Chetana Education NSE SME IPO review (May apply)

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Review By Dilip Davda on July 19, 2024

•    The company is engaged in educational book publishing and educational software.
•    It posted growth in its top and bottom lines for the reported periods. 
•    It is operating in a highly competitive and fragmented segment.
•    Based on FY24 super earnings, the issue appears aggressively priced. 
•    Well-informed investors may park moderate funds for the medium to long term. 

ABOUT COMPANY:
Chetana Education Ltd. (CEL) is a content-based company, specializing in educational book publishing for the CBSE/State Board curriculum catering to the K-12 segment. Additionally, it provides access to educational software for learning videos (for teachers and Students) accessible through QR (Quick Response) codes, backed by a comprehensive sales and distribution network. It currently focuses on serving the Maharashtra State Board and Central Board of Secondary Education (CBSE), covering the spectrum of education books from early pre-primary learning to K-12 course. 

During the Fiscal year 2023, it sold over 6 million books, covering students across different standards ranging from pre-primary, primary, secondary, and higher secondary levels. It has established a portfolio of over 700 titles as of 2023 with 15 distinct brands. Some of the names in its lineup include Master Key, Self-Study, Firefly, Bright Buddies, My Skill Book, Grade Me, QR series etc. Apart from publishing books, CEL is also involved in developing a range of digital content for enhanced understanding of topics for students and aim to make the content more viable for a better learning experience. It has over the years produced over 30,000 videos that can be accessed via QR codes, which could help transform traditional content into digital formats, facilitating the students for further self-studies post school and tutorials without any additional cost. This has been achieved through a strategic partnership with Allern Enterprises Private Limited, an Edtech company.

Chetana's network encompasses numerous schools, coaching classes and booksellers, supported by collaborations with different vendors in printing, paper sourcing, binding, lamination and packaging. Partnerships with over 400 contractual authors contributing to the content creation for the company. While it has strategically opted for partnerships with printers and binders in India, CEL's decision to remain asset-light underscores its commitment to operational agility and cost optimization and absolute focus on content development for the education sector and effective sales and distribution.

Its distribution and sales network consists of over 500 distributors and dealers, and it has an in-house sales team working from its branches and marketing offices across India. CEL considers its schools, teachers and students to be its "touch points" and its sales team is responsible for developing the relationships with customers in pre-primary, primary, secondary and higher secondary learning businesses. Along with marketing its content directly to educators and schools to place its products on prescribed and recommended reading lists, it also markets products directly to distributors and dealers. As of March 31, 2024, it had 408 employees on its payroll. It also hires additional workforce for specific activities as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5400000 equity shares of Rs. 10 each to mobilize Rs. 45.90 cr. at the upper cap. It has announced a price band of Rs. 80 - Rs. 85 per share. The issue opens for subscription on July 24, 2024, and will close on July 26, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.47% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 20.00 cr. for working capital, Rs. 12.17 cr. for repayment of certain borrowing, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Hem Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity shares capital at par value. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 15.00 cr. will stand enhanced to Rs. 20.40 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 173.40 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 43.12 cr. / Rs. 1.68 cr. (FY22), Rs. 75.61 cr. / Rs. 6.86 cr. (FY23), Rs. 93.67 cr. / Rs. 12.04 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 5.72, and an average RoNW of 35.29%. The issue is priced at a P/BV of 5.05 based on its NAV of Rs. 16.83 as of March 31, 2024, and at a P/BV of 2.44 based on its post-IPO NAV of Rs. 34.88 per share (at the upper cap). 

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 14.41, and based on FY23 earnings, its P/E stands at 25.30. The issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 3.90% (FY22), 9.07% (FY23), 12.87% (FY24), and RoCE margins of 9.94%, 20.55%, 26.87% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown S Chand, and Navneet Edu., as their listed peers. They are trading at a P/E of 15.8 and 17.8 (as of July 19, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 48th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 4.63% to 165.22% on the date of listing.

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