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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the S Chand and Company Limited Q3 FY '24 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, sir.
Yes. Good day, everyone. On behalf of Prabhudas Lilladher, I welcome you all to the 3Q FY '24 earnings call of S Chand and Company. We have with us the management represented by Mr. Himanshu Gupta, who's MD; Mr. Saurabh Mittal, CFO; and Mr. Atul Soni, who heads the Investor Relations department. I would now like to hand over the call to Himanshu for opening remarks, and maybe we can open the floor for Q&A after that. Thank you, and over to you, sir.
Thank you, Jinesh. Good afternoon, ladies and gentlemen. I'm Himanshu Gupta, the Managing Director of S Chand and Company Limited. I would like to welcome you all to our third quarter and 9-month results conference call for FY '24, and thank you all for taking the time out and joining us here today.
I'm extremely happy to share that 9 months FY '24 has been a solid 9 months for the S Chand Group. I'd like to highlight the following key points for this period. As you know, we have a seasonal business with majority sales coming from the January to March quarter. We are confident of our performance during the current sales season as we are expecting strong demand in the current sales season of January 2024 to March 2024.
We saw the highest ever 9-month sales in company's history. We also saw the lowest receivable days in 9 months in the past 5 years, and we also saw the lowest net working capital days in 9 months in the past 5 years. Saurabh will touch more about these in comments. On the school education front, we finally got the big launch of the national curriculum framework or NCF in 2023 of August. With this announcement, we look forward to the change in the school books after a gap of 18 years.
The NCF opens up a large opportunity to provide engaging and innovative content with prudence, teachers and schools to make learning more experiential. The NCF focuses on activity-based learning and provide full flexibility to students to choose between subjects. This will help the company gain more market share in this brand and strong product portfolio.
We have launched over 500 new SKUs in the school segment this year based on the new curriculum for these classes. And we shall see the sale of those happened during the ongoing sale season of January to March. On the high education and test prep segment, we saw some challenges in the segment as the semesters was shortened and NEP implementation was not [uniformed] within the states.
There is also a lower number of drug vicinities announced by the government, which impacted the tester segment, along with strict competition from YouTube. We're expecting the segment to pick up during the current quarter as we draw closer to the looks of election in April '24.
We launched solid steps, our integrated K5 curriculum solution, keeping in mind the core concepts of the new education policy in 2020. This K5 program is meticulously designed to meet NCF 2023 guidelines, empowering young mind essential skills critical thinking, creativity and a love for learning.
Mylestone of K curriculum also continues to provide holistic learning to school both in India and the Middle East. On the tech front, our S Chand Academy on YouTube continues to have phenomenal success. We have now launched over 1,600 videos focused on high education topics covering science, engineering and test prep so far. And the channel already notched up approximately 21 million views and 220,000 subscribers.
This further enables the promotion of our print content, further spurring demand in that segment with the blended offering. This channel enables students to learn critical areas through top notch educationist, which may not be available in Tier 2 and Tier 3 colleges. With that, I will now request our CFO,Mr. Saurabh Mittal [indiscernible] on the financial performance of the group. Thank you.
Thank you, sir. Good afternoon, everyone, and thank you for your time. I'm Saurabh Mittal, CFO of S Chand. In terms of numbers for the first 9 months, our consolidated operating revenues came at 2,254 INR million versus INR 2,198 million during the same period last year. There has been a decrease in gross margins in comparison to last year. FY '23 9 months numbers had the benefit of low cost from paper inventory available from the previous year versus this year where previous year inventory was at a higher cost.
Our EBITDA losses increased to INR 765 million versus INR 504 million in the corresponding period last year due to salary hikes, increasing -- increase hiring for a content creation for the new NCF. We see these costs as investments, which will give us benefit over the next 2, 3 years as the full NCF implementation happens in the country. Our PAT losses increase to INR 771 million versus INR 441 million in the corresponding period last year.
This was majorly on account of 3 reasons: absence of one-off gains of INR 326 million in 9 months, under other income and exceptional income versus 9 months of FY '24. Higher operating expenses due to salary hike, fresh hiring and certain sales and marketing expenses on the back of NCF. Loss gross margins than 9 months of FY '23. I would like to bring your attention to Slide 18 to Slide 19, which explains the major moving parts of the PAT differential. On the working capital and debt front, we continue to work towards internal efficiencies, which have yielded results over the past 4 years, showing improvements quarter-on-quarter.
Trade receivables reduced to INR 1,502 million during Q3 FY '23 versus INR 1,552 million for the previous year. In terms of receivable days, it stood at 89 days versus 101 days of the previous period. This is the lowest receivable days in Q3 in the past 5 years. Inventory reduced to INR 2,329 million versus INR 2,489 million. Our inventory includes raw material paper inventory of INR 872 million versus INR 859 million previously. Do keep in mind that this is the quarter with the highest inventory levels during the year in anticipation of strong sales season.
Net working capital reduced to INR 156 days versus 189 days in Q3 FY '23, which is a reduction of 33 days over the previous year. This is one of the lowest net working days in Q3 in past 5 years. We ended third quarter of the year with a net debt of INR 889 million versus INR 1,224 million in Q3 FY '23 and gross debt of INR 1,207 million versus INR 1,808 million in Q3 FY '23. Net debt has reduced by INR 335 million on a year-on-year basis. We expect to close Q4 with 0 net debt. With this, I would like to open the call for questions.
[Operator Instructions] The first question is from the line of purshotam sawlani, an individual investor.
Yes. Am I audible?
Yes.
My question is with regard to the comments you have given in terms of increase in N-5 expenses in this quarter on account of tapping the opportunity of NCF announcement. So I wanted to understand what kind of investments we are making to tap the opportunity of NCF announcement. What kind of expenses have gone up? That's the question.
Yes. So basically, the investment is on people and, of course, content development as per the new NCF. We are creating -- almost created 500-plus SKUs according to the new NCF and that we have been promoting in the last quarter. Q3 also is the quarter where most of the promotions happen to the target audience, which is the schools. We conduct work shops, and we price our customers of the various products that we have launched during the period. So the investment is both on people on marketing expenses and on content development costs.
Purshotam in addition there has been a regular wage hike also, which kicked in from July. So if you look at the 9-month period, there are 2 portions to it. One is the annual wage hike cycle coming in from July and second is the additional investments for NCF.
So any more investments we are expecting in quarters going forward? Or this is one time that has happened and recurring, of course, one understand will continue?
Quarter 4 -- see, marketing activities, of course, have completed in Q3, so not much in Q4. And in terms of content development, it is an ongoing process because they will go through this full year 2024 the calendar year. We will have investments till December, but they will not be very substantial.
[Operator Instructions] The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.
Yes. The first question is on the gross margin, which was a bit lower in this quarter. So if you can highlight the reason behind that. And also, I mean, if we look at our guidance, which is pretty much intact for FY '24, whereby we have indicated a top line of about INR 722 crores to INR 750 crores. So if you can share where are we in the month of Jan in terms of the run rate that would really help.
Hi, thanks, Jinesh. In terms of the gross margins, Q3 and 9 months were lower but also because of 2 issues: One was, of course, the paper inventory that we were carrying from end of last year in FY '23 and FY '22 and there's a price differential in that because there's a large price increase in FY '23.
So although the subsequent purchases have been at a lower cost, but the inventory were carrying was at a higher cost. So that has impacted the margins. Along with that, of course, with the NCF coming in. There have been some provisions made for write-off of inventories that have been already taken in the books. And of course, the number of print runs that we've had are slightly smaller as compared to earlier.
So there's a slight impact on that. All this should get addressed in quarter 4. In terms of guidance, January, we've seen a strong -- strong numbers in January. And even in the current month, we seem to be -- although there was a slight delay because of the harsh winter in the north, schools were, school opening was delayed and then the ICSC conference was delayed. So these are some of the issues that have delayed the school list, but we are seeing a good response from the market. So largely, we are looking at the season going well for us.
There might be a slight show where -- there might be a slight share, which might go in the first quarter. And there might be that asset in there because of delay in the season that might happen. We don't know how much the number is, and we don't know what is going to be the exact amount. But we are anticipating that there might be some delay in the school business, and that might spill over to the next quarter as well. But we are hoping that we'll keep the business intact and grow the business. That we assure.
Sure, sir. And in terms of reach, because of launching 500 new SKUs and conducting all the workshops and all which you just highlighted in your opening remarks. Have you managed to increase our reach by any way?
And also in terms of volumes, especially in FY '24, where will we be -- when we compare it with the pre-COVID base, say, FY '19? Because again, in FY '20, March month was impacted by COVID. So will we be back to the pre-COVID base in terms of volumes or the entire growth is going to come from pricing because of higher paper prices?
Paper price impact has been taken last year. So current price increase is not very large. It's mainly 6%, 7%. So that is not -- and largely, we are looking at volume increase. We have increased our footprint across India. We have been a bit more aggressive in our promotions. Teams hired for product promotions have been much more. So we've done all that investment. Now we'll, of course, see how it pans out in terms of the numbers. But we -- of course, we are targeting volume growth.
[Operator Instructions] The next question is from the line of Aryamaan Pawar from Prudent.
Yes, am I audible?
Yes, sir. Please go ahead.
Yes. So you have given the guidance of around INR 700 crores to INR 750 crores. So number 1 you [indiscernible] by that guidance? And what would the margins look like, say, end of the financial year.
Yes. So I mean we are largely going to be there, except if there is some shift in the ordering, which happens. But of course, we expect either it will come by the end of this quarter or it might -- some of it might flow into Q1. So either we'll have -- we'll hit that INR 720 crores or, INR 730 crores number or Q1 will be higher than previous year. So in the of it can happen because again, schools open up in April. So there might be a shift here and there by a few percentage points. And on the margin side, we are largely targeting that 16% to 18%. We will be there. That's not really clear. On the EBITDA margin, 16% to 18%, we are confident that we'll be there.
[Operator Instructions] The next question is from the line of [indiscernible] Advisors.
Yes, I just wanted to understand the conversion from the old to the new curriculum in terms of what sort of -- you mentioned a 30% to 40% activation rate or conversion rate over this season. How do you expect that to play out over the next couple of years? What is the typical sort of cycle when the impact converts it a 2-year time frame or a 3-year time then?
Normally, it is a, I would say, a 3-year lease cycle, and this is the first year for the curriculum change, but the problem is that the syllabus of the new curricula are still not being released by the NCERT and the new books of NCERT also, we are not expecting before to come before June or July this year. So the full implementation of the slimes curriculum is not fully happening in this financial year. It will happen in the next financial year.
And we are going to see some schools changing and getting new books in their schools and some schools retaining the old books. So there will be a mix of, I would say, change happening in the school -- depending on school to school. And we anticipate around 30%, 35% schools using the new books and rest going by with the old books. And this impact with the positive impact of the syllabus change will happen over next 2 to 3 years in the country. Okay, I hope it answers your question or any other additional question...
I just curious that the guidance which you had given this year of INR 720 crores to INR 750 crores -- was, would that include -- was it based on the old curriculum or does it have some part of [indiscernible].
When we were talking about it had a mix impact -- so we are anticipating only 30%, 35%, maximum 40% schools changing and going into new books with that anticipation we were having. And because normally, whenever the implementation happened it takes or 3 years, at least first year, 35%, 40% schools change into new books.
Second year, 75% to 80% go over new books and the next year 100% schools go for the new books. So that's what we have seen earlier times. And the same we are anticipating this time. And this is what we are hearing from the market, which is what is happening. And by next year, we will see majority of the schools going with the new books. And with the new syllabus out by the NCERT and the NCERT books out the majority of the school, 70% to 80% will go with the new books next year.
[Operator Instructions] The next question is from Jinesh Joshi from Prabhudas Lilladher.
Just one follow-up. I think a couple of quarters back, you had printed of a possible acquisition in the higher education segment. If you can just highlight where are we on that? And secondly, given the fact that in the last year, we paid out a dividend. So any specific policy -- have you outlined surrounding it? Or are we planning any buyback this time?
Jinesh, on the first question in terms of the acquisition, we've completed our diligence, and we are in the process of finalizing the final agreement terms. So that is all I can say on that. we hope we can close it in the first quarter. That is what we are targeting. In terms of your second question, the buyback, we would know better once we now the liquidity at the end of, I would say, Q4 and not the only Q1 of next year. The majority of the liquidity comes in Q1 also. So like last year, we were sitting on a surplus of about INR 50-odd crores at the end of Q1 in terms of positive cash. So once you know that number, I think -- and of course, post the acquisition, we would definitely know better. Dividend is something that we will continue to retain that I think we will not dilute as long as the we hit our numbers. And on the buyback, of course, we'll have to see it depending upon the size of the cash that is available on the balance sheet. And considering we don't have much of debt repayment now in terms of long-term debt, something that we can positively consider if we have cash in excess of INR 70 crores, INR 80 crores.
[Operator Instructions] The next question is from Rakesh Pal, who is an individual investor.
Actually, I -- my call got disconnected in the midway. So one earlier participant was asking about how is the sales going on in the quarter 4. So if you can repeat the answer, that will be very helpful.
So in the month of January that we finished, we are on track with our in-line targets for the month of January and February has just begun 6, 7, 5, 6 days back. So those 5, 6 days have been decent. And we are hoping that we should be in line with our budgets and targets. But as it's a seasonal business, -- it's a very high, I would say, because this quarter is a very high sales oriented business. So every day is important in this. And day by day, we will be reaching closer to our budgets. And -- but the month of January was, I would say, we achieved our budget for the month of January for the group.
Okay, sir, let me ask the second question. Patel, let's say, there are some end number schools, and they want to buy some number of books. If some reason if they're another to buy in Q4, then is there chance that their fine target is still over to the next quarter. And have you observed something like this in the past year? The operating of the company.
Yes, Q1 is also a decent number that we do. And Q1 is also -- there is business happening in a lot of southern states to Q1 business and some states in Gujarat and some states. Other states also do from Q1 business. So there's Q1 business also happening. And some schools might make their decisions late and look for ordering in April or May also. So we service them as well. So there's no problem in that case. But most of the chunk of the business, I would say, majority of the business happens in the Q4 quarter normally.
The next question is from the line of [Manan Patel], who's an Individual Investor.
Sir, first question is, do you have any road map in mind for monetizing our S Chand Academy [indiscernible].
Okay. So S Chand Academy is basically more of a, I would say, a promotional tool that we use as a marketing tool to promote our products and we give the videos of free as of now. As of now, we are not monetizing it, but maybe in the near future, we might look at monetizing that as well. But let us get more traction and let the students appreciate the content, and then we will look into monetizing.
Okay. And sir, second question is, previously in 1 of the [indiscernible] you mentioned that the competitive intensity has decreased post-COVID to the weak balance sheet of competitors in general. So is there any change in the competitive scenario given the NPF has come now? And do you see any changes in the scenario on ground?
So basically, we feel that competition is always there, and it will remain. It's not going to like finish off completely. But yes, there is a consolidation happening in the market and players who have financial strength and have a good intent for the market. Those people will definitely do good in the industry, but people who are weak financially because of corona or other factors, those people might see a dent in their balance sheet.
So we feel that as a star now we have a stronger balance sheet. We are much stronger financially than we were before, and we will be able to take away that market share also, which others might not be able to fulfill because of their own problems. So we feel as a company, we have the financial strength and a good intent and a good strong marketing network to cover up that kind of business as well.
Another aspect here is that because of the new syllabus, a lot of the players which are smaller in size would not be able to develop content which is adhering to the new principles as guided by the government.
Required financial investment.
Yes. So because development of new syllabus requires investment. So from that perspective also, if you think about it, a lot of mom-and-pop shops and a lot of smaller players will not be present with the new books. So we can also get some benefit out of that over the next couple of years.
And sir, so building on to that question, so when you mentioned the new curriculum framework, what kind of growth, the market itself due to NPF over the next 2, 3 years? And what kind of market share do we expect to win in the coming years.
So it's difficult to quantify. We can only say that in terms of years, it will take 3 years, and there will be shift of market shares within the place. Because for sure, there will be some players who will come out with new content, which is quality content, and there will be some players who will not be able to deliver content. So very difficult for us to quantify for the competition. But one thing is for sure that organized players like us have a better play under these circumstances.
Understood. And sir, slightly longer-term question, while I understand our focus is completely on the NCF new curriculum framework market as of now 2 to 3 years. If I take a 5-year perspective after the growth of NPS PAT coming, how do we look at our company going beyond those 3 years [indiscernible].
If we look into our past, I think a normal thing would be that you will have a certain percentage increase of pricing, which can be anywhere from 5% to 7%. And we can look at another 5% odd for volume growth. So I think post the NCF, it can be a 10% to 12% kind of a consistent growth. But this is obviously, we are looking to out in the future as of now.
Understood. okay. And last question, I'm not sure if I missed that. If I missed it, I will check in the transfer, but I would like to understand what are the trends of paper prices as of now? And how do you see them going forward in the next 3 months?
So I mean, by the -- until the end of December, of course, they had tapered down a bit as compared to the previous year. But going forward, considering that the NCERT would also give out tenders and we expect them to be slightly higher going forward from April, May, June onwards because the new NCERT books will come out. So there will be a lot of paper -- paper contracts that will be a tender that will be floated by the government.
So we expect that to be slightly higher from April onwards. And -- but we have sufficient inventory with us till the end of June. So will not impact us currently this year. July onwards is the time that they start, we know what will happen. But we don't expect them to go substantially higher for them because they already reached quite high at the moment.
[Operator Instructions] The next question is from Punit Mittal from Core Capital Limited.
Just 2 questions. One is that you have given some sort of guidance for FY '24. And you also mentioned something about post the new curriculum, what it would be. But just looking at the FY '25, what would you think your growth rate would be that one. Second, on the competition, you mentioned a few remarks on that. Can you tell us what is your kind of market share in your target segment that you operate?
For FY '25, we're expecting -- so we'll target about 18% to 20% growth from what we do in FY '24 considering the NCF still down. So that what we expect. And the second question in terms of the market share [indiscernible] segment we are in about 12%, 13%. And I think so in the regional state board in terms of West Bengal, we are about 40 odd percent there?
Yes. 40% to 50% that range.
You mentioned West Bengal, right?
Yes, West Bengal the regional state we are about 40% to 50% yes. We're the largest player there.
That was the last question in queue. As there are no further questions, I would now like to hand the conference back to the management team for closing comments.
Thank you, everyone, for being -- taking the call. And we are hopeful that we should be able to reach our budget and our targets. And this is the last quarter, and this is the, I would say, race to the finish. And thank you for being there and take care of your health and your families. Thank you.
Thank you.
Thank you very much. On behalf of Prabhudas Lilladher Private Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.