Buy S Chand and Company; target of Rs 86: Prabhudas Lilladher

Prabhudas Lilladher's research report on S Chand and Company

S Chand’s operating performance (EBITDA loss of Rs363mn) was in-line with our estimate of Rs374mn in a non-seasonal quarter due to stringent cost control. Management indicated that schools will re-open from November onwards in a phased manner and has lined up aggressive expansion plans in the Ed-Tech space. For Mylestone, a digital offering of S Chand, the target is to reach sales of Rs600-700mn in 2 years. In case of LearnFlix, another affordable learning app with annual subscription fee of ~Rs2,000, the intention is to reach 100K subscribers with 1mn downloads in 2 years (19K subscribers and 110K downloads as of Oct 2020).

Outlook

We keep our EPS estimates broadly unchanged (cut of 2.6%/3.3%/0.8% for FY21/FY22/FY23 respectively) and value S Chand at 5.5x (no change) our estimated FY22 EPS of Rs15.7 to arrive at a TP of Rs86 (earlier Rs89). Retain BUY given 1) the attractive FCFF yield of 14% 2) BS comfort (D/E of 0.3x) 3) strong focus on digital offerings and 4) clarity on NEP implementation (see exhibit 2).

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