CL Educate Limited (CLEDUCATE.NS) Earnings Call Transcript & Summary

A very good afternoon, ladies and gentlemen, and welcome to CL Educate Limited's Q1 FY '26 Analyst Call. My name is Arjun Wadhwa. I'm the CFO of CL Educate, and I'll be your host today. Welcome once again to our Metaverse platform called VOSMOS. We've been using this for the last 3 years now for our analyst calls, and most of you will be quite comfortable with the same. This call, as always, will be recorded, transcribed and made available in the investor zone on our website within the next 24 to 48 hours. [Operator Instructions] Joining me on this call today is Mr. Satya Narayanan R. He's the Founder and Chairman of CL Educate; Mr. Gautam Puri, the Co-Founder, Vice Chairman and Managing Director. Gautam takes direct reporting of the EdTech business, including our Test Prep businesses; and Mr. Nikhil Mahajan, also Co-Founder, CEO and Executive Director, who anchors the MarTech business. I'd like to start by inviting Satya to say a few words. Satya, over to you.

Thank you, Arjun. Good afternoon, everybody. Welcome to this session. It is with great delight that I update you on our performance for the first quarter of '26. This has been a transformative period for our company, marked by significant strides in revenue growth, the full integration of DEXIT Global, which was earlier called NSEIT, as you know, and strategic challenges that have also impacted our bottom line this quarter. Our consolidated revenue rose impressively by 58% year-on-year, reaching INR 149.84 crores, a testament to our expanding footprint and strong market positioning, particularly through DEX. This growth has translated into an equally encouraging 66% increase in operating EBITDA, now standing at INR 17.5 crores; however, the journey has not been without its headwinds. As you would recall, there is a sharp increase in the finance costs compared to last year, INR 12 crores more, owing to the INR 200 crore loan that we have taken to fund this acquisition. This, coupled with a significant rise in depreciation on account of the intangible assets created from the DEX acquisition has resulted in a net loss of INR 3.71 crores at the consolidated level. These are short- to medium-term hurdles that we anticipated. We are confident they will ease in the coming quarters as the new assets begin to deliver value. Segment-wise, the performance of DEX has been outstanding with revenue increasing by 54% year-on-year to INR 59.2 crores, EBITDA more than doubling to INR 12.8 crores. MarTech too has shown resilience with a modest 7% growth in revenue, although its EBITDA dipped slightly, merely underlining the investment phase we are currently in to build deeper international presence and technological capabilities. EdTech, on the other hand, particularly the Test Prep vertical, faced a relatively muted quarter. Revenues declined marginally and EBITDA remained flat. The impact of CUET not panning out as shared even in the past 2 quarters, coupled with the market shift towards self-prep models in MBA has necessitated strategic recalibration at our end. This has resulted in launch of significant number of smaller value SKUs, which has resulted in decrease in average pricing, though the volumes have got maintained. We are confident in the continued traction of our BBA and IPM products, which have recorded a 12% increase in billings. Our low intake remained consistent with the last year and on track with our expectations. The MarTech division continues to pivot towards becoming an AI-first practice with more tech-heavy business. Newer initiatives like the CXO community building effort, expansion into international territories, we are poised for stronger performance in the upcoming quarters. The Q2 outlook is bullish, especially given the event-heavy calendar and upcoming launches with major clients. Utsav, as you are aware, which was our social events and the weddings practice is beginning to gain traction, which will be visible in numbers in the subsequent quarters. DEXIT Global consolidation has not only enhanced our top line, but we also see it as being very central to our vision of becoming a leading player in the technology-enabled assessments. We're already the fourth largest stand-alone digital assessments company in the world, and we look to build on the 11 million assessments done in FY '25 by expanding our client base over this year. Q1 was a crucial business development quarter. We inked several new long-term contracts. Delivery too was key in this quarter as we executed for respectable clients like IRDAI, NISM, DGT, NTA and so on. Lastly, a couple of initiatives that we have undertaken, including trying to build synergy-based revenues between different practices, building an IP-based revenue stream and going international, they've all begun to take the shape of initiatives on the ground, and we will see the numbers visible in the next 2 to 4 quarters. To wind up, this quarter sets the foundation for a robust FY '26. We are executing our transformation with discipline and clarity with short-term -- while short-term profitability was impacted, the investments made will yield medium- to long-term results. Our focus remains unwavering on enhancing margins, leveraging AI, expanding in international markets and building scalable platforms across verticals. As Nikhil and GP take us through the MarTech and EdTech business, and Arjun will update us about DEX's business, you will see a closer texture of these remarks in the next 20 minutes. Over to you, Arjun.

Thank you, Satya. I'm moving straight into Slide #9, which is the financial updates. I just want to check that I'm audible now. So I'll move directly into the integrated financial summary. As Satya already mentioned, our revenues have shown a robust 58% growth over the same quarter last year. We've grown from INR 95 crores to nearly INR 150 crores. A large part of this revenue growth is driven by DEX, which obviously did not exist as part of our portfolio in Q1 last year. But it's important for you to note that DEX last year same quarter was about INR 38 crores. This year, this quarter, it's INR 59 crores. So there's been a significant growth in the DEX business as well. So our top line is not just boosted by DEX coming in, but DEX itself has grown significantly in this quarter. Also, our EBITDA is up 76% from the same quarter last year from INR 12.3 crores to INR 21.7 crores. But also, again, just to reiterate, DEX was INR [ 5.7 ] crores in Q1 last year. This year, under our umbrella, it's INR 12.8 crores. Despite the significant bump in EBITDA, as Satya mentioned, our PAT is down from INR 4.2 crores in Q1 last year to INR 3.7 crores negative this year. But this is largely on account of the finance costs, which have grown from about INR 72 lakhs in Q1 of last year to INR 12.7 crores in Q1 of this year, all on account of the DEX acquisition. And there's been a significant bump, as Satya earlier mentioned, in our depreciation due to the creation of intangible assets as a result of the PPA process and because of the addition of DEX, which brought its own set of intangible assets to the balance sheet. So the EBITDA itself is up from INR 12.3 crores to INR 21.7 crores and the revenue itself is up from INR 95 crores to INR 150 crores. Those are the 2 significant takeaways I'd like you to go away with from that slide. From a consolidated operating EBITDA perspective, we've also grown 66% to about INR 17.5 crores. And I've already explained the reason for the net loss in the previous slide. From a stand-alone perspective, our operating revenue was down 9% to INR 77 crores, whereas our stand-alone operating EBITDA was down 33% to INR 5 crores. The stand-alone business gave a net loss of INR 4.5 crores. Again, as explained, this is primarily due to the finance cost that has come in as a result of the acquisition. In terms of specific highlights, as Satya mentioned, our revenues are up 58%. Specifically, our operating revenues are up 56%, and our operating expenses are very much in line with that and up [ 55%. ] The discontinued operations continue this quarter. This, if you recall, is because of our decision in Q4 of last year to walk away from certain business lines, NEET, IIT, Bank SSC on account of the significant business opportunity that exists for these business lines for DEX as in terms of contracts that would be available for the company as we apply for them and our keenness to ensure that there is no perceived conflict of interest when we apply to the National Testing Agency for these specific contracts. From an EPS perspective, on a non-annualized basis, at a consol level, we are at minus 0.68 and our book value is 47. I'll now request Gautam to please come in and give us an update on the EdTech business. Over to you, GP.

Yes. Thank you, Arjun. I hope I'm audible. Thank you. So let's get started. Okay. As I've been saying in the last couple of meetings also, I said and the situation remains the same. Test Prep industry, especially the graduate student segment is in a churn. And it is a change of habits. It is the movement away from offline towards online. Partly, it is movement away from a completely guided program to a self-preparation kind of program, which is happening. And I had said this last time also, there's a 4- to 6-quarter issue that we'll have to deal with. And in the meanwhile, we have to realign ourselves to the changing situation. Give me a minute, I'm sorry. Yes. So we have to align ourselves to the changing situation, which we have done. We have introduced many new initiatives, nearly new variants, and we are trying to ensure that we are able to increase the volumes. In the new scenario, it appears that the students are likely to be moving more towards shorter programs, smaller program, low-value programs. While they will possibly spend the same amount of money based on our research, we had done a survey of about 2,000-odd students who were successful this year. Based on our research, it appears that the students are likely to spend the same amount of money as they were doing earlier, but they'll be spending it in smaller pieces and -- in smaller chunks and in multiple programs. Unlike earlier when it used to be one program, which they would do. For example, they would do one classroom or online or one full program, which would cover not only study material and classes, also test series and other stuff. Now that there seems to be a movement towards I'll pick up only those areas where I have a challenge. So the students ends up spending the same amount over a period of time, but in bits and pieces and which is why we have introduced new variants, which are -- and they are getting a good response. We have introduced -- we have doubled down on test series. We have self-prep program, which are 5,000 to 8,000 kind of programs which cater to only one section or part of the paper, and they are being -- they have been accepted. So overall, while the revenues from the test prep domain have come down by about 11%. The fact remains that the numbers we are able to hold on. And the way things are, we are hopeful of being able to increase numbers over last year significantly by the end of the year, okay? Similarly, if I look at the UG side, the CUET and the BBA, IPM, CUET last time also I said, I think CUET is another example of where the focus is more towards self. And while we have some sessions -- some students similar to last year, in the longer program, the bulk of the movement is towards the same test series and smaller variants and which is fine because what that does is it makes it scalable. A classroom program, by definition is not as scalable as the test series or the online program. And so scalability increases. So as the numbers grow, we'll also be able to reduce our cost in these domains, okay? BBA, IPM is the new kid on the block as far as the industry is concerned. This started by and large, while BBA as a program was available for the last 30, 40 years, IPM or the integrated program in management and the UG program by the -- by other institutes have really taken -- appear to be the one which are moving the market. They started with IIM Indore about a few years ago. And now there are about 7 or 8 IIMs, there's an IFT and there are other institutes which are available. Bangalore is also launching a 4-year UG program and Kozhikode has done it. So this is a segment which should become a desirable segment. And I would believe that in the next couple of years, between law and BBA, IPM, these would be the mainstream going forward. MBA will remain. But given the fact that the volume of -- the number of students in the UG segment is much larger, after all -- not everyone wants to go for a PG program. All school students who are passing out of 12 become a target segment for BBA, IPM programs. And we feel that this is going to be the way forward along with the others. Coming to platform monetization. This is a season -- this is quarter 1 and 2 are typically a little -- quarter 1, especially not 2 that much. But quarter 1 especially is on the lower side because this is the time when most of the colleges, institutes and industries are closing the admissions for the current session. Most of them closed the admission by June -- by July and for most of them, the batches, the classes start from August. And after that, things start picking up, though we have already started -- and we have already started, let's say, making headway into this domain, and this should be business as usual. EasyApply, the application app that we have -- application portal that we have will now be available in the app format also. Last year was a pilot which was done, which was very, very positive. And this year, we are hopeful of increasing those numbers there also. Publishing business, as I said, usual business going on, new titles market ready for distribution. Though when we look around in the market, like rest of the businesses, publishing is also under stress, though as far as we are concerned, we have not seen that from our point of view. The new initiatives, which I said, we have already launched some of those are, as I said, these low-value products, which have been launched the price of Sprint. AFA, which is attend from anywhere, which is nothing but -- which is essentially a way of enhancing the desirability of your classroom offline programs when the students who's attending offline also has the flexibility of attending an online session from home, the same class gets been to the home also. So this is more to strengthen the classroom program or the offline program where you can charge the maximum amount in terms of fees, okay? The mobile app has been launched. It is still being -- it has been launched. It is -- for MBA, it has been launched. For other products, it will get launched in the next couple of months, okay? Then as we speak, we are right now conducting a test on the DEX platform. So for MBA. MBA, we are doing an online test for all CAT students as of now. This is the first, let's say, a common offering between DEX and career launcher. And the initial response is -- today is the first day, but the initial response from the students seems to be positive. And based on the feedback, we look at launching more products along these lines. Okay. So that's it from my side. Thank you, Arjun. Over to you.

Thank you, GP. I'll now request Nikhil to come in and give an update on the MarTech business.

Good afternoon, everybody. As has already been shared by Arjun, I'll just give you a brief overview. The revenue growth in the MarTech business was about 7%, growing from about 34.8% to 37.2%. Usually, Q1 is a slightly slow quarter with business actually largely bunching around Q2 and Q3. Due to the slight change of kind of business you do in Q1, the EBITDA declined very marginally from INR 2.8 crores to INR 2.5 crores. But as we get into Q2 and Q3, which are even heavy and high-margin businesses, we would see the overall EBITDA broadly coming back on track during the rest of the quarters. As stated by Satya earlier, last year in FY '25, almost 40% of our total revenue out of INR 150 crores came either from international markets or was technology business or digital business. Now in this -- in the first quarter, digital and tech itself has grown to about INR 9 crores. Our international business has grown to about INR 12 crores. So we are trending towards closer to 50% in terms of international technology and digital business. And that, as Satya articulated, these are investment driven with a larger team on the ground to push higher sales in international and technology businesses. And these will result in a much higher profitability margin over the years, some of which will start reflecting towards the third and the fourth quarter, but larger benefits will begin to accrue maybe next financial year onwards. Of the new -- Dell and Google continue to be significant growth accounts, not just in India, but also in the APAC region. Virsa, which is an automated AI-driven lead gen and lead management tool, which we had just launched at the earlier part of this year, has seen extremely positive traction with Salesforce, Infosys, Redington already buying on to the product, and we have started execution for them using that tool. Salesforce, we are exploring for offering the same service in Americas, that is both LatAm as well as North America. And if successfully adopted by Salesforce, this product would scale up pretty quickly in the coming years. We have also onboarded resellers, both in the Singapore and Indonesia markets as additional people who will fronting and driving sales over the next quarters. And we expect them to start contributing to incremental revenues in the remaining 3 quarters of the year. CoreStack and HP for Virsa, we will -- we have signed up the pilots for 2 months and 3 months, which will be actually over the next couple of weeks. And we expect these blue-chip companies beginning to expand from pilot stage to full-fledged adoption over the next few quarters. I think this is a critical and important development, which would once adopted and reaches scale would significantly alter not only our revenue growth, but also our margin profile in the years to come. As Satya had stated earlier, we had started an endeavor at the beginning of the year at our MarTech business to become an AI-first organization. We are currently in process with certain processes already beginning to take shape. The blueprint for the remaining processes is defined. And by the end of this year, we would have completed this transformation, which would bring in significant amount of efficiencies in presales, sales process and delivery, resulting in margin expansion, which would probably start reflecting next year. Social events is something which we started off with Utsav, which came into being only about 4, 5 months ago. We are seeing a positive traction in that, which we are executing a few events during Q2. We have rolled up pipeline of implementation in Q3. And I think this is a very positive and interesting development. And with a market size upwards of anywhere between INR 50,000 crores and INR 100,000 crores just in India, I think renowned 30-year old corporate service event organization, getting into that segment, will give a significant tailwind and revenue scale up as well as resulting in accretive EBITDA over the coming years. Arjun, back to you.

Thank you, Nikhil. I'll now move into a quick update about the DEXIT business. As Satya mentioned previously, and as we've shared before, the revenues in this business have grown significantly from a quarter-to-quarter perspective. Obviously, as I mentioned earlier, Q1 was not part of our consolidation last year because our acquisition was completed in February last year. But -- from a comparative perspective, we're up 54% from about INR 38 crores to INR 59 crores. Similar to the MarTech business for DEX as well, Q2 is a very critical quarter, and we did about INR 80 crores in this quarter last year. So Q2 remains critical as we look to move ahead. From an EBITDA perspective, we've grown about 124% from a quarter-on-quarter perspective, INR 5.7 crores was the corresponding quarter last year, and it's INR 12.8 crores that we -- INR 5.7 crores last year and INR 12.8 crores this year. One of the most important things for us as we made the migration from being an NSC parentage company to being a stand-alone entity, DEXIT Global was to ensure that the -- all our clients, especially the major ones, continued to move with the organization. And we're happy to share that key client retention has been hugely successful so far, and we have inked deals with several new customers, and we've also inked continuing deals with some of our older customers. Some of the new deals we've cracked this year include a deal for the Ayush Ministry, which is INR 24 crore deal. IIBF is an old customer, which we've renewed, which is a INR 14 crore deal. NISM is a critical customer through the National Stock Exchange itself. That's another INR 15 crore deal. So we've signed off both in terms of retention of new customers and addition of loads of other new customers this year. And Q1 was a heavy quarter for us in terms of delivery and execution as well. We executed in excess of 17 lakh assessments in this quarter alone, including for some of our key clients like IRDAI, ICAI, and NTA and so on. We'll continue to build on this and share more updates as we crack more deals with some of our customers, including IIM Bangalore, Microfinance Industry Network, the Regional Center for Biotechnology and so on. That's it from us in terms of a quick overview of where the business is right now. We'll be happy to take questions now on either the 3 lines of business or anything related to finance.

Okay. There are questions from [ Gunit ] related to our depreciation and interest costs. Gunit, the depreciation for the same quarter last year was about INR 4 crores. This year, it is in excess of INR 8 crores. Out of that additional INR 4 crores that has come in, about INR 2.3 crores belongs to the intangible assets that were created as a result of the purchase price allocation exercise done at the time of the acquisition of DEXIT, which means things like trademark, customer contracts, all of those intangible assets that were created as a result of that, which get depreciated over different time periods. INR 2.3 crores has got added on account of that, and you will see that as a continuing cost over the quarters ahead. And about INR 2 crores has got added as a result of the direct depreciation coming from the DEX business. The interest costs are impacted significantly by the cost of the acquisition. As you -- as most of our investors are aware, we had taken a INR 200 crore loan to fund the acquisition, and we had used about INR 32 crores from our internal accruals to fund the acquisition. Our interest rate on that is about 11.9%. So we anticipate an annual interest cost of about INR 24 crores for this year, which would translate about INR 6 crores to INR 6.5 crores hitting our P&L every quarter this year. I'll just move on to further questions. There's a congratulatory message on the DEX integration and our impressive revenue growth. There are specific questions related to the outlook for the different businesses. I'm afraid we don't give a forward-looking guidance related to -- with relations to our revenues and our EBITDA for the year. But we'd be happy to take any questions in terms of specificity in terms of how the business would grow. There's a question from Dharmesh whether we could sell the discontinued business and monetize that. Dharmesh, we evaluated that option last year, but we chose against that. Right now, the discontinued business lines, the only expenses are related to servicing of existing students for whom the IIT exam would happen later this year. So there's a small expense related to that, which could hit us for a couple more quarters. Is there any seasonality in the DEX business similar to our education business is a question from Aditya. Aditya, there is a little bit of seasonality, but we have 2 kinds of customer contracts in the DEX business. There are annuity contracts where students come and book slots and take exams whenever they want. They do it directly through the portal that we create. Exams like IRDAI work through that kind of format and typically contribute about INR 20 crores a quarter where -- which is almost like a specific annuity business. And then there are other exams, which are date specific. For example, the Director General of Training exam happens in the second quarter of the year. So there would be a revenue accumulation of that largely in Q2 and so on and so forth. So yes, we have a mix of exams which are exam -- which are date driven, and we have a mix of exams which are of an annuity nature. There are questions related to the quantum of debt that we have taken and what are our plans to reduce it. As Satya mentioned in our Q4 presentation last year, we're looking at a 3-year window in which we're looking to significantly reduce the quantum of debt that we've taken. And as Satya mentioned, under the guidance of one of our directors and our Non-Executive Chairman in DEX, we have formulated an IPO committee in DEXIT Global, which is looking at both strategic investments coming into that business and a potential IPO for that business in due course. We're looking at a 3-year window for that to fructify. Satya, anything you'd like to add there?

That's okay, Arjun.

Nikhil, there's a question on the Utsav business, how that has progressed. Would you like to take that?