MD; Mr. Saurabh Mittal, CFO; and Mr. Atul Soni, who heads the Investor Relations Department.

I would now like to hand over the call to the management for opening remarks and then we can open the floor for Q&A. Thank you and over to you, Himanshu ji.

Himanshu Gupta — Managing Director

Thank you very much. Good afternoon, ladies and gentlemen. I am Himanshu Gupta, the Managing Director of S Chand & Company Limited. I would like to welcome you all to our first quarter results conference for FY ’22 and thank you all for taking the time out and joining us here today. I’m extremely happy to share that Q1 FY ’23 has been a record quarter for S Chand in its history. We hit the following landmarks during this quarter: highest ever quarter one sales, highest ever quarter one EBITDA, first time PAT profitable in Q1, lowest receivable days in quarter one in the past five years, lowest net working capital days in quarter one in the past five years, lowest net debt level since March 2018, and 6x increase in OCF over Q1 last year. Saurabh will touch more about these in his comments.

As we have now firmly entered FY ’23, we see that hybrid or blended learning is the way ahead. We benefited in Q1 from schools and colleges having reopened for classes in physical mode with new vigor and witnessing increased admissions. A lot of schools in smaller cities, which had challenges of online learning due to the lack of infrastructure, are seeing students back at school which is spurring demand for books and stationery. Some of the schools which had closed during the COVID-19 pandemic have reopened. Further, this has also improved the cash flow cycle of the schools, channel partners, and distributors which was severely disrupted for the past couple of years. This is reflected in the quicker realization from the channel during Q4 FY ’22 and Q1 FY ’23. The publishing business has had a couple of years of disruption, which has impacted a lot of small and medium-sized content providers.

In the post COVID world of supply chain disruptions or material shortages, we are well placed to capitalize on our premium product range, brand, distribution network, relationships with educational institutions, and customer service along with the financial strength of the organization. I would like to highlight that this opens up an opportunity for us to increase market share and we are working tirelessly for this. On the EdTech front, our recently launched S Chand Academy on YouTube has had phenomenal success in a short period of time. We have launched over 550 videos in higher education science, engineering, and test preparation on the channel so far and the channel has notched up over 4 million views. This further enables the promotion of our print content further spurring demand in that segment with the blended learning offering. This channel enables students to learn critical areas through top notch educationists, which may not be available in Tier 2 and Tier 3 colleges.

We expect S Chand Academy to ramp up significantly and reach over 1,000 videos and 10 million views over the next few months. TestCoach, our test prep and higher education app, is seeing strong traction to cover over 100 plus government vacancy tests, which is a huge market. We expect increase in the government vacancies post COVID and with the elections due in 2024, which would further spur demand. Madhubun Educate360, our K12 learning management system, is now being implemented in over 55 schools and covers 100,000 students. Our personalized learning app Learnflix has over 330,000 downloads. On the investment front, we have made our first profitable exit from the sale of our stake in Testbook for approximately INR180 million in July. This translates into a 7.8x return over our initial investment. We continue to partner with Testbook on Smart books.

Now the big elephant in the room is the education policy, the NCF, after the New Education Policy, which was announced in 2020 and its pending implementation. We’re hopeful that the new National Curriculum Framework or NCF would be launched later this year after which NCERT and SCERT would create content for the Grade 8 segment. To be on the conservative side at the start of the year, our current guidance does not include any impact of NCF announcement. Our target would be revised upwards if we get a timely announcement of the NCF. On the higher education front, some of the states have already implemented the NEP where we are seeing strong traction for our content. National Testing Agency has already launched CUET, which will become one of the most important examinations for college admissions apart from IITJEE and NEET.

With that, I would now request our CFO, Mr. Saurabh Mittal, to apprise us all on the financial performance of S Chand. Thank you.

Saurabh Mittal — Chief Financial Officer

Good afternoon, everyone, and thank you for your time. I’m Saurabh Mittal, CFO of S Chand. In terms of numbers for the quarter, our consolidated operating revenues came at INR1,073 million versus INR358 million during the same time last year registering a growth of almost 3 times the revenue versus the quarter last year. We maintained our gross margins at the same levels as last year in spite of a sharp increase in paper prices as realizations improved and inventory got liquidated. We reported EBITDA profits of INR262 million versus loss of INR169 million in the corresponding period last year in spite of undertaking salary hikes, higher travel spends during the quarter spurred by higher volumes. Happy to share that this quarter was the first ever PAT profitable Q1 in company’s history with a profit of INR62 million versus a net loss of INR314 million in the same period last year. I would like to bring your attention to Slide Number 5 to Slide Number 8, which showcases the results of the steps taken during the past three years towards building a cost effective and lower working capital organization with focus on positive cash flows.

We continue to focus on working capital rationalization and product rationalization for the coming year. Trade receivables reduced to INR2,109 million during the first quarter versus INR2,485 million during Q1 FY ’22. This is a INR376 million decrease in receivables in spite of achieving incremental sales of INR715m over quarter one last year. In terms of receivable days, it stood at 139 days versus 233 days, a reduction of 94 days over the previous year. This is the lowest receivable days in Q1 in the past five years. Inventory reduced to INR1,352 million versus INR1,480 million. This improvement in inventory is driven by various steps that we took in controlling print runs and optimizing book titles. This inventory level includes raw material paper inventory of INR301 million versus INR234 million in the previous period, which was being built earlier this season due to the sharp increase in paper prices.

In terms of inventory days, it stood at 202 days versus 295 days, a reduction of 93 days over the previous year. Net working capital reduced to 162 days versus 282 days, which is a reduction of 120 days over the previous year. This is the lowest net working capital in Q1 in the past five years. We reported net debt of INR279 million versus INR1,297 million in the previous period and gross debt of INR1,145 million versus INR1,862 million in the previous period. Net debt has reduced by INR1,018 million on year-on-year basis. This is the lowest net debt level since March 2018. In terms of cash flows, our strategy of focusing on cash flows has yielded results where we have seen OCF jump 6.5 times over the same period last year. We ended the quarter with OCF of INR633 million in the current quarter versus INR99 million in the same period last year. As we continue into FY ’23, I would like to reiterate for this year. Firstly, we will be taking price hikes across our product portfolio upward of 15% to mitigate increased paper prices.

Secondly, we reiterate that we are looking to do annual revenues of INR600 crores, which translates into a 25% growth for the year. Thirdly, unprecedented hike in paper prices may put pressure on our gross margins to the tune of 100 bps to 200 bps. We are looking to counter paper prices through our price hike, improved realizations, internal efficiencies, and continuing cost control throughout the year. Fourthly, on the debt front, we are well on our way to become net debt free by the end of this year and further optimize working capital going ahead. Fifth, the biggest growth driver for our print business could come from the introduction of new syllabus post the announcement of the NCF. This should lead to strong revenue and profitability growth for two, three years period. We have not included the impact of NCF in our current revenue guidance, but needless to say if that comes through, it can greatly change FY ’23 financials as well.

With this, I would like to open the call for questions. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Jiten Parmar from Aurum Capital. Please go ahead.

Jiten Parmar — Aurum Capital — Analyst

Yeah. Good afternoon, S Chand management team, Himanshuji. Really, really happy to see that Q1 was the best Q1 in history so congratulations for that. My questions are primarily on basically in the sense that since the paper prices have been on a continuous high, do you expect — and what I’ve heard from the industry sources is that paper is not available on credit. Do you think that that could stretch our working capital needs and how — is this something which can benefit our company because maybe unorganized players might not have — might not be able to basically procure without credit. So, can you throw some light on it?

Saurabh Mittal — Chief Financial Officer

Hi. So, I’ll take this one. Thank you for the appreciation for Q1. See paper prices, yes, we all agree that the prices are increasing on a day — on a weekly, monthly basis and that’s a cause for concern for us. However, we’ve got two, three things. A, in terms of working capital, yes, it may stretch it a bit, but as you’ve seen we are very well placed at the moment with our finances and our realizations of recovery from the market will also improve. Because of this, we are able to put pressure on our channel partners to pay us early, order early. We have in fact placed paper orders earlier this year so no challenges on availability of paper for us at least, which may be a problem for the others. Working capital may get stretched, but it’ll be a temporary phenomenon. Since most of our long-term obligations have been taken care of so this I don’t think would become a challenge for us at all. We are well prepared for that.

Himanshu Gupta — Managing Director

So, we have procured paper I think covered most of our requirements for this year. We have ordered and secured paper around 80%, 85% of our current year requirement and rest 15%, 20% we’ll be also securing very soon. So, we don’t see any problem in the availability front. Yes, the price is increasing. I’m hearing from the market the price might stabilize by maybe October or November hopefully. But yes, it’s creating problem for the unorganized player as he is facing difficulty as the last two years was also financially tough for him and now paper price is increasing, it’s creating a bigger battle for them. So, I think it might be little bit better in terms of improving our market share in the market with being an organized player and having better financial strength than before and being able to procure paper on time. That will definitely help us in increasing our market share this year I feel.

Jiten Parmar — Aurum Capital — Analyst

Yeah. So, paper is how much of our input cost from a percentage point of view?

Himanshu Gupta — Managing Director

It’s around 18% to 20% normally in a normal year. This year it might increase to maybe 24% or 25% depending on the final outcome. But yes, it’s 18% to 20% normally.

Saurabh Mittal — Chief Financial Officer

We are estimating a maximum of 200 bps impact on the gross margins although I mean the bottom line may get — and EBITDA and all will not get impacted because we feel that we probably will get higher volumes this year. So overall while gross margins might contract 100 bps to 200 bps, EBITDA target and profits maybe well in line because we feel volumes will be much higher this year.

Jiten Parmar — Aurum Capital — Analyst

Okay. So, I also want to congratulate you on basically one notification which you have sent to BSE regarding exit from Testbook, which happened last month so congratulations on that. It’s a very good outcome. What I want to know is, is this something investments into EdTech or other companies, will it continue and what would be the — how much of the cash flow we are allocating towards that and how do investors make sure that this is not — it’s not an unnecessary diversification? So can you throw some light on that, please?

Saurabh Mittal — Chief Financial Officer

Yes. So, if you look at — in fact our presentation also talks about our philosophy. One clarification the TestBook exit accounting will probably happen in quarter — will happen in quarter two. It’s not been accounted for in quarter one so that will happen in quarter two because the exit has happened only in July. So, the current numbers — Q1 numbers do not include that profit of about INR15 odd crores. See, we would continue to invest at a maximum of INR6 crores to INR8 crores in — where we really feel there is a strong traction and it’s not that we have to do an investment every year. We will do it as and when we find something which is very compelling, we will take our time and invest over a period of time. Last year we did iNeuron. We started the process in March ’21, we ended it in December 21 because we wanted to ensure that we are investing into people who have a great idea and want to build a sustainable and profitable business and those who are making a difference and actually there is an impact of the kind of work that they are doing. And that is what we found both with iNeuron and with Smartivity. Yes, as and when there is an opportunity to exit, we will definitely exit because we are creating both this as a strategic and financial investment. So since we have a responsibility to our shareholders, we’ll continue to take exits as and when there is an opportunity.

Jiten Parmar — Aurum Capital — Analyst

No, will this be — I mean my question is basically in that till we’re adjusted this to our existing business and will it be related where it could be a win-win situation for both of you guys or would it be something unrelated also?

Saurabh Mittal — Chief Financial Officer

It can be both. I mean there are places where we are actually strategically helping them also generate revenues also. So, that’s one strategic part that we are doing. And I mean as and when there is an exit opportunity, we would look at that whole, partial. See, we got all options open whatever works at that point of time. TestBook we saw an opportunity, they were merging with a larger — very large EdTech player and we were eventually going to get a very insignificant part of that player so then we decided we would not want to be a very insignificant investor in a large entity. So, we decided to take an exit. But we continue to work with Textbook with our SmartBook so that relationship still continues.

Atul Soni — Investor Relations

Jiten, just to add, we would never be investing in an unrelated sector. I think that was your initial question there. So, we would only be investing in education sector.

Jiten Parmar — Aurum Capital — Analyst

Okay, great. And…

Himanshu Gupta — Managing Director

And in areas where we feel — sorry. In areas, I was just saying, that where we feel that our company doesn’t have the DNA or the management bandwidth to make that product or make that service for the customer and we believe that it’s a good investment opportunity where the valuations are also decent and the company is also reaching a path to profitability, those companies we will look to invest. Not like companies which have a very high cash burn, those companies we’re not very interested to invest in.

Jiten Parmar — Aurum Capital — Analyst

Great. Thank you for clarifying on all this. So, do we expect to be debt free this year? And second is what is the margin guidance for the total year?

Saurabh Mittal — Chief Financial Officer

Yes. So if you look at net debt right now, if you saw at June-end we were at INR27 crores and with these INR18 crores coming in, we are down to about INR9 crores probably already single digit. So, seeing debt free at the end of the year is almost certain of course unless something happens on the COVID front or something. But other things remaining the same, we’ll definitely be debt free by the end of this year. So, that’s not even an area of concern. And in terms of margin, as far as gross margins may get impacted by 100 bps, 200 bps, that we’ve already given the guidance. But I don’t see impact on EBITDA because volumes will be higher and operating leverage will kick in because our fixed costs are not moving that much so revenues will definitely move higher.

Jiten Parmar — Aurum Capital — Analyst

Great. Thank you so much for answering my questions. Best of luck to you. And if I have any further questions, I’ll get back in queue. Thank you so much.

Himanshu Gupta — Managing Director

Thanks, Jiten. Thank you.

Operator

Thank you. Next question is from line of Devraj Patel from HDFC Securities. Please go ahead.

Devraj Patel — HDFC Securities — Analyst

Yeah. Great set of numbers. Congratulations to the management and the team. I have a question regarding NCF. So, we keep reading about it. There are internal investor meeting also scheduled. So, how confident we are compared to what we had in the last call that we will get NCF by the end of this year and will that help us to come out with our content by March?

Himanshu Gupta — Managing Director

So, we cannot be 100% sure that the NCF will come out this year or not. But if it comes out at the timing which early — if it comes out early, then it will help us to grow the business more. But if it comes out late, then it will be not implemented fully next year. So, it depends on the timing that the government announces. But we feel from our sources that the government might announce this year, but again depends on the government. So, we cannot be 100% sure that NCF will come out or not come out, difficult to say. But we are in any case feeling that the first quarter has been good and the momentum has been good and the market is opening up. So in any case without the NCF also, we are predicting healthy growth and if NCF comes in, it will only boost up the growth.

Devraj Patel — HDFC Securities — Analyst

Right. So, it is government driven policy and as such we cannot be 100% sure in the government. So, my question is on say suppose government needs to do say 10 steps before they come out with the NCF. Say at the end of the March, they were maybe at stage number four or five and now have we seen the progress there? Now it is stage of seven or eight so we can be fairly confident that by December we can be coming out with it. I just wanted to know from your perspective and your sources have they moved substantially from say March to now?

Himanshu Gupta — Managing Director

They don’t share the sources — they don’t share the steps with us — with the private companies. But yes, definitely we feel that government is moving it up and hopefully we have a feeling that by this calendar year or maybe a little bit earlier than November or December, they should announce the NCF. That’s what we are hearing. But again it’s in the hands of the government, whatever happens, we’ll come to this later is what we said.

Atul Soni — Investor Relations

So, actually they have also set up state committees and they have been in regular consultation with various committees across the country and we keep on seeing lot of announcements from all the state governments and the state education ministers about all the steps that they are taking for this new announcement. So, that gives us a feel that the government is serious and they are taking all the necessary steps. Now as you can understand from our government, they might even have the report in their hands so when they want to release it, it’s their decision, right. So that’s something which is out of our hand, but he can definitely see the steps which state government as well as the national government is taking for announcement of NCF.

Devraj Patel — HDFC Securities — Analyst

Right. Thank you. I will get back to the queue.

Operator

Thank you. The next question is from the line of Niteen Dharmavat from Aurum Capital. Please go ahead.

Niteen Dharmavat — Aurum Capital — Analyst

Thank you for the opportunity. Am I audible?

Operator

Yes, sir. You are.

Niteen Dharmavat — Aurum Capital — Analyst

Okay. So, a couple of questions. First question is how many subsidiaries do we have now and what is the plan to consolidate these numbers because some of this came in in form of acquisitions as well, some of this we would have created to enter into new areas?

Saurabh Mittal — Chief Financial Officer

So, we have about 12 and we are in the process of already merging three. The application is already done. One consolidation last year, three of them are under process pending with the NCLT. Long-term vision I think we should be down to four entities by the end of next year so by the end of FY ’24 is what I’m anticipating. We don’t want many entities to ensure that we’re tightly knit and reduce the regulatory compliance issues and all that. So by end of FY ’24, I’m assuming we will be down to four or maximum five.

Niteen Dharmavat — Aurum Capital — Analyst

Okay. And my second question is related to the returns, which happens on the market of the books which are sold. So, what is the percentage — in terms of percentage of the revenue, what is the percentage of the return which comes back from the market and what is the target that we are having compared to the last year?

Saurabh Mittal — Chief Financial Officer

Traditionally during COVID, last two years was very high, I mean we had gone up to almost 30% at times. But this year we’ve been very strict. We’ve given prior intimation that we will not be accepting anything above 15% and that is what we are doing at the moment. Considering the kind of collections that we’ve had in the first quarter and even in July, the way things are moving it seems it’ll be well within that and going forward we will further try to reduce it to 12% and then maybe 10% in the next year. So, we are very, very clear that we do not want to — we will not accept and if somebody needs to take supplies, they have to keep that in mind because we do not want to build inventories for the next year just before that and this will improve our working capital and overall provisioning also. However, having said that, in March we’ve done a slightly higher provision because that’s based upon our three-year average. So, we continue to have that buffer within us.

Niteen Dharmavat — Aurum Capital — Analyst

Got it. My next question is we are having a revenue guidance of INR600 crore. What is the EBITDA guidance that we’ve given?

Saurabh Mittal — Chief Financial Officer

It should be around I would say between INR100 crores and INR120 crores.

Niteen Dharmavat — Aurum Capital — Analyst

Okay, got it. So, my question was in relation to the changes that we have done in last two, three years wherein we launched S Chand 2.0 and there were a lot of operational improvement that they brought in. We discussed about it in the previous call and the presentations as well. So, are these numbers sustainable as we grow in terms of revenues and going back to the pre-COVID level? So, are these operational improvement that we have gotten and the savings that we have gotten, are they going to be sustainable?

Saurabh Mittal — Chief Financial Officer

Yes, definitely they’re going to be sustainable because I think there’s been a complete shift in the internal mindset process of doing things. Lot of places we’ve reduced the number of locations that we are servicing from and that has brought in efficiency. We’re concentrating on five, six locations where we are servicing customers from and building efficiency around that. So in terms of other expenses, yes, sustainable. Our employee cost not to that level, but of course then with revenue growth we will try and see whatever best possible because again we have to keep in mind inflation and motivation of people. So, that maybe slightly higher than what we had anticipated., But with revenue growth and volume growth, I think that can be taken care of. So, rest of — plus working capital side in terms of inventory and receivables, completely sustainable. We want to sustain this kind of working capital days going forward. That is the mindset that has set in into the system and fortunately everybody down the line is following that same thing.

Niteen Dharmavat — Aurum Capital — Analyst

Okay. My final question is slightly hypothetical. So assume that NCF, National Curriculum Framework, comes by December — latest by December, which is the end of the calendar year, what is the revenue guidance we’ll have in that case for the entire year because we’ll have three months only remaining in the financial year?

Himanshu Gupta — Managing Director

So if that come late, then the revenue guidance might not shift the goalpost too much, it might shift some bit. It’s difficult to say how much, but not much. But if it comes early let’s say by October or so, then the revenue guidance might shift more. So, again depending on the government’s policy so we are hopeful that should come little early also. But if it comes late, then the implementation and the taking out books and the whole process will take two, three months and that will not get implemented fully, very partially it will get implemented next year — next academic session. But NCF comes in, then it gives you a longer runway of I would say three years at least and that will have a good growth over the next three years and that is good for us. But even without the NCF, the growth and the volumes and the margins look decent because there is a pent-up demand in the market and as the paper scarcity is there in the market, that is helping larger organized players to take more market share this year. So, that again is going to help us in achieving our numbers or even crossing that.

Niteen Dharmavat — Aurum Capital — Analyst

And assuming that it comes in October, then what will be the revenue guidance?

Himanshu Gupta — Managing Director

Again it is very difficult to say as of now. It depends on how much syllabus changes happens, what kind of content we have to create, and things that we cannot say right now because the changes we don’t know. But that will depend on the change impact it will have on the book. If the minor impact is there, then we can change it faster and bring the books faster; but if it changes a lot and we have to completely redo all the books, then it might take time. So, those things we cannot say before we get the content — before we get the syllabus in hand.

Saurabh Mittal — Chief Financial Officer

Niteen, but having said that, I think fair to say something comes in by October, I mean I would say we can look at around incremental 10% to 15%.

Himanshu Gupta — Managing Director

Yes, that can happen. But again it depends on the change that the NCF will require.

Saurabh Mittal — Chief Financial Officer

And the number of classes that they actually end up changing. They may be doing three classes or five classes or eight classes in the first year so that depends.

Niteen Dharmavat — Aurum Capital — Analyst

Correct. So 15% incremental revenue, will it also be with the same EBITDA guidance of 20% or will it be more than that since it is EBITDA?

Saurabh Mittal — Chief Financial Officer

It should be higher because see your fixed cost is already there. So again whatever revenue adds, it all goes to — the gross margin goes to the bottom line, yes. But initially they might be slightly higher specimens given to schools, but I think definitely most of it would go to the EBITDA. So, your EBITDA would expand.

Himanshu Gupta — Managing Director

So, my suggestion in this is NCF we should not look at the first one-year kind of trajectory. We should be looking at least a three-year kind of a run. So when we plan for a syllabus change, it’s going to have a short-term to medium-term impact for the industry.

Niteen Dharmavat — Aurum Capital — Analyst

Got it. Thank you so much and all the best.

Himanshu Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Riya from Aequitas investments. Please go ahead.

Riya Mehta — Aequitas Investments — Analyst

Hello. Thanks for taking my questions.

Operator

Riya, sorry to interrupt you. Your voice is not clear. Your voice is breaking.

Riya Mehta — Aequitas Investments — Analyst

Am I audible? My first question would be in regards to other income. This quarter we had a significant bump up in other income, what does that constitute of?

Saurabh Mittal — Chief Financial Officer

So, other income is basically the bump up is on account of the accounting for Smartivity Labs. Earlier it was accounted for an associate as up to March. But one of the Directors who was holding equity has sold his stake — not from Board of Director, but one of the other employee Directors. He has sold his stake in Smartivity. This continues to be an associate so the accounting for that has changed and whatever price that person has sold his stake, the fair value of our investment in Smartivity has been accounted for like that. So, there is an INR8.5 crore to INR10 crore incremental margin on account of that.

Himanshu Gupta — Managing Director

The explanation is given in the notes to the results.

Riya Mehta — Aequitas Investments — Analyst

Right. I just wanted a little more detail on it. My second question would be I just recently started covering S Chand so I just wanted a breakup between what will be our revenue coming from traditional sources and what will be from a digital sources or if you could just me in terms of percentage terms, that would also be great?

Saurabh Mittal — Chief Financial Officer

So to be honest, we’re not really breaking it up between traditional and digital because it’s all got combined into a single hybrid and blended learning. Pure play digital at this point of time, I’m not sure how much it is working for any of us. Most of our products already are hybrid. Each of the printed books that go out do go out with a digital imprint whether it’s a QR code, whether it is website support, or something along with that. So, each of the books have already been enabled to be digitally enabled. So, we’re not really segregating that at this point of time.

Atul Soni — Investor Relations

So, we might be able to charge either a higher price point or that might be a benefit which might accrue to a user by using S Chand books, but it will not be possible to do a clear bifurcation between what the digital is bringing and what traditionally is coming from the book itself.

Riya Mehta — Aequitas Investments — Analyst

Right. Okay. And where do we source the paper from exactly like who would be our vendors or is it imported or how is it, what is the [Indecipherable]?

Himanshu Gupta — Managing Director

So, we import I would say 30%, 35% paper from Indonesia a mill called Aprilfine. Then we take paper from Indian mills like TNPL, we take it from EMI, we take it from West Coast, we take it from Shah, we take it from Kuantum, we take it from — around 10 to 12 mills we take paper from in India as well. So, around 60%, 65% paper we procure domestically.

Riya Mehta — Aequitas Investments — Analyst

Alright. And I think 85% of it is already covered for the current year’s demand?

Himanshu Gupta — Managing Director

So, we secured — around 80%, 85% paper we have secured. The rest 15%, 20% paper we will secure soon.

Riya Mehta — Aequitas Investments — Analyst

Right. My next question would be for NEP so basically the new policy which is coming up. So in the political stage, where is it like currently like it has been passed by Rajya Sabha and what is the bottleneck here?

Himanshu Gupta — Managing Director

NEP is already passed by the government. NEP is already getting implemented. It is NCF which needs to now get approved by the government.

Riya Mehta — Aequitas Investments — Analyst

Okay. And that is at what stage?

Himanshu Gupta — Managing Director

As I said earlier, the stages we are not very sure which stage the government is working. But yes, according to our sources, the government is ramping up its pace and hopefully it should be out before the end of this calendar year.

Riya Mehta — Aequitas Investments — Analyst

Okay. And if it comes in the next year, you would see revenue coming in FY ’24?

Himanshu Gupta — Managing Director

Yes. FY ’24, correct.

Riya Mehta — Aequitas Investments — Analyst

That would be the latest, right?

Himanshu Gupta — Managing Director

Yes, that should be I would say the last thing. It should come before that hopefully, but maximum it should come out by FY ’24 maximum on the higher side.

Saurabh Mittal — Chief Financial Officer

It should come out before — it should definitely come before the elections.

Riya Mehta — Aequitas Investments — Analyst

Right. And I want to ask what will be your realization currently hovering around like I just read in the presentation that we have seen a 15% hike. So, do we see similar kind of hikes coming around in the next quarters and is it just a pass on of the incremental paper cost or are we seeing any margin improvement here also?

Saurabh Mittal — Chief Financial Officer

Yes. So 15% paper — so we do pricing of our products once in a year because again our catalog goes out to schools once in a year so we don’t do incremental price increases around the year except for maybe the Test Prep segment. So, you’ll start seeing the realization coming in from quarter three onwards because the price realization changes from September onwards and since the session starts only from November, December.

Atul Soni — Investor Relations

And price hike is not the only lever that we have for either increasing or defending our margin. We have also reduced discounts in the channel so that also adds to our margin profile. So there will be some other internal efficiencies, which we are planning to bring in this year. So, I mean all these together will help us in our margins.

Riya Mehta — Aequitas Investments — Analyst

Alright. And what would be — at the full capacity of our current plant, what kind of revenue can we generate?

Saurabh Mittal — Chief Financial Officer

There is no capacity constraint as far as we are concerned. But again we have to be very prudent with whom we are selling. We have in fact over the last three years reduced the number of channel partners by almost 30%, which reflects well in our working capital. We do not want to be very aggressive with revenues because again we do not want to compromise in the quality of our sales because that impacts both realization, impacts cash flows, and overall even servicing of the schools plus anything extra that goes will come back as inventory so it’s pointless. While there is no capacity constraint, we will continue to run it prudently and ensuring that cash flows come in and we do a good margin business. And that’s what we are focusing on, keeping it simple.

Riya Mehta — Aequitas Investments — Analyst

Okay, I got it. And would be the sustainable line of tax percentage or…

Operator

I’m sorry, we are not able to hear you.

Riya Mehta — Aequitas Investments — Analyst

What are the accumulated losses we have currently for tax computation?

Saurabh Mittal — Chief Financial Officer

It should be around INR130 odd crores.

Riya Mehta — Aequitas Investments — Analyst

INR130 crores. Okay. Thank you.

Operator

Thank you. The next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Thanks for the opportunity. Sir, I wanted to understand like when we studied, there was a famous book by the name of Wren & Martin, which belonged to your company and it was very famous. So I studied from an ICSE Board. So I just wanted to understand that from a traction point of view — there are certain books which are very much what we can say sticky to the student and across the board for example in ICSE Board, everyone used to use prose books so one of them was Wren & Martin. So going forward for example, are we having such sort of books in categories of NEET, JEE Mains wherein the student would actually want to purchase those books. So, if you can explain regarding that. Any for that matter chartered accountancy, engineering; which are those categories which we are having?

Himanshu Gupta — Managing Director

Okay. So, basically school category gets divided again into basically three categories; ICSE, CBSE, and there is the state board. And ICSE compared to CBSE is only 10% of the market. And CBSE we are leaders in lot of products like Lakhmir Singh in science, we are leaders in maths, we are leaders in Hindi, we are leaders in Sanskrit, we are leaders in French, we are leaders in physical and health education. Plus if you talk about ICSE, Wren & Martin is used both in ICSE and CBSE space. We are again leaders in maths there in ICSE plus we are leaders in higher education space, in Test Prep. We have a series by the author named R.S. Aggarwal, which is also a very famous author and again we are leaders in accounts Shukla and Grewal in CA. We’re leaders in engineering space; we have Thareja, Khurmi, V.K. Mehta, lot of good books there.

We have some good books in management as well. So, these are the lot of spaces that we are leading in through our authors and through our books and through our brands and these are some of the categories which I have mentioned, there are many more. The list is quite long, I can’t fill it out right now. But yes, definitely S Chand as a group is leading in lot of spaces. We are also leading in Bengal at the state board Chhaya, which is a very popular brand. Like Navneet is in Maharashtra and Gujarat, Chhaya is in West Bengal and that is one of the most popular books there and is the biggest brand and the biggest publisher in that part of the country and we’re leading there as well. So, these are some of the categories I just mentioned.

Akshay Kothari — Envision Capital — Analyst

Now till the time we were in school we used to use a lot of your books, but when we came to — I joined chartered accountancy course and all these things so I joined classes and all those things and institute curriculum is also there, similarly for engineering and all. So I don’t think there would be much penetration or what is your view regarding the penetration of these books in the professional courses which we are offering?

Himanshu Gupta — Managing Director

For professional courses, the books that we are normally selling are course textbooks. So when you’re preparing for the examinations, we have books which are popular, but there are other books also — other companies also which are popular in that category. And when you join the CA institute or an engineering college, you use some of our books. I will not say all the books because it depends on the category of engineering institute that you join. If you join in IIT, it’s a different category; if you join a regional institute, it’s different; if you join a local private college, it’s different books they use. So, it depends again where you are studying. And children are using the books and definitely they’re using it, but some of the children are photocopying also, some of the children are also getting some notes from some institutes and all, which is not a part of any publishing business as a matter of fact, not ours not others also, and that is happening.

And some people are also doing online, they are getting e-books of our books or some other books they’re getting online for free, which is again it’s like an online piracy which is legally not allowed, but people are still using that in India and we try to stop that as much as possible. So, all these things are definitely being used and people are using it. And going forward we feel that we have launched some books for higher education for students last 1.5 years back and we’re seeing good traction in the market, which are called low priced student edition and which are priced much lower than a normal book. So a normal book was priced at let’s say engineering book of INR800, we are pricing the student edition at INR500 and that the student buys it for one semester and uses it. So, basically the idea is read and throw kind of idea. So you don’t need to keep that book for long, maybe you use it for only one semester. But that book because it’s cheaper, then it reduces the chance of photocopying and online piracy in the market.

Akshay Kothari — Envision Capital — Analyst

Okay, got it. And sir, your view…

Operator

I’m sorry to interrupt you. Can I request you to come back in the question queue?

Akshay Kothari — Envision Capital — Analyst

Yeah, sure.

Operator

Thank you. Participants are requested to ask two questions per participant. If time permits, please come back in the question queue for a follow up question. The next question is from the line of from Shubham Ajmera from Sai Ventures LLP. Please go ahead.

Shubham Ajmera — Shubham Ajmera — Analyst

Hello. Hi sir. Thanks for providing me the opportunity. Sir, I joined a bit late so sorry if things are already discussed. So, I had a question on sale of TestBook. So I just wanted to know like have we took the full exit from the TestBook like sale of equity as well as preferential and also are we planning to exit from other investments as well in near future like Smartivity, Gyankosh, and others?

Saurabh Mittal — Chief Financial Officer

Yeah. So, we’ve taken a complete exit from TestBook 100%. As far as Smartivity is concerned, yes, as and when we feel there is an opportunity and it’s the right valuation. With the kind of way they are growing, I’m sure it will only multiply and probably since our investment is a very, very early stage investment in Smartivity, I think that will be much much larger than what we had in TestBook. With regard to the others, I think the other two smaller investments of 2.5 and 0.5 or something, that we’ve already written off in our books because those things have gone to zero. So, some of them will of course not make money in the longer run so that we’ve already provided for and written off in our books. Smartivity, yes, it will definitely at some point of time give us some excellent exit much larger than what we got in TestBook.

Shubham Ajmera — Shubham Ajmera — Analyst

Okay. So, any idea of core valuations if you had done for the Smartivity like current valuation of that investment?

Saurabh Mittal — Chief Financial Officer

So, the last round happened at about INR100 crores last year in June and then of course the revenues have already multiplied 2 times, 3 times since then. So I mean currently I don’t know whether they’re looking for a funding because finally they’re also cash flow positive from first quarter and very well run. They’ve had a huge first quarter this year so they are doing exceedingly well. Till the time they actually need capital, they will not tap the market. So, my sense is they’re going well and they should definitely probably do INR50 odd crores plus revenues probably this year or by mid next year. So, that has been going good and great set of people in that. So I think long term it’ll take — my sense is it will take about a year-and-a-half or two years to get something from there.

Atul Soni — Investor Relations

And we also brought some marquee investors on board in the last round. I think Mr. Ashish Kacholia and Mr. Mahendra Kothari also joined there.

Shubham Ajmera — Shubham Ajmera — Analyst

Got it. Understood sir. And my second question is on NCF implementation. Like we have discussed multiple times that post the NCF, our revenue will grow. But I had a question on that, but since the new course was introduced and the syllabus would change so then we need to hire more authors as well our employee costs will also increase substantially. So, our bottom — means I just wanted to know like since we are planning for after NCF implementation, we are guiding for 20% to 25% revenue growth. So this revenue growth will also like in the bottom line as well also we are trying to achieve the 20%, 25% growth or in the initial year because of this author cost and all, our bottom line may not increase substantially. But post some — in medium-term range we’ll make good money in the bottom line as well?

Himanshu Gupta — Managing Director

We believe the bottom line will definitely increase with the increase in sales and the content creation cost will not be much including the authors and all we already have on board, including the editorial team we already have on board. Maybe some part we need to spend to create the new content, but it will not be very substantial. So, it will be a small part of it. Yes, the only major cost that will come in is obviously to produce the new books and to sample the new books. So more than the content creation cost, the cost will be there on the sampling and the marketing part of the business so which I feel will be covered through the sales of the books. So, I don’t feel that that should be a major concern regarding the profitability.

Saurabh Mittal — Chief Financial Officer

Also one thing around numbers. See, we are a turnaround company to that extent that you will see a much higher percentage jump in profitability versus last year or versus the last two, three years. So for example last year we did a topline of INR480 crores and I think our PAT was around INR6 crores, INR7 crores. Now obviously this year we are saying we will do INR600 crores plus. That is a 25% hike, but your profit growth will not be 25%, I mean it will be multiples of that number because operating leverage kicks in. So that’s why I don’t want to give a profit guidance there. But I’m saying that percentage on the topline will not translate directly into bottom line, it will be many, many, times more than that because of the fact that we are in a turnaround phase of our life cycle as of now. That percentage directly percolating down, you can when it’s a steady state business not for us.

Shubham Ajmera — Shubham Ajmera — Analyst

Understood. And last question if I can pitch in with the last one question as well. So, just wanted to know can you give us the revenue mix from the CBSE or ICSE and State Board as well like if you had any idea on those?

Himanshu Gupta — Managing Director

The CBSE sales would be the majority of the sales for the Group and CBSE would be doing around I would say close to 60%, 65% should be coming from CBSE and then I would say 15%, 20% coming from ICSE and 15%, 20% coming from state boards. This is of the school business. This is for only school business I am talking about. For the K12 business.

Shubham Ajmera — Shubham Ajmera — Analyst

For the K12 business. About 15% of total revenue is also higher education.

Himanshu Gupta — Managing Director

Yes. That is separate. I’m talking about only the school business bifurcation.

Shubham Ajmera — Shubham Ajmera — Analyst

Okay. Got it. Thank you. Thank you so much.

Himanshu Gupta — Managing Director

Thank you.

Operator

Thank you. A request to all the participants please restrict to two questions for participant. The next question is from the line of Saurabh Kumar from Scientific Investing. Please go ahead.

Saurabh Kumar — Scientific Investing — Analyst

Hello Sir. Firstly, congratulations on good numbers and there is a tremendous improvement we can see on the balance sheet side and the working capital improvement.

Operator

Saurabh, sorry to interrupt you. Can I request you to speak little clearly and little louder please?

Saurabh Kumar — Scientific Investing — Analyst

Sure. Sir, congratulations for the good result and we can see lot of improvement in the working capital and on the balance sheet. My question is where do you see the optimum working capital? That is one. And given this is structural, we hope there will be more cash which is going to be generated. So, what is your plan in terms of capex? I’m not asking for next year, but let’s say if this is a structural story, on an average how much percentage of the cash flow will go in capex and then what is going to happen with the post capex cash which is there? Will you have a dividend policy and all? I’m sorry if this has been addressed because I joined a bit late.

Saurabh Mittal — Chief Financial Officer

No, I think we haven’t taken that up earlier. Thank you for the question. I would say a maximum of 10% to 15% would go in capex, not a very large amount because we’re not building any further capacity especially on the print side because there’s enough capacity available in terms of printing I would say and again content development is not such a big high cost. We should have good cash flows by the end of this year and definitely on the dividend side, the Board will take a call. But if the numbers are decent as we planned this year, then I’m sure next year would be a year that we would definitely want to…

Himanshu Gupta — Managing Director

We would like to return back to shareholders. We will see in which form it is done and that’s something which the Board will also decide at the opportune time.

Saurabh Mittal — Chief Financial Officer

I think we have a dividend policy which is there. I think once we fully have EPS decent amount, then of course we’ll…

Himanshu Gupta — Managing Director

But as per your question, there’s not a major I would say capital requirement in the near term.

Saurabh Kumar — Scientific Investing — Analyst

Sure sir. And in terms of our working capital, have we reached to the optimum level or you see there is further scope of improving it?

Saurabh Mittal — Chief Financial Officer

Yeah, there is definitely further scope of improving it especially on the inventory side and we’ll continue to work on that. I think the market is getting especially with the way paper prices are going, supply is going to be a challenge for other people in the industry. We’ll take advantage of that and squeeze as much as possible out of the market. So, I think we are 80% there. Another 20%, 25% we can further push.

Saurabh Kumar — Scientific Investing — Analyst

Sure. And sir, one last question. Do we have any kind of revenue concentration like in terms of by geography or by client? I mean I just want to know are we concentrated anywhere in terms of revenue?

Saurabh Mittal — Chief Financial Officer

Not at all.

Himanshu Gupta — Managing Director

We are not concentrated, but yes definitely North India is the largest market because North India has a larger chunk of schools and larger chunk of population. So yes, North India — if you take the total North India population into account, yes, definitely North India is — [Speech Overlap]. It is depending on the population and depending on the schools you have in particular region. So, definitely North India would be largest.

Saurabh Mittal — Chief Financial Officer

But having said that, I think the question you’re coming from in terms of risk, I don’t think any customer or any school accounts for more than 0.5% of my revenue. So, I mean that risk is not really not there in terms of customer losses.

Saurabh Kumar — Scientific Investing — Analyst

Great. Thanks a lot, sir.

Saurabh Mittal — Chief Financial Officer

There’s no big customer as such. I mean I don’t think so there’s a customer exceeding — any school exceeding even INR1 crore.

Himanshu Gupta — Managing Director

Yeah, I don’t think so. Maybe one or two chains of schools, but nothing major.

Saurabh Mittal — Chief Financial Officer

It’s pretty evenly spread across.

Operator

Thank you. The next question is from the line of Chintan Sheth from Samiksha Capital. Please go ahead.

Chintan Sheth — Samiksha Capital — Analyst

Now am I audible?

Operator

Yes, go ahead.

Chintan Sheth — Samiksha Capital — Analyst

Congrats for a great set of numbers. I just wanted to check on the pricing, you said 15% is driven by the paper prices broadly. But haven’t we seen even historically does that prices get reversed when the prices tends to normalize, I don’t think I’ve seen books prices revising lower?

Himanshu Gupta — Managing Director

Not to my knowledge. The book prices have not go down. The book prices have only increased. So, basically this year there’s abnormal increase of 15% maybe 16% of increase in book prices. But next year if the market continues and the paper prices get normalized, then the price increase will be like 8%, 9%.

Saurabh Mittal — Chief Financial Officer

Average will be like 7%, 8%.

Himanshu Gupta — Managing Director

7%, 8% depending on the product to product category. But yeah, it will be like half of what it will be this year.

Chintan Sheth — Samiksha Capital — Analyst

Right. And if the paper prices are favorable, then whatever we are losing this year, 100 bps, 200 bps which you have guided, kind of will get well compensated with higher volumes if assuming the NCF kicks in perfectly or not.

Himanshu Gupta — Managing Director

We are seeing growth this year also plus we are also expecting that the change in the market scenario which is getting the quality customers that we’re dealing with and cleaning up the market space, that will definitely have a long-term impact on the business in a positive way and that should help us in getting better margins in the future, improving our cash flows, improving our EBITDA margins. Everything it will have a positive impact. It is just this year it has been very abnormal for the paper market to jump up suddenly 60%, 70%. This is not a normal phenomenon so this is abnormal.

Chintan Sheth — Samiksha Capital — Analyst

But in that context do we have — have we faced historically that when things reverse, the competition kind of push down prices and we kind of — that hasn’t happened, right?

Himanshu Gupta — Managing Director

I haven’t seen any publisher bringing down the prices till now. They might not increase or they might slightly increase that is a possibility, but I haven’t seen publishers bringing down prices ever.

Chintan Sheth — Samiksha Capital — Analyst

But discounts might increase, which might incentivize dealer or channel partner to move from publisher to publisher?

Himanshu Gupta — Managing Director

It’s not only about the margin to the dealer. See dealer definitely wants his margin, but obviously the brand also and the product which is selling in the market. If he gets a higher discount and he takes up the — and he keeps the product upward and it doesn’t sell, it’s no use to him. So, he also wants to rotate his inventory very fast and he also wants to sell those things which are selling in the market.

Chintan Sheth — Samiksha Capital — Analyst

Correct. And secondly on the capital allocation and I will join back in queue. What is the corpus — annual corpus you will like to keep aside for this EdTech investments that as an investor we should expect that this is kind of the buffer you will keep for any opportunity, if not then it will stay in cash, but that one can expect that the investment go out of the — the cash will go out of cash flows from the company?

Saurabh Mittal — Chief Financial Officer

At max INR10 crores to INR15 crores and that’s also a huge thing. We’ve just done one in the last three years. We have to find the right — I mean it may not only happen during any year, but at max INR10 crores to INR15 crores. That’s also a stretch. We don’t want to — we’ll always do the first series, we will never do a follow-on series, we will never do valuations in excess of INR50 crores. So we’ve got all that inside and we will not invest beyond a certain point.

Chintan Sheth — Samiksha Capital — Analyst

Sure. That’s all from me. Thank you and all the very best.

Himanshu Gupta — Managing Director

Thank you.

Operator

Thank you very much. I now hand the conference over to the management for closing comments.

Himanshu Gupta — Managing Director

Thank you. And thanks everyone for your questions and thanks so much for the good wishes and hope we continue on this growth path and the path to profitability and margins. And as we said earlier, we are hoping to be a debt free company by the financial year-end. And we continue to give good quality products and services to all our customer and will continue to do so. We have been doing for more than eight decades and we’ll now continue to do so as well. And we wish you Happy Rakshabandhan and Happy Independence Day in advance. Thank you so much.

Operator

Thank you very much. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.