How S Chand will turn out to be a value play? A primer on the company

“ We are a seasonal business with majority sales coming from the Jan‐March quarter. We are confident of our performance during the current sales season as we are witnessing strong demand in the current sales season of January, 23‐ March, 23. This is the 1st disruption free full sales season that we are seeing after 3 years.”

– Mr Himanshu Gupta, Managing Director

Stock Data:

Ticker	SCHAND
Exchange	NSE and BSE
Industry	Media – Print & Stationery

Price Performance:

Last 5 days	+0.27%
YTD	+21.99%
Last 1 year	129.69%

Company Description:

Incorporated in 1970 and listed in 2016, S Chand & Company is principally engaged in publishing educational books with products ranging from school books, higher academic books, competition and reference books, technical and professional books, and Kindergarten books. The company provides its products and services in printed as well as digital forms.

Business Verticals:

The company has divided its offerings into the following verticals-

1. K12:

The company’s K-12 content portfolio is offered to students from ages 4 through 18 years and includes various instructional resources across hundreds of programs, covering the subjects offered in the K-12 segment. Company’s brands in this space include print content, such as S Chand, Vikas, Madhubun, Saraswati, Chhaya, and IPP as well as digital platforms and services such as Destination Success, Intellitab, Ignitor, Mystudygear, and Flipclass.

2. Higher Education:

This comprises two components: test preparation, college, and university/technical and professional. Key brands Vikas, S Chand and Test Coach

3. Early Learning:

This caters to the youngest customer market (0-4 years of age). Brands in this segment include BPI, Smartivity and Risekids.

4. Digital Offerings:

1. Learnflix app (Android Playstore & Apple iStore), is a learning platform currently available for Grades 6 to 10 for math and science subjects. It has been downloaded over 80,000 times and has over 18,000 paying subscribers.
2. Mylestone – This is a digitally enabled end-to-end school curriculum solution for the K-8 segment. Approximately 400 schools have signed up at the end of FY20.
3. Educate 360: Madhubun Educate360 is the newly conceived K-12 blended learning solution (LMS) for enabling schools to conduct online classes, student assessments, e-book support, etc. as a response to the COVID-19 crisis

Other inhouse digital offerings:

4. Test Coach – Has been downloaded over 10,000 times for competitive exam preparation in recent months.
5. MyStudygear App – Blended learning app with books and over 1 million users currently.
6. VRX – Virtual Reality with books with over 50,000 users
7.  Chhaya Learning App – Bengali/English Learning with books with over 500,000 users
8.  Destination Success – Enabler of Digital classrooms
9. Nuri Nori, Risekids, Smart K – Only for Early Learning

Financials:

What we like:

1. The company has a niche competitive edge:

Publishing space requires a good author base and distribution network. No matter what, the K-12 education will always be implemented in the physical format and children are never going to stop buying books. Interestingly, S Chand holds a good grip in this game. With 2400 authors, some of which are leading in their field, 10,000 active titles and presence in almost 40,000+ schools helps the company to rule the private school market in India. Further, the company is aggressively evolving to grow organically in this niche as well. On the digital front (LearnFlix), Byju’s is not the main competitor of the company. Byju’s package costs way more than 20,000 which is not affordable by the average Indian middle class family. But the Learnflix costs less than 3000 providing the same quality content. Their subsidiary Convergia which houses Learnflix and Mylestone is looking to raise 60-70 crores via equity dilution of 20%. That would make the subsidiary alone worth 300 Cr. Company claims Raising capital is not an issue and they are looking for investors who can help accelerate growth via the B2C route. 

2. New Education Policy could be a growth trigger for the company:

The Union Government formally adopted the New Education Policy(NEP) in July, 2020, which introduced  the release of the National Curriculum framework (NCF). Since the New Curriculum is being developed after a gap of 15 years, this will eliminate the use of pre-used books which is about 20% of the market and leads to 20-25% growth for the next 2-3 years. Also there is a case for market consolidation here as smaller publishers would find it difficult to transition to new content compared to the bigger players.

3. Robust relationship with Schools and Authors:

S Chand has had a presence in the publishing industry for the past 8 decades and they have established a strong relationship with several schools and covers more than 40,000+ schools across India and the company also has arrangements with multiple best-sellers and has 2400+ author relationships as of FY20.

4. Impeccable distribution network:

The company has an in-house sales team of over 500 professionals working from over 50 branches and marketing offices. The company has more than 11,000 book titles and has sold over 50 million books to date with the help of more than 5,000 distributors and dealers. It also has a 90 TPD i.e. Print Capacity in a number of sheets.

Factors to consider:

1. Volatility is raw material prices. Paper is the key raw material, constituting almost 22% of net revenue.  
2. Any regulatory changes in the CBSE/ICSE board is an inherent risk to the company’s business. However, the company is looking for opportunities in the state board to de-risk the business model.
3. Seasonality of sales leads to Q4 reporting 80% of their sales while 9 months is loss making.
4. Failure to retain key authors could adversely affect the business.

Industry Analysis and conclusion:

India holds an important place in the global education industry. India has one of the largest networks of higher education institutions in the world. According to IBEF research, with almost 27% of India’s population in the age group of 0-14 years, India’s education sector provides numerous opportunities for growth. The education sector in India was estimated to be worth US$ 117 billion in FY20 and is expected to reach US$ 225 billion by FY25.

S Chand is transforming itself from a publishing company to a complete education services provider and a lot of schools are willing to adopt learning management systems, not just for convenience but also to separate themselves from their competitors. Just like any other business they too need to impress their customers and we all know the willingness of Indian parents to spend more on education. For FY22, the company is looking forward to implementing a price hike across the portfolio, on back of increased raw material cost which would support their margins substantially. They are also looking forward to a normal sales cycle for print business, post increased vaccinations & schools reopening. In the short to medium term, S Chand aims to be net debt free in 2 years through focus on the free cash flows and aims to increase share of Ed-Tech revenues to 20-25% over the next 3 years. The company aims to target over 5 million users across Company’s Ed-Tech properties. Therefore, S Chand can be a niche player in this segment and can ride on the Ed-Tech boom in India. Though, a lot depends if Learnflix scales up, then S Chand would turn into a complete Ed Tech play and the valuations of the company would boom substantially.