S Chand And Company Limited (SCHAND.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to S Chand & Co Q1 FY '26 Investor Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Stuti from PL Capital. Thank you, and over to you, ma'am.

Thank you. On behalf of PL Capital, I welcome you all to the Q1 FY '26 Earnings Call of S Chand Limited. We have with us the management represented by Mr. Himanshu Gupta, MD; Mr. Saurabh Mittal, CFO; and Mr. Atul Soni, Head of Investor Relations, Strategy and M&A. I would now like to hand over the call to the management for their opening remarks, after which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you. A very good afternoon, ladies and gentlemen. I'm Himanshu Gupta, the Managing Director of S Chand Company Limited. I would like to welcome you all to our first quarter results conference call for FY '26 and thank you all for taking the time out and joining us here today. Q1 FY '26 was a steady quarter for the school and higher education business. There was a shift in the content licensing, AI data sets revenue from Q1 to Q2, which led to lesser revenues in that segment during Q1 versus last year. Do keep in mind that the content licensing revenue stream does not follow a seasonal cycle like our traditional education content business. In terms of the working capital, we continue the great work by delivering the lowest working capital metrics for Q1 in the company's history. We continued our strong cash flow generation and increased our cash reserve at the end of the quarter with an increased net cash balance of INR 1,161 million after distribution of dividend of INR 141 million. Our new product [indiscernible] had a strong encouraging quarter on quarter had a strong encouraging response in its fourth academic season. CUET-UG online courses also have launched in Q4 FY '25 and continued in Q1 FY '26 with a steady response in students with some of them achieving success from CUET-UG courses and [indiscernible] We have now launched CUET-UG in Class 12 online courses to enable students [indiscernible] [indiscernible] with our stakeholders throughout the years. In the coming months, we have active engagement calendar lined up like our product briefing for top channel partner [indiscernible] education within the Singapore school [indiscernible] connecting with the teacher of head of department and students in school through [indiscernible] Bhasha Mela, Knowledge Quest Quiz, Teachers Conclave et cetera. On the operational front, our new warehousing facility is now operational. The integrated press project is also underway and will be completed over the next 12 months. This should lead to a considerable benefit for the group in terms of improving efficiency during peak season and implementation of best practices for warehousing, including warehouse management solutions, automation, et cetera. Looking ahead, we expect NCERT to release books for the new syllabus for Class 4, 5, 7 and 8 over the course of this year. We expect the full adoption of the new syllabus books by FY '27 and are our fully equipped to utilize the opportunity over the next 2 sales season. With that, I will now request our CFO, Mr. Saurabh Mittal, to [indiscernible] the financial performance of the year. Thank you.

Thank you, sir. Good afternoon, everyone, and thank you for your time. I'm Saurabh Mittal, Group CFO of S Chand Company Limited. Now coming to our numbers for the quarter. We reported consolidated revenues of INR 1,026 million, EBITDA loss of INR 91 million and a PAT loss of INR 141 million. The decline in revenues and profitability was driven by a shift in the content licensing AI data sets revenue from Q1 to Q2, which led to lesser revenue in that segment versus last year. We had a content licensing revenue of INR 30 million during Q1 FY '26 versus INR 115 million in Q1 FY '25. This also impacted the P&L in the quarter. We expect this revenue to be recuperated in Q2 and to further build on this vertical. One of the strongest features of our results is our working capital metrics, receivable days, inventory days and net working capital days, which are at historic lows for Q1 in the company's history. Our Q1 receivable days were 89 days versus 92 days. Our Q1 inventory days was 218 days versus 261 days, and our Q1 net working capital was at 119 days versus 132 days. I would like to draw your attention to Slide 7 to Slide 9, which showcases the results of the steps taken during the last 5 years towards building a cost-effective and lower working capital organization with focus on positive cash flows. Trade receivables stood at INR 1,739 million during Q1 FY '26 versus INR 1,663 million during Q1 FY '25. In terms of receivable days, it stood at 89 days versus 92 days, a reduction of 3 days over the previous year. This is the lowest receivable days in Q1 in the company's history. Inventory decreased to INR 1,386 million versus INR 1,588 million on the back of lower level of raw material paper inventory. This inventory level includes raw material paper inventory of INR 279 million versus INR 485 million in the previous quarter. Finished good inventory is almost at the same level as last year. In terms of inventory days, it stood at 270 days versus 61 days in Q1 FY '25, a decrease of 43 days over last year. Net working capital reduced to 119 days versus 132 days in Q1 FY '25, which is a reduction of 13 days over the previous year. This is the lowest net working capital days in Q1 in the company's history. We continue to generate and build on our cash reserves at the end of June '25 on the back of strong collections. Our net cash position stood at INR 116 million versus a net cash position of INR 1,036 million in Q4 FY '25 after dividend payment of INR 141 million. As we continue into FY '26, I would like to reiterate for this year. Firstly, we are looking to grow operating revenues in excess of INR 8,000 million for the year. Secondly, we have upgraded our EBITDA margin guidance to 18% to 20% versus 17% to 19% guidance last year. Third, we look forward to continuing our focus on working capital metrics and cash flows. Fourthly, we are actively engaged in M&A opportunities, which fill in the gaps in our portfolio. We aim to leverage our group strength in such acquisitions to deliver superior value to our customers and stakeholders. And finally, continue to build on content licensing in the AI data sets opportunities of our repository. With this, I would like to open the call for questions. Thank you.

[Operator Instructions] The first question is from the line of Amit Agicha from HG Hawa.

Sir, aim I audible?

Yes, sir.

Yeah, go ahead.

What is the total CapEx outlay for FY '26 and '27?

It s about INR 35 crores to INR 40 crores for next 2 years.

So you re saying INR 35 crores to INR 40 crores, right?

Yes. For the next 2 years.

[indiscernible] project, right?

Your voice is breaking up. Can you repeat your question? So we are not building our own -- I understand what he's trying to ask. Basically, yes, we've set up our integrated warehousing already. That since it's leased, it's not CapEx heavy. So the main CapEx will come in next year when we are setting up the printing. So that will be slightly -- because the new setup, there the CapEx will be slightly higher.

Sir, my question is how much efficiency gain is expected?

Amit sir, your voice is not clear.

Was I clear now?

No, sir. [Operator Instruction] The next question is from the line of from Aryamaan from Prudent IM.

Can you maybe just give some light on the NCERT update? Maybe what's the time line we can see here for the other classes? So we have already done 3 seats. So maybe for the other classes for, say, this year and plus the next 2 years, that will be helpful.

So as we have said that 4, 5, 7, and 8 over the course of this year will be released by NCERT. That's what we are hoping. And the rest of the classes will be done by the next year. So the whole -- I think the whole bunch would be completed by FY '27 financial year and getting implemented in the academic year.

Right. So 7 and 8 for this year and the rest, say, 10 and 9... Sorry?

4, 5, 7 and 8.

4, 5, 7 and 8, okay. Got it.

[Operator Instructions] The next question is from the line of Nishitha from Sapphire Capital.

Can I get an update on any acquisition that you may have planned?

Sorry to interrupt you ma am. Your voice is not clear.

Am I audible now?

No, ma am your voice is breaking. [Operator Instructions] The next question is from the line of Amit Agicha from HG Hawa.

Am I audible?

Yes, you are.

With the net working capital and the receivables and inventory days all reducing, like would it be possible to improve it further? Or can it be sustained?

Yes, it is more sustainable. And of course, we're looking to reduce it further also because we still feel there is some headwind in the inventory. And it's a continuous improvement, and we hope to improve it a bit further.

Sir, as a follow-up [indiscernible] was the previous question I asked for the CapEx, this INR 35 crores to INR 40 crores we'll be doing for the integrated and the integrated press. Like how much overall efficiency we can expect from this?

Overall, I would say the efficiency in terms of production, there would be some tangible, some intangibles. In terms of tangibles, since the production process would be a bit more in the flow, I think we should say...

Yes, the efficiency would improve. So, I think there will be an advantage in terms of production turnaround time plus the quality of the books plus what has happened that we have not added any new machine over the last 7, 8 years. So, we just added 2 or 3 machines now, and we have a space constraint. And the warehouse and the plant will be integrated. So that advantage will be there. So, I feel overall, there will be a 15% to 20% advantage in terms of production capacity increase plus efficiency, plus cost advantages. Exact figures as of now is very difficult to share right now. But as Saurabh said, it will be tangible and intangible both, but there will be a substantial improvement in the next 2, 3 years in the production and efficiency of the company.

What are the total number of employees currently?

19,000 -- no 1,900. Close to 2,000.

You're saying 1,900, right?

Yes.

[Operator Instructions] The next question is from the line of Shubham from SIMPL.

Am I audible?

Yes.

I just had 2 questions. So, first question is that like the guidance that you've given for this year that we'll be crossing or reaching INR 800 crores in revenue and our margins would be around 17% to 19%. So, could you just elaborate on both of them? Like how are we looking forward to achieve these figures?

So, I mean we said INR 800 crores, which is almost just about 10%...

11-odd percent.

11-odd percent. So that should be done. That shouldn't be an issue. In terms of margin guidance, we've said 18% to 20%, not 17% to 19%. So, in terms of -- we expect our gross margins maybe to be slightly better since paper prices are tad lower than last year. And of course, our digital -- data licensing revenue should also add to that.

Okay. Got it. And you mentioned that we are looking at M&A options as well. So is that into like any specific domain?

Those are basically in areas where we feel the company has gaps. Basically, acquisitions are very small in number in terms of size and basically to fill in the gap here, the company does not have the product or the reach in the market.

The next question is from the line of Niteen from Aurum Capital.

I also wanted to know more about the acquisition. Is there any company finalized? In which geography we are looking for? Any specific segment? If you can elaborate more on the strategy for this acquisition that we are looking for, what is the size that we are looking for? Will it be in the publishing sector, within publishing sector, if we are looking for any specific area, things like that? Because you mentioned in the presentation that you want to fill the gap. So if you can elaborate more on that, it will be helpful. This is the only question I have.

So Niteen, one I think we've already disclosed, one is there is a diligence going on in one of them, which is in the test segment. We are looking at another 2 opportunities. One is in the international board segment with a slight smaller one and one in the regional segment. So these are smaller ones that we are looking at right now, not very huge. In total, I think the revenue size of all of these should be around between. .

Less than INR 50 crores.

Less than INR 50 crores for all 3 of them together.

And this acquisition will be through internal accruals or we will be raising some...

No, all internal accruals. I think we have already have about INR 160 crores of cash surplus in our books set, all internal. The maximum payout should be around another INR 50 crores, INR 60-odd crores.

And Niteen, these are in various phases of evaluation. So it's not as if they are confirmed or anything, okay? So these are all -- we are -- yes, we are undergoing the process for it. So as and when any concrete news is there, then it will be given to the exchanges.

[Operator Instructions] The question is from the line of Nishita from Sapphire Capital. :p id="A00" name="Unknown Analyst" type="A" /> Am I audible now?

Yes, ma am. :p id="A00" name="Unknown Analyst" type="A" /> So I had a question regarding the CapEx. With the INR 35 crores to INR 40 crores CapEx in the next 2 years, how much is the peak revenue that you can get after the CapEx is done?

So, A, that CapEx has no direct relation to revenue because CapEx again is on the printing press and warehousing. And so that's not really a constraint in terms of revenue. So revenue will go according to its own pace. It's not really related to the CapEx.

But it's going to support the business in terms of back-end support, in terms of warehousing and printing and logistics and everything. So we feel efficiency will be improved. And if new companies or new acquisitions happen, we can support them as well. So I think the capacities that we will have will suffice for next 8 to 10 years in terms of infrastructure. There shouldn't be any problem for the next 10 years.

The next question is from the line of Arihant from Bowhead.

Sir, just wanted to know regarding paper prices since start of this year since April '25, what would have been the rise of foil and paper prices in percentage terms? And what do you see the trend going forward in like next 3 to 4 months?

So paper prices have been soft, thankfully, and we have seen a decline of 5% to 7%. And right now, the paper prices are stable. And we are not expecting too much increase in the paper prices. And depending on the policies also tariffs and everything, that will also determine the paper prices. So it's very difficult to say as of now what will be the paper price in the next 3 to 4 months, but I personally feel it will be on the soft side only.

Okay. And regarding the government come out with the NCERT books for Class 4, 5, 7, 8?

Yes. That's what I said earlier in my opening remarks. [indiscernible] 4, 5, 7, 8 it's coming out.

[Operator Instructions] The next question is from the line of Viraj from SIMPL.

Sorry, I missed the earlier opening remarks. What you just said is 4, 5, 7, 8 standard will get implemented in 2026, right?

Yes. 2026 not financial year '26, '27 academic year.

Which basically means sales in FY '26.