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Chetana Education

• Chetana Education is coming out with initial public offering (IPO) of 54,00,000 shares in a price band Rs 80-85 per equity share.
• The issue will open on July 24, 2024 and will close on July 26, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 8.00 times of its face value on the lower side and 8.50 times on the higher side.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Jignesha Jitendra Fofandi.

Profile of the company

The company 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 K12 course. 

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, it 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 many 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. 

It has an in-house sales team working from its branches and marketing offices across India. It considers its schools, teachers and students to be its ‘touch points’ and its sales team is responsible for developing the relationships with its customers in its 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 its products directly to distributors and dealers.

Proceed is being used for:

• Repayment of certain borrowing availed by the company, in part or full 
• Meeting working capital requirements 
• General corporate purpose

Industry Overview

With around 26.31% of India’s population in the age group of 0-14 years, India’s education sector provides numerous opportunities for growth. According to the Union Budget 2023-24: The government allocated Rs. 68,804.85 crore ($8.3 billion) for the Department of School Education and Literacy, compared with Rs 59,819.37 crore ($8 billion) in the Union Budget 2022-23, a 13.06% YoY increase. Government of India’s target of Gross Enrolment Ratio (GER) of 50% by 2035 for students in the 18-23 age group is expected to drive investments in the education space. According to KPMG, India has also become the second largest market for E-learning after the US.

India has the largest population in the world in the age bracket of 5-24 years with 580 million people, presenting a huge opportunity in the education sector. India has over 250 million school-going students, more than any other country. Huge demand-supply gap with an additional requirement of 200,000 schools, 35,000 colleges, 700 universities and 40 million seats in the vocational training centres. Applications for the ‘Study In India' programme increased by 146% in 2021.

The education market in India is expected to amount to $225 billion by FY25. From April 2000-March 2023, Foreign Direct Investment (FDI) equity inflow in the education sector stood at $9.2 billion.  The edtech space has attracted private equity investments of over $4 billion over the last five years. Indian edtech startups have received total investment of $3.94 billion across 155 deals in FY22. In June 2022, edtech platform Physics Wallah became India’s 101st unicorn by raising $100 million in a Series-A funding round from West Bridge Capital and GSV Ventures, valuing the company at $1.1 billion.

Pros and strengths

Focused digital and technology platform: Its investment in technology within the pre-primary and secondary/higher secondary sections is offering students a mix of interactive learning experiences and additional comprehensive practice. In the pre-primary section, its dedication to technological advancement is highlighted through the introduction of its apps, specially curated to facilitate play-based learning, digital videos, and supplementary resources. For the secondary and higher secondary sections, it has been using QR codes with self-learning videos, providing students with a dual model of learning. These QR codes provide students with instant access to comprehensive video based explanations of key concepts and answers by experienced Teachers, reinforcing classroom teachings.

Healthy position in the K-12 market: It currently generate 100% of its revenue from the contents and titles sold in the K-12 education sector in terms of both numbers and revenue from operations, with presence in the CBSE affiliated schools and State Board affiliated schools across India with Maharashtra State Board books contributing to the highest amongst the State Boards. In addition, it has evolved its print content business to include digital learning solutions through the introduction of the QR code. From Fiscal 2022 to Fiscal 2023, its K-12 operating revenue grew at a CAGR of 75.35%.

Widespread sales and distribution network: It has a widespread sales and distribution network which spans across 18 states and union territories, consisting of over 500 distributors and dealers. It has an in-house sales team of over 200 personnel working from its branches and marketing offices. Its salesforce reaches out to the different touch points including educators, students, schools colleges along with distributors and dealers. Its sales and distribution network have provided it with a deep market reach through initiatives such as regular school visits, retailer displays, participation in key tradeshows, sponsorship of educational events, and teacher workshops.

Risks and concerns

Generate major portion of revenue from Maharashtra Board and CBSE: It generates majority of its revenue from selling its books for the Maharashtra State Boards and CBSE. For the financial year ended March 31, 2024, March 31, 2023 and March 31, 2022 it derived major portion of its revenue from the Maharashtra State Board and CBSE. For the financial year ended March 31, 2024, March 31, 2023 and March 31, 2022, it derived major portion of its revenue from the state of Maharashtra i.e. 61.69%, 66.12% and 64.83% respectively. Due to the geographical concentration of its revenue and operations at Maharashtra, its operations are prone to local, regional and environmental factors, thus any materially adverse social, political or economic development, civil disruptions, or changes in the policies of the state government or state or local governments and require a modification of its business strategy or require it to incur significant capital expenditure or suspend its operations.

Fluctuations in the prices of raw materials: The company is dependent on third party suppliers for procuring the raw materials and other designing and decorative bought out material which it uses to print and publish the books which it sells to its customers. It is exposed to fluctuations in the prices of these materials as well as its unavailability, particularly as it typically do not enter into any long-term supply agreements with all its suppliers and its major requirement is met in the spot market. The cost and availability of such materials are subject to a variety of factors and any increase in their cost and their availability at a reasonable price or at all, could adversely affect its margins, sales and results of operations.

High working capital requirements: Its business requires significant amount of working capital and major portion of its working capital is utilized towards operating expenses, inventories, trade receivables and cash and cash equivalents. Its working capital facility and overdraft facility stood at Rs 4030 lakh from The Saraswat Co-op Bank and ICICI Bank. Its growing scale and expansion, if any, may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations.

Outlook

Chetana Education 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. On the concern side, the Indian market for education content is highly competitive and fragmented. The Indian education market consists of multiple boards, including the state education boards, the Central Board of Secondary Education (CBSE), and the Indian Certificate of Secondary Education (ICSE). Further, there are only a few large, established industry participants similar to it as the market is characterized between smaller regional, state and local content providers and also includes subject specific content providers for particular subjects or course material.

The company is coming out with a maiden IPO of 54,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 80-85 per equity share. The aggregate size of the offer is around Rs 43.20 crore to Rs 45.90 crore based on lower and upper price band respectively. On performance front, its total income has increased significantly by 23.89% to Rs. 9367.06 lakh in Fiscal 2024 from Rs 7560.77 lakh in Fiscal 2023. The company’s profit after tax (PAT) stood at Rs 1203.47 lakh in Fiscal 2024 as compared to Rs 685.47 lakh in the Fiscal 2023. Going forward, it intends to further consolidate its current position and increase its market share in the Maharashtra State Board and CBSE. Additionally, it aims to focus on entering and expanding its presence in various other state boards like Tamil Nadu and Gujarat which will be supported by its vast range of products. By expanding the customer base in the Maharashtra State Board and CBSE and entering into new state boards, it can expand its market share along with growing its revenue from operations and improving operational efficiency.