Accumulate S Chand and Company; target of Rs 92: Prabhudas Lilladher

Prabhudas Lilladher's research report on S Chand and Company

We upgrade our rating from HOLD to ACCUMULATE as S Chand 3.0 program aimed at improving the working capital efficiency (engaging with quality channel partners, lowering inventory levels & improving the collection cycle) & lowering operating costs (rationalization of employee & other cost heads) has started yielding results. Improvement in collection efficiency and focus on working capital management has led to a reduction of 65 days in receivable cycle and 42 days in working capital cycle (highest ever reduction seen in 2Q over the last 4 years). In addition, New Education Policy (draft already announced in May 2019) will lay foundation for strong runway going ahead as 2nd hand books go out of the system.

Outlook

We believe transition challenges in the pre-NEP era are overblown given visible improvement in cash flow situation (OCF was negative by 27mn in 1HFY20 as compared to Rs535mn in 1HFY19). We value the stock at 4x FY21E EPS of Rs23 and arrive at a TP of Rs92 (earlier Rs71). Upgrade to ACCUMULATE.