CL Educate Limited (CLEDUCATE) Earnings Call Transcript & Summary

Very good evening, everyone, and welcome to the CL Educate Q1 FY '22 Earnings Conference Call. My name is Arjun Wadhwa. I'm the CFO of CL Educate. And it gives me a great pleasure to welcome you to this session. I'll be your host this evening, and I'm joined on this conference call by Mr. Satya Narayanan, Chairman of CL Educate and CEO of our Test Prep business; also joining us are Mr. Nikhil Mahajan, Executive Director and Group CEO of our Enterprise Business; and Mr. Gautam Puri, our Vice Chairman and Managing Director. We understand that today is a very busy day for earnings calls. So we'll be concise in our presentation and leave a lot of time for Q&A later on. As always, this analyst call will be recorded, archived and a transcript of this will be available on our website within the next 48 hours. I'd like to start by inviting Satya to take you through the early slides, after which I'll take over. We'll have time at the end, as I said, for Q&A. So I'd request you to hold your questions till then, and we'll take them up at the end of this. Over to you, Satya.

Thank you, Arjun. Arjun, could you please confirm if I'm audible and it’s clear?

Loud and clear, sir.

All right. Thank you. Yes, good evening, everybody. Thank you very much for joining us on this call. And I'll head straight into the presentation. I'll take the initial couple of slides, which updates you about the broad context in which we are operating, some key aspects of our business and then Arjun will step in, take us through the specific updates and the numbers, and towards the end I'll come back again. Yes, if we could go to the next slide, Arjun? This past fortnight has been quite interesting and many of you must be very keenly cued into the developments that have happened in China. And I'm pointing it out right upfront because the central part, centrally affected industry was the edtech sector. And in the next slide, I'm going to spend a minute or 2 sharing some observations, some things that we are following. It may or may not have a very direct impact on our business right away, but as you know, and I'm sure you are more tuned into it than we are, there could be some very interesting connections that we might observe over the next few quarters. On the core business environment context, COVID has been making the business a little up and little down. The markets have been affected, impacted on both sides at CL Educate, both the consumer edtech business as well as the enterprise Kestone business. Specific bullet or 2. The COVID wave played havoc with the admissions exams calendar. The board exams got delayed in India, as you know. Many exams were canceled, and 1 or 2 new very keenly look forward to events such as the commencement of CUCET, which is slated to be the largest undergraduate singular Test Prep exam that has not started this year. That got canceled, and it's likely to happen only in 2022. On the overall business environment, our view is that maybe the offline interactions are -- got deferred by about 6 months. We see some early signs of colleges and schools announcing that they're opening the campuses, but those are very intricate steps. Many businesses are beginning to announce that they are going to become more working from office than work from home. Those kinds of things will aid our omnichannel business, which is there for -- on both sides. The higher education academic season, the commencement of it will be delayed. And we see that if the third wave does not affect the health or does not cause the death rates that we saw in the second wave, then perhaps Diwali or post-Diwali, we might see impacts going away, and we hope that, that's what we see during -- for the third wave. Moving forward, I'm focusing on a few very key points that has been observed in China and one interesting thought or concern that did cross my mind is that, is such a thing possible in India? Thankfully, the answer looks a very categorical, no, to my head. But if you look at some of the things, no classes to be held late evenings, grade 6 and below the curriculum, online curriculum has been banned, edtech firms have been -- an edit has been passed for them to be not for profit, foreign curriculum is coming into new kinds of scrutiny, no tutoring on holidays. Now I think it is important for me to also mention that some of these might turn out to be false alarms in the next few weeks. But these are some scrutinized information that we have been tracking and ownerships, raising capital, all of these has resulted in quite a chaos, especially in the investors' minds. And the impact has been seen far and wide, including the Golden Dragon Index in New York. That itself has seen a 30% drop not to count the 40%, 50%, 60% drops in the market cap of edtech companies in China. One hope chest or very interesting optimistic interpretation of this is that, I personally have always held that the global edtech capital over the next decade will find its foundation base and home in India, pretty much similar to what we see in IT services. And this chest could be one, that event, that we look back upon a decade from now and say that this one hastened the process and also was decisive in the outcome where Indian edtech companies have gone and built out their next level of growth with their base in India, but with global markets as the opportunity. I'll move forward. As I said, the physical aspect, physical touch business has been 0 on both sides, on Test Prep side and also on the Kestone side, which translates into classes and events. We ended up servicing about 18,000 paid customers. The postponement of exams continues to remain a big concern for us. Hopefully, now the next big exam season begins only in the December, in the October, November, December and then onwards. So hopefully, that should be fine. But unless it happens, this will remain a concern. Corporate business Kestone revenues have been up and Arjun will cover a little bit more, and Nikhil can step in to answer in your Q&A. The virtual events platform has seen a very good pickup in various markets globally. The institutional business has been a challenge because institutions, which is basically universities that contribute significant part of our institutional revenues, they have been challenged both in terms of their own revenues, et cetera, as well as their seasonality, which comes from admissions, outreach and so on. So these have been a summary of our second wave impact observed over the last 3 months. I'll pause here and hand it over to you, Arjun, to pick it up from here.

Thanks, Satya. I'll just run you guys over the business updates as far as our specific segments are concerned. For us, from a test-prep business perspective, as Satya mentioned, everything was digital over the last 3 months like it has been for the better part of the last 18 months. From a comparative perspective, though, the business teams have done well. Our GMV is up about 16%, while our net billing has been up 17% in this quarter. We've also seen some positive signs in specific markets, especially our aptitude test-prep segments where our MBA billings, our Law billings and our After 12, which is the BBA IPM segment billings have all shown a positive sign compared to the same quarter last year. Our business partners have also done a fantastic job despite their physical centers not being able to hold classes. We've kept a few centers open as points of sale and completely in line with state government regulations. And our business partner revenues are up 18% from INR 14 Cr to INR 17 Cr in this quarter. We have heard rumblings and I'm sure U.S. has people who follow this space regularly have also seen that there are new -- there is news of schools and especially classes, 9 to 12 opening up in select states over the next month or so. We've seen news of that emerging out of Haryana, UP, Andhra and other select markets. So there is a chance that we would see some sort of return to schools and to institutions starting from August. But as Satya mentioned previously, Diwali and post-Diwali looks like a better time period to keep in mind in terms of a return to some semblance of normalcy, of course, contingent upon how the third wave turns out. As far as our enterprise business is concerned, we've done a business of about INR 18 crores. This is up from about INR 16 crores in the same quarter last year. And our EBITDA margin for our Kestone India business is up from 3% to 9%. So the digital wave, as Satya mentioned, has had a very positive impact on our enterprise corporate business as well. Specifically, with regards to our virtual events business, we had an order book of about USD 1 million in the last financial year after we set this product up and took it to market. We -- already, we've had a great start to this financial year. We've -- in Q1, we've got an order book of about USD 750,000. So we are well on track towards doing significantly better than we did last year. And giving the enterprise business wings to chart its own growth curve. International markets especially will play a key role in terms of driving this growth and especially out of our business, which is based out of Singapore, Amazon, Cisco, Dell remain critical clients. And even in the U.S., where the COVID wave has moved in a slightly different direction as compared to India, there are talks of some return to a hybrid model, which would help our events business accelerate a little bit in terms of a return to normalcy, where there could be some sort of a return to a mix of physical and virtual events in the quarters ahead. Our institutional business, as Satya mentioned, has been impacted by the significant delay in the examination cycle, which has obviously affected the admission cycle and that is something that has effectively pushed everything back by at least a quarter. Universe -- central universities like Delhi University, Mumbai University are all currently still doing their admissions for first year. And so that also has an impact on the private university business. From our end, we did our first undergraduate summit for students in this quarter for the year. We had an attendance of about 3,000 students took part in this event. And from our side, we are doing a lot to expand our digital inventory in the enterprise institutional domain, which we believe will have a positive impact on our margins going forward. The publishing business is also starting to show signs of life. You will remember from our presentations of last year, COVID had hit this business particularly badly with a lot of retailers, distributors, wholesalers, everyone pretty much shut and also with transport being largely limited to its essential services. The book services and the publishing businesses across India and across a lot of the world were affected. We have done a fantastic job at our end in terms of shifting our focus towards the online and institutional space, which is now 90% of our business. And we've made a concerted effort to ensure that our focus in this business is to leverage our existing stock and to focus on a POD model, where we only print new stock where someone is paying for it upfront and with virtually no inventory. I'll move forward by just giving you a demonstration of some exciting work we're doing in the enterprise space. Vosmos is something that Kestone has produced. It is still very much at a very early stage, and it has 3 particular elements in it. There's -- this includes DIY Events business, which is about a few months still away from going out to the marketplace, but we are doing a pilot of this with some select customers. We have a Webinar business of the same as well. And what I will do today is I'll give you a quick demonstration of our Vosmos Virtual Store that we have created for Dell in collaboration with [ Redington ]. And I'll just move out of the PPT for a quick second and do a screen share of what a virtual store looks like that our Kestone team has prepared. This is what it looks like if you walk into one of our Kestone virtual stores. I'll just give you a 360 view of the same. This is it, I enter the lobby and I have these different products available of Dell that I can take a look at. We have the laptops, there's servers and so on. I'll just enter into the laptop space and give you a quick overview of what it looks like, you can take a look at the different laptops available, watch a video, which will give you a 3D representation of the same. And you can click on it and actually purchase the product as well. So just to give you a bit of a demonstration into what a super store looks like on a virtual -- at a virtual level today. I'll also circulate the link of this and make it available for those of you who want to spend a little bit more time looking at it offline. Going back to the PPT. So the virtual store concept is now live. We're looking at rolling this out as part of our Kestone enterprise business to different markets over the coming months. And as I shared previously, the DIY events and the webinar business is still under a pilot testing, and we're looking to roll that out in a couple of quarters down the line. Moving ahead, this is just a quick view of some of the events that we've been doing in Kestone. I spoke to you about how our international business is absolutely crucial going forward. And this was an event we did virtually for Middle East banks in April. This is an event that we did with Microsoft. Just to give you a quick overview of some of the great work we've been doing at Kestone over the last few months. I'll move into the financials now. You would have seen some of these, if you had gone through our stand-alone and consolidated results that were posted last night. Our operating revenue is up 10% on a year-on-year basis from INR 47 crores to INR 52 crores. And our adjusted EBITDA is more or less flat. Our operating EBITDA is up from INR 3.8 crores to INR 6.3 crores, and I'll walk you through that in my next slide. Our industry PAT is also up 81% from INR 1.6 Cr to INR 3 Cr on a year-on-year basis. Moving forward, as I was sharing just recently, our operating EBITDA is up from INR 3.8 crores to INR 6.2 crores. That's about 64%. The difference between the operating EBITDA and the EBITDA is onetime income that would have hit our other income on account of some interest from tax refunds and some liabilities that were written back. So from a -- if I were to just look at it from a business perspective, our revenues are up almost INR 5 crores, which is 10% and our EBITDA is up by 64%. EBITDA margins too are up from 8% to 12%. Moving forward, our cash position is fairly similar to where we were in March. I shared with you our net cash in March was INR 30.4 crores, we're at INR 30.5 crores. So despite COVID, we're managing to maintain healthy cash levels and we're at a fairly similar stage as compared where we were 3 months back. One key thing that you might wish to note here is our long-term debt continues to reduce, down from INR 5.7 crores in the last quarter to INR 4.6 crores in this quarter. Moving forward, I'll just run you through some of the corporate updates, and then I'll also invite Satya to join me and in closing the session. One of the key things that we had -- that was approved yesterday in our Board meeting was the stock split. Our -- the new face value of our shares will be INR 5. And obviously, the reason we're doing this is to increase liquidity and to invite higher participation from retail shareholders. On some of the other key points from a corporate perspective, some of you would remember that our merger of 5 entities into the parent entity has been something that we filed a couple of years ago, and because of COVID had been delayed. In fact, we hadn't had -- our NCLT second hearing meeting had been postponed for the better part of the last year on account of COVID. I'm happy to share that that meeting finally took place on 30th July. And the next meeting date, which is for the final hearing will be held in October once the tax authorities file their report. Our Faridabad land sale is in progress. We hope to conclude it in this month. Satya, would you like to come in for the last 3 points, the fundraise update and...

Sure. Sure, Arjun. Yes. Okay. On the fundraise, and all these 3 points are works and are projects in progress. And as all of us know, unless these are done, accomplished and the ink dries up on paper and cash hits the bank, it's a project in progress. I would like to place that caveat right upfront. But in the spirit of keeping you updated from one call to the next quarter, and I'll cover these briefly. On the fundraise part, Kestone Fundraise, unfortunately, has to be -- had to be deferred by about 60 days because Piyush, who is the President and CEO of our Enterprise business, he himself was down for almost 6.5, 7 weeks. Hospitalized for long. So in the middle of the tracks, we had to stop and that has just got resumed about 10 days ago. On the CL Educate side, there are 4 sincere, serious conversations in progress. Those are at the stage of some presentations, conversations translating into early term sheets and so on. So we'll keep you updated as we progress there. And the reason why that was becoming one of the options in some ways can be connected to the next bullet. As you know, as you're aware, one of the things that we are trying to do over the next 24 months is to be able to grow from leadership in 3 business segments, which is MBA, Law and IPM and add UPSC to it. And in that context, we, at the Board level, have been inclined to looking at it more as a buy instead of a build. So there is some serious conversation that's happening, that's at the term sheet stage, which could be -- if it translates into a done project, we will fund it through a mix of accruals plus maybe a little bit of debt, maybe private equity, the money that we raised. But what it would do if it is successful is, to get us from the current position in UPSC and catapult us into the top 3. And that could be very, very interesting and exciting because that's a very large segment of government jobs. And UPSC sits right at the apex of a very, very massive government sector job opportunity with over 1.3 crore aspirants. And UPSC aspirants alone are about 15,00,000. And when you compare it with MBA aspirants, that's almost 5 to 7x the number of aspirants who take MBA exam. The last bullet, Arjun, you'll have to move the slide a little bit. I'm blinded by the -- is it -- Arjun, perhaps you are on mute. The last bullet is about an update on 361 Degree Minds, which is one of the investing companies of Career Launcher. They are in the skills education space based out of Chennai, run by seasoned entrepreneurs. And we hold some strategic stake in them. And the update briefly that I wanted to give you was that, in their journey, they are raising some money. And what it does is, it translates some of the sales earlier investments into equity because it was a CCPS option. And the fund that they are raising is at about INR 105 crore, INR 106 crores pre-money and they're raising just under 1 million and that will translate into a significant uptick for the CL investment in 361 Degree Minds. The more interesting thing is that they're doing very, very exciting, very interesting work and it might have some strategic implications as the future unfolds. As of now, this again is just an update. As and when each of these translate into specific events or milestones, you will find these updated on the investor zone for you to take a look at it. I'll pause there and hand it back to you, Arjun.

Thanks, Satya. We'll now throw the floor open to any questions. Because I had to take this slide down for a few seconds, I'm just putting it back up online. And then after a couple of minutes, I'll move on to the Thank You slide, which has our e-mail addresses, where you can write back into us if you have any questions.

Arjun, do you want to pick up? There are a couple of questions here in the chat box from [ Aniket ]. And then I can see another hand going up too.

Yes. I'll just take a look at it.

Thanks. Is the audio better now? There was a message from somebody saying audio is slightly low.

I can hear you loud and clear, Satya. I'll start -- can you hear me?

Yes, I can. I can.

Okay. So I'll start by sharing [ Aniket's ] first question. He is asking about the segment-wise revenue contribution and also from the test-prep business, I'll just for a second, stop sharing my screen.

[ Aniket ], some of the segment-wise shares, we -- as we do share at a summary level, but some more, we hold them back for obvious reasons of competitive information. Our business has -- it still doesn't have the Org mark kind of data publishing. So from a competitive information security point of view, some granular details we refrain from sharing. But broad contours can be shared by Arjun and even put up on the website once it is audited and approved by the appropriate senior guys.

Thanks, Satya. Just to also share that, [ Aniket ], if you look at our consolidated results page, it has the 5 segments shared in that. The partner, digital, consumer, publishing and the base corporate, which is predominantly the Kestone business, the enterprise institutional and others. So you will get the specific information that you are desiring if you take a look at that page. I'll just put it on the screen so that the same becomes available for you to check out later on. I'll move on to the next question in the meantime.

On the Fundraise part, I'll take this Arjun. On the fundraise part, Kestone, we could assume that it quite literally started off 10 days ago. So as I mentioned in the last call, assume that it's a 90-day journey. So another 80 days for Kestone and all of us are seasoned enough in this that it takes anywhere between 3 to 6 months. On the CL side, I think the place where we may have to begin to have internal confabulations, discussions to say yes or a no and the term sheet based discussions, that might happen by the -- before or by the time we get to the first week of September in my view. Next 30, 40 days as CL, we should be in a position to either say yes and pick up an investment or say no, and move on. And as you know, I wanted to be reasonably clear that our fundraising is for very important strategic reasons to fuel growth, to use it to fund our acquisitions or acceleration, brand building, those are the kind of 3 important application of funds that we see for the funds that we are raising. And we will be very mindful of the value that it attributes to the overall business when we engage with -- when the Board subcommittee engages with the potential investors. I hope I'm clear on that. Arjun, this question you might want to take, how much we are...

Satya, as you rightly said, there's a question on the update on our legal matter with B&S Strategy services. I'd just like to share that this matter is currently sub judice and the arbitration proceedings are in progress. There is a recoverable from B&S into CLIP, which is in excess of INR 4 crores. And there is also a transaction portion to be completed as part of our original term sheet, all of which is currently in progress, and we'll update you on the same as and when we can. As I mentioned, the matter is currently sub judice. So I will limit myself to sharing just that for the time being.