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

Good afternoon, ladies and gentlemen, and welcome to CL Educate Limited's Q2 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, which we have been using for more than 3 years now for our analyst calls. This call is always will be recorded, transcribed and made available in the investor zone on our website within the next 24 to 48 hours. Should you have any questions during the session, please just type them out in the chat box in the bottom right-hand corner of your screen, we'll address them towards the end of the session. Joining me on this conference call today are Satya, Gautam, and Nikhil as always. Mr. Satya Narayanan is our Founder and Chairman; Mr. Gautam Puri is our Co-Founder, Vice Chairman and Managing Director. Gautam takes direct reporting of the EdTech business, which includes our Test Prep business. And Mr. Nikhil Mahajan is our CEO and Executive Director, who anchors the MarTech business. I'm moving forward to Slide #9 -- Slide #8, I beg your pardon. We've divided this presentation into three parts. First, I'll give you a quick corporate update and then an update on the finance side, which will be followed by short updates from Gautam and Nikhil on the EdTech and MarTech businesses, respectively, followed by a brief update on the Assessment business by me. I'm now on Slide #10, if you're following along. I'd like to start by giving you an update on DEXIT Global and its progress on integration within the CL Educate group. As you all know, the acquisition of NSEIT Limited now rechristened as DEXIT Global, was one of our more strategic moves over the last year, and it has enabled CL Educate to build a strong third pillar of growth alongside our EdTech and MarTech businesses. During H1 FY '26, we have achieved a smooth and complete integration on all operations -- on all operational fronts with our businesses. All client contracts have been successfully rolled over, ensuring absolutely zero business disruption. New client acquisition is also progressing well exactly as planned. The brand name change, which we were also concerned about has been fully implemented across all systems and client interfaces. And the transition from being an NSE company to a CL Educate group company has been very smooth and very successful so far. And our teams, which, of course, are our bread and butter across business development, finance, operations and technology, are now working seamlessly under a unified leadership. And most importantly, what we now see is synergies playing out between DEXIT and CL Educate in areas such as test simulation for students, institutional assessments and business development. In short, DEX is now fully embedded into the CL ecosystem and is contributing significantly to both consolidated revenues and profits, while retaining its independence to scale. Moving forward, I'll move into the finance updates. The total revenue for the H1 period has grown from INR 194 crores in H1 last year to INR 319 crores this year, reflecting a growth of about 64% year-on-year. This growth has been driven largely by DEXIT, where the revenue contribution, as you can see from the slide, was INR 139 crores in the first half of the year. This line, of course, didn't exist in the first 3 quarters of the last financial year. From an EBITDA perspective, correspondingly, DEXIT's EBITDA has also contributed INR 38 crores to the overall EBITDA. And as a group, our EBITDA has now grown from INR 25 crores to INR 50 crores, up 101% from last year. From a bottom line perspective, the consolidated PAT is now at INR 1.5 crores versus about INR 7.5 crores in the same period last year. The reduced profit, of course, is, as you're all aware, attributable to a significantly higher finance cost of INR 26 crores versus just INR 1 crore in H1 last year, primarily reflecting the full impact of the acquisition-related borrowings and also due to higher depreciation, which has grown from INR 8 crores last year to about INR 19 crores this year, following the capitalization of intangible assets post the purchase price allocation process, that we spoke about in the last quarter as well. My key takeaways for you from this slide is that the operating performance remain strong, and the decline in PAT is purely due to structural accounting impacts from the acquisition. We are now as a business very much operating as a 3-engine platform, each showing both growth momentum and margin discipline. We continue to maintain strong cost controls and are focused on debt reduction from a medium- to long-term perspective. Moving forward into the EdTech business, Gautam, I'd like to request you to please take over.

Yes. So, I did not realize I was on mute. So, let me just take it from here. As far as Test Prep is concerned -- as far as Test Prep is concerned, as I've been saying in the last couple of meetings also, this is a period of flux for the Test Prep, with a significant, let's say, number of students moving between -- moving from offline to online. And as far as the market is concerned for the products that we are dealing in, by and large, while the market size has remained the same, the propensity of the students who go for coaching and the kind of coaching they are going for is changing. However, the good thing still is that by and large, we are able to hold on to our volumes. The market share has been retained. However, when I look at the pricing, obviously, pricing is under a bit of pressure, because when you're competing with the online players with -- and yes, we also have our online programs, when we are competing with this kind of a market where which is in a flux, pricing pressures do come in. And what we have also seen is the segments which have grown the most, especially in MBA, I'll talk about BBA & IPM, CUET in a minute, especially in MBA also, is the segment which has grown is the kind of segment, which is the so-called the low-price segment, which is a Test Series, Self-Study programs. Similarly, then they have [ priced more ] program which do not cater to be complete program -- to the complete syllabus, but focus on specific domain only. So, those are the programs which are in -- are being picked up more. And we have been able to -- hence being able to retain our volumes. We have launched a few programs already, and we are in the process of launching more to them along these lines so that we are able to retain -- grow the market -- grow our market share further. BBA & IPM, the second segment that we are looking at has also done well. Though it's a small base, they're working on a small base, but this seems to be promising and with the number of IIMs coming out with your way with the program focus on the UG segment, we see this to be going. Okay? So, at this point of time, IIM Bangalore, IIM Kozhikode, IIM Ranchi, IIM Indore, Bodh Gaya, Jammu and a couple of others have already launched the program. And going forward, more such opportunities will come in. And in general, BBA & IPM or this UG programs are the ones which are going to be driving our growth going forward. While MBA will retain itself -- will be retaining at numbers, but this is where the growth is likely to come. CUET is still an issue and given the kind of paper which have been -- given the kind -- the way it was implemented given the glitches in terms of conducting of the test, it has, let me say, lost the flavor of the market. And it is still a work in progress, I would say. However, there's a small green shoot and it might be a little early to say that, because we'll know only in the next 6 months. That small green shoot is in the last couple of years, the paper has become a little more difficult. Earlier this was a paper in which you could do well, but virtually these no preparation. And even students who had not done well in their board exam were getting good scores. Which meant that the universities or the institutes were unable to differentiate between good and not so good students. So, last couple of years, we have seen slowly that the level of difficulty of the paper is increasing. And there's a differentiation which is happening between good and not so good students. And if this continues for another couple of years, I think there is a possibility of CUET becoming what we thought it would become. Law is something which has gone through its change and some program which was conducted or the test which was conducted in April, May, June of the year, it has shifted to 6 months ago, which is December, and this has been on for the last 4, 5 years. What that has done is, it has wiped out one segment of the market, which is the last minute crash course kind of students who would wake up at the last minute after the board exam and say I want to prepare. But what it has also done is, it has shifted students to a longer-term program. So, at this point of time, you'll find that practically all these students who were interested in Law tend to come in early. And the 1-year and the 2-year programs are the ones which are -- which are driving this particular product. Overall, this market size remains what it is, and we don't see an increase in the market size. But here, again, we will be focusing a lot on the -- focusing on the tests and the smaller variants, because there is a significant market for that segment also. Platform monetization doing well out here. This is a place where we help institutes, whether MBA, Law, BBA, IPM reach out to students through our captive students as well outside and that has been doing well, and we hope to improve as we go along. Okay? Publishing, again, moving towards product offering, we are looking at saying, instead of books, can we start selling services also, which means bundled services along with books. And not only that, when we say bundled services along with books, we also looking at providing services to say, study material or study packages to tuition centers and smaller players. Okay? The idea also is to focus more on GK Publications, because when we look at our own platform, if we're able to sell a larger number of books from here, we save on the commission, which typically -- which we typically have to incur when its either sold through other retailers or through Amazon and Flipkart and other online channels. In terms of the market action, as I had already mentioned, we are continuously launching new variants as per the market requirement, and that's an ongoing process. It will continue. There's nothing out of the world about it. But based on the requirement, we keep on launching more and more variants. And as I said, at this point of time, the focus is more towards smaller ticket size products, products which do not take care of all aspects of the program, but take care of a specific pain point of the student. Okay? We have been incorporating AI into our academic support. We started this last year by with the SOP analyzer, which means statement of purpose, SAA analyzer and those kind of stuff. Now we are shifting -- we are in a situation where we are able to also look at doubt-solving for students through AI driven academic support. In terms of business, we are also expanding into institutional partnership with schools. We have had a few institutional partnerships in the last 6 months. Yes, they have been signed and the impact of this, hopefully, will be visible in the next academic year, because signing is one part of the story and getting students to enroll is the second part. We are also in talks with the few schools for -- in college or in school kind of programs, but that's a little distance away at this point of time. Arjun mentioned about integration with DEX platform, yes, that is, I think, something which is very, very useful from our point of view. All the tests that we conduct, that we prepare students for except Law, CLAT and AILET. CLAT and AILET are paper-based tests. All the other tests happen to be computer-based tests, and that is where DEX comes in very, very useful for us. We have for MBA, then a couple of tests for -- on the DEX platform, where students typically go to the center -- to a DEX center and take a test there like an accurate test environment. And these are being very, very positively -- given a very positive feedback from the students. And we look at expanding it more to other programs. So, as far as the current situation is concerned, we have done it only for MBA. But going forward, we will also be looking at the tests which are the BBA IPM test, all of which are likely -- all of which are computer-based. And these will be conducted in May, June. So, immediately after Board exam, we're launching a similar test for the other segments also, except for Law. EasyApply is something that we incorporated in our platform. Okay? And we are able to now get our students to enroll for the premium tests, I would say, except for CAT, practically all the important tests are available on our platform. And students instead of going to these -- going to the XAT, SNAP, NMAT platform, they can straightaway apply for these exams through the Career Launcher platform. In addition to this, they can also apply to colleges. So, EasyApply now is available for both the aspects, application to colleges as well as application for exams. For this segment, so while we have looked at this for MBA, at this point of time, we'll be extending this facility to Law -- not so much, Law, sorry, BBA & IPM also, where, again, we think there is a significant possibility. For Law, it will be only colleges. For BBA & IPM, we'll be looking at both the exams as well as the colleges. At present we have over 50 students onboard, apart from the one which I mentioned. In addition to this, we have also been expanding in terms of creating a partner network, which is outside the conventional CL network. The conventional CL network consists essentially of the business partners or so-called franchisees, I prefer to call them business partners. But we're also looking at tuition partners, tuition centers, and other similar players to get them onto a platform, so that their students will also have the benefit of EasyApply and the Career Launcher platform in reaching out to those colleges. So, that's essentially what we have been able to do so far. Arjun, back to you.

Thanks, Gautam. I'd now like to request Nikhil to provide an update on the MarTech business. Nikhil, over to you.

Please confirm if I'm audible clearly?

Yes, you are. Please go ahead.

So, MarTech business has been stable, growing at a reasonable pace. There are always certain movements depending upon certain seasonality and activities, some of the activities which could move from one quarter to the other, depending upon client requirements. So basically, our revenues has grown by about 6% on a year-to-year basis with a significant growth accruing as has been the trend in our international market operations with INR 21 crores going to about 28 INR crores. India business has declined slightly from INR 57 crores to INR 54 crores with some of the action moving from H1 to some parts in H2 depending upon seasonality. As we had -- as I shared, Dell, Google, continue to be some of our largest clients and have been growing pretty stably, not just in India, but also abroad. New activities like CXO engagements and audience generation programs, which are based through our demand generation process, we have been gaining steady traction. And over the last 6-odd months, we have specifically focused on CXO engagement, and that has drawn significant pull from a law of corporates in the IT sector. Going forward, we are positioning our company more to be driven by international revenues, technology revenues and digital services. Our digital revenues in H1 have grown by about 28% over the same period last year with about 40% of it coming from outside India. We have added new customers, especially internationally, like Tetrapack and Hilton with significant amount of digital contribution in terms of the wallet share. Utsav, which we had incorporated, has now -- is now in the first year of its business development and execution. The first round of business executions, especially for the weddings will come up in this quarter and in Q4 for this year. This business currently being an investment phase will continue to remain so for the next 4 to 6 quarters, before it starts accreting EBITDA to the overall MarTech business. So, you will also see that, because of the investments made in manpower, business development and all the associated services, there has been a very marginal 3% drop in the EBITDA, but that's predominantly because of Utsav investments. I think, next 4-odd quarters, there it will keep on having a minor drag on the overall profitability, but the overall keystone in the marketing MarTech business will continue to grow at a reasonable pace, at a steady profitability over the next 4 quarters. I think, that's the brief update on MarTech business. Arjun?

Thanks, Nikhil. I'll also just provide a quick update on the DEX business before we throw the floor open to questions. As shared previously, DEXIT continues to deliver strong performance and stability post the integration. In H1, specifically, the revenues have grown from about INR 125 crores last year to INR 139 crores this year, which is about a 12% growth. Also, last year's H1 revenues were slightly bloated by a demand due to ICAI not having had their exams for a period of time before they signed up with us as the new service provider. So, last year's H1 numbers were boosted significantly by that. So, if I were to do an apples-to-apples comparison, I would probably say it's grown from about INR 115 crores, INR 117 crores to about INR 139 crores this year. The EBITDA is also up more than 40% from INR 27 crores to about INR 38 crores, driven by higher volumes, better operating mix and capacity utilization across our 237 centers. As shared before, on the business side, we continue to do well in terms of client retention. All our clients that were there as part of NSEIT have successfully transitioned to becoming DEXIT Global clients. The loss of the NSE brand name has had no impact in terms of things on the business side. In fact, the migration to being a part of the CL Educate group has largely been seen very positively by most clients, and you should hear from us in the coming quarters on the synergies that the businesses can derive as a part of being a part of the CL Group as a whole. The DEX team has also successfully executed several new contracts, including projects from the Ayush Ministry, IIBF, UIDAI and Meazure Learning. And as a group, DEXIT has also delivered more than 27 lakh Assessments in H1 spanning marquee clients such as IRDAI, NISM, ICAI, the Director General of Training and the National Testing Agency, reaffirming our position as one of the largest stand-alone Digital Assessment platforms globally. What's particularly encouraging is that the new brand identity, especially has been extremely well received. What we'll do now is, I'll pause for a few minutes, and then we'll throw the floor open to questions. Once again, thank you to all our investors, our partners, lenders and analysts for your continued trust and [indiscernible] engagement. That concludes our business and financial updates for this quarter. We'll pause right now while we take your questions.

Okay. So, we have a question from Madhur Rathi. Why is the interest cost on the higher side despite being debt-free? Madhur, I'm sorry, I don't think we've interacted previously, but we are not debt-free at present. Last year, we had taken an additional INR 200 crores of debt over and above our working capital requirements to fund the acquisition of NSEIT Limited. And it's a 6-year debt that we have taken on our balance sheet, which we hope to clear prematurely. But, yes. So the interest costs are on account of that and on account of the accounting adjustments related to Ind As. Another question from Madhur is, how is seasonality in the DEX business? Can H1 performance be annualized? Or is this business skewed towards H1 and H2? Madhur, the DEX business is not -- is actually divided into two parts. There's certifications and examinations which tend to flow in one particular way. And then, there's on-demand testing and which tends to flow differently in terms of accreditations. So, for example, our IRDAI client is a 12-month annuity business, which flows right through the year. The only dip that happens is sometimes during holidays like Diwali, where the number of students who write the exam over a week or 10 days might be a little bit lower. But then, there are also one-off exams, which get executed between a 7-day window or a 10-day window. And that would impact a specific quarter's performance. But on an overall level, because our business is fairly well distributed, there is a little bit of a mix between the different quarters, there will be a little bit of higher quarters and lower quarters, but not too much significantly unless there are very, very specific large one-off exams. So, while I would not recommend looking at it purely from converting H1 numbers into two and annualizing it, we do hope that H2 would be a little bit better than H1, given the number of exams and the nature of exams that we have in our pipeline. But this year, it could be fairly similar. Over the years, it might tend to spread itself out a little bit more. There are questions from Pratik. Pratik, Aditya, you're looking for guidance on the future and investing -- investments that we will be making in capacity expansion and so on across the different business lines. While -- again, while we don't specifically provide a guidance on what H2 will look like, we can share that as and when the business demands are such that it requires us to make investments, whether that's in people, whether that's in product or whether that's in technology, we continue to do so. We don't constrain ourselves from that perspective. There's a question on what the stand-alone business is expected to provide over the coming months, and why has the Test Prep business declined. Gautam, would you like to take this question?

GP, you are muted.