Buy S Chand and Company Ltd For Target Rs. 286 - Prabhudas Liladhar Capital Ltd
BS health improves; growth trajectory eyed
Quick Pointers:
* Revenues to surpass Rs8,000mn in FY26E.
* EBITDA margin likely to be in the band of 18-20% in FY26E..
SCHAND reported an in-line operating performance with EBITDA margin of 43.1% (PLe 42.2%) while there was a narrow miss at bottom-line level due to higher-than-expected tax rate of 26.7% (PLe 21.9%) amid non-recognition of DTAs in subsidiaries. Management expects revenues to surpass Rs8,000mn with EBITDA margin of ~18-20% in FY26E led by 1) 5-7% increase in volumes as NCERT is expected to announce new syllabus books for grades 4,5,7&8, 2) multiple content syndication deals and 3) single digit price hike across product portfolio. Backed by these factors, we expect sales/PAT CAGR of 11%/21% over FY25E-FY27E. SCHAND trades at attractive valuations of 9.7x/8.7x our FY26E/FY27E EPS estimates with FCFF yield of ~9%. We have cut our EPS estimates by 3%/2% for FY26E/FY27E as we re-align our tax rate assumptions and retain ‘BUY’ with a TP of Rs286 valuing the stock at 11x FY27E (no change in multiple).
Topline up 7.8% YoY: Top line increased 7.8% YoY at Rs4,714mn (PLe of Rs4,718mn).
GM at 67.9%: Gross profit increased 6.8% YoY to Rs3,203mn (PLe of Rs3,156mn) with a GM of 67.9% (PLe 66.9%) as against 68.6% in 4QFY24.
EBITDA margin at 43.1%: EBITDA increased by 9.0% to Rs2,032mn (PLe Rs1,990mn) with a margin of 43.1% (PLe 42.2%) as against an EBITDA margin of 42.6% in 4QFY24. PAT increased by 10.4% to Rs1,416mn (PLe Rs1,473mn).
Key highlights: 1) NCERT is expected to release new textbooks for grades 4,5,7 & 8 pertaining to the upcoming academic session soon. 2) FY25 volume growth stood at 5%, with FY26E target of 5–7%. 3) Revenue loss due to piracy stood at Rs200-250mn for FY25. 4) S Chand's content licensing business generated ~Rs200mn in revenue in FY25, with FY26E guidance of Rs250-300mn. 5) The content licensing business includes a mix of one-time and periodic licensing revenue. 6) Costs associated with the content licensing business include conversion cost and royalty. These costs typically form ~25% with margins making up the rest. 7) Sales returns currently forms ~14% of total revenue. 8) For grades, where new syllabus has been announced, ~85-90% of the schools have transitioned to the new curriculum. 9) S Chand caters to ~40-45K (ICSE, CBSE, affiliated, unaffiliated) schools a year. 10) The FY25 tax rate was elevated at 35% amid non-recognition of DTAs in subsidiaries. 11) K-to-12 accounts for ~80% of S Chand's revenue. 12) Receivable days/Net Working Capital days for 4QFY25 stood at 140/151 days respectively, down from 143/157 respectively in 4QFY24. 13) S Chand ended FY25 with a positive net cash balance of Rs1,036mn.
Above views are of the author and not of the website kindly read disclaimer
