PL Stock Report: S Chand and Company (SCHAND IN) - Event Update - Secular growth story begins - BUY

S Chand and Company (SCHAND IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs249 | TP: Rs338

Event Update - Secular growth story begins

Quick Pointers:

§ NCF implementation likely to result in significant volume growth, as 2nd hand book market would turn redundant and new SKUs will be launched.

We increase our FY25E EPS estimates by 21% as NCF implementation would make second hand books market redundant and result-in significant volume delta. Further, given the overhaul in curriculum, we expect new SKUs to get launched providing additional volume kicker. Substantial yield advantage is also expected, as repricing at higher level becomes easier post curriculum revamp.

We introduce FY26E projections, as we expect adoption of new curriculum to gather pace in a phased manner. We expect sales/EBITDA CAGR of 17%/26% over FY23-FY26E, as policy change is likely to result in secular growth for next 2-3 years. S Chand has a net cash BS and trades at attractive valuations of 9.5x/8.2x on our FY25E/FY26E EPS. We maintain ‘BUY’ with a revised TP of Rs338 (earlier Rs260), as we roll forward to Sep-25E (target P/E multiple intact at 12x).

NCF revision benefits to accrue over next 2-3 years: Last NCF revision happened in 2005 and back then new syllabus was rolled out over a period of 3 years. We believe new NCF adoption this time will also be staggered (like last time). Revised NCF for K-2 was already announced in October-22 and the final draft for school education was released on 23rd August 2023. With final draft being released, we expect phased NCF implementation over next 2-3 years’ period resulting in strong top-line growth for S Chand.

Second hand books to become redundant post NCF implementation: Post formal induction of NCF, entire curriculum will get re-designed and new books will be published rendering the second hand books market completely redundant. In addition, new SKUs will also get launched further aiding volume growth. Pricing benefit will also accrue amid flurry of new launches and absence of any previous benchmark. In light of these factors, we have increased our FY25E sales estimate by 10% and expect top-line CAGR of 17% over FY23-FY26E.

~86% of S Chand’s topline is subject to NCF delta: K-12 revenue (excluding higher education and digital business) formed ~86% of S Chand’s top-line in FY23. The K-2 segment forms ~15-20% of school education sales, while remaining 3 segments K3-K5, K6-K8 and K9-K12 constitute ~20-30% each.

Net debt free with OCF of Rs1bn+ over next 3 years: Subsequent to improvement in working capital cycle (reduced from 318 days in FY19 to 188 days in FY23) S Chand has turned net debt free (Rs546mn of net cash as of June 2023). We expect working capital cycle to improve from 188 days in FY23 to 170 days in FY26E, led by better inventory management. Improved working capital management is likely to result in operating cash flow of ~Rs1bn/Rs1bn/Rs1.3bn in FY24E/FY25E/FY26E respectively.

(Click on the Link for Detailed Report)