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S Chand and Company Ltd to turn the page with profits, says CFO, Saurabh Mittal

S Chand and Company Ltd aims to achieve sales of over Rs 6000 Mn, a growth rate of minimum 25% for FY23 end.

With profitability returning after three years despite facing unprecedented challenges including a global pandemic and soaring paper prices, S Chand has become the turnaround narrative to follow. Mr Saurabh Mittal, CFO, S Chand and Company Ltd mentions what has driven profitability and what will the future look like for this company with a history of over 80 years in content and capability.

Q. S Chand has turned profitable after three years, making this a watershed year for the company. Is this profit sustainable, and what has driven it?

Ans.  Our efforts over the previous three years to make a sustainable difference in the cost structure and generating positive cash flows culminated in FY 22. We started the implementation  of S Chand 3.0 plan, a strategy to become a lean and efficient organization through right-sizing human resources, rationalizing operating locations , evaluation  and elimination of dispensable internal spending, optimizing  paper and freight costs, and renegotiation of  rental and other agreements in December 2018.

We, at S Chand and Company Ltd, had no idea that we’d be facing the Covid-19 pandemic, which would be accompanied with two years of no physical school and college interactions , millions of learners having to adapt to online, millions yet not having access to education due to lack of infrastructure and to top it all nationwide lockdowns and supply bottlenecks.

Our strategy of redefining our channel partner bases to work with quality rather than quantity has proven to be the game-changer. For FY 23, our revenues grew 13% on a YoY basis to reach Rs 4,809mn, a structural revival in the EBITDA which grew to Rs757mn and we were back to profitability of Rs 80mn compared to a loss of 65mn in the previous year. Quite a turnaround, despite variables which were beyond our control.

We have an experienced and competent management team who have extensive industry expertise , and who stepped up to the task of managing in difficult times with limited support  considering we were not even considered a stressed sector under the Emergency Credit Limit (ECL) guidelines.  We have multiple established brands under the Group including S Chand , Madhubun , Vikas , Chhaya and Saraswati  and are the market leader in the K-12 segment in the CBSE/ICSE and West Bengal State Board segments.

With our long-standing relationships with prominent authors which run into decades , we see ourselves as an education content  company rather than just a  print publishing  company. One of our key assets is our long standing relationships with educationists , institutions and a distribution network and reach of more than 3500 channel partners. Our marketing team interacts with over  40 thousand schools, colleges, universities and institutes  across India, and this number is only growing.

In terms of future outlook , the strong pent up demand with schools reopening across India , demand is expected to be substantially higher which could be further accelerated by the implementation of the National Curriculum Framework (NCF). With volumes now nearing pre-covid levels and the a reduction in operating expenses levels thanks to the steps margins should  not only sustain but rise in the future. These efforts with the industry’s good prognosis of record admissions and school reopening, we aim to achieve sales of over Rs.6000 mn, a growth rate of minimum 25% for FY23 end.

Q. Internal efficiencies, as you mentioned, provide operating leverage. Could you elaborate on these internal efficiencies at S Chand and Company Ltd?

Ans. Despite a steep increase in paper prices, undertaking salary hikes and incurring on the ground costs such as workshops and increased spend on travel, we maintained our gross margins and EBITDA margins  during the past two years impacted by Covid. This is because we’ve focused on a culture of cost rationalization and by managing  our fixed overheads without impacting quality of business.

Our focus on working capital management and product rationalization has been quite successful in the last 3 years. This has been a year for achieving free cash flows, synergizing backend operations and  adapting to technology to improve efficiencies.

S Chand and Company Ltd has centralized production and inventory warehousing and we have lowered the number of operating locations , enabling teams to work from home through technology solutions and enabled inventory reduction. On back of these steps, we were able to cut our fixed costs by around 20-25 percent in FY 20-21 alone. We’re moving towards a structurally lower level of  working-capital company that keeps a stringent control on our production , prompting us to plan production and optimise SKUs. With our integrated procurement process for the group of raw materials like paper, ink,  and other  supplies, we also achieve economies of scale and gain   bargaining power with domestic and international  suppliers with whom we have built long-term relationships.

A strong sales and marketing function team assists us in assessing demand in a sales year , ensuring high levels of retention of our content by user schools. We take great care to provide superior quality content by gathering regular feedback for specific requirements. 80% of our products are available in an e-book format and most of our textbooks have embedded  digital intervention, such as a QR code along with  web support, test generators for the teachers/faculty.

The company was able to launch multiple platforms (Mylestone, Learnflix, Educate360) for schools along with providing teacher training to ensure that learning continued. This was done using internal capabilities, with limited investments in the domain.  The company is poised to take advantage of the Hybrid era where both physical and digital modes of learning will go hand in hand, putting itself in an unique position.

Q. Your goal is to be net debt-free by the fourth quarter of FY23, what steps have you taken to reach this goal, and what is your present financial risk profile?

Ans. There has been a 61% reduction in our net debt level at S Chand and Company Ltd since FY20 with our reported net debt at Rs. 721 mn as on March, 2022. This is the lowest net debt level since June 2018. In addition, by replacing high-cost debt  and better working capital management , interest cost has already been reduced and is poised to go down further.

With strong operating cash flows  that have almost tripled in the past three years surpassing Rs 1000 Mn for the second year in a row despite waves of COVID-19 during FY21 and FY22 , we are confident of reducing debt substantially.

There’s been a significant turnaround in our working capital metrics, we had the lowest inventory level is 5 years reduced by 45 days during this year. This continues to be a focus area for the group.

S Chand and Company Ltd has had the lowest receivable days in the past 5 years with a Rs 300 Mn reduction in March year ending receivable balance despite having incremental sales of Rs 557 Mn over last year. We’re keen to keep these trends going.

We’ve also stated that S Chand and Company Ltd intends to monetize certain portion of our EdTech investments to the tune of Rs. 15-20 crores during this year. This will further help us de-leverage to become zero net debt by FY23.

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