Navneet Education Limited (NAVNETEDUL) Q3 FY23 Earnings Concall Transcript

Navneet Education Limited (NSE:NAVNETEDUL) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Jinesh Joshi — Investor Relations

Sunil Gala — Chief Executive Officer and Managing Director

Unidentified Speaker —

Kalpesh Dedhia — Chief Financial Officer

Analysts:

Amit Kathan — Laburnum Capital — Analyst

Nitin Dharmawat — Aurum Capital — Analyst

Amit Doshi — Care PMS — Analyst

Basil Buddhadev — Kotak Mutual Fund — Analyst

Sonal — Muhed Investment — Analyst

Rishikesh — Rockstar Capital — Analyst

Kartik Gada — Multiple Wealth Management — Analyst

Rajan Shah — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Navneet Education’s Q3 FY ’23 Earnings Conference Call hosted by Prabhudas Liladar Private Limited. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

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

Jinesh Joshi — Investor Relations

Yes. Thanks, Nida. On behalf of Prabhudas Lilladher, I welcome you all to the Q3 FY ’23 earnings call of Navneet Education Limited. We have with us the management represented by Mr. Sunil Gala, who’s CMD; and Mr. Kalpesh Dedhia, who’s the CFO; Mr. Roomy Mistry, Head IR; and Mr. Sanjeev Shah, who joins [Indecipherable] Navneet future date. I would now like to hand over the call to Sunil for opening remarks and maybe then we can open the floor for Q&A.

Thank you, and over to you, Sunil.

Sunil Gala — Chief Executive Officer and Managing Director

Thanks, Jinsesh. Good morning, all of you. And first of all, thanks, Prabhudas Lilladher for arranging this call. So looking at last three quarters, we believe even regional medium schools have stabilized. I’m just repeating again that — and as mentioned in my last call that ground reality in three-tier and four-tier cities are much different than what we see in metros. But looking at this stabilization even in three-tier and four-tier cities, now we are confident on full-fledged running of schools with good admission numbers from next year. There is still uncertainty on paper prices, which is our biggest raw material. In Q3, a certain variety of paper prices did soften. But again, paper mills are talking upward revision going forward. We believe it is very, very temporary because of the demand-supply situation in the country. Fortunately, the company has built good inventory of paper for and same season for its publishing and domestic paper businesses. At EBITDA level for your — for the year-to-date, we achieved INR302 crores on standalone basis, a little lower than pre-pandemic level, but we are sure of catching up in last quarter. No doubt, EBITDA as a percentage is also lower compared to pandemic year and which is mainly on account of increase in various expenditure expenses in last two years without increasing revenue. Now let me give you my view on each of the businesses in brief. So first, I’ll talk about traditional businesses. So as you all know, the bulk of our business resides in the standalone entity and consist of publication and stationary business. And we also have subsidiary Indianica, which caters to CBIC textbook market.

Considering impact of COVID and traditional seasonality of the business, which got shifted in COVID temporarily, it is best to compare our performance with ’19/’20 numbers. The performance of these businesses is given in our presentation on Slide 17 to 19. So let me again talk about our first publication business. That, as you all know, will largely cater to regional private schools of Maharashtra and Gujarat. What I mean regional mix, SSC schools of Maharashtra, where we have more than 2/3 market share and cater to regional languages as well, largely catered to workbooks, guides and questions for students. Quarter one is the dominant portion of our revenue for this business. This business got impacted in ’23. It means in the current year as compared to 2020, which you can see from nine months performance. Certain percentage of students had shifted from regional to government schools, where our workbooks and guides are not used. These students could not written by the time 2023 session started as the financials of the families were impacted and benefits of recovery from COVID were still to set in. For obvious reasons, many of the students who pay will chose not to come back in mid-session even as economy recovered, while some did come back. So further inventory of 2022 piled up at dealer’s end, and we witnessed increase in sales returns in ’23 compared to 2020. Thus, while you see company-level sales, they are post netting of [Indecipherable].

But in reality, retail level sales actually had increased. But because of sales written, the numbers compared to 2020 is a little lower. I’m sure all of you know that education for most Indians in urban India is number one priority after food and clothing. As economy unemployment has picked up, we are quite hopeful of good growth in this part of business in 2024 based on our interaction with the schools. Further beyond 2024, we should be a key beneficiary of NEP, National Education Policy, for many years. NEP will make second-hand books, which is a key competitor of our business irrelevant in the years, of course, change. We also would need to come out with additional books and add the actually pages to the existing books to cater to a more comprehensive curriculum under NEP, which will increase our revenues. So this is on core publishing business of Navneet. Now on stationary business, I would rather first divide into two parts, which is domestic stationary and exports. We are the second biggest player in domestic stationery market in India or in organized sector. Domestic station revenue grew much better than our expectation this quarter due to impact of paper prices and COVID on smaller paper players. Market seems to have consolidated, which is good for a company like us for our long-term margins and revenue, though margins have fallen temporarily due to steep hike in paper prices.

And we feel business cycle for paper prices have peaked, though I did mention that they are talking of increasing paper prices, but we believe it is a question of a month or so where they would speak for higher and as history says that by the month April paper price starts coming down. Then in export substantially, as you all know, that we are the largest player from Indian market and cater largely to the U.S. market with customers like Walmart, who are our biggest client. We are really very, very bullish on this business for many years due to benefits of China, one on our businesses and the progress we are making in introducing new products to our clients. What I mean new product is other than paper products in stationary. No doubt, there is a margin pressure, good margin pressure, I should say, on this business as well due to higher raw material pricing. But as I said, it is temporary. In exports, let me once again remind you that we book orders for back-to-school season. So these orders are decided from December to February every year, which we have to supply to them at an upgrade price. Now over the years, we had control on the paper prices, but this year, in particular, which again, I’m repeating, it is a temporary phenomena that we could not pass on the incremental pricing on — in our exports business. So overall, I should say that all three standalone businesses that is publishing exports of stationary and domestic stationery.

We are on a real sweet spot for next couple of years. The other traditional part of our business caters to CBIC market under the subsidiary, India Nica, there we published textbooks for the CBS schools. Now bulk of the sales happens in March and other quarters are loss-making due to piling of overhead, which we made good in March quarter. Therefore, one should not read too much into nine months numbers and wait for March quarter to analyze the number. We are very, very sure that by the year-end, the company will be cash positive. What I mean is India Nica. Now we have two large investments. Largest investment is in [Indecipherable], where we now post dilution on around 22%, where Sika is the largest shareholder. We have cumulatively invested around INR118 crores in the last seven, eight years. Cathal raised further money from two our present investors being Cequa and Sofina in Q3 of ’22. Based on the large transaction value, we are setting on a large unrealized gain. Same is also part of our presentation on Page 21. Just like you are investors in our company, we are also nonstrategic investor and have no sale running of the business. It is largely second professional team hired by them. We have not participated in last couple of rounds of investment into the company. But we are very, very confident of realizing substantial gain on our investments in the next couple of years. You would have seen we have restated some numbers during — in last two quarters as well as last year.

It was due to change in accounting policy by the management of K-12. And therefore, profits we had to restate for earlier period. However, cash flows have remained the same. So these are those accounting entries that were restated. Regarding SFA, that is Sports For All, we invested INR75 crores in two tranches with a cumulative investment. We are delighted by our investment as business is doing exceedingly well and much, much better than expectation. We are likely to be sitting on nice unrealized gains, and we have a better sense of valuation in the next round. Other than these two investments, we have no further plans of any investments. Now the major focus, which is the mid-future tech or ad tech business present we are currently majorly focusing to verticals, both being B2B. One is school business and other is tutoring platform with content. Both these businesses are based on pan-India basis and not just Maharashtra and Gujarat. No doubt, our initial all trials would be focused to Maharashtra, where we have very, very strong relationship with the schools and the future. As far as B2B school business is concerned, which is a CBS school business is already launched in Q3. And as we speak, we are looking orders from the schools. And as far as tutoring platform is concerned, we’ll be launching that in Q1 of 2024.

We will frankly have an idea about our progress post Q1 numbers. And at this stage, due to competitive reasons, we will not be able to discuss more details on its strategy and execution plan. However, the business will be loss-making in initial years. The investor, I suggest all investors here that you all should view or invest future investments in tech in a way that while we are in a golden period for our traditional businesses for next many years, these investments in tech are required to be made now to sustain growth beyond these years. This is onetime golden opportunity to grow pan-India. And if Navneet does not capture this, someone else will. At the same time, we are conservative management, and we don’t plan to go overboard in funding the losses of the business. And therefore, we will explore raising external money. Depending on the traction of business, we will explore fundraising in second half of ’24 or ’25. So in Natal, I should say that we are quite hopeful of our tech journey, and hopefully, will create a huge value for our investors, just like we did in other investments. Of course, I’m preempting a few concerns of some of you.

And therefore, I should say that in worst case scenario, even if we are not successful executing the business well, we will seriously look at this business and take appropriate action very soon. It means the day we see that we are not able to do well, we will take appropriate action very first. Of course, every one of you know that one can look this investment in tech of next two to three years will be much lower than the gains that we are likely to receive from the two investments that we have made. So this is basically brief on all businesses. Now I request all of you to ask questions on core business first, and then we can discuss our tech business. Sanjeev Shah, who is on the call, joined MD at Navneet Future Tech, will address your questions on Future Tech also. That is Navneet Future Tech.

So I would like to open the floor for questions now. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Amit Kathan from Laburnum Capital. Please go ahead.

Amit Kathan — Laburnum Capital — Analyst

Hi, good morning and thank you for the opportunity. So my first question is we’ve seen a sharp contraction on the stationary margins. Now you explained in the last quarter as well that there was a fixed price contracts on the export side. And — but we’ve seen a lot of growth in the domestic stationary. And so does the RM entirely explain the margin contraction? And how should we think about sustainable margins, both on the domestic and the export front on the stationary side?

Sunil Gala — Chief Executive Officer and Managing Director

So you are very right. Margins have really contracted in stationary, both domestic as well as exports. Now the reason we feel is the same that I had explained last quarter and today also. We believe that the acceptance level of our product is so high that our customers, be it international or domestic, they will not shy away from buying an alternate. But because we are not able to change pricing in exports in particular, we have to take the additional expenses of our raw material. And as I explained, see, in the seasonal business, it takes a little time to set the prices based on the raw material prices, where it is not that easily possible in stationery market jet business. And therefore, we saw a reduction in margins. But on a long-term basis, immediately, I should say, from Q1 itself, we should be much back to our margins.

Amit Kathan — Laburnum Capital — Analyst

Got it. And this — on the export side, you mentioned that the contract is — for the new season is taken from December. So this takes care of our next year’s margins. Is that understanding correct?

Sunil Gala — Chief Executive Officer and Managing Director

Partly correct. But at present, we have another challenge that internationally, paper prices have not really hardened as what has happened in India. So we are getting little roadblock in getting orders first from our customers. So we are negotiating and also trying to change the composition of our product so that we can retain the same margins and achieve the same volumes as earlier. So a little — it is every day process as of now. So little in advance. But I strongly feel that we should be back with the same margins going forward with change in composition of products.

Amit Kathan — Laburnum Capital — Analyst

Secondly, you moved about INR97 crores to the tech subsidiary this quarter. My guess is this is for the future expenses. How should we think about investments here, both in terms of opex as well as capex that we might require either on a quarterly or on an annual basis?

Sunil Gala — Chief Executive Officer and Managing Director

So of INR97 crores, partly were already given….

Operator

Sorry to interrupt you. May I request that you mute your line from your side, please.

Amit Kathan — Laburnum Capital — Analyst

Yes, sure.

Sunil Gala — Chief Executive Officer and Managing Director

So yes, Amit, part of INR97 crores actually were already given by way of loan a little earlier, and which then we invested as an equity and took back the loan. But overall, I should say — and one of the reason was the investment in SFA with the last tranche that we had to invest. Now going forward, it will be purely department for our organic business. That is the two business is mainly that I explained. And for that, around INR20 crores to INR25 crores would be required every quarter.

Operator

Sir, the line for the participant dropped onto the next participant. [Operator Instructions] Next question is from the line of Nitin Dharmawat from Aurum Capital. Please go ahead.

Nitin Dharmawat — Aurum Capital — Analyst

Yeah, I’ll defer to opportunistic. Sir, this is regarding the FX business that we are having. You mentioned that we have put in almost close to INR200 crores in two businesses. So what is the additional investments that we’ll be putting in, in these businesses since you said that you won’t be exploring any additional new businesses? But within these businesses, will there be any further cash burn from our side?

Sunil Gala — Chief Executive Officer and Managing Director

Sanjay, would you like to answer this?

Unidentified Speaker —

Yes. So we’ve actually this plan for the next year. And the time we believe we will need close to about INR20 crores to INR25 crores per quarter, as Sunil put it. So that is the…

Nitin Dharmawat — Aurum Capital — Analyst

Your voice was scrapping initially. Can you please repeat that? Sorry about that.

Unidentified Speaker —

Yes. As Sunil explained, we are expecting close to INR20 crores to INR25 crores of funding in the EdTech business per quarter for the next four quarters.

Nitin Dharmawat — Aurum Capital — Analyst

Okay. So for how many quarters, four quarters is it?

Unidentified Speaker —

That’s right. That’s right.

Nitin Dharmawat — Aurum Capital — Analyst

So additional INR100 crores, you are saying, right?

Unidentified Speaker —

That’s right.

Nitin Dharmawat — Aurum Capital — Analyst

Okay. Got it. And regarding the books business, I wanted to take some sense about how it is going right now considering 1.5 has already gone and the new academic year is going to start. So wanted to see the traction in that. And have we taken the price hike over there?

Sunil Gala — Chief Executive Officer and Managing Director

Yes. So on books, whatever additional input costs that would have come in last one quarter also, we have already taken price hike on our final products. And as far as readiness is concerned for the next academic year, we are in full swing or we are in a time where the huge printing is taking place. So we are building inventory for the next academic year. And we have lots of clarity as to what type of demand would come. And accordingly, we are preparing ourselves for — to cater to the market.

Nitin Dharmawat — Aurum Capital — Analyst

Got it. So how much percentage hike we have taken across the board in general?

Sunil Gala — Chief Executive Officer and Managing Director

So in general, considering last quarter price hike, around 15% to 17% hike we have taken.

Nitin Dharmawat — Aurum Capital — Analyst

Okay, okay. Thank you so much sir and all the best.

Sunil Gala — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Amit Doshi from Care PMS. Please go ahead.

Amit Doshi — Care PMS — Analyst

Yes, thank you. Sir, you mentioned that the students shifted from regional school to government schools government schools doesn’t use our books, etc., are not used. And I believe government school market is a significantly big and a strong market. I’m sure the ticket size or the value would be very low. But any plans to then use that as a — to increase our market? Because anyway, they’re market leaders in the two states, and state board or regional board anyway is not significantly growing. So any thoughts around that?

Sunil Gala — Chief Executive Officer and Managing Director

So government school, first of all, they are not allowed to buy any private publishers product whatever books that they get free, of course, from the state government. And therefore, I said that when students are studying — more students are studying in government schools, we have no opportunity to sell unless we go to government and request them to prescribe our book. But as principle, we always would like to do business with the private schools. Therefore, what I said is that whoever has shifted in the last two years in government schools, finally, have already shifted back to the private schools, be it regional medium or in [Indecipherable] medium. And therefore, we are now confident that going forward, business from the private school itself will increase and will come back to normal as earlier years.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. You mentioned there’s a strong demand in the upcoming year and upcoming economic year. And you’ve also raised the prices by 15% or so. So you believe the growth would be higher than 10%, 15%, which you guided earlier than…

Sunil Gala — Chief Executive Officer and Managing Director

Yes. In value terms, 100%, it will be higher than that.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. Sir, second one on the Stationery business. On one side, you mentioned that our acceptance of our product is extremely high. But then the paper prices or the raw material is causing an issue at an international level. And if I remember prior calls, you’ve mentioned domestic margin — domestic business, stationary business is not lucrative. And therefore, we would want to focus more only on the export side. But with this growth on the domestic, very strong growth, I mean all these three points I’m unable to connect the dots. So if you can just slightly highlight or throw some light.

Sunil Gala — Chief Executive Officer and Managing Director

Yes, you are very right. Earlier, I said that domestic market is too competitive to cater to. But because of these two pandemic years, somehow small players we see have vanished or have stopped production or have reduced production. And that opportunity received by organized players like us.. And therefore, we saw tremendous growth. But obviously, when we receive orders, we can’t say that we don’t want to grow. And therefore, we cater to those markets. But looking at the scenario today, there seems to be a good opportunity in domestic market as well. So — and therefore, now I’m saying that domestic market, we will not focus. It’s not that we will not focus, we will have to focus because overall, production has reduced at an organized sector, and therefore, it is an opportunity to us.

Amit Doshi — Care PMS — Analyst

Okay. But will it not come back? I mean things — now things are streamlining. So is it like a temporary or you…

Sunil Gala — Chief Executive Officer and Managing Director

No. Unorganized players, they were playing on very, very thin margins. And with these paper prices and two years of pandemic, they support huge financial setbacks. And therefore, for them to come back, of course, a few of them will come back, but not all. And therefore, there is an opportunity for the organized players like us.

Amit Doshi — Care PMS — Analyst

Okay. Okay. So in view of this, your earlier guidance, having a margin, EBITDA margin of 20% or so would continue or would reduce because of this stationery business primarily? I mean, more — I mean, increased focus on domestic as well as pricing pressure on the international level.

Sunil Gala — Chief Executive Officer and Managing Director

Yes. Of course, you all would look at margin at the company level. But the way we look at it internally that we would like to maintain margins for our publication business, which is quite high. So that business will throw up good numbers for sure. As far as stationary business is concerned, as I said in my call, we believe the pressure on margin is temporary and it is not going to be the same going forward. So it is a transition period, I should say, that we have to live with, where we are not able to pass on every incremental pricing to the end customers. but it is a temporary phase.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. For this tech business, should I ask the question now or…

Sunil Gala — Chief Executive Officer and Managing Director

Yes, please ask. Sanjiv will answer that.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. So you mentioned you are extremely happy about the sports for all investments, which you’ve done. And so anything in terms of numbers you can share, like what kind of revenues you had in mind and what kind of revenues they have started generating? Or whatever loss could be lower than what was your expectations? Anything that you can.

Sunil Gala — Chief Executive Officer and Managing Director

So before Sandeep says, I should say here that now SFA and K-12 are actually not managed by us. And they have — and therefore, we feel that at the year-end, if we give the audited numbers of this to all of you would be a better way instead of stocking every quarter. So that is my general statement, but Sanjeev can answer now.

Unidentified Speaker —

No, I agree with you, Sunil. It would not also be correct to give specific numbers on their behalf like this. But safe to say that they have increased their revenue by two times compared to what we had budgeted for the first nine months. They have also, in fact, reduced their budgeted loss by about 60% compared to what we were looking at about six months ago. So that business is actually doing far better than what we had even forecast six to nine months ago. And naturally, there is a huge structural push for sports coming from the central government and from various state governments. So the momentum has picked up significantly. And like Sunil said earlier, in the next few years, we will be able to establish the upside in that investment as SFA goes for further funding. But at this point of time, we are extremely happy with the way that business has rolled out, and the management team has done far better than what was originally planned.

Amit Doshi — Care PMS — Analyst

Sure. For K-12, like K-12, we have additional investors like Sequoia and all. Anybody else in the SFA or?

Unidentified Speaker —

Yes. No, the — Sorry, Sunil, do you want to answer that?

Sunil Gala — Chief Executive Officer and Managing Director

So at present, there are only three investors, and of course, the management which holds is of — so these are via the three investors only. And the other two are HNIs actually. So I don’t think it would be correct for us to give the names. But they are very respected.

Unidentified Speaker —

He’s asking about K-12.

Sunil Gala — Chief Executive Officer and Managing Director

I’m so sorry, my apologies. I thought it was for [Indecipherable]. Sorry about that. So yes, plase continue..

Unidentified Speaker —

Yes, please.

Operator

May I request to come back in the question queue for a follow-up question. The next question is from the line of Basil Buddhadev [Phonetic] from Kotak Mutual Fund. Please go ahead.

Basil Buddhadev — Kotak Mutual Fund — Analyst

Yeah, good morning. Thank you for the opportunity. My first question is, is it possible to get the margin breakup for domestic and export business for stationary? What was it this quarter?

Sunil Gala — Chief Executive Officer and Managing Director

There are so many, including infrastructure, including the raw material, there are so many common components for us that the margin, even if we say it will be too tentative. So it would always be better to look at the consol level of stationary business.

Basil Buddhadev — Kotak Mutual Fund — Analyst

But is it fair to say that even in this quarter, the domestic margin would have been lower than the export margin?

Sunil Gala — Chief Executive Officer and Managing Director

Yes. Yes, yes, yes. So in both stationary businesses, there was margin pressure because sudden increase in paper prices. So the — as I said that certain raw materials, they had softened, but those raw materials contributes very smaller percentage of raw material as a percentage. Basically, the board paper or kraft paper that had reduced substantially. But the core raw material, which is writing and printing paper, that prices had not softened. And therefore, we had to — we cannot change pricing every now and then. It is a seasonal business. And therefore, these incremental pricing, we had to incur ourselves. So yes, there was some reduction in domestic stationary business also.

Basil Buddhadev — Kotak Mutual Fund — Analyst

Coming to NEP, you highlighted in your opening remarks that Navneet will be a beneficiary of NEP. Is it fair to say that over the course of next three to four years, given that the NEP is rolled out standard-wise, next three to four years look to be very good as far as the publication business is concerned, given the rollout timelines by the government on the NEP front?

Sunil Gala — Chief Executive Officer and Managing Director

Yes, yes, 100%, which have been repeatedly saying in the last two, three quarters that once NEP is introduced in statewide manner for different standards, all publishers, including Navneet, will be benefited.

Basil Buddhadev — Kotak Mutual Fund — Analyst

And lastly, on the ad tech business. If I look at the revenue for the third quarter as well, it’s about INR two crores. So when do we see a sizable ramp-up as far as revenue is concerned? And how far is that product away from market fit?

Unidentified Speaker —

Yes, Yes. So the ramp-up will happen gradually as we move to new markets outside [Indecipherable], and we increase our focus on the CBS school segment. The ARPU from the state board schools is significantly lower than CBC. And like Sunil said right in the beginning, it is very important for Navneet Group to diversify and go outside the traditional strong areas of Maharashtra Gujrat. It can only happen with the EdTech business at this point. So for us, it’s critical that we continue to build scale in the school business, which Sunil referred to right in the beginning, and increase our focus on CBIC. The second business, which is rolling out is the tutoring business in Q1 of the next financial year. That by nature, we are dealing with a smaller customer from a valid point of view. So his ARPU will be significantly lower than the school. But there, the volumes are larger. That business will take two to three quarters to really add any significant contribution to the overall NFL revenue pie because of the build-out in the first two, three quarters. So we believe that the school business will drive the contribution in NFL for a very long time, even when the other businesses reach a stage of maturity.

Basil Buddhadev — Kotak Mutual Fund — Analyst

And amongst the competitors who are present in the kind of businesses in which we are on the tech side, what would be their revenue size? Would it be substantially different from us? Or would it be very similar to us?

Sunil Gala — Chief Executive Officer and Managing Director

No. So they definitely are ahead of us when it comes to the revenue side, and I am speaking basis unverified market feedback about what is resumed as their revenues. They are not — they don’t have any obligations to report these figures publicly. So there is no way to validate this. But they have also been around for far longer and have been funded with private equity more than two to three times over. So they have had the benefit of a longer run rate, and we are confident that with the overall Navneet integration on the front end, we will definitely be able to establish a strong presence in the school segment in the next two to three years, which would be relevant from an industry comparison point of view. But today, they would be ahead of us.

Basil Buddhadev — Kotak Mutual Fund — Analyst

Okay. So what you…

Unidentified Speaker —

If I can add here, there as Sandeep said, they are far ahead of us. And one of them had been three-digit number. There could be almost closing to three-digit number. What…

Operator

Sorry to interrupt you. There’s a slight crackling sound coming from the line.

Unidentified Speaker —

Is it okay now?

Operator

Yes.

Unidentified Speaker —

So what we should rather look at it that is digital education in the school is required or not. I think it is quite well established that only the elite or high-end CPSC schools. But overall, digital education in classroom is marked now. And thankfully, even NEP also has mandated at various places to use digital as a learning tool for the students. Therefore, it is very important that initial period, we may not see big numbers coming in, but adoption is increasing very, very fast. And therefore, not only us, but all the competitors who are there in the business will have a very, very bright future going forward.

Basil Buddhadev — Kotak Mutual Fund — Analyst

Okay. And we stick to the philosophy that we’ll get into the hardware business, right?

Sunil Gala — Chief Executive Officer and Managing Director

Never. And even if we have to, let me at least tell you that compulsory, if we have to, it is against 100% advance. And that will be hardly 5% of our total business..

Basil Buddhadev — Kotak Mutual Fund — Analyst

Thank you for your comments and all the very best.

Sunil Gala — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Sonal [Phonetic] from Muhed Investment. Please go ahead.

Sonal — Muhed Investment — Analyst

I have a few questions. Sir, firstly, sir, out of this INR210 crores spent on acquisition in the nine months and INR83 crores in Q3 in the tech space, have you included the SFA numbers also in this?

Sunil Gala — Chief Executive Officer and Managing Director

Yes. Sorry — no, can you repeat the numbers again, please?

Sonal — Muhed Investment — Analyst

Sir, in the presentation, you have written that you spent INR210 crores on acquisitions in the first nine months and INR83 crores in Q3. I was just wondering whether by any chance you have club SFA investments also into this because the nature is totally different in both the cases.

Sunil Gala — Chief Executive Officer and Managing Director

Yes. Can I lean on Kalpesh to help me with this answer, please. Kalpesh?

Kalpesh Dedhia — Chief Financial Officer

Sonal, which slide you are referring Sorry, I’m…

Sonal — Muhed Investment — Analyst

See in the presentation, there’s a slide. It’s not open at mandate [Indecipherable] see if I can open it, where you had given your money in the tax, you have a tax slide where you’ve written the opex on tech, and the amount spent on acquisitions and capex on tech. So there you’ve given a number of INR210 crores spent on acquisition in the first nine months and INR83 crores in Q3. So I was trying to ask that this is your strategic business spends only on acquisitions or it includes the investments you’ve made in SFA because you said that’s an investment, and that’s not your tax spend for building the business?

Kalpesh Dedhia — Chief Financial Officer

We try to look at INR three crores, INR eight crores, INR29 lakhs.

Sonal — Muhed Investment — Analyst

I’m sorry? That is in millions.

Kalpesh Dedhia — Chief Financial Officer

Yes, it’s still like, so INR eight crores, 29. Okay. And we are in the business NFL and [Indecipherable].

Sonal — Muhed Investment — Analyst

Okay. This is not include SFA, right? Secondly, out of the amount spent on — you said INR20 crores, INR25 crores per quarter will be your amount spent on take in answer to one of the participants. What I meant to ask you was this is your opex or this is your loss because you will have some revenues, right?

Sunil Gala — Chief Executive Officer and Managing Director

Yes. So this will be an opex maybe partly to build the technology and for expenditure. And you’re right. I missed that, that it is not a loss number that I was talking because there will be revenue also coming in.

Sonal — Muhed Investment — Analyst

And sir, your traditional e-sense business, which is bulk of your technology revenues as of now. Does it have any seasonality? And which is the peak quarter for that?

Unidentified Speaker —

Its Sanjiv, so the market for e-sense and now it is called Top Tech actually. So the legal entity has also been rebranded Navneet Future Tech Limited. The business of Top Tech is now focusing on CBSE. And that seasonality is actually from — starts from November, December all the way to April, May. So that is the five-, six-month period when schools take the decisions for signing up technology partnerships..

Sonal — Muhed Investment — Analyst

So can I say that March quarter, like your CVC business in [Indecipherable] business, this is the peak revenue quarter for you?

Sunil Gala — Chief Executive Officer and Managing Director

Let me add what Sanjeev said, that order booking is for CBSC by the end of March. Whereas for SSE, it is, of course, first quarter of every year. But as far as accounting is concerned, Sonal, we do not recognize the revenue on the day of receiving orders fully. It is — as per the accounting principles, we book revenue only for the usage period. So even if we have received orders in the month of March for CBS or by the month of April, mid-June for SSE, we will not recognize all revenues, the day we receive orders.

Sonal — Muhed Investment — Analyst

Sure, sir. So what I was trying to understand is that your tech revenues, which I’m seeing currently, because a large portion as of now because you still have to roll out. I think broadly all of it is your traditional net tech business and not these two new segments. So they had a revenue of INR nine crores in 2023 so far. And last quarter was INR two crores. Is there any seasonality in this? So can I say that if nine months and INR nine crores, your full year revenue would be 12? Or it could be much more in case Q4 is a bigger quarter it could be much less because Q4 is a weak quarter. That’s what I’m trying to understand..

Sunil Gala — Chief Executive Officer and Managing Director

So for every new order that we received in last quarter, there will be increase in revenue to the extent of usage until March. But otherwise, you are right that if we see nine-month period, whatever number, there will be a similar number for rather 1/3 number for the next quarter.

Sonal — Muhed Investment — Analyst

Understood. And sir, your opex intake last quarter was INR15 crores. So as you roll out, that’s why you need this INR20 crores, INR25 crores run rate so that it will be making more investments in marketing, training and so forth?

Sunil Gala — Chief Executive Officer and Managing Director

That’s right. That’s right.

Sonal — Muhed Investment — Analyst

Understood. Sir, my second — my third question was your domestic state revenues, like you rightly said, are way higher than what you have been guiding for historically. In light of what you have seen in the market now, is there any revised number you could give? And secondly, I wanted to ask in case paper prices are not shocked by Q1, let’s say, another six months from now, it’s a reasonably reasonable period to take a call on the business. As you said that seasonal you can’t in every quarter. But let’s say, another six months, Tier one passes by — would it be you then decide to take price hike at least in Q2?

Sunil Gala — Chief Executive Officer and Managing Director

Yes, yes, 100%. We can’t keep margins so low for a long period. So by the time new season starts from April and if prices happen to soften, we will definitely revise our prices upwards..

Operator

Thank you very much. So can interrupt you to come back in the question queue for a follow-up question. [Operator Instructions] Next question is from the line of Rishikesh [Phonetic] from Rockstar Capital.. Please go ahead.

Rishikesh — Rockstar Capital — Analyst

Sir, I just wanted to understand that you mentioned that international business, we closed within November to February. So just wanted to have a thought on so what is the kind of order booking we have seen for the current year?

Sunil Gala — Chief Executive Officer and Managing Director

I should say, current year also, we have received more or less similar type of orders as earlier and that to additionally for the new items that we have launched. We also have received orders for that. So order book is quite good. I should say the decision is a little bit delayed because of pricing negotiation. So this year, we may have to extend that period by 15, 20 days to close on the orders. But the demand has seen is quite substantial, a little better than, I should say, of earlier years.

Rishikesh — Rockstar Capital — Analyst

On the margin side, we lean last year, we would have closed the negotiation by February. So it will be better than that and slightly on a relative basis into last year?.

Sunil Gala — Chief Executive Officer and Managing Director

Yes, yes.

Rishikesh — Rockstar Capital — Analyst

Okay. That helps. Second thing, in the special policy, the K-2 has been announced as such. The implementation will happen. So are there any aimed in [Indecipherable]? And secondly, for the three to five, when they will be announcing, any thoughts on them?.

Sunil Gala — Chief Executive Officer and Managing Director

So you’re right, K-2 has been announced. And accordingly, the new content creation has already started at our end. So it will be rolled out in the Q1 of next year. For grade three to five, which grades will they take, they have not, as such, announced for subsequent year. But that we should know in next two to three months because even they have to start preparing for themselves. So we still do not have clarity on which grades will change in ’24, ’25. But as far as current year is concerned, whatever changes have been announced, Navneet is preparing itself to take care of that.

Rishikesh — Rockstar Capital — Analyst

And sir, on the opex side, can you just give — throw some light on how many schools tie up for how much growth we are seeing over there in terms of traction in [Indecipherable]?

Unidentified Speaker —

Yes. So the number of schools, we are chasing both state board and CBSE schools at this point. And given the seasonality of the order book for state boards, for the central board, sorry, we are targeting a number in excess of 45 to 50 schools for this season. And that’s the number that we will be able to report at the end of March, which will effectively then gives the predictability on the revenue for the contract period. That’s the update on the number of schools that we are targeting this year.

Rishikesh — Rockstar Capital — Analyst

And what is the base current right now? Number of school?

Sunil Gala — Chief Executive Officer and Managing Director

Current base, it is, I think, 10 or 12, I’m not sure of the number, 12 at this point. Yes. So I can add here that last year was first year of launch in the midyear of academic year. And therefore, we had received orders, as Sanjiv said, between 10 or 12 schools. And this year, of course, our endeavor is to close much higher number. But conservatively, I should say that we will be close to around 50.

Operator

Thank you, Rishikesh, I’ll request to come back for a follow-up question. A request to all the participants, please restrict to two questions for participants. Next question is from the line of Kartik Gada from Multiple Wealth Management. Please go ahead.

Kartik Gada — Multiple Wealth Management — Analyst

Yeah, Hi, thanks for the opportunity. Am I audible?

Sunil Gala — Chief Executive Officer and Managing Director

Yes, please.

Kartik Gada — Multiple Wealth Management — Analyst

So a question on K-12. So can you elaborate what was the accounting change, why it had such a substantial impact?

Sunil Gala — Chief Executive Officer and Managing Director

So there were two major. One, ESOP was agreed, but not accounted. So the whole ESOP pool was accounted in last year. And second, the bigger amount was the booking of marketing expenditure in the same year. Earlier, they were carrying it forward for the new schools for one year, which auditors insisted that in the year that you spend, marketing has to be accounted in the same year. So that — these were the two major changes were 98%, 99% of the impact has come.

Kartik Gada — Multiple Wealth Management — Analyst

Okay. So basically, going ahead, it shouldn’t have any further impact?

Sunil Gala — Chief Executive Officer and Managing Director

No, no, no. And as I said, there is no cash flow impact on the company. It is just the accounting entries that were shifted as far as marketing is concerned. Instead of subsequent year, it got accounted in the same year. And the impact of ESOPS given both were accounted in last year, and therefore, we got this impact.

Kartik Gada — Multiple Wealth Management — Analyst

Right. Okay. Secondly, on the FX. So you alluded a little bit. But this quarter two, I mean, in your view, you mentioned earlier that the margin will be B2B2C, what we have followed in the traditional business segment. So what are you levering from the school? How they are taking it up? Are they asking for more land, more products?

Sunil Gala — Chief Executive Officer and Managing Director

So actually, I’m sorry, I don’t know how the B2B2C got established. But we are not in the B2B2C business. Our customer remains the school. We only collect money from the school. The school may be charging more to its students, but we have no access to the revenue pool, neither are we involved in that decision by the school. So our business is very clearly school-focused business. We do have some filters of what should be the size of the school for us to target, how many classrooms we need to have digitized. So we have our filters to arrive at the size of market, which is linked to the number of students and the hardware capability in the school, but it is not a B2B2C business. That’s one small clarification. The second part of your question was relating to additional features and product improvement being sold. Now as all of you will know, there is a huge interest from customers to improve their life from an operational perspective. and all the digital conveniences that they seek not necessarily do they deliver value to the service providers. So we have been extremely careful in building our product pipeline looking at what is a very critical need for the school and obviously then overlaying the commercial value of that technology investment. So we have a product pipeline which extends for the next quarters with a very strong accident on making sure that all decisions kick in on product investments are with a commercial orientation. So for example, the sales guys hit the sales — the revenue hedge sits in the product decision on what should be released four quarters later. It is not a decision made even by the technology guys. The revenue guy has an accountability in those decisions.

Kartik Gada — Multiple Wealth Management — Analyst

Okay, okay. Yeah, that’s it from my side. Thank you.

Operator

Next question is from the line of Rajan Shah from PwC Canada. Please go ahead.

Rajan Shah — Individual Investor — Analyst

Hello.

Sunil Gala — Chief Executive Officer and Managing Director

Yes, please..

Rajan Shah — Individual Investor — Analyst

Yes, first of all, I’m not from PwC Canada. There’s some error. I’m just an individual investor. Yes, I would like to ask my question is for [Indecipherable]. So good afternoon to you. Hope you’re fine. Sir, you mentioned that the operational expense per quarter for the ad tech business would be about INR20 crores to INR25 crores. The revenue this year in the first nine months is about INR nine crores. Assuming that revenue goes up even 200% from the current levels, are we looking at a loss of about INR70 crores, INR75 crores in ad tech business for next year?

Sunil Gala — Chief Executive Officer and Managing Director

Yes, please. Okay. So we’ll be suffering a loss of about INR70 crores, INR75 crores. Yes, that is the conservative number. Now it all depends on the faster adoption by the school and the tutoring community. So our endeavor would be to target much higher. But yes, conservatively, I should say that the number you spoke is may be the number for next year.

Jinesh Joshi — Investor Relations

Yes. But sir, in the earlier by talk, which I think Sanjib was having with one of the participants, he mentioned that the largest player in this industry is having three digit revenue. And the second largest is close to three-digit revenue. So even assuming that in the third or fourth year of operation, we touch INR100 crores of revenue, we’ll still be making any profit in the ad tech business. Am I right? What I need to understand is that are we looking at not even breaking even in the third or fourth year of operation.

Sunil Gala — Chief Executive Officer and Managing Director

So that we are very clear that third year of operation breaking even has to come. Now there has been the first year practically for all the new products or new activities that we have launched. So in three years’ time, we should reach breakeven. But simultaneously, as I just mentioned to someone else earlier, that we are just not focusing Tech as a totally separate business vertical. What I’m trying to say is that with the increase or whatever traction that we get in a tech simultaneously benefits the group at a group level also because our publications also will go to the same user that is schools and the tutors — and therefore, we believe that as a group, we will benefit a loss, even though as a separate entity, we may be seeing losses. So — but on a very long-term basis, yes, at tech, we have no option but to invest money and long term looks very, very big in terms of numbers also. So if we talk of three years, yes, I agree with you that in the third year, we will achieve breakeven for sure. But it may be a smaller number at the end of three years, but if we talk of a little longer period, then profitability will really jump a lot.

Rajan Shah — Individual Investor — Analyst

Can you throw some light on that one? I mean long term, like, let’s say, five years, what kind of revenue can we expect from the ad tech business side?

Sunil Gala — Chief Executive Officer and Managing Director

So Rajan, to be very frank, we are talking of a business which has no past. And — but we are clearly seeing the need of such products or services to the user community. And therefore, we are very confident on its future growth path. But as far as numbers are concerned, very, very difficult for us to comment right now.

Rajan Shah — Individual Investor — Analyst

Okay. And sir, you mentioned that you will be raising files in the third quarter of ’24 or maybe first quarter of ’25. So on this kind of revenue, defense would be possible. I mean, our revenues will not be more than INR20 crores, INR30 crores probably next year, looking at what they are right now. Can we raise a substantial amount of money depending on this revenue selling? Is it possible?

Sunil Gala — Chief Executive Officer and Managing Director

So Rajan, I should at least tell you that I also mentioned our revenue recognition policy. So it’s not — the investor will not just come on a number of ’24. But what they will see the traction or total number of customers that we have, what are the pending revenues likely to come in ’25, also ’26 also that they will see. And the way we continue go on increasing our customer base. I think all these factors will be seen on deciding the investment in ad tech business, not ’24 numbers.

Rajan Shah — Individual Investor — Analyst

Okay. But can you give us some idea on what kind of amount you are planning to raise approximately?

Sunil Gala — Chief Executive Officer and Managing Director

Yes, I think before I answer that question, I wanted to add a point to your earlier statement that the losses because of the competitors being at INR100 crores plus, and then we will reach the INR100 crores figure. I think one good thing that has happened in the last two years is there is a lot of cost rationalization which has come into the entire digital economy.. The obvious news about layoffs and about how people are getting extremely careful in taking decisions, customer acquisition cost, which is a big cost for digital companies, the spend on technology. A lot of that filtering has happened so aggressively, thanks to the tightening in the market in the last two years. My personal view, frankly, is that the cost for every crore of revenue that our competitor has spent we will spend less than that. Any new player is likely to spend less than that. There is also a certain equity flow, which has resulted in some behavior, which when you are sitting on a lot of cash, I think there is a certain aberration that comes in execution, we given that name like Sunil said, it is a conservative group. We are very careful. We will not finance a loss-making business forever extremely responsible from that point of view. I very much doubt that our expenses will be in line with the same percentage expenses that our competitors have used to get to INR100 crores. That is the first point. As far as the fund raise amount is concerned, at this point, we don’t have a number that we are chasing. We know that we will need funding for the next three years. And by Q3 next year, we will be in a position to correlate the valuation with the funding ask and that’s the time really to take up serious look at the amount of dilution in correlation to the funds. But we don’t — we are not chasing a number today. That is a case right.

Rajan Shah — Individual Investor — Analyst

So I wanted to ask one more question, if you permit..

Sunil Gala — Chief Executive Officer and Managing Director

Yes, yes.

Rajan Shah — Individual Investor — Analyst

Actually see, basically, based on the conversation we are having today, I am assuming that because of NEP, the traditional business of publication will be doing very well, change and all that, we should be doing about 10%, 15% kind of growth in the publication business over the next three, four years. In the stationary and the domestic and the export specialty business also, we are doing reasonably well. But because of the tech business, will be making a loss. I mean, the tech business. So net-net, what I’m looking at is that, see, as an investor, we look at the path because that determines the market cap of the company and resin for shareholders. So my point is that the stand-alone business will be doing well. set would not be doing so well. So net-net, probably — are we sitting at the same consolidated fact as we are sitting right now?

Sunil Gala — Chief Executive Officer and Managing Director

So yes, one way to look at it would be that we are — we will be seated on the similar numbers. So all incremental profits of traditional business we will have to invest in tech business. That is the general statement. I agree with that. But simultaneously, you may look at it on encashing our investments also in next two, three years or four years. So with that, you may consider that all these tech investments we are doing from our future realization of unrealized gains. So that we also — you can look at it. But just for a very long term of the group or the one we have to continuously invest in tech is for sure.

Rajan Shah — Individual Investor — Analyst

Thank you so much.

Operator

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

Sunil Gala — Chief Executive Officer and Managing Director

So thank you all for sparing your time today. And we had a wonderful session on Q&A as well. I can request everyone that whoever has any more questions can write to us. We will try and answer them very fast. Thank you once again, [Indecipherable] and Jinan in particular for organizing this call. And thank you very much..

Operator

[Operator Closing Remarks]

Sunil Gala — Chief Executive Officer and Managing Director

Thank you.