CL Educate Limited (CLEDUCATE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the FY '20 Earnings Conference Call of CL Educate Limited. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Satya Narayanan, Chairman, CL Educate Limited.

Okay. Thank you. I'll get started. Welcome, everyone, to this annual call. I hope I'm audible. Please do confirm to me that I am audible? All right, thank you. So welcome to the analyst call. We have both running parallelly. There is a Zoom call -- there's a Zoom, where we have about 15 participants. And the Chorus is also running and both inputs are going out. If there are any questions that come on Chorus, one of us will speak that out in the Q&A part and answer that question to everybody. I'll straight away jump to the next couple of slides and go to the first page. Arjun, we move to the next slide. Okay, so the presentation that we are doing, we're covering it broadly in 3 parts. I will cover the COVID, which is very topical and deeply impacting factor already for the last 100 days, and it is not looking like it'll go away in a hurry. I'll spend a couple of minutes on that. We will pick up the business update. I'll cover the Consumer part and Nikhil will cover the Enterprise part. And GP and Arjun will take us through the financials, including the -- some key decisions that the Board has taken with respect to businesses that are continuing, that are discontinued and what is the fresh start look that we are taking on the balance sheet side. Moving into the next slide. Yes, so one of the things that all of us are seeing, as you know, is that COVID has reduced the entire industry into 2 segments: touch and non-touch. CL has both parts. Touch is a very high-value premium business present in over a 100 locations. And also it's there as part of our Kestone. Non-touch, fortunately, is well established. So what has happened as a result of COVID is that we could move the entire non-touch part live in terms of fulfillment for our entire education business. However, the premium offline part went to a standstill. And when the new business development has resumed after a total stalling of it for a couple of weeks, the focus or the possibility is that we can begin and are focusing on the digital services. So -- on our test-prep side, the centers are not yet open or running. In some of the cities, we are open, but we are not running because consumers are not walking in. And on the Kestone side, it's primarily all digital services. As you know, events and conferences, they are all happening only in the non-touch format. Moving forward, the impact of COVID, we began to see it by as early or as end of Jan on the Enterprise side. But the Consumer side, where, as you know, as the board exam finishes and then the entrance exam season starts, that's a pretty heavy season for us from 15th March to 30th of April. I think that was a complete washout. And as you know, the -- many of these things have not yet happened. The entrance exams have not happened in India. The university openings have not happened. So FY '21 is still going to be hugely affected by it. Continuing a couple of more brief commentary points. This is a new reality and everyone is guessing. As I mentioned, exams are postponed, semesters have not happened, exams conducting even in the future is looking very, very challenging to predict, forget about doing. The other thing is, as corporates, as you know, each one of us in our corporate responsibilities, we have tightened our purse strings. Costs have been cut in absolute terms. Whole lot of rejigging has happened. But another thing that we are noticing is that slowly this stress of purse string task is becoming visible on the consumer side, and we are assuming that it will continue long into the next couple of quarters and the pricing pressure will increase. So even though the actual economy might be allowed to come back to normal by the government and various activities might resume, what might continue to play a role is the psychology of the consumers, which could be manifesting itself as job losses, uncertainty, health risks for kids and not going to the centers, as schools, colleges and so on. So a lot of these things we see as something that will affect the current financial year in a significant way. Moving forward, I'm just covering a couple of bullets as we see -- as we've already seen in March, which is the end of next financial year. But since we're already at the end of the first quarter, I'm doing a composite commentary for the 2020 FY ending, which is March -- Jan-March, if you were to broaden it for Enterprise business, but also for the FY '21 how does it look. You know this -- the volume and the profitability growth is likely to be better, but the revenue growth and absolute profits is going to be a challenge because the ARPUs when it is online, as you know, the ARPUs are likely to fall from anywhere to 40% to 60%. This is something as a challenge we all are clued into. And the other significant challenge for us that we've been working on is to, how do we rewrite the org structure and -- including the mindset, wherein digital comes first, and we go after market share even if that results in a temporary drop in revenues. Now if there is a challenge for us, it's a challenge for a large number of players. And if I were to assume that our digital quotient is much better than most people in the marketplace, one of the opportunities that comes towards us is going to come from the disruptive state of mind that is there in all the clients, whether it is enterprise or institutions. That's where an opportunity that we see. The second opportunity, and I'll cover it briefly shortly, our basket expansion with focus on a bunch of internal product's basket that is underway without demand for any additional capital, that's an opportunity and building an entire organization-wide digital competencies where some of the functions are now -- which were earlier 30%, 40%, 50% digital, now they all have to be 100% digital. So that's the big opportunity. And this also is going to lead us to some business outcomes, hopefully, that will stand us in good stead over the next 12 to 18 months. What is it that we are focused on strategically? One, we are saying that let's defend the defensible, and what we cannot control, we don't try too hard at it. But the important thing is the EBITDA-positive business development and revenue is something that we are looking at. I'll cover this briefly. But what has happened as a result of COVID is that the geography has become extinct. Earlier, our business would have a product perspective and a geography perspective. Now the geography thing is not needed. So a product manager is looking after his particular product for the entire geography called India or even going out into Southeast Asia or West Asia and so on. So in the no-touch era, geography is extinct, and that has helped us to unify the sales, marketing, academic organizations into one unified structure. That is something that hopefully will pay off well. And even on the institutional side or even on the test-prep side, some of the things that we are focusing more on cash and volumes. So these are -- the cash upfront business are given greater priority than chasing revenues and P&L with a lot of collections to come later. So in short, the specific steps that we have undertaken have been work from home, and we are likely to stay permanently work from home predominantly. So we are looking at it from various perspectives. There is, of course, significant reduction in office, admin, all of those costs. But semblance of office location is there for the teams to come and work at the bidding or at the choice of the team leaders that we have done. We created a business response group and a couple of senior people, such as Nikhil, GP and Arjun, they are leading the business response, which is focusing on cost management, and I am leading the team that is focusing on revenue and growth maximization. This is how we have rewired our own rules as well. To speak purely quantitatively, I think our estimate, this could be a little higher than this, our estimate is that the straight loss that we experienced in the last financial year, in the month of March and a little bit, would be anywhere between INR 25 crores to INR 30 crores. This is our estimation. This is not something that can be -- that is -- that can be proven but that's what our view is. I'll move forward. I'll reduce the -- what I mentioned in the previous slide in terms of -- as I mentioned to you, there is a product-focused metric, where geography is not so important now, and we have 3 product lines, if I were to summarize, our consumer business, consumer education business. The basket a, product basket a, it covers management and law. Product basket b, it covers GATE and civil services. And product basket c, covers the new products which are still under incubation. These are growing, and these are our mature cash cows. So right now, the way it's happening is that the product managers of -- for each of these 9, they focus on their growth. And even one particular product basket would have 3 levels of the people, where this is a premium product, these are sachet products, this is less than INR 900 kind of a price, this is more than INR 10,000 kind of a price, this comes in between. So this is how we are trying to reduce our very distributed product geography metrics into pure product and digital focus and with a caveat that students, of course, will have this freedom to add and join our offline programs, which we don't see going away when the COVID fears and other things are behind us. Moving forward, I'll get into the business update now. The growth on enrollment side has been healthy because our focus on digital e-center driven has been there, as you would have known, over the last 24 to 36 months, and that has shown a lot of improvement. However, we could have easily done another 10,000 to 15,000 more if the COVID did not strike us in the month of March. But given the drop in ARPU that happens when the shift happens from offline to online and the business completely getting pushed out both in the test-prep -- in the education as well as the -- Consumer as well as the Enterprise business, our revenues are looking 8% down. Our business EBITDA is looking about 12% down from 42.5% to 37.5% and about INR 10 crores to INR 12 crores attributable to COVID. And our adjusted net profit as a result of some of the things that we had done, it looks INR 12.8 crores instead of INR 20 crores last year. As you know, most of the programs that happened in March are 30- to 45-day crash programs that end up giving a much higher EBITDA than the 1-year or a 2-year program. That's why, when the March and April, they suffer, we end up suffering a lot more on this side. Okay. I'll move forward. As summary stated a little differently, this is the growth on the volumes. This is the online, which is showing a very healthy growth. But this year, it will show very different because, quite literally, whatever we have done in the last 100 days is 100% online and that is showing about a 2.5x growth in volume, but the offline is down by anywhere from 40% to 60%, depending upon which location we are talking about, okay. Some of these numbers are here. The grades 9 to 12 enrollments, which results in engineering, medical, that's showing a lot of momentum. Due to ARPU, the billings were flat. Sachet products, we launched very, very -- with a lot of focus last year. And we started it in GATE. We've extended it to UPSC. Now this is available practically in every product, and we see this growing a lot. It's the small ticket, high EBITDA, 0 fulfillment cost kind of a product category. This is something that we should look at growing 10x year-on-year. That's the kind of target that we should have. What we achieve is another matter, though. Publishing, the entire offline thing has come to a standstill. Even there, the focus has been to go completely e-commerce and also reduce the distribution points from over a 100 to just the top 5 or 6, including the Flipkarts, Amazons and so on. Moving forward, we come to the Enterprise segment, I'll pause here, and Nikhil will take us through the Enterprise segment before GP and Arjun come in. Nikhil, over to you.

Good evening, everybody. On the Enterprise side, let me cover the Corporate business first. I think the Corporate business was the first line of business where we started feeling the impact of COVID as early as first week or second week of February, because most of our customers which are multinational and multi-country operations, we got a signal with East Asia beginning to get severely impacted in early February. So most of the physical touch, event and engagements started getting canceled right from February on to March. Physically, events is roughly around 45% of the Kestone business and that in the last 2 months, literally, got priced, resulting in something like INR 10 crores to INR 12 crores revenue, not a growing from what we have initially planned for. So what business -- for the first 45 days lot of corporates were actually figuring out what to continue and what not to look at for reaching out to their customers. Eventually, 3 sects of services, which are predominantly digital, which are digital, outreach and marketing, customer engagement programs and marketing, communication and design services. These are the 3 lines of businesses, which started pulling back business in early April and continuing into Q1. Initially, when we started getting initial plans for physical events getting canceled, we started putting together a virtual events platform and...

Nikhil, I'm sorry to interrupt you for a quick second. You're audible through Chorus Calls, but you are not audible through Zoom. If you could just check that out please for a quick second?

Okay, my audio on the Zoom is also fine, though I'll speak closer to the Zoom mic. So is it better now?

Is he audible now, Arjun?

No, not yet on Zoom. Loud and clear on Chorus Calls, but not audible on Zoom yet.

Okay. Okay. All right. So -- since Nikhil sees only this particular slide, let him finish that, Arjun, and then maybe I can dig a little bit of that here. Let him finish his commentary on the Chorus. I'll try and manage it here. Yes, Nikhil, please go on.

So we started developing and working on the virtual events platform, which got ready by May and we have launched it in early June and we have done the first couple of events in the last 10 days of June, the response has been positive and hopefully, some of the physical event, which won't happen over the next 3 to 4 quarters, some of them will get migrated to the virtual platform and we hope some kind of event continuity will remain in business. On the Institutional business side, the business impact in March was limited to the last 3 or 4 weeks and as the lockdown, the universities and the schools shutdown by third -- second week of March, the new commitments towards the activities, which usually takes place post the board examination for the new admission season, came to a grinding halt. Usually, from -- after the board examination and after the university examinations, lot of physical events and activities take place on the ground for enabling universities and colleges to connect with the students in the run up to the next admission cycle. Now most of that has switched to virtual; however, the new business events have come down to a grinding halt. This year, we see most of the student engagements happening in a virtual environment. While the need for such services is increasing; however, the propensity of physically being able to connect with the student haven't decreased. So it's both -- there are both pros and cons of the digital environment. This is one more area we are focusing on significantly because newer and newer digital and online inventories are getting created for institutions to be able to get connected with the student community. The Research business, some of the existing services, which moved totally virtual, we are seeing some of the colleges wanting to postpone delivery. So we are -- while the delivery in majority of the institutions as of now is continuing; however, some of the institutions are wanting to defer certain set of services on to the new admission season. We are working towards on how that impact of no engagement with students and students being unable to do any lab activity for the research projects, which they are working on, how can that be mitigated. Some portion of the IIT Kanpur REC new project has got initiated; however, the detailed engagement will have to wait till maybe the third quarter or later when the institutions reopen in one form or the other for us to be able to engage with the students. Arjun, can you move to the next slide? Over to GP and Arjun for next portion of the asset-light model and businesses.

Okay. Thank you, Nikhil. Arjun, am I audible? If you can just confirm.

Yes, loud and clear, GP, on both platforms.

Okay. I'll take just a few minutes and then set the stage for Arjun to take us into the details. Arjun, can you go to the next slide? Yes. Thank you. There's 2 broad areas, I think, which should be of interest for everyone and because these are the things which have been either initiated and some actions we have taken this year. So I would say one of the major action that we have taken this year. Merger, we started that process more than a year ago. The idea, obviously, was there are multiple entities. There's no -- there's duplication of work which is happening. The entities, which are both running after a similar kind of customer, the corporate customer and they are competing with others. So the whole idea was to merge the entities so that we are able to get -- so that we are able to have a more leaner business and duplication in that sector can be removed. So with that process, we had started the merger one. And right now, we are in front of NCLT, and we hope that in the next 6 to 9 months, we'll be able to complete the merger process. Obviously, that has also got delayed due to the COVID issues. Second thing that we have done, and this is specific to this year's balance sheet, we have taken a hit on some of the businesses that we were running. We have taken impairment on what we think is something which has happened to our businesses. The idea was to clearly reflect as to what kind of business we are running. Some of these legacy issues were hanging on our balance sheet. And the idea was, as I said, to remove those legacy issues so one can easily decipher the balance sheet. And the financial statement will actively -- will be reflecting the active lines of business rather than the legacy issues or the backlog, as I would normally call it. Arjun, can you go to the next slide? Yes, thank you. So the exceptional onetime write-offs that we have taken relating to 3 broad areas. One is vocational, second is schools, and then the third one, I would say, is not exceptional. This is more of a regular thing, though the DTA is definitely, something I would call exceptional. Vocation, as most of you would know, we started the businesses sometime in 2009, and due to difficulties in collecting payments and cash flow issues from the movement with money not coming in time from the government, we decided sometime in 2015, '16 to stop this business. And since then, we have not taken any new businesses. We have been slowly closing the earlier projects and finishing our tasks, which we deli -- been ensuring the delivery and then winding up those businesses. In this business, we have taken a write-off of INR 10.3 crores, and there's an effective balance, which remains of about INR 11.5 crores. And we are reasonably confident that we will be able to collect this in the next 12 to 15 months or so, okay? One of the challenges which has -- that this business has faced, and which is what forced us to what we look at the write-offs which we have taken, I'm sure many of you would be aware that we had taken some write-off in the first 3 quarters also. And we have taken a bigger write-off of about INR 6 crores in Q4 also. The current COVID situation has meant that all projects are at standstill. And there's no way we can revive them at least for the next 3 to 6 months, or once the lockdown is completely removed, only then something can be done. And hence, it did not seem feasible to look at continuing with this to the extent. Okay. So as I said, we expect to recover the payments of INR 11.67 crores from government because most of these are bills which are processed and had it not been for the COVID situation, probably some of which would have been given to us. We would have collected it from the government also. The second area, the major area where we have taken an impairment in our investment is the School business. We had transferred our School business to B&S Enterprises, B&S Strategic Services. And we had a 44% share to our wholly owned subsidiary slice. And given the fact that the school over the last 1 year or so continuously losing business and more in a precarious position from a cash flow point of view and the partners were unable to fund the business adequately, we thought it would be prudent to get it revalued -- to get it valued again and do impairment testing. And accordingly, we have taken an impairment of INR 41.5 crores on the investment. There are other small related assets also, which are receivables in nature. There also, we have taken an impairment of about INR 9.1 crores. However, this does not mean that we have given up any hope of collecting this thing because we have initiated legal action against B&S for some of these things, which has already been initiated and some more would be initiated as per the legal advice. The third small area is where we have taken write-off, which is of INR 5.8 crore, broadly can be divided into 2 parts. One is business related of INR 1.9 crore. This was -- these were things which were hanging on for some time, maybe more than a couple of years, and we thought it would be prudent to again clean it up rather than let it remain on the balance sheet because the chance of collection was not there. Wherever we think there's a possibility, we have retained it in our balance sheet, and we have -- we also evaluated the option of legal action in some of those cases. DTA correction happened when the transition -- the deferred tax asset was created incorrectly, when we transitioned from IGAAP to Ind AS. And that is something we are taking our write-off today in this balance sheet. So that's a broad structure out here. Arjun, can you just move on next tab? Yes. Thank you. So overall, this is a total write-off of the impairment that we have taken in the tune of INR 66 crores or so. This is all legacy. This is all past. None of it reflects on the existing lines of business, which we remains [ corrigible ] and profitable, and towards which we are reasonably confident we will be able to grow it and make it more profitable. With this, I will hand over to Arjun to take you into the details of the financials for the year.

Thank you, GP. I'm moving ahead with the summary of our financials. These were already shared on our website yesterday. If you have not been able to access them yet, they are listed under the consolidated financial statements and these stand-alone financial statements tabs. Satya had already shared with you a brief snapshot of what our business looks like. From a business EBITDA perspective, I'm going to put both of them in perspective in this slide. If I were to look at it purely from a financial perspective, our EBITDA this year has closed at INR 8.6 crores. But as Gautam and Satya both shared in previous -- previously during this session, our business EBITDA is INR 37.3 crores. And had it not been for the impact of COVID, we would have probably finished with a business EBITDA of INR 47.3 crores this year. This impact has gone right through the financials, of course. Gautam just shared with you that our -- that we've taken an exceptional item impairment on account of the investments that we had in B&S. This impairment has happened in our -- in one of our subsidiaries slice and is, therefore, reflected both at the stand-alone level and at the consolidated level for CL which means that our net profit for the year finishes at minus INR 52.6 crore as a result of all these write-offs and as a result of the provisions that we've made over the course of the year. If I add back that INR 66 crores that Gautam just showed you on the previous slide, we would have finished with an adjusted PAT of about INR 12.8 crores. And once again, at the risk of being repetitive, had it not been for COVID, this number would again have been higher and a lot closer to last year's number of INR 20 crores. The revenue, Satya has already previously shared with you, we finished the year at INR 324 crores against INR 352 crores of the previous year. Our estimate of the COVID impact for this year is about INR 25 crores, about INR 10 crores in our test-prep business, another INR 10 crores in our Kestone business, which, as Nikhil shared, had started feeling the impact of COVID as early as late Jan and early Feb because social distancing was [ spanned ] across the globe. And as a result, events started getting postponed or canceled. And we also had an impact of about INR 5 crores in our GK Publications business. So the overall -- and March for us in GK Publications is our biggest month of the year for our GATE business. What we hope is that this business is not lost. The business is merely postponed because what happened to us happened to everyone in the same -- in the publishing industry, all warehouses were closed, all transporters were closed, et cetera. So if I were to add back those losses, our total revenues would be fairly similar to last year. From an ROCE perspective, obviously, because of the EBIT that we have this year, the ROCE is negative. But if I look at, again, the business EBITDA that we've shared with you previously, our adjusted ROCE for this year would be 7.8%. And again, had it not been for COVID, we would have been very close to the same figure as last year. I'm going to move ahead. Just to also explain the concept of business EBITDA, I've got one quick slide. From business EBITDA to EBITDA, this is how we arrive, we add back any -- basically, any revenues are added back and any write-offs are knocked off. So the difference between business EBITDA and EBITDA can be arrived and Gautam has already walked you through the write-offs that we've taken, the school-related asset impairments, the vocational write-offs and so on. If I were to look at our adjusted PBT for this year, it would be about INR 15 crores as against INR 27 crores last year. A large impact over here is also on account of Ind AS 116, which was implemented for the first time in India. So hence, the comparison of PBT of this year versus last year is not really an apples-to-apples comparison. But now that it has been implemented this year, it will continue to be there for all future years. So the figures that you see for FY '20 will be comparable with those going forward. Additionally, our adjusted net profit for the year would be INR 12.8 crores against INR 20.8 crores. Again, at the risk of sounding repetitive, it would have been a lot closer had it not been for COVID. I'll move ahead. This is, again, a summary of those numbers. The ones to concentrate on here are my revenue from operations, which are down about 9%. I have shared with you the primary reason for that, about INR 25 crores on account of COVID. My EBITDA is also down. I've shared with you the reasons for the same. And the net profit, as we have shared previously, is also on account of the write-offs that we've taken this year, especially the exceptional items and across the board, the INR 66 crores that we've taken as write-offs and provisions. I'm going to move ahead now. This is the way our segments look. Specifically, our test-prep segment were down about 4% compared to the previous year. As we shared previously, INR 10 crores of this is straight off on account of COVID. So had it not been for COVID, our test-prep revenue would have been marginally higher than last year. The publishing numbers, Nikhil and Satya already shared earlier on, but just to reiterate, we lost a little bit of ground on account of COVID and we lost -- and we've taken significant sales returns this year on account of the change in the government policies when it came to e-commerce operators, specifically Amazon and Flipkart. So if I were to just do a quick comparison, our sales returns in 2017 -- in 2018 and 2019 were in the range of INR 7 crores to INR 9 crores. This year, our sales return is closer to about INR 19 crores on account of that. So it's a onetime exercise, and that is why the publishing numbers are lower in comparison with last year. This impact will not exist going forward. So again, from a future outlook perspective, this is positive. The Corporate Enterprise business, which would operate under the Kestone brand, the Corporate business, as Nikhil shared previously, includes our events business, our customer engagement programs, our manpower business, our digital marketing business and our marketing communications business. Together, this contributed INR 115 crores this year against INR 126 crores last year. And as we've shared, at the risk of, once again, sounding a bit like a broken record, there's the COVID impact that affected this business as early as January. The Institutional business, which is our advertising business, where we monetize, our test-prep assets grew marginally. In fact, it actually grew 8.5% -- my apologies from INR 18.5 crores to INR 20 crores. This includes our student recruitment business, the research work that we do, the advertising business. Again, this number would have been significantly higher if it had not been for COVID. This is just a quick outlook of what our cash position is. March '19 to March '20, these numbers are our audited numbers. Our investments in mutual funds have grown by about INR 10 crores. Our fixed deposits reduced over the course of the current -- the recently concluded financial year because we made the switch from our banking partners from Kotak to HDFC, but those fixed deposits have again increased over the last 3 months as we've put together our war chest to tackle the COVID issue. And our cash position at this point in time is a healthy INR 80 crores. This has also been benefited by considerably better collections. In our Kestone business, we've chased collections very aggressively over the last 3 months, and that is one reason why this is reflecting here. Additionally, we also got a tax refund of about INR 7.5 crores across 3 different organizations. So that is also reflected in our healthier cash positions. And as Satya shared right at the start, we've put together a business continuity group, which is looking at our cash management on a day-to-day basis to ensure that we stay cash healthy through these difficult times. These numbers will come down a little bit over the course of the next few months. For those of you who follow us regularly, you will know that September, October, November are traditionally tough months for our business, but we'll have to see how that plays out this year on account of the change in the admission cycle and in the exam cycle, both of which got affected by COVID. And also, we have taken advantage of certain government schemes that were available over the last 3 months in terms of deferment of TDS and GST, all of which expired today. So those payouts will happen. I'll move ahead to my last slide. Gautam has already spoken in -- a little bit about our merger process where we are -- our matter is pending in front of the NCLT. Unfortunately, our last 4 hearings got postponed because of COVID and our next date is set for the 10 of July. The NCLT has moved to the video conferencing mode. But as yet, they have not initiated the process of hearing merger matters as yet. We hope that will change in the coming weeks. And as soon as we have an update on this, we will let you know. We hope that because the merger process -- and from our end, just to reiterate, everything that we were supposed to do from a merger completion process has been done. So the matter is purely pending in front of NCLT waiting for them to hear the matter and give us the green signal. We are hoping that happens by December. But given the way things are right now, a more realistic date would be the end of March, where we hope to complete it over the course of this financial year. That's my last slide. My colleague, Amit and I are your specific touch points for anything to do with investor related queries. And for those of you who are joining us on Zoom or through Chorus Call right now, we'd be happy to take any questions you might have. Back to you, Steve.

[Operator Instructions] The first question is from the line of [ Muthu Kumar ], an individual investor.

Yes, my question is for -- am I audible?

Yes.

Yes. This question is to Satya. Just wanted to know a perspective about how consumer business will pan out next year? Basically, if you can give us certain perspective about the revenue mix and the digital and the non-digital revenues, if you can give a perspective on that? And the second question for Satya is that the cash positions, Arjun had mentioned about the bulk of the INR 80 crore being largely going to be used as a war chest. So what are you planning to do with the cash provisions over the long term, when this has been as a trend being seen improvement over the year? If you can throw some light on that?

[ Muthu ], your second question. Am I audible, [ Muthu ]?

Yes, yes, yes.

Okay. So I'll just repeat your question. Your second question got a little buffer and I missed the middle part of the sentence that you made. You're mentioning about how do we see the cash position improving over the next few quarters. Is that what your question was?

No, the thing is like, yes, it has improved, like from the historical perspective, it has improved. So -- though Arjun clarified a little bit saying that it will be used for the COVID and that's a war chest kind of a thing. And by November, the numbers will come down. But do you -- but on an overall basis, these numbers have been looking up. So how do you see that? Could that be a corporate action on something we can expect over the period of maybe a year?

Yes. Yes. Yes. Sure. Sure. See, yes. Thank you. Thank you. One of the first things that I would like to mention, [ Muthu ], and I will repeat for the sake of those friends who are here on the Zoom. The question from [ Muthu ]was how do we see the consumer business panning out in the COVID scenario? And number two is, any statements that I would like to make on the cash parts which is improving over a period of time. How do we see this panning out again in the future? So the first thing that I would like to mention to all of you is that, see, the digital transformation in a massively -- it could be called painful but it is massively accelerated. It's a blessing in disguise if you look at it. So from an education company, CL becoming an ed tech asset-light scalable business has literally happened in 90 days, where something you were forced to do that we wouldn't have had the guts to do. Imagine trying to force everybody to do everything digitally by shutting a business that gives you INR 30 crores a month. That would be a hara-kiri. But I hate to say it, but what COVID has done is to make us do it, and we have to do it in a city like Delhi. And at the same time, we have to do it in a place like a Tirupati or any other top Tier 3, Tier 4 town. So what I see in consumer business, [ Muthu ], and others is that I see the volumes growing up at an extremely healthy rate, okay? I see the ARPU falling, and that is something that we must be not only open to, but we must actually disrupt the price performance ratio very actively as a business because we should not say that my offline MBA program cost INR 48,000, whereas an online, if 2 start-up, 2 youngsters go and start it up, they'll offer the same program for INR 15,000. So what do I do? I keep this and I lose my market share or I go here and then massively chase volume. And the good thing is that the profitability in this could be 2.5x. Our offline business, like I said, could be a 14% to 16% EBITDA business where an online business can be a 45% to 55% EBITDA business. So we should chase volumes, we should chase market share, and we should chase volumes -- the profitability. So we could become a very, very unique digital transformed player who does -- what is the difference between us and the so-called darlings of the investor world, BYJU, Vedantu? For INR 100 business, they spend INR 800. For INR 100 business, we spend between INR 6 to INR 22, depending upon whether it's a basket a or basket c. Basket b, we spend about INR 15. And that's the beauty of CL business. That's my summary observation about the consumer business. On the cash part. [ Muthu ], on the cash part, one of the things that in CL it is deeply embedded as a business discipline is that we say to the extent possible, every month's revenue should be more than every month's cost. It is as simple as this, okay? However, having said this, we know that the O&D we have to dip into it because this is not true, okay? So can it be equal? Or can it be marginally less is the question that we want to ask. And this year, given the situation that we are in, we are not only tightening our costs, but we are also preparing, like Arjun was mentioning, that we must build enough momentum for O&D. At reduced costs, can we still try to live up to this discipline of MR greater than MC? And with a lot of discontinued businesses, there is no cash going out of the core business into any other business. So hopefully that will look much better same time next year from the 18.5% that you saw on the balance sheet.

[Operator Instructions]

Manju has asked a question. I'll take this question, which has come from Manjubhashini from Sundaram. Manju's question is the market cap and cash in book is the same. How do you think the current situation may change in the school's business entirely written off, if anything pending there as on date? Manju, the -- yes, cash is equal to market cap. And with the top line, with the brand, with other stuff, I think each member here on this call is far more qualified than a poor entrepreneur like me to make a statement about the imperfections of our listed market. We have had some legacy issues which perhaps was fair for people to build in. But even after that, this is something that hopefully will be taken note of as far as the enterprise value, the market cap is concerned. The -- Arjun, do you want to step in and I see you mentioning a couple of things? Do you want to step in and answer the second part of it? While I look at the -- anything on that, I will look at the second part of the question that Manju has asked. Yes, Arjun.

Sure. Happy to do that. Manju, the impairment of investment that we've taken off the school business is INR 41.5 crores. The total investment that was sitting on our books was INR 47.44 crores. So we got 2 independent valuers to review the school business, and out of the 2, we took the higher number and used that for our impairment. So there is an investment which continues to sit on our books of about INR 5.9 crores. Additionally, there are certain rent receivables from our school business, which need -- which are still due for collection from the Nalanda Foundation. If all of you would remember, we have school assets, our Indore school and our Raipur school both would -- together and land and building would be valued at about INR 45 crores. That is -- those are assets that we continue to retain as of now. So that is there on our books in addition to the cash, et cetera. From Nalanda Foundation, which is the trust that runs the school, rentals come to us on a quarterly basis. We have an overdue rental of about INR 4.9 crores, which is collectible. And there is an amount of INR 4 crores, which B&S, the company whose investment we have impaired, there's an amount of INR 4 crores due from that organization on account of the original business transfer agreement that was entered when we sold the school business. So for the INR 4 crores that is outstanding from B&S and the INR 4.9 crores or nearly INR 5 crores that is due from Nalanda of rentals, we are currently pursuing legal action, and that matter has been tabled in front of the Delhi high court and has been accepted, and an arbitrator has been appointed to begin legal proceedings on that account.

On the fixed assets, Manju, we have -- as you are aware, we have got 2 campuses, one in Indore and one in Raipur. And we have the one Greater Noida campus, which is not the school one, but the IWSB, the business school one that we have.

Plus, Satya, if I may comment?

So each one is a 5 to 6 acre campus. And then there is -- the 2 schools have building each that can accommodate between 500 to 800 kids. And the Greater Noida campus is 125,000 square feet campus. So these are a couple of questions that Manju had asked as a follow-up on the details of the fixed assets that we have. And all these 3 put together, Manju, should -- in the market value between INR 60 crores to INR 70 crores at least in the current depressed conditions, and that's not -- that list doesn't include the additional lands that we had for the Amritsar and the Faridabad schools. So if you add that, it can be estimated that about INR 80 crores to INR 90 crores of fixed assets are there on the discontinued businesses of K-12 and higher education, which we walked away from in 2014, 2015 still are an active business. And the test prep business has 1 or 2 centers, one in Delhi and one in Bombay. That is also not included. Yes. Manju's question is, why don't we sell the assets and shore up the cash? We are in continuous conversations. We are engaged with multiple people, Manju. It just is something that is waiting to happen. It has not happened. The gap between what we think is the -- is our minimum acceptable value and what is available in the market is still so large that we are still wanting to not rush into it and do a distressed sale. The gap is almost 25% to 30%. If it's 10% to 15%, we will realize all that and put it in cash. Yes, we are very keen to do that. Any more questions?

No questions as of now on the -- on audio bridge.

So there is one more question that has come on. Any new initiatives on the digital education side? See the brilliant thing about digital education thing for us is that we don't need big investments. Our platform is completely built and fully amortized, fully depreciated. So the investments that we make here is that of our tech team of 10 people that already is in place, the digital marketing team, the product side. So it basically is technology plus people. And the -- on the focus part, as I mentioned in my presentation, Manju, you see, this and this gives about 70% to 80% of our digital business. This is MBA and law, the premium products. This one was taking shape last year, which was UPSC and GATE. So from a 2-product, INR 20 crore top line, we now have 9 products. And can we double it is the current effort. Let's see how we transform ourselves into a very, very healthy, profitable, digital ed tech company. I think that's the opportunity that stays for us -- stays at us. But it's not going to be like this. It's going to be more like this, and we need to do certain good demonstration of newer products for this to happen because MBA and law, as you know, are -- we have lion's market share and they are smaller markets, whereas UPSC, for example, is a 15 lakh people business, market opportunity, whereas MBA is 2 lakh people. GATE is 7 lakh. And this is Grade 8 to 12, including JEE, NEET and the Grade 8 to 12 maths and science, et cetera. So that's a INR 4 crore market size in a very, very conservative estimate of middle class. So we're talking about great opportunities for us to go after with incremental spends of a few crores of rupees. But build it out as a positive EBITDA business right from the MVP stage. We cannot -- we -- and we do not want to be throwing money to build a top line and look at the profits coming 2 years from now. We will perhaps build at every stage. We will do the cross-subsidization, but we'll stay very frugal and focused on growth in a profitability way.

Sir, we have a question on the audio bridge. Can I promote him?

Sure.

The next question is from the line of V.P. Rajesh from Banyan Capital Advisors.

One question is you were saying earlier that you have INR 80 crores of cash on the books. And you also mentioned there are some pending payments like GST. So the question is once you net out all those pending payments, what would be the net cash that you will be having on the books?

If I may just take that, Satya.

Yes, yes, yes, Arjun.

Yes, the pending payments for GST and TDS were cleared this evening because we had a 30 June extension given by the government. And those amounts were in the range of INR 2 crores to INR 3 crores for all these 6 organizations combined. So all of that has been cleared today. Our March to May payouts are all done.

Okay. And is it fair to assume that in this current financial year, you are likely to be breakeven or may not need a lot of cash. Where I'm going with this is that you have INR 55 crore of market cap, and you are sitting on cash of INR 75 crores. So in the sense, the market is not valuing the business at all, and therefore, does the buyback makes sense here?

Yes. So see, our response is that we are staying alert. We are staying agile. We are guided by a fairly 360-degree of all that we need to take care of and we are supported by a very wise goal. So yes, we are mindful of what are the possibilities with the cash and what are the imperatives of the cash in the current very tricky situation. We will take a 30-day, 60-day, 90-day view. We don't want to look too far ahead, but we are mindful of the possibilities that look at us.

Okay. And the other question is, let's say, you were talking about that the profitability of the online process is much higher than offline.

Yes.

But the question I have is that all these startups burn a lot of money to ramp up their volumes. And therefore, we maybe also pushed into doing the business unprofitably till it gets to a certain scale. So how do you think about it? And what is the ramp-up to that steady state volume, which becomes profitable for us?

See, there could be -- okay, the question that came again from Banyan Advisors. This is for those friends, who are on Zoom is that online courses, the start-ups are burning cash, and they are okay to grow to some extent without having the profit and how do we look at it, how do we deal with that the competing reality on the ground? So see, in that, my question is, we have -- we know where the money goes in, in terms of acquiring customers, if you are good at it. If you can make content in a very frugal and smart way, where a lot of things are portable and migratable from one program to another program. And then the third is you're able to do fulfillment. Our money goes into only these 3 things other than investments in technology. Okay? So I think the important thing is to make sure that your cost of customer acquisition, most people spend, if you actually look at them closely, 70% to 90% of their spend is on either acquiring the customer or developing the content, okay? Now for us, our numbers are favorable stacked for us. And we will want to calibrate our speed, keeping the profitability in mind. If profitability is deferred by a quarter, we are okay. But if the profitability is deferred indefinitely and somebody else has to come and make it profitable 3 years from now, that I think is not -- it would be meaning -- it would mean irresponsibility to the extent that we know this business. Brand is good. New products might take 90 days, 100 days. You may -- it may not even take off. But if it does not take off, you would have spent only a couple of crores, I think that should be the end of the story. We can't be doing an experiment of INR 50 crores, like what happened in our IWSB or IWS because those are asset-heavy businesses. Here, it is 90 days, INR 9 lakhs to INR 90 lakhs, 9 people and you know whether it's going to give you returns or not. This -- our view is as simple as that. The other important thing, I'm not taking refuge in our experience, sorry, I've used noting your name, is that -- see these 5, 7 periods of over exuberance have come and gone thrice in the last 20 years. And each time when it has gone away, Rajesh, we have always emerged stronger. '99-2002 era, 2009-2012 era and now. And the COVID perhaps is going to make CL look very, very different in 6 to 12 months' time from what it looked 15 months ago in terms of capital efficiency, in terms of growth, in terms of being digital first as a company. Off-line is very premium. We will -- we are not deserting that because a customer wants it and a customer pays INR 2 lakhs for an offline program. And for online, he pays INR 22,000 for the same program. When the off-line returns, we will have asset-light partners all our entire franchise business is a 0 capital or negative capital business. I would love to go from 200 locations to 2,000 locations. But everything has to be very efficient capital wise. And the legacy that we have cleaned out, I hope will also become extremely positive as we move into the next 12- to 24-month window. Thanks, Rajesh.

The next question is from the line of Siddharth Rajpurohit from JHP Securities.

Sir, can you give more picture on how digital is changing? What is the number of enrollments that have gone up? Some more clarity on that, sir, on the online version.

So if you looked at last year, last year, we had 85,000 students, which went to 115,000 this year, if you look at the first summary sheet. Most of this growth has come from digital, okay? And as we speak in the last 90 days, our digital business volumes are between 2x to 7x depending upon which segment, okay? However, this is something like a y/4 price point. This one would be like y/15 price point, okay? So overall, there is a very healthy traction on the volumes. But even when this happens, the revenue vis-à-vis the last year's actual revenues would still drop because of this factor, okay? So we are talking about saying that from here, is it possible for us to, again, show a similar jump and do 170,000 or a 200,000. That's the kind of numbers we can take up in the volume side, and focus -- the next thing to focus after volumes is profitability, the EBITDA. What is the net post fulfillment margin that you make after the infra, teaching, cost of acquiring customers and all of that?

Right. What was your share of online and off-line in the previous year enrollment, sir?

Our previous year, it would have been something like, let's go back and see. Can you see this?

Sir, I'm on the call. Not on Zoom, sir. Sorry, sir.

Okay, okay, okay, okay. I'm so sorry. So on an overall denominator of 85,000, it's there on the PPT. Whenever you get access, you can look at it. On a denominator of 85,000, our online percentage of 30%. And in the FY '20 ending March on a denominator of 115,000, our online was 49.3%.

49.3%, okay. And is there any consolidation in the -- your -- since it's not you have franchisee model also. So is there any talks of any consolidation of on that side?

Consolidation of -- your voice is very feeble. Did you question? Did you get the question? I heard do I see the consolidation of something.

Sir, you have the franchisee model also, I mean, so do you see any talks of any consolidation in that side? Because on your -- online will be largely through the company or through the channel partners also?

No, online belongs to us 100%.

Right, sir.

There is no revenue share with the business partner, which is 75% in the off-line business, okay?

Right. So is there any consolidation in those number of channel partners that we have? Then it talks about people -- the general partners getting out of business?

Consolidation -- when you say consolidation, a CL business partner is an entrepreneur in himself. So our effort is to make sure that he has enough products, and he has enough brand power and he has enough academic and technology kind of support for him to be viable.

Right.

And every rupee that he earn, he earns by 100% of capital and effort to do that is his, okay? And from that INR 1, I get INR 0.25. So one way of looking at it is I get only 25%, and he keeps 75%. But the fact of the matter is you get 25% for practically being a great brand and supporting them to be successful in the marketplace, okay? So our online and off-line, they can be very symbiotic with one another. There are places where there is kind of a clash that can be part of. But from a customer's point of view, these are 2 distinct options. A customer chooses an offline face-to-face program because he thinks he needs it. Or he is quite autonomous and he says I want flexibility and I want an online program. And we leave that decision to customers, and we don't show any prejudice to him, between a CL own center or a BP center or an online program or an off-line program, okay?

But -- okay. So that is a question on the time calendar. Sir, next thing, sir, this schools that you have talked of, these are in the company's books or in the trust book?

The assets are all in company. And as it happens in India, school can be run by a trust, so that is run by a trust. But every single thing, tangible, intangible, all assets are in the for-profit entities, which are all under the listed company or were under the listed company.

But -- okay, sir. And sir, one bookkeeping question, means the INR 80 crores cash that you have told is as of March end or it's the current situation?

June, June. You know there were 3 columns, if you had noticed or it's there in the PPT. We showed March '19, we showed March '20 and we showed June '20.

June '20, okay. Okay. So sir, I just wanted to understand that what has led to this increase in cash and where we are in the -- then the business in the current quarter would have seen some fall?

I think this again was answered by Arjun. I hope you did not miss it. Some part of that has come from the tax refund of INR 7.5 or crores.

INR 7.5 crores, right, sir.

But the rest of it had come through approvals, tightening of expenses, cutting out some overheads in the COVID era. All of those things also have contributed.

The next question is from the line of V.P. Rajesh from Banyan Capital Advisors.

Yes, sorry. The question is that you talked about discontinued business having assets of INR 50 crores, INR 60 crores at the current market value. And I think those assets have been in the market for a while. So why have those transactions not been concluded so far? And is there a time line by which you expect to get it done?

Rajesh, a transaction happens when the buyers and sellers, their gives and takes, they end up meeting, okay? And as I mentioned, the gap was a little bit more than what would be at least acceptable for us. And that too has opened only in about last 8 to 12 months or so before that the real estate -- there were nobody even looking at those -- at any asset. Even today, there are very few and far between. Schools are under tremendous distress, and it's even more so in the COVID era. So this is something that I would not stick my neck out and instead, and I've done it in the past that we are perilously close to closure of the transaction. It will happen in the next 6 months or 9 months. I have done that in the past. I have suffered for being an optimist. I simply am saying that it is worth INR 60 crores to INR 70 crores or maybe more, plus or minus 10%. But when does it happen, we will -- we are at it. We are -- anyone -- anybody knows and magically somebody can -- some of you can help us do it, we'll be happy to take that help. But I'm unable to tell you when will it close. The intent to close continues to be there as we speak.

The next question is from the line of Muthu Kumar, an independent investor.

Yes. My next question is for Arjun. Arjun, if you can just throw a light on the -- there was a mention about in the PPT about the adjusted ROCE, return on capital employed, being 7.8%. So if you can just throw some light about how the capital employed would look post write-offs in FY '21 and I had -- there was INR 66 crore write-off that happened this year. So if you can just give us a little perspective about the capital employed, how it will look going ahead when more write-offs happen?

Yes, sure, Muthu. Just to share the adjusted return on capital employed already takes into account the lighter side of the balance sheet as a result of these write-offs that we have taken because they are as on the balance sheet date, 31 March, 2020. So that is also made into this. So as I shared in the presentation, if I were to take a [ spirit ] from an EBIT perspective of what we are, it would have been minus 1.8%. But if I were to make the adjustments on account of the business EBITDA that we've done this year, it's 7.8%. And if it hasn't been for COVID, it would have probably been a lot better again this year. I'm sorry to harp again on that. But so our balance sheet is tighten by about INR 65 crores, INR 70 crores. And as we shared with the process of the merger is already on, that will further tighten the balance sheet and that should also result in an improvement in the return on capital employed. I would not like to give any forward-looking statements right now in terms of predicting where our EBITDA will be at the end of FY '21. But you can do math yourself and the balance sheet will be lighter and it will move in the direction that we've shared. So I hope that address the question.

Sure. One follow-up question to that is just not related to this is the finance and depreciation cost has also increased. So if you can just give us a little perspective on like what has been the impact of that?

Sure. So as I shared in the presentation, Ind AS 116 was implemented this year. And on account of that right to use assets are created in the balance sheet. The impact of that on our consolidated financials is INR 5.6 crores. That is the reason why the finance and depreciation costs are considerably higher as compared to last year.

Next question is from the line of Siddharth Rajpurohit from JHP Securities.

Steve, we'll probably make this the last question because we're about to hit 7:30, and we had said 7:00 p.m. as the time. So my apologies to the gentleman who was about to speak, you can please carry on with your question. We'll take this as our last question for the day.

Just one question, what is the gross debt as at the end of June, sir?

I'm sorry, our June financials aren't closed yet. But our gross debt at the end of March was about INR 43 crores, and that number would have at the most increased by about INR 4 crores, INR 5 crores. So it would probably be about INR 48 crores, but you need for us to complete our...

I now hand the conference over to Mr. Satya Narayanan for closing comments.

Yes, thank you very much. Thanks for coming in, and I hope it was useful, and I hope this crisis brings the bit out of us, and we emerge stronger. And as one of the well-regarded ed tech companies that is listed in the market today. Thank you so much. And any feedback, any input on anything that we can do better is always welcome. Thank you very much.

Thank you, everyone, who joined, and special thanks to the team that put this together. Divan-ji, other people from technology, thank you for helping out.