Published on 4/05/2017 2:32:14 PM | Source: Sharekhan

IPO Product Note S Chand And Company Ltd - Sharekhan

Posted in IPO Reports | #IPO #Sharekhan #S Chand and Company


About the IPO

S Chand And Company Limited (S Chand) is coming out with both, an Initial Public Offering (IPO) of equity shares and an Offer for Sale (OFS) of equity shares in a price band of Rs660-670 per share. The company plans to raise Rs723-729 crore at the lower and upper end of the price band, respectively. The offer is being made through a fresh issue of 0.48-0.49 crore shares based on the upper and lower end of the price band, and an OFS of up to 0.60 crore shares of existing shareholders. Note that the company will not receive any proceeds from the OFS.

 

Object of the issue

The substantial portion of the fresh issue will be utilised for: (a) The repayment of loans availed by the company and one of its subsidiaries, EPHL, which were utilised towards funding the acquisition of Chhaya Prakashani Pvt. Ltd. (Chhaya); (b) Repayment/prepayment of certain loans availed by the company and certain of its subsidiaries, VPHPL and NSHPL, and (3) General corporate purposes.

 

Company background

Established in September 1970, S Chand is a leading Indian education content company in terms of revenue from operations, with a strong presence in the CBSE/ ICSE affiliated schools and increasing presence in the state board affiliated schools across India. The company delivers content, solutions and services across the education lifecycle through its K-12, higher education and early learning segments. S Chand offers 55 consumer brands across knowledge products and services, including S. Chand, Vikas, Madhubun, Saraswati, Destination Success and Ignitor.

In December 2016, S Chand acquired a 74% equity stake in Chhaya to expand its presence in East India. Chhaya offers four brands, including Chhaya and IPP. In FY2015, the company acquired NSHPL and the Saraswati brand for its strength in languages, and arts & crafts titles. In FY2013, S Chand acquired the Madhubun and Vikas brands pursuant to the acquisition of VPHPL to improve its offering in Hindi language titles.

S Chand sells its knowledge products & services to schools and to students across their lifecycle through its extensive pan-India network of sales offices, distributors and dealers. The company sold 35.5 million copies of a total of 11,144 titles in FY2016. Additionally, Chhaya sold 9.9 million copies of 433 titles during FY2016. S Chand has a contractual relationship with at least 1,958 authors (including co-authors) for over five years, whereas Chhaya has contractual relationships with at least 24 authors (including co-authors) for over five years. As of December 31, 2016, the company’s distribution & sales network (excluding Chhaya) consisted of 4,932 distributors and dealers. The acquisition of Chhaya has expanded the company’s presence in East India to include an additional 771 distributors & dealers. In FY2016, over 85% of the company’s printing requirements were met by its facilities located in Sahibabad and Rudrapur.

 

Valuation

S Chand’s consolidated revenue grew at a 33% CAGR over FY2012-FY2016, while the net profit grew at a 36% CAGR during the same period. Further, the company acquired a 74% stake in Chhaya in December 2016, which will be consolidated going forward. However, the company’s consolidated operating cash flow (OCF) has been negative in four out of the last five years, due to the seasonal nature of its K-12 business (3/4th revenue comes in the fourth quarter and collection happens in the first quarter of a fiscal year). At the price band of Rs660-670 per share, the issue is priced at 49.2x and 49.9x its FY2016 EPS, respectively - a premium to its listed peer, considering the company’s leadership position in the K-12 market, foray into the regional market through the Chhaya acquisition and reducing debt position post the IPO.

 

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