CL Educate Limited (CLEDUCATE) Earnings Call Transcript & Summary

Right. Thank you so much for your patience. And once again, a very good afternoon, and welcome to CL Educate Limited Q4 FY '23 Analyst Call. My name is Arjun Wadhwa. I'm the CFO of CL Educate, and I'll be your host today. Once again, welcome to our homegrown metaverse. This is the fifth time we are hosting you through the platform. And -- but for those of you who are joining us for the first time, please do spend some time after this call exploring what the metaverse has to offer, including some of the meta commerce opportunities that are present in our mall, do check them out. There's some really nice stores. Joining me today on this investor call are Mr. Satya Narayanan, Chairman and CEO of CL Educate; and Mr. Nikhil Mahajan, he's the Executive Director and Group CEO of our Enterprise business. This call as always will be recorded, transcribed and we'll make it available on the investor's home in our -- on our website within the next 24 to 48 hours. I'd like to start by inviting Satya to share a quick overview of our business for all those investors who are joining us for the first time and to perhaps follow that up with a brief update on where we stand at the end of FY '23, after which I'll ask Nikhil to kindly run us through the presentation, spending some time on the financials and the business updates, following which we'll be happy to take your questions. Once again, if you're on your laptops, please use the full screen option to ensure that you can read the fonts on your screen. And there's a chat box on the bottom right-hand corner of your screen. Please put your questions in that. We'll address them when we come to the end of this session. Satya, over to you.

Yes. Thank you, Arjun. Good afternoon, everybody. One of the feedbacks that we received in an earlier -- last quarter's analyst call was to cover a little bit about even the company very, very briefly for those who are joining in for the first time. So respecting that feedback, I will take a couple of minutes to cover that and then we move forward. Yes. So -- if you could go to the next slide, Arjun. Yes. Okay. So maybe pause there for a minute, the previous one. So, I'll come to this after the next couple of slides, but in a sense, I think the post-COVID normalcy or the new normal in that sense, we think is restored on both sides of our business units, the Career Launcher as well as Kestone. And a lot of those hiccups, speed breakers, et cetera, that we were seeing on the roads, including uncertainties about some of the exams on the Test Prep side, those are clear. Now it looks like a good, nice, broad and clear road that awaits us as we go through these next 8 to 12 quarters at least. Having said that, let me spend a minute on the next slide mentioning about Test Prep summary. The EdTech summary is captured here. Most of you are aware, so I will not spend too much time. But in short, the CL Education Services business, which is strongly powered by EdTech is a phygital business. The physical part and the digital part are equally important. The inclusion of 2 broad areas of CUET and Study Abroad as verticals in the last 12 to 15 months by us is where we will bring a lot of growth over the next 3 years. The growth of our business is going to be determined a lot by how well we ride the physical distribution network through addition of partners and how we power it and also make our services reach customers who want to avail of our services directly from their homes or their mobiles. So physical locations, which are powered by digital and pure digital, both of them will form a very important part of our growth story on the EdTech side. Our international presence in Middle East is significant. It's much beyond the question mark and some changes that are happening in the competitive exam space will render our growth possible through some of our products to go to additional markets internationally. Moving to the next slide. If you look at the summary of 2 mature products in our business. The summary is captured as what we see here. MBA, which has got a TAM of about 2.5 lakh. We own about 30% to 35% of the market. The people who take typically the exam prep in India, the ballpark or the thumb rule could be about 50%. So our growth depends on 2 things. How do we grow the TAM? How do we grow the SAM, which means to 1.25 people accessing coaching, can we take it to 1.5, and then we get an additional market share from that in those additional per existing Test Prep. Those are the 2 important pieces by which we can grow our business. If you take a similar number for law taken by about 70,000 people, we would have about 35% to 40% market share from those preparing for the exam. CUET is here. Last year, around this time, the notification had just about come or was coming through. The exam was held in July. And the entire process ended up becoming almost end of August or September or lot of things to happen, that has gotten a little bit more regularized this year. So CUET with 14 lakh applicants. [indiscernible] is going to be held end of this month, 21 to 30. That's a very large market and CL has already begun to take the leadership position by being the only company that's offering a very, very wide range of 18 subjects for CUET. We've spoken about it over the last many quarters. And the other one, which is still in our incubator and we're investing a lot of mind share is the student mobility practice. Study Abroad is the other word for it, but we are calling student mobility because we see the number of students coming into India by preparing for some of our Indian exams in global cities across the world is also going to be a very important part of our portfolio as we move forward. As you are aware or you might be aware, CUET this year is going to be held in 25 cities across the world, not just India. So that's a very important thing. And the question that we ask ourselves is can we emulate the market shares over the next 5 to 7 years of MBA and Law into CUET and Student Mobility, okay? Moving forward, a little bit of a similar summary about Kestone. Kestone, as you know, the different -- the business is very, very different from EdTech. It's a very fortuitous evolution of a small acquisition that we did almost 15 years ago. It was a INR 7.5 crores, INR 8 crore company acquired at about INR 8 crores. But as the world evolved, it also has pivoted a few times, and it's about INR 115 crores business with very, very reputed, esteemed clients including Amazons and Microsofts and Facebooks and many FMCG companies, banks and so on. It is a go-to-market partner and constantly working in the cutting-edge spaces where every organization has to be smarter than yesterday by adopting technology. So the film that you saw, Arjun showed all of us in the beginning was a sample of the kind of stuff that Kestone is doing. It is very exciting for those of us who are keen to look at how the marketing machineries are evolving across the world for companies. Here, the growth for Kestone is seen as coming from VOSMOS, which is still at a very early incubation stage and also our established services, including events and so on, picking up the shape of becoming SaaS models, adding the DIY features to it. That is one area of growth that we see and the geographical expansion, our moving out of India to replicate Kestone's success in Singapore has proven very, very good. Nikhil will cover the exact numbers. Now based on that, we also opened up ourselves into Indonesia and the Middle East is also underway. So geographical expansion and technology-enabled SaaS-ification or DIYs, are the 2 things that Kestone will take us to where we would want to go in 3 years' time. A couple of other points before I hand it over to Nikhil is, number one, and I would want all of us to make a note of it. We will come to this even in -- as Nikhil goes into the deep end of the presentation. In the EdTech side, our Q4 is likely to have changed forever because law as an exam, CLAT, which used to happen in towards the end of May has been shifted to December. So the exam already took place in December '22 instead of May 2023. What it does is that all the students who would come to us after their summer examinations, the board examinations for an express or a crash program, those people either enrolled early or they will have enrolled for a long duration program. So the Summer Express program, the enrollment of which happens in a sharp window of 10, 15 days, around or right after the board exams and it's a 40-, 50-day program that has gone away, and you will see the numbers about that have changed as you look at Q4. The other thing that has happened is that CUET as a new exam has come into place, which is happening in the end of May. So similar to CAT, CLAT has become a November-December examination and CUET and IPM are the summer examinations. So the seasonal readjustments of enrollments, customer cycles, billings, revenue accruals, all of those are underway, some are visible in Q4. Some will be visible in Q1 of the new year and so on. But overall, if you kind of zoom out and look, I would want us to know that it's a good place, a lot of new initiatives have now found place for us to focus on, and those have become very, very central part of students' journey towards higher education on the Career Launcher side. So with those opening remarks, I will hand it over to Nikhil. Arjun?

Yes, please, Nikhil.

So Nikhil, you can take it away from here, and I'll come back towards the end for questions, if any are directed to me. Thank you. Over to you, Nikhil.

Yes.. Thank you, Satya, and good afternoon to all. I'll be taking the remaining portion of the presentation covering the business and the financial updates for Q4 as well as for the full year on a full year basis. So let me start with a very brief and a synoptic summary update on our overall business performance. So our revenues showed a growth of 37% from March '22 to March '23 on a yearly basis with the revenues growing from INR 218 crores to close to INR 297.7 crores. We missed the INR 300 crore mark by a whisker. We were hoping to have -- hoping and desiring to cross that critical benchmark. However, I think we should be well on our way in the coming year to achieve that. Our PAT and EPS have shown a dramatic 68% increase from INR 14.6 crores to INR 24.6 crores. And our EPS has grown from 2.47 to 4.08. Just a reminder that all these numbers are on a fully consolidated basis and not on a stand-alone basis. I just want to make a clarification on that. The EBITDA grew from 29.2% to 32.1%, which is a more modest 10% increase, and we will get into some of the details of why some of the investments made by us during the course of the last 4 quarters have resulted in EBITDA not mirroring broadly the revenue growth, which has occurred in the overall business. Some of the other key financial highlights. Our return on equity has jumped from 5.3% to 8.2%. ROCE has moved marginally down from 7.6% to 7.3% because of a slight negative movement -- not so commensurate increase in EBIT over the previous year. Our free cash flow generation has increased from INR 27 crores to INR 64 crores during the course of the year. And the cash flow generated from operations has increased from INR 27 crores to INR 31 crores. The free cash flow increased from INR 27 crores to INR 64 crores is a significant increase on account of liquidation of 2 large parcels of land at Greater Noida and at Indore. Also suitably accounted for a dramatic reduction in borrowings as well as the buyback we did last year. So the free cash flow, the increase is from INR 27 crores in FY '22 to INR 64 crores during the course of the year. I just want to give a 3-year perspective on some of the key parameters. So one of the key ways of looking at the numbers is that FY '21, we had reported a revenue of INR 193 crores, which it was during the midst of the peak of the COVID-19 epidemic from a significant high in the previous year. FY '22 saw a modest 10% growth in revenue but this year -- Arjun, is my voice echoing?

No, it's fine. Please continue.

Okay. This year, we have seen a 40% growth in revenues, predominantly driven by the fact that it was only towards the last quarter of FY '22, that the physical Test Prep sectors reopened in the large part of the country, especially the bid metros after a 18- to 24-month shutdown due to COVID. So that resulted increased at a faster ramp-up of revenues. However, as the physical centers reopened the costs and the rebuilding of the teams at the locations and centers, which had shut down due to COVID was also a long and well drawn-out procedure, which resulted in significant enhancement of costs in terms of infrastructure, people, et cetera, as compared -- if you do quarter-to-quarter comparison between Q4 and the 2 fiscal years. On a full year basis, our EBITDA in FY '21 was negative close to 0 because that was the worst COVID affected year. We are now steadily moving up on a steady EBITDA figure of roughly around 11%, 11.5% and total comprehensive income of around -- roughly around -- at around 8%, amounting to about INR 24.6 crores. The adjusted EPS is at INR 4.08 per share, which has been adjusted for corporate events, including split and bonus, which have happened in FY '22 and FY '23. So just keeping that thing in mind. The key -- some of the key financial revenue, profitability and earnings parameters are what are visible on the screen right now. One more important parameter, which I would like to is -- which is self-evident is our strengthening and improving cash position year after year. One of the key takeaways from this slide is the dramatic reduction in our overall borrowings. So from INR 43 crore level of borrowings in FY '21, we are down to INR 10 crores as of March '23, which has further come down to around INR 6 crores after we have repaid another INR 4 crores in April '23. Our gross cash levels as of March in '23 are at around close to INR 110 crores versus INR 69 crores in FY '21, resulting in our net cash position being close to INR 100 crores as compared to INR 47 crores last year and INR 26 crores in the year before that. So I think from a net cash position, we are sitting extremely pretty and extremely focused in terms of growing our business organically over the next 4 to 8 quarters and dramatically increasing the profitability growth over the past -- over the next few quarters. Now let me spend a few minutes on the segment-wise performance. I'll first spend some time on year-on-year. So if you look at the total revenue increase from INR 209 crores to INR 291 crores, is roughly a 39% increase. Our EBITDA has increased from INR 33 crores to about INR 42.8 crores, which is a 28% increase. This does -- this figure of INR 42.8 crores at the segment level, and there are certain unallocated expenses, which pulled down the overall EBITDA by about INR 10 crores. If you look at each business, our EdTech business has grown by about 34%. Our EdTech EBITDA has grown by about 25%. Similarly, MarTech business grew by 48% and the MarTech EBITDA grew by 39%. I think the growth in EBITDA being lower than the revenue growth was driven predominantly by 2 or 3 parameters. One, the reopening of -- getting back to the old normal of physical operations in the Test Prep business as well as going back to the physical event in the MarTech business, the cost structures and the economics of doing the business in the physical world came back. Secondly, a lot of investments went into the ground during the last 12 months, both in EdTech business as well as MarTech in people as well as in marketing. In people, because we had to restart physical operations in some of the key-owned cities and that happened mostly in Q1 of last year. Similarly, a lot of marketing spends have gone into business in order to get the physical sectors again of the ground for existing products, including NBL law as well as trying to garner the first mover's advantage and initial market share in CUET in the Test Prep side. A critical parameter, if you look at the EdTech side in Q4 FY '22 to Q4 FY '23 is the slight negative growth in EBITDA. And that is predominantly driven by one factor of change in the law prep -- Test Prep -- law prep exam date, which used to earlier happen in May. And as a result of the crash season and the revenue accrual happening over a longer duration of period. And now -- however, now that the exam got over in December, the crash season virtually did not happen last year because of [indiscernible] of time as well as the entire revenue approval for the business, which happened for the CLAT '22 exam got over by December, a very negligible amount of revenue accrued in the next quarter because from the first quarter, the enrollment for the new season began, the delivery of which began slowly started taking place from the months of February and March. Let me delve slightly more into details on the Test Prep business. Our overall billing increased by 30%. Our ARPUs were up by about 17%, implying a volume growth of about 13% over the last year. Our business partner at billing increased by about 40%. In the quarter 4, our billings have increased by 16% quarter-on-quarter, but large chunk of that revenue accrual flows into Q1 and Q2 of FY '24, because of the extended delivery schedule for most exams, including CUET, which will end in end of May and for most other exams like law and MBA, which will go until November and December. One of the important points I would like to highlight is that the UG segment, which is basically the students from grade 10 to 12 now account for 60% of our total business. A couple of years ago, the UG segment used to be listed 35%, 40% with the PG segment accounted for a much larger chunk. The positive outcome or a positive signal from this is the UG segment in terms of the market size as what Satya had indicated about 8, 10 slides ago, the UG segment would be at least 15 to 20x larger in size as compared to the PG segment. And hence, when your revenue contribution from the UG segment begins to overweigh from the PC segment. I think in the years to come, as the market share in the UG segment and different product segments begins to inch up gradually, the revenue accretion and the billing accretion will be at a much faster clip than it has been in the historic years. We have seen a steady growth in our international business with our international operations contributing approximately 22% to 23% growth over the previous year. And we are now exploring new avenues, including partner -- service partner sign-ups and locations and countries outside India, especially in GCC, Africa and Southeast Asia. And as we proceed over the next few quarters, we will keep on sharing more details as partner sign-ups in these countries begins to take shape in a more complete manner. One another aspect, which I just want to highlight is as usual, one of the key drivers of continuously repeating business coming to us every year is our extremely strong word of mouth, which is driven by our outstanding results. If you look at -- we have had all India #1 brand in CLAT '23 and ILAC '23. 431 -- 100% in CUET '22. 7 of the top 10 ranks in CLAT '23 and 6 out of the 10 ranks in ILAC '23. The CLAT '22 final results are still being tabulated, and I am sure we will see a positive uptick in the success rate of our students even in that once the full results are compiled. A brief synoptic update on our publishing and platform revenue. Our publishing sales were up about 19%. The institutional business has now started beginning to contribute a significant portion of revenues besides the digital sales from our own website as well as online platforms like Amazon and Flipkart, which basically translates to that less than 25% of our sales now take place through the conventional retail channel sales, which has resulted in significantly improved collections and significantly lower product returns, both which enable us to capture higher margins as well as better cash flows for the business and reduce our working capital requirements. On the platform side, our revenues increased about 23% year-on-year. We have -- our new client sign-up pipeline was pretty strong with nearly 50% of clients being new who were signed up during the year. A couple of minutes on our MarTech business. As shared earlier, our MarTech business in terms of revenue grew by about 48%. Our EBITDA grew by 39%. We are beginning to see a very good momentum in the physical events business and big ticket physical events are now beginning to rehappen at a reasonably good frequency from almost all spectrum of clients. APAC has been a key driver of growth in the year gone by. And with Indonesia operations kickstarting this month, we expect Indonesia and Singapore to be one of the key growth drivers in the year to come as well. VOSMOS has been -- has almost got fully integrated into almost every physical event which takes place. And that is helping us drive overall margins higher. Meta commerce and Metaverse is just beginning. Positive signals have been received. We have done small projects here and there. New stores almost get added almost on a monthly basis. But I think that's a long journey. We need to stay focused and stay invested in that for the next 4 to 6 quarters. And sometimes, the point of inflection will come when the changeover will happen. And we would be one of the leading players who will be in a position to capture that changeover whenever it takes place. Critical another update is our overseas revenues last year grew by about 25%, and we expect this international revenue growth momentum to continue even in the coming year.

Nikhil, would you like to play the video once more. We have 45 participants now. And bulk of them would have missed the video at the -- before we started.

Arjun, would it be easier for you to play from the back end. [Presentation]

Okay. I've received a little bit of feedback from some of our participants that they have requested the video link. So we'll share that with them later on. Nikhil, maybe if you can just give a little context to the video and then we will just move forward.

Basically, the context of video is that the video basically summarizes all the work which has happened both on the virtual as well as the meta commerce and the Metaverse platform. And what -- how it enables businesses to get transformed from the existing 2-dimensional websites to 3-dimension experience -- business customer experience. And slowly and steadily, we are seeing some interest at a very tricker level. Some of the banks want to become more experiential using this tool. We are doing a couple of pilots with some of them. I think this video is more to give an idea on what meta commerce and metaverse environments can do to the customer experience in this space.

Yes. Thanks, Nikhil. And with this video, we'll also circulate a link that EY has shared. Actually in their own metaverse, they've shared a 10 minutes of them discussing the opportunity for metaverse and for the banking universe and how it's a $900 billion market just waiting to be tapped. So I'll share that video as well. Maybe we can move forward with our presentation for now.

Yes. So I'll just take a minute more on some of the corporate actions in the corporate round up. So on the business side, we have seen an accelerated revenue increase and accelerated profitability increase, significantly improved cash position. And as promised, we are a net debt-free company as we speak today. On the shareholder value creation, we affected a share buyback last year in Q2. Merger got completed in Q4 of FY '22, some of its activities got completed in Q1 of FY '23. We did a bonus issue in Q3 FY '23. These are some of the key corporate actions, which took place during the last 12 to 15 months. I think, Arjun, that brings us to the end of the presentation. The rest are all financial annexures.

Yes. Thanks much, Nikhil. Just more feedback that we received after the last round of conversations was to also make our financials available on one click in our presentation itself. So we've added that. I'm going to leave this slide open for those of you who want to get in touch with us later on. And my accounts team and I will be happy to take any specific questions that you have on our numbers. In the meantime, let me start by taking any questions that have come our way on the business side.

Satya, I will throw a few open to you first. One of the questions from Vivek Joshi is with regards to our CUET business, how many students have we couched this year and what's our market share?

Okay. So Vivek, last year, we did approximately 3,000 unique students buying about 9,500 product enrollments, average of 3, 3.1 per student. That figure this year went up to about 10,000 students and about 30,000 product enrollments, if you were to do the apples-to-apples comparisons. And the top 5, 6 courses were GT, English, economics, mathematics, political science and so on. These would be accounts. These would be the top 6 subjects. So the good thing is that both on the humanity side as well as the commerce side, the early entry and anchor subjects in both the streams we've done very well. So that's the summary. As we move into the new year, we are already working upon enrollments for the 1-year program, a 2-year program, while we come back for the crash program more towards the end of the year, December, January or so. So that's a summary of CUET.

Thanks, Satya. There are a few other questions related to CUET. So if I could just request you to give a little bit of an overview in terms of the market, in terms of where it is right now, where it's headed, number of test takers in any given year from last 12 student-based perspective and how you see this moving forward in comparison with engineering, medicine as an exam.

Sure, sure. So in terms of addressable market size, it is comparable now with engineering and medicine already. And given that 250 universities have already become a part of CUET, and it's just the beginning. This number last year was some 100. It was between 75 and 90 depending upon what count you take, formerly universities that had enrolled into CUET. That has gone up to 250 this year. This is again likely to grow by at least 25%, 30% each year for the next 3 years until we get to about 500, 600 universities. The number of test takers also could double from here in the next couple of years. And our estimation is that it's likely to settle upward of INR 50 lakhs in the next 3 to 4 years. On the ARPU side, a 2-year program here is about a INR 1.5 lakh kind of a price point. Our 1-year program is about INR 70,000 to INR 80,000. And the crash program would give you -- which is 2.5-month program or a 3-month program gives you a realization of between INR 20,000 to INR 25,000, INR 27,000. That's the quantity and the fee -- a little bit of a summary. As far as the market is concerned, it is still early days, but what this is likely to trigger is a whole lot of transition from the unorganized play to the organized play over the next 5 years. And we saw that happening. We were part of that play when MBA went from unorganized local 100 people, 100 student outfits in late '90s. By the time we came to 2007 or '08, the unorganized play had completely vanished. Here, it's very, very large. It may not vanish, but I think a lot of consolidations will happen and which means that brands like ours stand to gain in this game because we have a playbook, which brings entrepreneurs into your ecosystem, gives them the R&D, technology, content, material training and then they unleash themselves into the market to provide great service to the students with the backing of Career Launcher. So I think it gives us a great opportunity to look at going to our 500 center locations in the next 3 years. That's what CL can look forward to. And the mix of online and offline will continue because students come with that kind of a predisposition on whether we want to go to a nearby center and do it, maybe 75%, 80% of them would be of that kind because parents are also interested, given the high stakes outcome that it has. Remember, going to an SRCC or an LSR or Stevens or JNU, arithmetically speaking, is tougher than getting to an IIM or an IIT. So it's a very, very high stakes game. And hence, no family would want to take chances. The enrollment of universities from the Western and Southern part of the country is the next big shift that we would love to see in the next 12 months.