India is one of the fastest growing economies in the world.The long-term growth prospects of the Indian economy are driven by India’s young population, rising affluence, increasing GDP per capita, rising disposable income levels, healthy savings and investment rates and increasing spend in the discretionary income. India offers significant market potential due to its sizeable population, a burgeoning middle class and its young population, the largest in the world, with a median age of 27.6 years.
The education sector has been a key beneficiary of India’s economic growth and favorable demographic profile, illustrated by the fast growth of education amongst other discretionary expenditure items. The share of spend on education has increased from 4% in 2005 to 5% in 2015.
The formal education segment comprises both K-12 schools (including secondary and senior secondary schools) and higher education institutions (colleges, higher education institutes).
The informal segment comprises test preparation, tutoring, early education and vocational/skill-based training segments. The informal segment does not have restrictions on operating on a ‘for profit’ basis and does not have restrictions on profit distribution. The ancillary segment consists of industries related and supplementary to the formal and informal education segments.
As is the case with the informal education segment, ancillary education does not have restrictions on operating on a ‘for profit’ basis and does not have restrictions on profit distribution. The ancillary segment includes content/publishing, digital content and services such as curriculum management, facilities management among others. It is believed that ancillary or peripheral services are taking on an increasingly ‘central’ role in education.
The ancillary segment is expected to increase the overall quality of education provided in India and stands to benefit from the large-scale growth in the formal and informal education segments. Increase in investment in the ancillary segment is projected given the ability to operate on a ‘for profit’ basis in India.
S Chand is a leading Indian education content company in terms of revenue from operations in Fiscal 2016.It delivers content, solutions and services across the education lifecycle through our K-12, higher education and early learning segments. It is the leading K-12 education content company in terms of revenue from operations in Fiscal 2016, according to Nielsen, with a strong presence in the CBSE/ICSE affiliated schools and increasing presence in the state board affiliated schools across India. It offers 53 consumer brands across knowledge products and services including S. Chand, Vikas, Madhubun, Saraswati, Destination Success and Ignitor.
In Fiscal 2016, S Chand sold 35.47 million copies of a total of 11,144 titles. Additionally, Chhaya sold 9.88 million copies of 433 titles in Fiscal 2016. Its top ten best-selling titles accounted for sales in Fiscal 2016 of 2.96 million copies, and 15 of its authors have each sold over one million copies of their titles during the last five fiscal years.
S Chand has a contractual relationship with at least 1,958 authors (including co-authors) for over five years as on March 31, 2016. Additionally, Chhaya has contractual relationships with at least 24 authors (including co-authors) for over five years as on March 31, 2016.
As of June 30, 2016, its distribution and sales network consisted of 4,907 distributors and dealers, and it had an in-house sales team of 697 professionals working from 58 branches and marketing offices across India. Chhaya Acquisition has expanded its presence in Eastern India to include an additional 746 distributors and dealers as of December 1, 2016.
Since the establishment of its predecessor S. Chand & Co. over seventy years ago, the operations cover the entire student lifecycle: early learning, K-12, and higher education. Over the last few years, S Chand has focused on improving its digital offerings in each of its business segments
In Fiscal 2016, it sold 2,920 titles and over 2.86 million books in its college and university/technical and professional business. College and university/technical and professional contributed to 13.09% of its consolidated operating revenue in Fiscal 2016, amounting to Rs 703.81 million. From Fiscal 2012 to Fiscal 2016, our college and university/technical and professional consolidated operating revenue grew at a CAGR of 8.43%.
The Company has mentioned:
Our recent financial performance is highlighted by our results of operations provided below.
(1) Our consolidated restated revenues grew at a CAGR of 32.64% over the past five Fiscal years from ¹ 1,746.44 million in Fiscal 2012 to ¹ 5,406.27 million in Fiscal 2016;
(2) Our consolidated restated EBITDA grew at a CAGR of 47.47% over the past five Fiscal years from ¹ 271.07 million in Fiscal 2012 to ¹ 1,282.16 million in Fiscal 2016.
(3) Our consolidated restated profit after tax and before minority interest grew at a CAGR of 33.48% over the past five Fiscal years from ¹ 146.91 million in Fiscal 2012 to ¹ 466.42 million in Fiscal 2016;
(4) Chhaya’s consolidated revenues was ¹ 1,286.23 million and ¹ 705.74 million and consolidated profit after tax was ¹ 302.35 million and ¹ 115.31 million, in each of Fiscal 2016 and Fiscal 2015, respectively
Why I would give premium weightage to S Chand over Navneet:
Its business is a key beneficiary of the increasing share of education within the discretionary expenditure of the Indian consumer, and its presence across the student lifecycle allows it to generate recurring revenue throughout student’s lives. Its full lifecycle approach provides the company with a strategic advantage over competitors that are focused only on individual segments of the education life cycle. It has established its brand equity from the strong consumer connections that it developed during the entire student life cycle.
Focused digital and technology platform
Its digital offerings are focused on supplementing its existing strengths in the K-12 and higher education businesses. Its approach to provide hybrid solutions along with its print content has helped it create an expansive library of digital content, of which it offered an aggregate of 7,722 hours of e-content as of March 31, 2016.
It is focused on using technology to drive innovation and new medium of distributing education content. In Fiscal 2016, its hybrid offering contributed 38.82% of consolidated operating revenue from the K-12 segment and purely digital offerings contributed 5.55% of its consolidated operating revenue from the K-12 segment.
It has a comprehensive suite of digital offerings for K-12 schools and students. Its multimedia solution Destination Success can be customized to provide software solutions for schools and bundle it with hardware offerings if required. Its offerings like Intellitab and Mystudygear provide a platform for uniform learning in the classroom and during after class hours, while Ignitor is focused on providing learning management systems to institutions to enhance teacher student productivity.
In the higher education business, its investee companies have an early mover advantage to capture the growth in the online test prep markets as more exams move online.
As of March 31, 2016, Its cumulative investment (including loans and advances) in digital learning solutions (including services) from both in-house and minority investments was Rs 91.984 crores, and it plans to continue to invest in early stage education companies to grow its digital platform.
From valuation angle, I would consolidate profits of S Chand and also profits of Chhaya Publishani ( 100%) and then divide the same with enlarged equity capital of 34695242 shares .Considering past growth of 47% pa in Operating profits during last 4 years, and growth in net profits, I would estimate EPS of Rs. 30 for the year 2016-17( just completed year) and EPS of Rs. 38 for the year 2017-18. Navneet which is also in this business has is available at Rs 170 (Last year EPS being Rs. 5.37) giving PE multiple of 31.65.Last year S Chand has earned EPS of Rs. 22.94 ( inclusive of Chhaya profits).
Lowest expected listing price can be considered at…. EPS Rs. 22.94 x PE 31.65= Rs. 726.
At normal market level price can be considered at Rs. 800 & on higher Rs. 870/900.
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