Prabhudas Lilladher's research report on S Chand and Company
In a non-seasonal quarter, S Chand’s performance with a top-line of Rs473mn (PLe of Rs402mn) and loss of Rs199mn (PLe of Rs282mn; inclusive of gain on sale of TestBook) was better than our estimates. Management commentary for FY23E is bullish with a top-line guidance of Rs6,000mn+ complemented by a price hike of 20%+. However, given persistent inflation in paper prices, we expect GM to decline by ~210bps YoY to 62% in FY23E. Subsequent to turning PAT positive after a gap of 3 years in FY22, we believe S Chand’s turnaround is complete and the company is back on growth track. We maintain BUY on the stock with a TP of Rs220 (12x Sep24 EPS) given 1) strong possibility of surpassing growth guidance amid healthy performance in 1HFY23 2) strengthening BS (net debt of Rs711mn in 2QFY23 with an intention to be net debt free by 4QFY23) and 3) improved NWC metrics (cash conversion cycle to improve from 226 days in FY22 to 183 days in FY25E). In addition, as NCF for K-2 classes (forms ~15-20% of school education’s top-line) has been announced in October, it paves the way for subsequent announcements for higher grades in near future and would act as a key growth lever, in our view.
Outlook
S Chand trades at 10x/9x our FY24E/FY25E EPS and valuations are undemanding for a business that commands FCFF yield of ~12-16% over FY23-FY25E. Retain BUY with a TP of Rs220.
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