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May 09, 2017 01:24 PM IST | Source: CNBC-TV18

Expect 200 bps EBITDA margin improvement in 2-3 years: S Chand & Co

We will continue to improve our margins and in the next two to three years we believe we will try to improve our margins by close to 200 basis points, said Himanshu Gupta, MD, S Chand & Co

S Chand and Company saw a tepid limiting today.

Himanshu Gupta, MD, S Chand in an interview to CNBC-TV18 shared the outlook for the company going forward.

It is a leading Indian education content company, which delivers content, solutions and services across the education lifecycle through their presence in three business segments – Early Learning, K-12 and Higher Education.

Below is the verbatim transcript of the interview.

Anuj: Now that you are listed maybe you would be able to give us some more numbers. Over the last four years your compounded annual growth rate (CAGR) for revenue has been 33 percent and for EBITDA 47 percent. I am sure these numbers are not sustainable but what would be a good sustainable annual growth rate from here on?

A: We have been doing organic growth in K-12 segment at 20 percent. We believe in the K-12 segment, which is our larger segment, which gives us more than three fourth of the business, we will continue to grow at similar levels. Hopefully, we will be doing that in next two to three years as well.

Latha: Do you plan to stay only with the KG to 12th standard textbooks or will you be diversifying into other kinds of textbooks as well?

A: We have around more than 20 percent business in higher education which is beyond the 12th and that also has been growing. The test preparation segment in that, which is the larger segment, has been growing at around 15 percent CAGR. We believe the higher education segment has been the company’s forte for a long time and we will continue to stay there.

However, the growth mainly has been coming through test preparation which has more job opportunities for the students, so, they are buying more books through that. So, we will continue to do that.

However, school education I would say is the biggest segment as of now.

Sonia: In terms of margins, what kind of growth are you looking at because you have seen a lot of backward integration, you have done a lot of cost-cutting initiatives, etc. and you have got to this 24 percent margin level? Can you do better in the years to come?

A: The new acquisition that we made in December of Chhaya Prakashani, which is a regional publisher, our total EBITDA margin now stands at 26.4 percent on FY16 consolidated basis. We believe we will continue to improve our margins and in the next two to three years we believe we will try to improve our margins by close to 200 basis points.

Latha: Are you looking for more acquisitions and when you target such regional acquisitions what are the benchmarks in terms of valuations, revenues, what do you look at in an acquisition?

A: When we do regional acquisitions, basically regional or any acquisitions, we have a minimum benchmark where the company should be at anything between USD 15-20 million in terms of revenue, the company should have a decent I would say EBITDA margin which is 25 percent and upwards and the company should be growing at a CAGR of I would say 18-20 percent and that is what we see in the company. We value the company at a fair price which is agreed between the buyers and the seller.

Latha: Are you seeing such candidates on the horizon?

A: We believe there are some opportunities available in the market. Indian market is very unorganised, there are more than close to 10,000 publishers in the whole segment, but we believe there are around 10-12 players which are at a decent size that I just mentioned. We are always on the lookout and we always have conversations with these people. If and when these conversations close, we will inform the markets.

Anuj: Anything that is in the works right now that we could hear maybe in next three or six months?

A: Can’t comment on that as of now.

Sonia: What about Chhaya Prakashani that you have just acquired, can you take us through what the financial contribution, the revenue contribution could be because you are now getting into the eastern market as well. What would it bring for you on the table over the next two years?

A: The company is a very renowned state board publisher. It is a very big publisher in the eastern market. The revenue in FY16 of the company was Rs 128 crore with an EBITDA margin of Rs 47 crore on the balance sheet.We believe the company is a very healthy company in terms of growth. The company has been growing in this field with more than 20 percent in the last four years and we believe company will continue to do so.

However, as regional markets are more dependent I would say on the syllabus changes. The syllabus change impact on the company over the last two or three years have been significant. However, we believe the syllabus change will now happen next after two or three years. So, that time we believe there will be more growth impact on the company’s revenue. However, as the company is primarily based mainly in 9-12 segment and company does not much have business in K-8, we believe the 6-8 segment and even the K-5 segment of the company will grow and will have a positive impact in growth of the revenues of the company in next two to three years.

Sonia: One concern that the street has is there has been very rapidly evolving technological changes, disruptive technologies, newer modes of content that is available online for children, etc. How much of a threat is that for a business like yours?

A: We believe that digital has not been a disruptor but been an enabler. We in our books now, more than half of the books in the K-12 space have some kind of digital or web support. Going forward in next two to three years we believe almost all our books will have some kind of digital or web support. Digital technology has been a good enabler to the company.

We also have pure digital play where we have smart classes, where we have tablets and all and plus we have invested in five companies as startups where company believes these companies are bound to grow and help the company to grow further.

Latha: What are you doing with the money, is it a divestment or you are going to plow the money in?

A: We are going to reduce the debt of the company. The total debt would be reduced by more than 75 percent and the company then would use that money in the debt reduction plus the money would be used for general corporate purpose, and some money would be used for IPO expenses.
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