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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen, and welcome to CL Educate Limited's Q2 FY '23 Investor Conference Call. My name is Arjun Wadhwa, I'm the CFO of CL and I'll be your host today. Joining me on this analyst call today is Mr. Satya Narayanan, he's our Chairman and CEO. This analyst call, as always, will be recorded, transcribed and made available in the investor zone on our website within the next 24 to 48 hours. I'll start by taking you through the early part of our presentation, including our corporate updates and financials, following which Satya will run you through our business updates. As always, there will be an opportunity for you to ask questions after the presentation concludes. So I request all of you to please type your questions in the chat box at the bottom right-hand corner of your screen, preferably note them down for the time being, and just add them to the chatbox later, and we'll address them as we come to the end of the session. First of all, let me just say it's a great privilege for us to host you in this call today in the metaverse. As you are aware, we have developed the metaverse completely in-house from scratch, and we thought this was a great opportunity to give you our shareholders, our ambassadors an opportunity to see the metaverse in action up close. And of course, if you like your experience, do please spread the word. In case you haven't already done so, please spend some time after this call exploring everything that the metaverse has to offer. There are 3 buttons on the bottom left-hand corner of your screen, which if you click on those, it will give you an opportunity to see the different sections of the metaverse. You can walk into the mall, check out some deodorants that you can actually buy online right now, it's a pretty amazing experience. So do check it out when you get the chance. As you might have noticed, if you logged in a little bit early in our precession video, we had an avatar-based metaverse experience as well, which is still something that's under development. So what you see right now is very much simply the tip of the iceberg. And of course, the possibilities of the metaverse when you start plugging in things like augmented reality, virtual reality are simply mind-blowing and endless. From a business perspective, our role is to help brands move out of the 2D environment that the dot-com universe currently limits them to and to give their consumers an experience of the new 3D world that exists for the youngsters of today. But we'll cover that and much more in the MarTech part of our section. Let me get started by walking you through our strategic road map and the specific corporate actions we have taken over the last 12 to 18 months. I'm moving straight up into Slide #6 of our PPT. Satya, if you could just give me a quick thumps up that it's visible. Yes. So specifically, over the last 12 to 18 months, all of you would have followed this as our long-time shareholders, but you would have noted that we have made a very conscious attempt to liquidate unproductive land assets that used to exist, most of which belong to our K-12 business or our B school business from the early 2000s. The market was conducive for this over the last 12 to 18 months. And we've made a conscious effort to do this. This has resulted in a potential release of about INR 78 crores of cash. As you can see in the one right on top, the Indore transaction is something that is activated. We've received a INR 3 crore advance. The remaining INR 14.5 crores will flow to us by the end of this financial year. All of this has meant a very conscious effort into also returning value to use specifically our shareholders. We've made certain very specific activities in terms of our stock split that we did in Q2 of last year, the buyback that we did towards the end of the last financial year, which carried through to the early part of this year. And as you've recently just heard, we announced a 1:1 bonus issue just yesterday. So this is very much part of our strategic road map. And you will see over the next 12 to 18 months, we will continue to find ways to return value to you, our shareholders. Moving forward, I'll spend a little bit of time on our financials. As you would have seen it in our results that were announced yesterday, our revenues are up significantly. They're up 53% from INR 106 crores in H1 of last year to INR 162 crores almost in H1 of this year to just highlight that. And correspondingly, our EBITDA is up from INR 15 crores to about INR 18.5 crores. There is a gap between the revenue jump and the EBITDA jump. It's something that Satya will cover later in future slides. But this is very conscious. This is -- the margin flow will run a little bit behind the revenue increase largely on account of a conscious attempt that we made towards marketing spends and investments in product, people and technology. Specifically, in terms of our PAT, it's grown from INR 6.2 crores to INR 17.2 crores, that's a jump of 177%. This includes the net exceptional gains that we've had on an account of the sale of our Greater Noida property, which would account for about INR 6.5 crores at the PAT level. So if I were to do an apples-to-apples comparison, it would be [ INR 6.2 crores ] versus about [ INR 10.5 crores ]. And our EPS is also up by about 172% from INR 2.14 to INR 5.12. Moving forward, I've already covered the revenue, the PAT and the EBITDA EPS in the previous slides. 2 things that we thought we would share with you additionally is, we had mentioned in our previous calls that we want to be a net debt-free company. We've made a significant jump towards achieving that. Our long-term debt is down by a couple of crores. But our short-term debt is down by almost INR 27 crores. So the cash that we've accrued on account of the land sales, some of it has been used to retire our debt and our cash position remains very healthy right now, having grown from about INR 27 crores. That's our net cash from about INR 27 crores same time last year to about INR 81 crores this year. Also in terms of our ROE and our ROCE at our last AGM, Satya spoke about taking this into double-digit numbers. We were at 5.3% and 7.5%, respectively, at the turn of the year. If things go the way they are going, we should end this year close to about 9% in terms of ROE and about 9.5% in terms of ROCE. A quick look in terms of where we are in terms of the segments. I've already spoken about the revenue and the EBITDA. Our EdTech segment grew 14% from a quarter-on-quarter perspective. That is from 45% to almost INR 52 crores with a marginal EBITDA growth. As we shared previously as well, our focus -- I'll draw your attention to my last bullet on the slide, has been on gaining market share and deeper penetration in specific markets, with centers fully operational now and returning to business as usual. The cost corresponding to executing physical businesses also increases. And as we shared, we've also been investing in specific areas, including marketing. On an H1 to H1 comparison perspective, our revenues are up -- our total EBITDA is up 23%, of which the EdTech revenue has contributed 48% with an EBITDA jump of 31%. The MarTech revenues have also grown substantially because of a return of physical events. In fact, what you'll see now is a lot more hybrid events taking place with virtual and physical coming back together and organizations trying to make the best of both worlds. From a short-term perspective, that has resulted in a marginal dip in our margins. But if you look at it from a quarter-on-quarter perspective, we're actually up from INR 1.5 crores to INR 1.9 crores. Satya, I'll now hand over to you to give us a macro view of the business.
Thank you, Arjun. Am I audible?
Yes, you are.
Okay. So I'm on the slide macro view, and I will assume that the economic -- macroeconomic part is something that I can skip. You guys are much, much more well-informed experts than we are. I'll try and focus on the right-hand side pillar, which is the education-related macros. And one of the things, which I do repeat often enough, but it perhaps is worth repetition, is that the implementation by various government machineries, policy implementing machineries, post the parliament's adoption of NEP 2020 is something that we are seeing on the ground for the last 12 months, and we think that this is still early days. To give you an example, the Unified College Entrance examination, which is very, very directly relevant to us, has come into existence. The first addition of it has gotten implemented. And the likelihood of it being ahead in the summers of 2023, has begun to appear in the media. So CUET is one downstream visibility of this educational policy reforms that we are seeing. Number 2 is, there is a very conscious effort made at the policy level to take Indian education global in both ways, which is can Indian products and services go abroad? And can we emerge as a higher education hub through a study in India team or a project that is run by Ministry of HRD. Both of these are beginning to gain a lot of traction. How would this be relevant to us? Visualize that if the number of students seeking admissions to India moves from 40,000 to the 400,000 that is aimed for that's going to come through this model. And CL is equipped with presence in a bunch of places already overseas, but we will move in that direction as this opportunity gains traction. Similarly, the last point for me to mention here is that the way if you are queued into or if you wish to get more informed about how Indian markets are likely to emerge with, of course, some variations, it is worth looking at the way U.S. emerged through the '90s all the way till 2005 and how China emerged between 2005 all the way to 2015 or even 2020. I think India, we believe that 2020 to 2035, including the immediate 10 years beginning 2022, it could see a lot of those happening and the outcome of it is that Kaplan, Princeton Review, et cetera, emerged in the U.S. and TAL Education, New Oriental emerged in China. That's the broad thing I wanted to cover on this slide. We'll move forward and then take our -- some business updates. First, I'll pick test prep and then we'll go to Kestone as well, the MarTech business. As you can see, maybe first, I'll pick the right-hand side, the numbers. The September '21 to '22, if you look at it, INR 65.4 crores has grown to INR 96.8 crores, whereas the EdTech EBITDA went from INR 16 crores to INR 21.2 crores. The last year's numbers, March '22, were INR 129.3 crores and INR 27.9 crores. And hopefully, we will do better than that. That's what our view is. But as you know, as a matter of approach or practice, we don't put out very specific numbers about the future. Some qualitative commentary there on the left-hand side, but maybe I should mention right away that point number 4 is where I could start. Because of the -- quite literally going away of the entire COVID phenomenon and the off-line businesses coming back into action, coupled with the introduction of CUET in the 11th and 12th age group, Class 10th, Class 11th and Class 12th, we are finding a lot of traction, new centers are getting added. Perhaps this is the largest number of centers that we would have added in any half year in the last 25 years. We hope it's still the early stages. We have added 45 new centers in H1 of FY '23. On the enrollments, test prep, we are up 11%. ARPU is up 30%, but please don't build too much of it into modeling. A lot of it is because of the significant or mostly online has become more hybrid since the ARPU is up. But usually, the ARPUs every year would go up, you could assume at the rate of inflation, 5%, 7%, 11%, not more than that. Business partners billings are up by 65%. There is one particular change that has happened, which is law exam has moved to the law flagship exam CLAT has moved to December. What it does is not affect the numbers, but the seasonality, consumer behavior, propensity of when to buy, when not to buy, when will they buy the 2-year program, 1 year program, those things will undergo a slight modification, reasonably predictable with our experience, but that's something that we are -- we must be prepared for. Coming to the content. The publishing volumes are up 24%, though the paper cost, as you know, went up dramatically over the last 12 months through various measures, our team has been able to preserve the margins more or less. The third arm or dimension of our EdTech business is the platform business where institutions, schools, colleges, universities, brands they use, Career Launcher platform to reach out to their stakeholders or customers. There, we have signed up 23 more new universities as clients. The business has gone up 42%. Again, there is a pre-COVID post-COVID resumption that you can attribute some part of it too. The MBA colleges beginning to push for businesses is also helping our business. And one very interesting thing that is emerging even for the platform team is the gathering of the momentum of CUET, which is very promising. And as you might have seen or we might have shared it with you in the past, large number of universities, not just government ones, but private ones have begun to accept CUET scores. And we believe that these numbers will balloon by a factor of anywhere from 3x to 5x in the next 2 to 3 years. We'll move forward to cover the MarTech business. Again, I'll start on the right-hand side. The one important thing about -- okay, let me first cover the numbers and come to the qualitative commentary. September '21, we did INR 39 crores of revenues in MarTech business, which has grown to INR 61 crores. Last year, full year, we did INR 78 crores with an EBITDA of INR 6.6 crores, whereas our half yearly EBITDA this year is 3.4%, which is flattish or slightly lower than last year's EBITDA. And the explanation of this, you could refer to the qualitative points on the reference side, which I'm going to share now. The entire MarTech business last year was close to 95%, 99% digital. So it had a greater margins, but the sizes were smaller. This year, the revenue spike is there due to hybrid events because offline events are bulkier in size and -- but lower in margins. So the short-term impact on the weighted average of margins we see as anticipated and even shared in the last quarterly meeting. One of the things that we are guiding our results with is that, we need to focus on the primary goal is to get past the pre-COVID revenues, and we believe that the margins will catch up as VOSMOS and all other things, they gather momentum. The second broad point that I would like to make is that while our U.S. is in the incubation stage and it will continue to be so for the next 12 to 15 months, we're seeing greater traction in the Asian markets, not just India, but notably GCC, Indonesia and Singapore. And these are the geographies that we are going to be focused on for the next few quarters to get to the next orbit of our revenues and profits. VOSMOS that you are seeing, the product development team is continuously working and their internal target is to push out the DIY version, which is what will make it scalable. But as you know, DIY version can be done after you do it and generate that kind of user insights necessary to do the coding. But by Jan, we are hoping to put the DIY version of VOSMOS out. On the go-to-market side, the focus is on just 4 or 5 industries, which where all of us are aware that there is a lot of 3D play becoming hygiene to enhance the customer experience dramatically. Notably real estate, hospitality, retail, e-commerce becoming m-commerce and becoming meta commerce and also our own space education where CL itself is acting as the first pilot customer to make it happen for Kestone. Some clients are getting close to pilots or readiness. We will share that as the names are shareable. Even our first avatar-driven store is ready. You will hear more about it and watch it over the next few weeks or maybe by the time we meet for the next quarter. Little summary on the services part of the MarTech business. The flagship hybrid events, large formats have resumed, big clients like Dell and AWS, they have been executed, where it's not offline or online, but it's a hybrid way. Some aspects of their go-to-market or the initiative or the project or an event is done purely on the online basis and some parts of it are done on the ground. The digital marketing and the MarComm services, which are coming -- being developed as a suit, they are picking up well. Hopefully, we'll be able to share more as we step into next few quarters. That's the summary of MarTech. Moving forward, Arjun, should I give it back to you?
Satya, you can pause here. I'll take over. Those, of course, remain our contact numbers. And meanwhile, if you have any queries, any questions, please feel free to use the chat window and send us your queries. We'll take them up over the next 7 to 10 minutes. Meanwhile, while we wait for some of the questions to come, I'll also give some of those people who joined in a little later, an opportunity to check out a video which has the avatar version of our metaverse in action. If you were to log into our metaverse a few months down the line, you can sign up with your own avatar and explore the metaverse in a lot more detail, but here is a brief video on how that works.
Is there any question, Arjun?
Yes. Yes, there are a couple of questions meanwhile, I'll just take them up.
Sure.
There's a question, Satya, from [ Mohit. ] who's asking what additional markets does the change in the -- does the CUET exam open up for CL Educate? Would you like to take that?
Sure, Arjun, sure. And can you tell me the full name and which organization or if applicable.
Yes. I'm sorry, I don't have the organization name yet, but it's [ Mohit Chandnani ]. Yes. If I could just take a quick second. There are also 2 more questions on the CUET. So I'll just throw those also at you, maybe you can handle all of them together. The second one is, can you share the metrics on how CUET and franchise additions have moved? And any comments on the competition challenges that we are facing, and that's from [ Vivek ]. And there's a question from [ Rahul ] about the enrollment numbers and ARPUs in CUET versus other test prep verticals?
Okay. So that's a bunch of questions in and around CUET. I'll take each of those. And Arjun if I miss out any specific kindly keep a tab on me. So question number one is the addressable market. Maybe it is good to understand just by comparison. CUET is -- was -- it is relevant to the Class 12 students. And as you might have seen in a few of our editorials, blogs, vlogs, which are -- many of those things are available on our website, kindly, please go through that. The -- while the first year, the number of applications were about 14 lakhs, the number of takers were about 9.8 lakhs. Our own estimation is that these numbers will travel to 75 lakh applications and 50 lakh to 60 lakh examination takers in the next 3 to 5 years. And that would amount to -- see the number of students who are in Class 12th across the country is approximately 1.3 crores. So ideally, the addressable market should be 1.3 crores. If everybody -- every university is going to take students from CUET, we know it's not going to happen. So the figure I think is going to settle is going to be between 70 lakh to 1 crore in a 3 or 5 or 7 or 10 years' time. This compares to the gaokao figure in China of almost 1.1 crores for the compatriot exam in China? That's number one. Number 2, while the examination takers will be between 70 lakh to 1 crore, the preparation for it is likely to be done by the students over a 2-year period. So this program is likely to have a 2-year version, 1-year version and a crash version, which is a 3- to 4-month version. The pricings of these that we have realized are approximately INR 1.5 lakhs, INR 75,000, INR 25,000, okay? So you can do your arithmetic around this. How do we -- how does it compare it with our flagship programs? Law is taken by about 60,000 students flat and the ARPU there, you can consider it about INR 75,000 to INR 1 lakh, okay? 2-year program could be INR 1.2 lakhs. 1-year program could be INR 75,000 and a crash program could be INR 35,000. But a weighted average, you take it at INR 75,000, okay? That is taken by about 60,000 students. And our product size in this is about INR 50 crores to INR 60 crores each in MBA and law, and our market share is between 25% to 35%, depending upon how you look at it, okay? So -- in short, this is a very good, big opportunity, and we are simply focused on putting our head down and executing the plans, point number one. Point number 2 is, the partnership-led model is what we will use even here. And literally, the 4,000 towns, which have got more than 100,000 as a population is a target for us. Every district can have 5 to 10 centers for us. Any town, which has got more than 10 schools, who've got 9th, 10th, 11th, 12th, if each school has got 500 and 500 into 10 is 5,000 kids. I think that's the kind of thumb rules that you can use to estimate this product. If there are any more specific questions are there, please feel free to WhatsApp it to us or share it with us. We will not only reply back to you, but put it up for the benefit of other shareholders as well on our Investors zone. Is there any question, Arjun?
Thanks, Satya, you did. There are also a few questions about virtual events and the platform, if I could throw a few of them at you. There's a question from [ Vivek Turaga ]. He is asking what specific use cases are we targeting with VOSMOS, and any business updates on the same that we could share. There's a question from [ Jagvir ] asking how will the EBITDA margins improve in the MarTech business going forward?
Okay. I'll take the first one first, Arjun. So Vivek, there are -- the VOSMOS, the entire event thing, our first go-to-market plan is to let our existing clients' organizations to use it because that's where they have the confidence in Kestone's ability to run a particular event or a conference or something end-to-end. So that's one use case that we are going after. And the good thing is that while everything about the events, 100% of it was online last year, this year, post COVID, that has not come down to 10% or 15% or 20%, it still is hovering anywhere between either a 40-60 or 60-40 or 70-30 for various clients. So we hope that the new normal, even in the thinking of the marketing teams in these large brands, whether it's a Dell or an AWS or a HUL or whoever, we think that it's going to be blended. That's number 1. Number 2, where VOSMOS actually, I would like to believe that it is still at a very early stage, where we are developing use cases, for example, we are working with a hotel chain in India. We are working with a hotel chain in Indonesia, in Singapore, we're working with a couple of organizations where -- the people who are checking into your hotel, can they get a complete 3D experience of entering the campus, the front office, enrolling, or getting their billing, when I say enrolling, booking their rooms and then going and seeing how does it look, all of that, which, like Arjun said at the beginning in his opening remarks, how do we help brands transition their customer experience from a 2D world to an immersive 3D world, that's the specific use case we are going. So if this was an example for a hotel industry, similarly, in the fashion, it could be looking at selecting, trying out a fabric or a fashion brand could be the case in the retail industry or a garments industry. So those are the ones that we are doing currently. As we get past the stage into commercials, we will share more specifics with you. On the EBITDA part, Arjun, if I can take that up now, EBITDAs will return to last year's numbers, maybe in another 6 months to 9 months' time. But as I said earlier, while we think that EBITDAs can improve further, in the beginning, we are wanting to focus a lot on profitable growth even if the EBITDAs are slightly suppressed because of the transition from online to hybrid and there are investments that are happening into brand, technology and team because some of those will be front-loaded, as you know, in the initial phases of VOSMOS development.
Thanks, Satya. There are some follow-up questions on the CUET space, [ Manoj Dua ] is asking, if you could throw some color on the competition intensity in CUET.
Excellent. Sorry, I missed that in the earlier one. Thanks, Manoj, for reminding. The good thing is that the large organized CUET competition is coming from the IIT-JEE and NEET players because for them, it just is -- one way of looking at it is adjacency. But the way we are looking at it is CUET could be a threat to pure IIT-JEE and NEET players, because already a lot of Tier 2, Tier 3 engineering and medical colleges have begun to announce that they may not just take from IIT-JEE or NEET, but they might take from CUET. So CUET [ signs this ] competition in a big way will be in a new landscape where CL will have to fight it out with the JEE and NEET people, not just for IIT-JEE and NEET, but for CUET. That's point number one. The good thing is that on commerce and humanities, humanity nobody has touched. CL is the only one that has gone and done all 3. And [ Allan ] has announced entry into commerce, okay? But the good thing is CL has already done 11,000 subject enrollments in the crash program. And that 11,000 subject enrollments would add up to about 3,000 student enrollments with an ARPU that's a crash program and there are different kinds of products. But think of it as, like I mentioned, a crash program would be an ARPU of INR 20,000 to INR 25,000 per student, okay, whereas a 1-year program could be between INR 70,000 to INR 90,000, a 2-year program could be between INR 1.2 lakh, to INR 1.5 lakh, INR 1.6 lakh, depending upon which city and what subjects. So competition will intensify. There is no doubt about it. So the first mover advantage, early market share and early results share even more importantly, is important to erect the competitive barriers for Career Launcher. The good thing that we also have, maybe just to mention, I hope I'm not sounding too optimistic. The good thing that we need to make it work is that CL's distribution network, the number of locations, 180 locations, if they begin to gain conviction and start going with it in the first year itself, we can build a formidable lead over anybody else in this. 50% to 60% of our new partners are coming in with law and IPM -- sorry, CUET and boards as the first product and then selectively law and IPM are becoming their product 2 or 3 depending upon which city we are talking about. Yes, Arjun?
One last question, Satya, from [ Sameer Virmani ]. He's requesting us to comment on our market cap and expected valuation, how we've moved over the last 6 to 12 months and where we think we're headed going forward.
Yes. [ Sameer ] chances are that you are a PhD in that area, and we guys are still in high school. What we know is to focus on the ball and score some runs and you guys are much more of experts. And if any, I must take some inputs from you. What I can tell you is that from a business point of view, from an opportunity point of view, from the long road map that we are seeing from the perspective of running the business with focus on fundamentals, staying asset-light, scalable, technology driven, I think those things, I believe that we are in a good place. And anything more that I say would amount to, I think I'll just refrain. I think CL at INR 400 crores is just even a story to talk about. We need to add a couple of zeros to it in our lifetime.
Right. Thanks so much, Satya. There's one last question that has just come in. I thought we'll just take that before we wrap up for the day. [ Sameer ] is asking if we have any acquisition plans in the near future.
No, [ Sameer ] not even actively. We have actively distributed ourselves from even looking at some very reasonable conversations because I think we have our hands full. I think CUET should not be taken lightly. It's not a part-time job. I think there is a huge opportunity. And in my view, this is the biggest opportunity I have seen since CL has been founded. The youth mobility, student mobility, which I shared last time is another big opportunity in EdTech. And we have a big project opened up in Kestone, okay? That doesn't mean we have not kept our eyes and ears open, but it would really have to be a steal for us to look at an M&A at this point in time. Organic business growth could be very fast and very cheap compared to an acquisition. And we have seen that at least twice in the last 25 years. So I'm seeing it with a little bit of conviction and not guessing.
Right. Satya, I think we'll call it a wrap for today. Thank you for your time, and thank you, everyone, for attending. Wish you a good end to the year, and we'll see you soon in the new year. Take care.
Thanks, Arjun, and thanks, everybody.