S Chand & Co Ltd (SCHAND) Q4 FY23 Earnings Concall Transcript

S Chand & Co Ltd (NSE: SCHAND) Q4 FY23 Earnings Concall dated May. 31, 2023

Corporate Participants:

Himanshu Gupta — Managing Director

Saurabh Mittal — Group Chief Financial Officer

Atul Soni — Investor Relations, Strategy and M&A

Analysts:

Jinesh Joshi — AnalystJinesh Joshi — Analyst

Niteen Dharmawat — Aurum Capital — Analyst

Riya Mehta — Aequitas Investments — Analyst

Vikas Kasturi — Focus Capital — Analyst

Bharat Mani — Moneybee Investments — Analyst

Shekhar Mundra — Vivo Commercial — Analyst

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Unidentified Participant — — Analyst

Punit Mittal — Global Core Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to S Chand and Company Limited Q4 FY ’23 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded.

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

Jinesh Joshi — Analyst

Thank you, Nirav. On behalf of Prabhudas Lilladher, I welcome you all to the 4Q FY ’23 Earnings Call of S Chand Limited. We have with us the management represented by Mr. Himanshu Gupta, Group CMD; Mr. Saurabh Mittal, CFO; and Mr. Atul Soni, who head the Investor Relations, Strategy and the M&A Department.

I would now like to hand over the call to the management for opening remarks. Over to you, sir.

Himanshu Gupta — Group Managing Director

Thank you, Jinesh. Good afternoon, ladies and gentlemen. I am Himanshu Gupta, the Managing Director of S Chand and Company Limited. I would like to welcome you all to our fourth quarter and full year results call — conference call for FY ’23, and thank you all for taking time out and joining us here today. I’m extremely happy to share that FY ’23 has been a milestone year for S Chand on many parameters. I would like to highlight the following key points for the year gone by.

First, we delivered the highest operating revenues in five years, up 27% on a year-over-year basis. We delivered the highest EBITDA in five years, up 57% on a year-over-year basis. Also, we delivered the highest PAT in five years, up 616% on a year-over-year basis. We are purposing a dividend of INR3 per share. We’ve also exited from a minority investment in Testbook with a 7.8x return during the year. We also exited from a minority investment in iNeuron with a 2.1x return during the year. And to top it all, S Chand and Company became a net debt free company in April 2023.

The biggest achievement for this year has been an improvement in our working capital metrics, which are at historic lows. The unrelenting focus on working capital management has led us to significantly free up cash from the system and helped us to become a net debt free company in April of 2023. On the cash flow front, we have maintained strong operating cash flows. We continued to be free cash flow positive as well. Saurabh, our CFO will give more details on these financial metrics in his remarks.

As we start FY ’24, we see that the world has put COVID firmly behind it. Schools and colleges are opened with the new vigor admissions in private schools and increasingly, and we are seeing children back to learning classrooms.

On the National Curriculum Framework or NCF front, we saw the launch of NCF covering the foundation stage classes from kindergarten up to class second last year, October 2022. We look forward to more such announcements for the other classes coming through over the next 6 months. The NCF opens up a large opportunity to provide engaging and innovative content to students, teachers and schools to make learning more experiential. The NCF focus on [Phonetic] activity-based learning and provides the flexibility to students to choose between subjects. This will help more organized content providers to gain market share with this strong product portfolio. We expect to launch over 500 new SKUs in the school segment this year.

On the higher education front, the last year, the academy sector [Indecipherable], which was disrupted during COVID and exams were delayed, with semester starting as late in November. This year, we have seen more results being announced, as per — pre-COVID time lines and CIPET JEE and NEET exams are also completed or nearing completion, as we speak. This shows that the new semester will begin in July and August and normal academic year will return.

The NEP has been implemented in a few states, where we are seeing strong traction for our products, which are based on the NEP. On the investment front, we made two very profitable exits in FY ’23 through the sale of a minority stake in Testbook and iNeuron. Additionally, we have taken a minority stake in ixamBee on April ’23 by investing INR30 million for approximately 4.3% stake in the company.

We believe ixamBee is well suited to benefit from the rise in the competition segment in the future by helping graduates and undergraduates prepare effectively for government examinations like banks, insurance companies, railways, etc. S Chand is already partnering in ixamBee and other YouTubers examination oriented products. Our other investments, Smartivity labs saw higher volume growth and is now a well-accepted brand across the world and is finally cash positive.

On the digital [Phonetic] front, our YouTube channel, S Chand Academy continues to have phenomenal success. We have now launched over 1,200 videos focused on higher education topics covering science, engineering and test preparation so far, and the channel has already notched up approximately 13 million news and 136,000 subscribers. This further enables the promotion for — of our content, further spurring demand in that segment with the blended offering. This enables students to learn critical areas through top-notch educationalists, which will not be available in Tier 2 or Tier 3 colleges. We expect to add another 800 videos for both the school and college segment this year.

TestCoach, our test reparation app is seeing strong traction to cover over 100-plus volume vacancy [Phonetic] tests, which is a huge market. We are adding additional features apart from the mock tests, where we concern [Phonetic] videos, doubt clearing sessions, etc. We expect increase in the government vacancy now when things are normalized post-COVID and then with the election in June 2024, which would further spur demand.

SmartK, our pre-school curriculum, which is activity basis and now is mapped to the NCF continues to gain traction across the schools in India. Mylestone [Indecipherable] Solution also has continued to provide holistic learning to schools both in India and the Middle East.

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 — Group Chief Financial Officer

Thank you, sir. Good morning, everyone, and thank you for your time. I’m Saurabh Mittal, Group CFO of S Chand and Company. In terms of the numbers for the whole year, our consolidated operating revenues came at INR6,103 million versus INR4,809 million during the same time last year.

Operator

Sir, sorry to interrupt you, sir, you’re sounding slightly distant.

Saurabh Mittal — Group Chief Financial Officer

Okay. In terms of our numbers for the whole year, our consolidated operating revenue came at INR6,103 million versus INR4,809 million during the same time last year, registering a growth of 27% for the year gone by. We have maintained our annual gross margin of 64%, which is the same level as last year in spite of a sharp increase in paper and other raw material consumable prices during the year.

We reported a EBITDA of INR963 million versus INR614 million in the corresponding period last year in spite of undertaking salary hikes, higher travel spends, etc, during the year. I’m happy to share that our PAT went up 616%, with profits up INR576 million versus INR80 million in the same period last year. On the back of strong profitability, we have recommended a dividend of INR3 per share.

I would also like to bring to attention to Slide 6 and Slide 8, which showcases the result of steps taken during the past years towards building a lower working capital organization with focus on positive cash flows.

In terms of working capital, trade receivables reduced to INR2,653 million during Q4, FY ’23 versus INR2,921 during Q4, FY ’22. This is a decrease — this is a INR268 million decrease in receivables in spite of achieving incremental sales of INR1,294 million over the last year.

In terms of receivable days, it stood at 159 days versus 220 days, a reduction of 63 days during FY ’23. This is the lowest Q4 receivable days in the company’s industry. Inventory increased to INR1,562 million versus INR1,276 million. This increase in the inventory is due to the unprecedented price hike seen in the paper prices during the year. Additionally, this inventory includes the raw material paper inventory of INR436 million versus INR277 million last year.

In terms of inventory days, we improved over last year at 208 days versus 216 days, a reduction of 8 days during FY ’23.

Net working capital reduced to 188 days versus 226 days in Q4 FY ’22, which is a reduction of 38 days during FY ’23. This is the lowest Q4 net working capital days in the Company’s history.

In terms of cash flow, our strategy of focusing on the cash flow has yielded solid results. We ended the year with OCF of INR811 million in FY ’23. The healthy cash flows have enabled us to reduce debt, negotiate better term and focus on marketing our products and services better.

In terms of debt, the greatest achievement has been to become net debt free in April. Our net debt, as on March ’23 was INR60 million.

As we go into FY ’24, I would like to reiterate the following. Firstly, we are looking to do annual revenues between INR7,200 million to INR7,500 million, which translates into an 18% to 22% growth for the year. Secondly, we would take a single-digit price hike across our product portfolio. Thirdly, gross margin can increase in case, paper prices stabilize, decline during the year. Fourthly, we are targeting EBITDA margins of 16% to 18%. Fifth, we look forward to announcement of the NCF for more classes in calendar year ’23, which will help us in volume expansion. This should lead to a strong volume revenue and profitability growth for the next two years, three years period.

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 Niteen Dharmawat from Aurum Capital. Please go ahead.

Niteen Dharmawat — Aurum Capital — Analyst

Yeah. Thank you for the opportunity. Am I audible?

Operator

Yes, you are.

Himanshu Gupta — Group Managing Director

Yes. Go ahead.

Niteen Dharmawat — Aurum Capital — Analyst

Okay. Yes. So my question is regarding the guidance, the guidance that we have given, does it include the increase in volume due to the implementation of NCF if yes, then how much is it — with an understanding that it will be implemented in a staggered manner or it will be implemented in one go this year itself?

Himanshu Gupta — Group Managing Director

Should I answer.

Saurabh Mittal — Group Chief Financial Officer

Yes, sir, please.

Himanshu Gupta — Group Managing Director

So — yes — so basically, we believe that the NCF would be implemented by the next — this next academic year in ’24, ’25, but the rest we’ll see in FY ’24 and for us [Phonetic] because we sell the books before the season. And we believe that the NCF will be taking around two years to three years to implement. In first year, there will be around — we believe that 50% [Phonetic], 60% of the schools, which will implement the NCF in the schools; second year, maybe 75% to 80%; and third year, we believe 100% of the schools will go for the NCF. And because of this reason, we believe next two years to three years is a good runway to our growth, and next year, we believe that we should do revenues in the range of between INR720 crores to INR750 crores.

Niteen Dharmawat — Aurum Capital — Analyst

Okay. So it includes the projections — includes the NCF implementation, our assumption is that it will be implemented and that has been included in our projection.

Himanshu Gupta — Group Managing Director

Yes. Yes.

Niteen Dharmawat — Aurum Capital — Analyst

Okay. My second question is about Smartivity. So what percentage we are holding as of today? And is there any next round of funds they have raised? And what is the valuation, which is there?

Saurabh Mittal — Group Chief Financial Officer

Yes. I’ll answer that. So we hold around 15%. And so currently, I mean, they are cash positive, they don’t really need funds to expand. They are almost growing about 50%, 60% last year. And we are getting inbound interest, but I don’t think there anything has been — has come through yet. I — my understand — the last round raised at about INR100 crores. My sense is this time they are looking at more like INR160 crores, INR175 crores for fund raise, if and when it comes in.

Niteen Dharmawat — Aurum Capital — Analyst

Okay, sir. Thank you, and wishing you best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Riya from Aequitas Investments. Please go ahead.

Riya Mehta — Aequitas Investments — Analyst

Thank you for giving me the opportunity to ask a question and congratulations on good set of results. My first question is regarding the current year growth of FY ’23, what would be the volume-led growth and what will be the value-led growth?

Saurabh Mittal — Group Chief Financial Officer

Volume growth would be about 9%, and the remaining is about 18% is value-led.

Riya Mehta — Aequitas Investments — Analyst

And this will be for the quarter or the full year?

Saurabh Mittal — Group Chief Financial Officer

Full year. Full year. See quarterly, I mean, we don’t really track quarterly because we are a very seasonal business. So we’d rather have it for the full academic session [Indecipherable], sometimes it changes from one quarter to the other because again, it’s one whole academic session. So one month here and there sometimes make a difference.

Riya Mehta — Aequitas Investments — Analyst

And in terms of FY ’24, when we say we are looking at single-digit value growth, so what kind of value growth would we be aiming like from 18% to 20% growth rate you’re talking about? Or how much would be led by price hikes and how much would be volume-led for FY ’24?

Saurabh Mittal — Group Chief Financial Officer

Price should be in the range of 6% to 8% and the remaining were coming from volumes.

Riya Mehta — Aequitas Investments — Analyst

Okay. And so basically, what would be the variable in a fixed cost percentage in our other expenses, and which will not increase in line with our increasing [Indecipherable]?

Saurabh Mittal — Group Chief Financial Officer

I would say about 60% is fixed, 40% the selling, distribution expenses are variable.

Riya Mehta — Aequitas Investments — Analyst

Okay. And I think we’ve done an excellent inventory management this year. So with current inventory of INR156 crores around — our raw material is around INR43 crores, I just wanted to have a brief understanding of how our inventory management happens? So what I am aware that we have already procured inventory for the next year. So if we — I read in your presentation that lower bracket in — as all in the year, the prices are decreasing, which according to me, they are, how will it benefit for us in the March quarter coming by?

Himanshu Gupta — Group Managing Director

How will lower inventory prices benefit…

Saurabh Mittal — Group Chief Financial Officer

So in case — so we haven’t procured, of course, for — we just have paper for probably the first — for five months for the current session. And as and when paper prices stabilize or they go lower, of course, it will help us in our gross margins.

Riya Mehta — Aequitas Investments — Analyst

So for next season, how much of the inventory have we already procured?

Saurabh Mittal — Group Chief Financial Officer

We haven’t procured any [Speech Overlap] for the next inventory. Whatever inventory we have is good enough for four months, five months, probably you can say like Q1 to a large extent. And we typically will enter into discussions now over the next one months or two months, and then the inventory purchase starts to happen somewhere after August basically, you can say.

Himanshu Gupta — Group Managing Director

So basically, we’ll place the orders by June or July, and we’ll get the inventory — start getting inventory from August. And then, we’ll keep building the paper inventory, that will keep on going on for the next seven months, eight months.

Riya Mehta — Aequitas Investments — Analyst

And how are the paper prices panning out? Sir, I have heard that the import prices have gone down drastically, too.

Himanshu Gupta — Group Managing Director

So as per our discussion, paper prices are a little soft, and we believe by June end, they will be softer. And when — we believe that they had a good soft pricing, we will start taking the orders at that time, June end or July will be.

Riya Mehta — Aequitas Investments — Analyst

Right. And almost 80% of our orders are imported, right, the paper?

Himanshu Gupta — Group Managing Director

No. We don’t import 80% paper. What it would be — now last year, we did around, I would say, 35% to 40% in imported paper. This year also, we are looking at around 40% to 50% of importer paper.

Riya Mehta — Aequitas Investments — Analyst

Okay. Because the domestic prices are, I think, more or less on the same consolidating levels is not going down, so we can shift our mix towards import? Or is there any particular mix that we have to maintain?

Himanshu Gupta — Group Managing Director

So basically the import paper, the paper is a little higher grammage. But when we procure from domestically, it is a lower grammage, so we had to have a mix of both for our books, and that’s what we do. So we import lower grammage paper, we don’t import lower grammage, but we will procure from India and higher grammage we import from outside, mainly Indonesia, I would say.

Riya Mehta — Aequitas Investments — Analyst

Okay. So domestic prices, we are not seeing any tepidness, right?

Himanshu Gupta — Group Managing Director

See domestic prices are also very softer and that’s good for us. And we will see by June end or July will — because domestic paper, we can — has a less turnaround time. We can — we can even place the orders in July and something we get in August. But [Indecipherable] for the turnaround time is almost 60 days to 75 days. So that [Indecipherable] little bit earlier.

Riya Mehta — Aequitas Investments — Analyst

Right. Okay. I think that’s it from my side. I’ll join the question queue for more questions.

Himanshu Gupta — Group Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Vikas Kasturi from Focus Capital. Please go ahead.

Vikas Kasturi — Focus Capital — Analyst

Yeah. Hello. Good morning. Am I audible?

Operator

Vikas, you are sounding slightly distant.

Vikas Kasturi — Focus Capital — Analyst

Okay. Okay. I’m sorry. Hello? Am I audible now?

Operator

Yes, much better.

Himanshu Gupta — Group Managing Director

Yes, much better.

Vikas Kasturi — Focus Capital — Analyst

Okay. Thank you. Sir, I wanted to understand your sales organization a little bit. So number one, are your salespeople aligned by brand? Or are they aligned by, say, geography?

Himanshu Gupta — Group Managing Director

So basically, we have three, four companies, mainly the S Chand Company has got two divisions, which is one is the school division, one is the higher education division. So the school division has its own team of sales people [Phonetic], which are spread across the county around 200-plus sales people in that division and the higher education division has around 60 people — 60, 70 people [Phonetic] they also spread all throughout the country.

Then the second, we have, Vikas, which we have a company called Madhubun because it looks like the school division. It has around 160, 170 [Phonetic] sales people. They also spread across the country. Then we have New Saraswati House, which has around 120-odd people, which is also spread across the country. And then we have Chhaya Prakashani, which is a localized West Bengal Board publishing business, which is concentrated roughly around 70 sales people, which are concentrated mainly in the state of West Bengal.

Vikas Kasturi — Focus Capital — Analyst

Okay. Thank you, sir. My second question was about the nature of the business. So I understand that there is some sort of stickiness in the business, as and once the school decides to go with a certain publisher and they are unlikely to change the publisher for many years. So I am just — I am saying it’s like as a parent also, so I noticed that [Indecipherable] have the same publisher for many years. So I’m guessing the schools are unlikely to change the publishers for many years once they go with the publisher. Is my understanding correct, sir?

Himanshu Gupta — Group Managing Director

Yes. So this is a sticky business, but there are also every kind of school in the country, some schools [Indecipherable] continue the book for many years, some schools might even change in two years or three years, there are some schools, which change every year also. So there are different kind of schools depending on their requirement. And we always try to give quality products to the school with good content, good quality production, and we have good relations with the schools over the long period of time in a good brand relation.

And our author base is also very strong and also some of our author are brands in themselves. So the stickiness improves in the business because of these reasons. And we see that we are able to retain, I would say, more than 70% to 80% of our clients every year. And that is what is we’re going to continue to do that. So there is a stickiness in the business. But as I said earlier, there are all kinds of schools in this — India.

Vikas Kasturi — Focus Capital — Analyst

Okay. Thanks. For and schools that change publisher, sir, what is the primary motivation for that?

Himanshu Gupta — Group Managing Director

Well, sometimes, which take the content, maybe the school or the teachers, the students are not liking it or there some better content available from other publishers or sometimes the schools also looks at a higher discounts also in commercial terms. So there are a mix of factors, I would say, in this division [Indecipherable].

Vikas Kasturi — Focus Capital — Analyst

All right, sir. A related question is, sir, how do you — how does S Chand, for example, replace an incumbent in a particular school, sir. What are — what would make a school go with you instead of one of your competitor, sir?

Himanshu Gupta — Group Managing Director

So I think mainly the content has to be of good quality, as I said, and the book production quality, also the paper quality has to be good, and which we have good relations with the schools from the long time, so that helps in influencing the division. We are — I would not say the highest player in terms of commercials or we are not the lowest also. We are somewhere in the mid mark in terms of commercial.

And we try to convince the schools that we give better — better services to the school, after sales service also, plus we give additional features in the books in terms of digital content in terms of doing assessment, content, plus we do a lot of workshops with the schools. So all these factors, combination of these factors do affect that [Phonetic] we’re looking at the school.

Vikas Kasturi — Focus Capital — Analyst

All right, sir. So my next question is, sir, what are the growth drivers in place, sir? Is it like more sales people, more school outreach? What are the growth drivers in your organization…

Himanshu Gupta — Group Managing Director

So the growth drivers because we are trying to reach more number of schools. We have not added, I would say, many sales people. This year, we might add some more sales people because we plan to do more promotion and marketing activity. So this year, we might add. But normally on a consistent basis, as I said the earlier number, we’ll try to keep it consistent more or less.

But if we try to reach more market this year, and what happens is we have seen that the smaller players getting affected financially also because of the Corona lasted two years, three years. So the bigger players will have an edge in the market in the near term, and they will be able to gain more market share and — because we are improving on our product quality, in terms of our content and everything. So that will have an edge over the other smaller players, I would say, and that will help us gain more market share.

Operator

Thank you. Vikas, I will request you to join the queue back for a follow-up question. The next question is from the line of Bharat from Moneybee Investments. Please go ahead.

Bharat Mani — Moneybee Investments — Analyst

Hi. Am I audible?

Operator

Yes, you are.

Himanshu Gupta — Group Managing Director

Yes.

Bharat Mani — Moneybee Investments — Analyst

Yes. So my first question is, can you just tell me about the sales and promotion budget that you have for FY ’24? And how much do we expect on spending in sales and promotion, as you said, that supplying [Phonetic] to increase the spend on through sales and promotion?

Himanshu Gupta — Group Managing Director

Saurabh?

Saurabh Mittal — Group Chief Financial Officer

So while the budgeting process is on because we just closed the season. But in terms of sales and marketing, our spend is around 6% to 7% annually. That includes transportation and so it’s not a very large amount that you spend in the marketing. It’s a B2B kind of product. So the major marketing that we do is are people going and visiting schools to demonstrate the product to the teachers and the stakeholders. And apart from that, we do a lot of workshops. So workshops is our biggest marketing tool that we have. We do a lot of webinars and workshops at schools. So we don’t spend a very large amount to be — almost total spend on that would not even be a percentage of our total revenues.

Bharat Mani — Moneybee Investments — Analyst

Okay. So my next question is on the receivable days. So currently, the receivable days — how do you see it shaping it — in the year ahead in FY ’24? Do you expect some reduction in the receivable days?

Saurabh Mittal — Group Chief Financial Officer

If you’ve seen the presentation and how it’s moved over the last four years, five years, we are also very positively surprised that all our efforts to bring it down have really brought up to this level, considering that all our sales — 80% of our sales happened in the last three months, and it is credit sale that effectively that happened. So 159 days as on today is a very good number.

But of course, we would also like to bring it further down. Our overall target is to bring it down to 120 days, as and — so the efforts continue to do it in that direction. But traditionally, this has been around 280 days to 300 days. And considering the kind of efforts we’ve done, plus the quality of channel partners we’ve chosen over the last two years, three years to work with, this has been brought down to 159 days. So it should be in the range of 120 days to 150 days going forward.

Bharat Mani — Moneybee Investments — Analyst

Okay. Yes. So on the employee cost, so how do you see the employee cost shaping ahead? Are you planning on adding more employees? And I guess it is 22% currently. So how do you see it shaping ahead?

Saurabh Mittal — Group Chief Financial Officer

See, overall, as a percentage, I don’t see it shifting much, maybe 0.5 percentage here or there because employees are very key part of this business. It’s a very employee intensive business in terms of sales marketing, and this year, critically in the next two years because of the NCF, the content thing [Phonetic] would definitely need to be ramped up. So I don’t see many people being added on the marketing — sales and marketing side.

But we see a lot of people getting added on the content development. But a lot of that would be just for a onetime kind of — so there’ll be a mix and match. I mean, we’ll have some contractual people coming on board for the next one year; and then, of course, we will be adding some more people in the [Indecipherable]. So not very large, but then that’s where it is. Overall cost, as a percentage will move maximum 0.5% here or there, that’s it.

Bharat Mani — Moneybee Investments — Analyst

Okay. Okay. So as you said, the NCF policy for K-2 came in October. So in Q4, sir, can you just tell me in terms of revenue, how much was it in Q4 and…

Saurabh Mittal — Group Chief Financial Officer

So in terms — because it came very late in October, so I don’t — and the new content for — according to the NCF, I’m not sure there was anything significant. Yes. [Indecipherable] segment contributes around 10% to 15% of our overall sales. So as of now, we don’t have the breakup of how much new books would have contributed. But that is what the overall contribution is for that K-2 segment.

Himanshu Gupta — Group Managing Director

This year, the implementation of the K-2 books and the new books are quite less and the schools are waiting to get the complete syllabus for all the classes, and then they will change it next year. So this year, the contribution was not substantial.

Bharat Mani — Moneybee Investments — Analyst

Okay. Okay. So a question on the P&L side. So the content cost that is there — on new content, so do you capitalize it? Or it — or is it shifted to P&L?

Saurabh Mittal — Group Chief Financial Officer

It’s a mix. I mean, largely the in-house team cost, we don’t capitalize much. External cost, where we get content developed outside that we capitalize. But not much, I mean, maximum to maximum in a year, it’s about between INR7 crores to INR8 crores or INR10 crores at max.

Bharat Mani — Moneybee Investments — Analyst

Okay. That’s it from my side. Yeah. Thank you.

Operator

Thank you. The next question is from the line of Shekhar Mundra from Vivo Commercial [Phonetic]. Please go ahead.

Shekhar Mundra — Vivo Commercial — Analyst

Yeah. I want to understand about Mylestone, like how much is it contributing in revenues, as of now?

Saurabh Mittal — Group Chief Financial Officer

Last year, we closed at about INR16-odd crores.

Shekhar Mundra — Vivo Commercial — Analyst

Okay. And so what was the EBITDA contribution from Mylestone?

Saurabh Mittal — Group Chief Financial Officer

I think it’s negative INR2 crores to INR3 crores, as of now.

Shekhar Mundra — Vivo Commercial — Analyst

Okay.

Saurabh Mittal — Group Chief Financial Officer

See this Mylestone earlier had of course, was slightly higher at about INR20 crores, INR22 crores. But considering that it was targeting the smaller cities and schools, where there is — there was a gap in terms of the quality of teachers, it saw the biggest hit during COVID. And now with last year being the first year of operations, current year, we’re expecting it to grow another 30%-odd this year. So we’re looking at not growing it very — it will grow — it will — we’ll have sustainable growth in that. We will probably grow it from INR15 crores, INR16 crores to INR22 crore, INR23 crores this year. And this year, we should be EBITDA positive.

Shekhar Mundra — Vivo Commercial — Analyst

Okay. And so we are spending roughly INR20 crores per year. So what are we exactly spending on in Mylestone? Is it a marketing cost? Or is it building the app or what…

Saurabh Mittal — Group Chief Financial Officer

We are spending not INR20 crores, we are spending about — this last year, we spent about INR10 crores on that over and above, and it’s largely around marketing. And this year, so we will have some cost on content development. We will be coming up with a new curriculum also in that segment. So we will have another premium content coming in, in that segment. So there will be two brands, not just one. So one will be Mylestone; the other one, we haven’t decided the name yet, but we are working on a new curriculum solution also that will target to be slightly more higher end and premium schools. So that’s something that we are looking at the season.

Shekhar Mundra — Vivo Commercial — Analyst

And are we planning to raise any private equity or any funds for Mylestone?

Saurabh Mittal — Group Chief Financial Officer

No. Not at all. We — I think our cash flows are sufficient enough to — and I mean, there’s no point of raising any funds for that at the moment. We have enough internal cash flows coming in. Now, we’re generating almost INR80 crores to INR100 crores annually. So plus, we are almost — I mean, we are actively [Phonetic] debt free. So there is no reason to raise debt from outside — equity from outside.

Shekhar Mundra — Vivo Commercial — Analyst

Okay. And for Madhubun Educate 360, what is — or what is the volume we are doing right now? Or what is the revenues?

Saurabh Mittal — Group Chief Financial Officer

The revenue from Educate 360 are negligible because again, now with a lot of these platforms have become support platforms for schools, the monetization is again through the books only. It become less supporting because it’s [Phonetic] hybrid solution for schools, all the sales happen through the books and this just adds flexibility to the schools to hold classes, to hold assessments, to send messages to the parents and all that. So it becomes a support system. We’re not charging any premium for that. We are allowing schools to use it, and it helps us — the business will become more sticky with the customers. And of course, we do generate some data in terms of how customers are — how students actually using the content and all that. So that is the only monetization that we have.

Shekhar Mundra — Vivo Commercial — Analyst

Okay. And we had an other income of INR32.9 crores this year. So what was that exactly?

Saurabh Mittal — Group Chief Financial Officer

So the other income was, a, we had Q1 — we had a revaluation in the shares of Smartivity labs, which is about INR12.5 crores because earlier it was that book value, but if we — it was derecognized, as an associate, so we had to do it at fair value. So based upon the last round of INR95 crores to INR100 crores, it was revalued in our books to — then there was a gain of INR7-odd crores from iNeuron and then other income, the remaining…

Himanshu Gupta — Group Managing Director

Interest income.

Saurabh Mittal — Group Chief Financial Officer

Interest income and etc, the other income, that’s there.

Shekhar Mundra — Vivo Commercial — Analyst

Okay. So the INR13 crores roughly was the interest income and the income on investments, okay. And…

Saurabh Mittal — Group Chief Financial Officer

There’s a large — there’s a large reversal of provisions for doubtful debts that we have reversed [Phonetic], I think it’s about INR5 crores, INR6 crores will be reversal, considering the quality of receivables have improved.

Shekhar Mundra — Vivo Commercial — Analyst

Okay.

Saurabh Mittal — Group Chief Financial Officer

So whatever some amounts that were provided earlier on account of doubtful provisions, money was received from those customers. So that we guided. To be honest, it should not appear on the other income, should be part of our operating income, that is the classification we had to work with.

Operator

Thank you. Sorry to interrupt you, Shekhar, I will request you to join the queue again for a follow-up question. [Operator Instructions] The next question is from the line of Deepan Sankara Narayanan from TrustLine PMS. Please go ahead.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Good morning, everyone, and thanks a lot for the opportunity. Firstly, this 18% to 23% kind of growth guidance we have given for FY ’24, so we have assumed NEP for another couple of classes or full implementation for all classes?

Himanshu Gupta — Group Managing Director

I’ll take that. So yes — hi, so NEP, we believe that NEP should come out for all the classes this year. But as I said earlier in my — one of the questions that NEP will not implement in all the 100% of the schools in the country, but it will be a gradual implementation. So it will take a two year — three year period, we believe. And what we’re taking into account is that, NEP will be available, even if the NEP because the NCF of the draft [Indecipherable] out, yes, 3rd grade to 12th grade. So we believe that it will be implemented, but even if it is not implemented, we will be coming out with the new books based on the draft curriculum that has already been out by the Government from 3rd grade to 12th grade. So the new books in any case, would be out. But if the NCF is finally, the final draft comes in, we will modify the books accordingly.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Okay. Okay. And also, do we expect across all state implementation or some delay in non-center ruled states for the NEP implementation, particularly South market [Indecipherable]?

Himanshu Gupta — Group Managing Director

To start, basically, CBSE schools are all over the country and CBSE schools follow the same curriculum all over the country with — wherever they are, even in South. And the implementation will happen in all the CBSE schools and ICSE school will also make the changes. And where the government is of non-BJP, we believe the implementation might take some time, but all those states of BJP would definitely surely implement it.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Okay. And for this K-2, which has not contributed majorly for FY ’23, as you said, so do we expect that some revenues come in Q1 or it will be completely shifted to Q4 for next year end — Q4 for next year only?

Himanshu Gupta — Group Managing Director

The books, which I needed to buy for K-2 is already bought. And now the next window of opportunity will be coming in Q4 only.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Q4 only. Okay. And so lastly from my side, so with lower paper prices in the current year, so what kind of improvement can we expect in this gross margin for us?

Saurabh Mittal — Group Chief Financial Officer

So I think we have captured that in the EBITDA margin band that we have given.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

16%, 18%, sir.

Himanshu Gupta — Group Managing Director

I think we are looking at some amount of improvement in the gross margin, but it’s difficult to quantify, I think [Phonetic] because this is something, which will play out over the next six months.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Okay.

Saurabh Mittal — Group Chief Financial Officer

We don’t want to [Speech Overlap] out right now because I think the EBITDA margin band quantifies that. [Speech Overlap] add also, Deepan, to your earlier question about K-2. The thing is that if a lot of K-2 sales have happened from the old syllabus itself. So it’s not opportunity lost for us. I mean, I just want to give that impresssion — that — the impression — the sense that I got from your question was that whether we have seen a loss in our opportunity for K-2 or not. So I mean, instead of buying new syllabus books, schools have gone in with the old syllabus books. So for us, it is status still a sale.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Okay. Okay. Got it. But I was not coming from that lost opportunity side, but I’m coming from the point that Q1 or Q2 could get some more revenues, that’s what the point.

Saurabh Mittal — Group Chief Financial Officer

No, no, so I mean, the schools will follow the regular academic cycle. So I mean, obviously, we will have Q1 sales like the way we — I mean, we have, but it’s not because of any kind of delay of syllabus or books.

Deepan Sankara Narayanan — TrustLine PMS — Analyst

Okay. Sure. Thanks a lot. All the best.

Himanshu Gupta — Group Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jayesh from SaaS Capital [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Hi. I just wanted to know, what are your views on the AI tools like ChatGPT and [Indecipherable]. Do you think that it has any repercussions for our business?

Saurabh Mittal — Group Chief Financial Officer

So I mean, considering that we are largely a K-12 company, which provides content to schools through books, I mean, we are still assessing what impact that could have for us, to be honest. On the higher education side, yes, there could be some opportunity there for us and that is what we are trying to assess. In terms of content development, yes, that will help us in terms of improving the turnaround time for our products, so that’s the initial assessment that we have. But on the ground in terms of revenues from schools, I don’t see an impact at all.

Higher education, we are already seeing some challenges in terms of — in the last couple of years because of the test prep segment, but that — with the elections coming around next year, we hope that will also get sorted. So — I mean that’s the initial assessment. Of course, going forward, as and when we have another — any other assessment we’ll definitely let people know.

Unidentified Participant — — Analyst

Okay. Sir, as of now, we are not seeing — are you seeing any impact in terms of — especially in terms of test prep segment, at least for maybe standard 8 and above?

Saurabh Mittal — Group Chief Financial Officer

Not really. I mean, the — see the test step segment, again, has been taken — has been disrupted by the YouTube — the YouTubers in the last two years, three years and that is something that is there in the market. I mean, there are multiple content creators, who are going out and teaching kids at very reasonable prices. We’ve had PhysicsWallah disrupt the whole segment in terms of the NEET and the JEE segment. So are we seeing a lot of disruption there in terms of test prep. But having said that, our focus is largely around these government exams, the SSCs and the — so we are looking into that segment. And since it’s not — I mean, it contributes only about 5% of our revenue, so, it’s not such a big challenge for us.

Unidentified Participant — — Analyst

All right. Okay. Thank you so much.

Operator

Thank you. Next question is from the line of Punit Mittal from Global Core Capital [Phonetic]. Please go ahead.

Punit Mittal — Global Core Capital — Analyst

Hi. Thanks for the opportunity. Just a couple of questions. What is the cost of debt that you have on the books now?

Saurabh Mittal — Group Chief Financial Officer

Our average cost of debt is around between — it’s around 9.5% to 10% at the moment. It was slightly lower last year, but of course, with the repo hikes in the last quarter, it has gone up. Earlier we are at 8% to 9%, now we’re between 9.5% and 10% at the moment.

Punit Mittal — Global Core Capital — Analyst

Okay. So do you plan to reduce this gross debt, cash of books [Phonetic]?

Saurabh Mittal — Group Chief Financial Officer

Yes. I mean, so our gross debt in terms of — our term debt is down to very low levels in fact. We’ve prepaid most of our long-term debt down to the limited amount. Short-term debt again is working capital debt, so that is very seasonal.

Punit Mittal — Global Core Capital — Analyst

Next question, what — how much operating cash flow do you expect next year? And I think the maintenance capex was about INR10 crores this year. Would you put the same figure for next year?

Saurabh Mittal — Group Chief Financial Officer

Yes, yes. I mean, we continue to be asset light. There will be slightly higher spend on content development. But again, that might be another INR5 crores over and above that. So I don’t see [Indecipherable]. We expecting around the same between INR90 crores to INR110 crores bracket in terms of cash flow from operations.

Punit Mittal — Global Core Capital — Analyst

So the final question, sir, is what is the capital allocation plan for going forward given we are debt free, and this year, I think you have restored dividend about 20% payout, I would reckon. So how do you — what’s the strategy or plan for the capital allocation going forward?

Saurabh Mittal — Group Chief Financial Officer

We’ll stick to that — the 20% [Phonetic] to 25% EPS payout and dividend. Our cash flows have stabilized over the last 2 years. That has enabled us to distribute dividend in the current year. And going forward, as and when, in case, we have an exit from any investment that we have, then, of course, we can top that up as and when that happens.

So since we don’t have any large investment plans in terms of capex or on any major acquisitions, we’ll continue to do some small edtech or education-related investments, but those will be very small ticket, small ticker sizes, as we have been doing under valuation of about INR70 crores, INR80 crores and taking minority stakes is — what is working for us. So yes, based on that, of course, we will have surplus cash every year, and we’ll, of course, share 20% to 25% as dividend.

Punit Mittal — Global Core Capital — Analyst

Sir, I think just a request, you will generate a substantial amount of cash over the next two years, three years and naturally it’s an asset light business. So instead of filing our cash on the books, it would be very prudent if you can have or create and share a better capital allocation strategy because as you know, investors are very wary of companies filing up cash on the book. So that’s just a request from our side, sir, you can consider. Thank you so much.

Saurabh Mittal — Group Chief Financial Officer

Sure. Thank you. Feedback taken.

Operator

Thank you. Next question is from the line of Niteen Dharmawat from Aurum Capital. Please go ahead. Niteen, may I request you to unmute your line from you side, please?

Niteen Dharmawat — Aurum Capital — Analyst

Hello?

Operator

Yes, you’re audible.

Niteen Dharmawat — Aurum Capital — Analyst

Yes. So my question is the guidance that we have given, I just wanted to reconfirm that it is based on the operating revenue and not any additional revenue or any revenue realized through the sale in — sale of minority stake and the investment that we have made?

Saurabh Mittal — Group Chief Financial Officer

Yes. INR720 to INR750 [Phonetic] is for operating revenue — operating business.

Niteen Dharmawat — Aurum Capital — Analyst

Okay. Thank you.

Operator

Thank you. Next follow-up question is from the line of Riya from Aequitas Investments. Please go ahead.

Riya Mehta — Aequitas Investments — Analyst

Hello.

Operator

Riya [Indecipherable] sound coming from the line.

Riya Mehta — Aequitas Investments — Analyst

Hello? Is it better?

Operator

Yes.

Riya Mehta — Aequitas Investments — Analyst

Yes. So my question is in regards with the NCF, which draft and final NCF, which is final, which is less spending. So by when do we expect that? And the guidance, which we have given considers the new till K-2 or till K-12?

Himanshu Gupta — Group Managing Director

Yes. Hi. Let me take that. So NCF as a draft, which is out [Phonetic], we expect the final draft to be out in maybe next two months to three months depending on the government’s policy. We can’t completely 100% currently there. And secondly, the — so the books that we will bring out new books maybe from K-12 this year. We already have the draft NCF. So we will be making books according to that. And if the NCF is out, we will modify the changes and then bring the final books. But if the NCF is not out or delayed, we will bring the books, as per plan. And we believe the new books will be out not only by us, by other competitive players also. And the children will get the new books in the upcoming session, and that will, I think boost up the revenues.

Riya Mehta — Aequitas Investments — Analyst

Okay. And my next question is in regard to the competition, so I think Navneet has also come out with their CBSE books, and they are doing pretty well there. So is it that we — our market share is decreasing or something like that in that? Are they taking it away from us?

Himanshu Gupta — Group Managing Director

Navneet is not a very significant player in the CBSE space. They are very small player there. There are much bigger players in the CBSE space. And they have taken out books last year, they have taken out new books, but because we have also taken out last year new books, but the main set of books, which will be the new books, which will have a substantial, we believe, component of market share increase will happen this year because all the K-12 books will be recommended by school, the new books will be recommended by school this year rather than the last year.

Saurabh Mittal — Group Chief Financial Officer

Just to add, Riya, Navneet’s CBSE business is only INR65 crores. I mean, they are a large player in the Gujarat and Maharashtra state board, where they are leaders, but we are in a totally different segment, as per that comparison.

Riya Mehta — Aequitas Investments — Analyst

Right. Yes. They just recently started it or two weeks back, Indiannica, I think [Indecipherable], so the commentary was is growing double-digit growth of 20%, 25%.

Saurabh Mittal — Group Chief Financial Officer

So that is for their, I think, Indiannica business, which is only INR65 crores top line this year.

Riya Mehta — Aequitas Investments — Analyst

Yes. And my second question would be how much of the guidance is coming from the new curriculum?

Saurabh Mittal — Group Chief Financial Officer

I don’t think we’ve split it like that. But the thing is obviously the volume growth that we are looking at — I mean, it will be divided between new and old. So — we are not splitting it like that.

Riya Mehta — Aequitas Investments — Analyst

Okay. That’s it from my side. Thank you so much.

Operator

Thank you. Next follow-up question is from the line of Vikas Kasturi from Focus Capital. Please go ahead.

Vikas Kasturi — Focus Capital — Analyst

Yes. Hello, sir. Sir, my — I have only one question. And so these receivables that you have, are they receivables from the schools?

Saurabh Mittal — Group Chief Financial Officer

No, they’re not receivables — very significant — insignificant part would be from school. Direct sales to schools is limited to 5% to 7%. Most of our receivables is from channel partners because practically since we cover about 40,000 schools, we can’t have direct school accounts. We work through channel partners, who also work with other publishers. So this is largely from channel partners.

Vikas Kasturi — Focus Capital — Analyst

Got it, sir. Thank you. That’s it. Thank you.

Operator

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

Himanshu Gupta — Group Managing Director

Yes. Thank you. Thanks a lot, everyone, and this has been a great year for us, and we’re hoping the year — next year will be better. And we are now a debt free company, and we will strive to do so and increase our cash flows and try to increase our EBITDA margins. Thank you, all for joining on this call, and we’ll talk to you again. Thank you. Thanks.

Saurabh Mittal — Group Chief Financial Officer

Thank you, everyone, and…

Atul Soni — Investor Relations, Strategy and M&A

Saurabh, anything else.

Saurabh Mittal — Group Chief Financial Officer

Okay. We can close the call.

Operator

Thank you very much.

Himanshu Gupta — Group Managing Director

Thank you.

Operator

[Operator Closing Remarks]