Veranda Learning Solutions Limited (VERANDA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Veranda Learning Solutions Limited Q2 and HY (sic) [ H1 ] FY '26 Earnings Conference Call hosted by Go India Advisors LLP. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Soumya from Go India Advisors. Thank you, and over to you.

Good day, everyone, and welcome to the Q2 and H1 FY '26 Conference Call of Veranda Learning Solutions Limited. We have on call with us Mr. Suresh Kalpathi, the Chairman and Executive Director; Mr. Aditya Malik, the Chief Operating Officer; and Mr. Mohasin Khan, the Chief Financial Officer. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks pertaining to the business. I now request the management to take us through the recent business update, post that, we'll open the floor for Q&A. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us today. On behalf of our entire leadership team, we truly appreciate your continued engagement and confidence in Veranda Learning Solutions. Today's discussion is crucial as it marks a defining inflection point in our growth journey. We're not only sharing quarterly updates but also walking you through a strategic realignment that positions Veranda for sustained profitability, sharper focus and a global expansion under our Veranda 2.0 framework. So we have completed half year with strong momentum, focused on scaling student enrollments, expanding course offerings and launching new programs, both online and offline across the spectrum. Our Q2 and H1 FY '26 performance has been exceptional with top line and bottom line growth of 19% and 182% year-on-year in Q2 and 20% and 148% year-on-year when you look at the overall H1 numbers, underscoring the success of our continued focus on operational excellence and strategic expansion. All our business segments delivered strong results. And with the completion of the approval of the commerce demerger and vocational divestment, we are now better positioned to strengthen and scale our core verticals, academics and government test prep. Over the past 4 years, as you all know, Veranda has built itself into one of India's most diversified education ecosystems. Our presence now spans government test prep, higher education and academic programs, vocational and professional training and importantly, the rapidly expanding commerce test preparation vertical. Each vertical has contributed uniquely to our growth story. However, the strategic maturity of our portfolio now allows us to move towards a simplified higher-margin structure. As you all are well aware by now that within the restructuring, the commerce vertical has emerged as an exceptionally strong and differentiated business anchored by our flagship brands, J.K. Shah Classes, BB Virtuals, Tapasya, Logic and Navkar. Given its strong stand-alone momentum and profitability profile, our Board approved the demerger of the Commerce Test Prep vertical into a new entity, J.K. Shah Commerce Education Limited to unlock long-term value for shareholders and enable independent scaling of both businesses. Collectively, they train annually over 2 lakh students, many of rankers since 2016 with a dominant presence across Western and Southern India. The overall entity will operate as a debt-free entity with full operational autonomy and an expected FY '26 revenue of nearly INR 350 crores and an EBITDA of about INR 140 crores. Existing shareholders receive 1 share of JKSC for every Veranda share they hold, ensuring full value continuity. Equally transformative is the disinvestment of our Vocational and Skilling segment comprising Brain4ce Education Solutions Limited under the brand of Edureka, Veranda HigherEd and Six Phrase to SNVA EduTech Limited, a global education and skilling enterprise. This transaction is structured as a share-based arrangement. SNVA EduTech will issue shares to Veranda and its subsidiaries, giving us a joint 50% stake in the new entity. This strategic realignment marks a leap forward under Veranda 2.0, sharpening business focus while retaining exposure to global education markets through this partnership. SNVA EduTech operates across more than 60 countries and owns universities and academic institutions in the U.S., U.K., France, Italy, Malta and Switzerland. By uniting Veranda's domestic strength with SNVA's international presence, this partnership creates one of the most comprehensive global education ecosystem, offering degree programs, diplomas, certification, skilling initiatives and across business, technology, data science, cybersecurity and AI domains. The new entity is projected to generate over INR 250 crores in revenue by FY '26, growing at a CAGR of 25% with EBITDA exceeding INR 60 crores. Over time, it will pursue a separate public listing to unlock further shareholder value. This is both a divestment and a step-up converting our vocational portfolio into a globally scaled equity partnership. So with these 2 strategic realignments, the commerce vertical demerger and the vocational divestment to SNVA, Veranda 2.0 focuses quietly on key high-growth segments, government test prep and recruitment-linked training, academic test prep and institutional partnerships. These are businesses with strong demand visibility, scalable cost structures and steady cash generation potential. For Q3 going forward, our efforts will include enhancing faculty capabilities, driving digital-led admissions, strengthening partnerships with universities and corporates, introducing high-value courses and optimizing marketing across all our functions. With these initiatives, we aim to deliver robust growth, improve operational efficiency and create sustained value across verticals. I will now request Mohasin, our CFO, to take us through the financials for the quarter and half yearly ending FY '26. Mohasin?

Thank you, Suresh sir. Good afternoon, everyone. So let me walk you through the financial impact as it has been a key area of interest. All of our segments continue to scale rapidly. To this thing, enrollments have grown from 61,000 to nearly 1 lakh this quarter compared to last quarter, with collections of around INR 173 crores compared to INR 137 crores in last quarter. Financially, our revenue for the quarter stood at INR 127 crores, up 20% year-on-year. Gross profit was INR 78 crores, translating to a margin of 61%, an improvement of 60 basis points. EBITDA came in at INR 48 crores, leading to a reported PAT of INR 97 crores for the current quarter. Despite a few onetime adjustment this quarter for the above divestment-related things, we maintain a positive trajectory with an adjusted PAT of INR 23.3 crores, up 185% year-on-year. This shows our continuous PAT positive quarter. And our balance sheet remains strong with INR 224 crores of debt outstanding at an average interest cost of 14%. Cash flows and collections continue to be robust, and we are confident of achieving the revenue guidance of INR 650 crores and EBITDA of INR 170 crores with a PAT of INR 70 crores by FY '26. So this is the guidance, and we are on track on achieving the numbers. So this is the key highlights for the quarter and half year ended. Soumya, we can open for Q&A.

[Operator Instructions] The first question is from the line of Rehan Saiyyed from Trinetra Asset Managers.

So my first question is around the demerger time line that you have done. So you have indicated a 12-month time line for JKSC listing. So what are the 2, 3 biggest execution risks do you think which could stretch this time line beyond guidance?

This is Suresh. Mohasin, I'll give some background. You could give the specifics. The demerger scheme was filed during the last week of September. After the filing, we have already received the first set of questions from both the exchanges, which have been duly answered and sent back to them. We have received a couple of further questions, which are being answered and hopefully will be sent out before the end of this week. So from a perspective of having filed the scheme September last week, the responses we have got and the rewards that we have done and the frequency and the timeliness of the process so far, we feel quite confident that we are on track. Typically, it's about 3 months for getting a no objection from the stock exchange. So we expect to be able to get that by last week of December, which is about 3 months from the time we file. From that, another 3 months is what the time it takes with the NCLT to get it approved through the NCLT process. And after that, really, it's a listing and trading, which could be a couple of months. That's the sort of time line we have indicated where we should expect to see it listed, traded around June last week, July 1st week. Currently, we seem to be on track. All questions seem to be quite normal for a process of this nature. A big help that we are having is that this is being done as a vertical split with a mirror image shareholding on both sides. So all shareholders equally benefit basis their shareholding in the parent company, and then helping us significantly finding the process to be much simpler when compared to many other. So in short, if process is going on track, the questions that we have got from the exchanges, the responses we have given, all of it seems to be going as per the plan and very timely. Mohasin, do you want to add something?

Yes, sir. So the time line, I think as Suresh sir said, on track. We are responding to the queries and there is a proper communication with both the exchanges. As I said, the shareholders, there is a plain vanilla demerger saying that each shareholder of the Veranda listed entity upon demerger will get same shares in the resulting company. So stock exchanges are comfortable on this, and they are asking queries on much other things. So we hope that this process will be smooth. And by completing, as I said, June or July 1st week expected.

Just a follow-up on this on the capital allocation side. So with the Commerce division moving out and free cash flows improving, so how is the Board thinking about capital allocation? Is the focus on organic expansion, inorganic opportunities or either balance sheet may be increased, like what management is taking regarding this thing?

So just to summarize, from the QIP base, the debt that is there in the Commerce vehicle has been extinguished. So it's expected to list as a debt-free company. The balance debt that is -- that would be there post the demerger in the residual business would be roughly about INR 150 crores to INR 160 crores of the overall debt that was given by Ascertis, and there is some debt from the promoters. The residual company is expected to have about INR 50 crores to INR 60 crores of EBITDA for next year. That sort of puts it at about 2.5 to 3x of debt to EBITDA for the residual business. Additionally, the current debt that we have from Ascertis is a high-cost debt. We are in conversation with a couple of public sector banks and fairly in an advanced stage of those conversations. So we expect to be able to refi the Ascertis' high-cost debt with a low-cost debt. So one is to bring down the debt burden on the balance debt that's there, would be there in the residual balance sheet. And also from a perspective that this would basis, our EBITDA would be in the range of about 3x debt to EBITDA. So it is expected to be comfortable in terms of being able to service the debt from even the residual cash flows of the non-commerce business. Additionally, going forward, all of the expansion that we want to do, both in the academic and the government test prep businesses will be asset-light. So we do not expect to take any further leverage except to continue to deleverage our existing balance sheet.

[Operator Instructions] The next question is from the line of Isha from VT Capital.

So my question is regarding the managed school segment. Just wanted to know why has the academic side degrown? And why are we seeing impact on the EBITDA margin?

As far as our academic business is concerned, it largely comes from about 5,400 students that we have. And these are students who study across 5 CBSE schools and 2 Cambridge International Schools. That's currently what's the size of the business. There is a plan to add more schools going forward into the future. The revenue streams that we get from our K-12 segment is largely steady state across months, except for the cycle of admission that happened significantly during Q1. And then, of course, we have a blip of admission that happens during Q2, smaller admissions that happened in Q2. Beyond revenues and EBITDA changes that come because of higher levels of admissions and slightly lower admissions that come in Q2. Generally, our academic business revenue and EBITDA is fairly steady state. Now adding to that, expect our revenues to grow year-on-year to some extent of our EBITDA margins for 2 reasons. One, for instance, we are targeting to add another 7.5%, 8% more students into our existing 5 schools and 2 international schools next year. So the strength of students is expected to go up. Typically, in a year, our fees goes up by about, again, 7% to 8%, depending on locations, but average 7% to 8%, the fees also goes up year-on-year. So because of an increase in student intake, 7%, 8% and a fee increase of about 7%, 8%, generally, the top line moves up, the EBITDA margins also go up and then EBITDA as a percentage of revenue also tends to go up marginally. So it's a very defensive line -- most defensive line of business that we have, fairly steady state. And the growth comes because of fee increases, 7% to 8% a year and a marginal uptick in students. The third key area of growth that you should see in academic that will happen is we plan to add more schools in an asset-light fashion. And that will -- that is expected to substantially grow top line and bottom line because they will add to our existing 7 schools. So it is expected -- it's generally a very steady-state business. You will see some blips in Q1 and Q2 because of strong admission cycles that happens during the month of May, June, July and a little bit around September, October. This is sort of specific to Tamil Nadu and Karnataka.

So sir, is it right to assume that in H2, we'll be back on track with a higher growth compared to H1?

Mohasin?

Yes. It will be steady-state and it will be -- again, there will be a bump in the Q3. Again, it will be a dip. So it will be streamlined as achieved target, so we'll be achieving it. I think if you have seen, Isha, I think from H1 to H1 comparison, I think we have grown EBITDA from INR 8 crores to INR 11 crores, 36% and the top line also has grown in the segmental performance. Yes.

Sir, another question is regarding the cash flows. In H1, we are seeing negative cash flows. Any adjustment -- is it because of any adjustments? And if yes, then what would be the actual CF that I should see in H1?

Okay. So there were onetime events like we acquired J.K. Shah Education of INR 100 crores payout during the current half year. We purchased 24% stake from the Mr. J.K. Shah, and we purchased the balance stakes from Veranda K12. So there were financial liabilities being paid out in the current half year, which are nonrecurring from next quarter. So next quarter onwards, I think the cash flows will be available for the in-house purposes for the expansion and for the working capital. EBITDA should flow to the cash flows.

Okay. Sir, can you specify the number if possible?

It has been [ displayed ], I have to list it down Isha, so I can -- it is there in the CFS. Yes, because we paid some 6 people. It is publicly available in the disclosures, yes, regulatory disclosures.

Okay. No worries. And sir, my last question is regarding the CapEx. So as we are mentioning that the non-commerce side, we not seeing much of the CapEx. But on the commerce side, what are we expecting CapEx in coming 1 or 2 years given the additions of college and the centers that we are targeting to achieve and expand?

So...

Yes, Suresh. Go ahead. Yes, you can take that...

No. Aditya, you go ahead. I will add a few things too.

Sure. So this is Aditya, Isha. So what we are planning -- from a growth perspective in the Commerce segment, there are a couple of initiatives which we are already working on, and they are well on the way. First, as you rightly said, is the expansion of colleges. And when I say colleges, it is both junior colleges and degree colleges. So in the current year itself, we are adding a couple of other campus colleges in -- under the brand name of Tapasya between Hyderabad and Bangalore. We will be kicking that off this year so that we can take admissions in the next academic year. Apart from that, what we are planning is a clear expansion, especially in Maharashtra under the J.K. Shah brand. So as you would know, J.K. Shah brand is fairly strong. So we are looking at starting with junior colleges, and we are -- Mumbai is the first market, we will be starting with that. And then at the right time with all the statutory approvals going for the degree colleges there. So that's from a college perspective. Apart from that, we will have expansion of BB Virtual, which is the online arm for the coaching classes. In terms of earlier, they were teaching only a select few papers for CA coaching. Now we have already started offering more because now with J.K. Shah faculty being available, that becomes a large pool to offer all courses, including the foreign courses like ACCA, CFA, CMA and other domestic courses like CA, et cetera. So that's the second phase of expansion, which means online expansion for all courses under the BB Virtual brand. And lastly, across J.K. Shah classes, Navkar and Logic, which are our center-based coaching from a commerce perspective, we were -- we have already launched foreign courses like ACCA, CMA, CFA across a couple of centers last year. This year, as we speak, the focus is on expanding that pan-India across all the 100-odd centers we have so that, that will become a steady revenue stream because that has pretty much revenue and revenue coming through the entire year. So these 3 expansion of colleges and degree colleges, both under Tapasya and J.K. Shah name, expansion of BB Virtual with more foreign courses and other domestic courses as well. And lastly, expanding foreign courses to pretty much all the centers under J.K. Shah, Navkar as well as Logic. Suresh, you want to add something else?

Yes. So all of this expansion would be done in a very asset-light form because all premises, whether it is for junior colleges or for commerce colleges or including offline centers that we establish, all of which will be leased premises. So our investment will only be to the extent of a lease deposit and working capital that we might need in the first year of operation. So all expansions will be asset-light as far as the commerce segment is concerned, be it expanding junior colleges, commerce colleges or our offline centers. Including for launching new programs online, given that most of the faculty pool is already available within the ecosystem, almost all content is available within the ecosystem. The incremental investments, if at all, would be only in terms of faculty, and that would come more as a revenue expense rather than an investment.

[Operator Instructions] The next question is from the line of Darshil Jhaveri from Crown Capital.

Firstly, congratulations on a great set of numbers, sir. I just wanted to know, sir, just one small clarification. I think in the guidance that you mentioned, could you just repeat that? It was INR 650 crores in revenue and what were about EBITDA and PAT, sir?

INR 180 crores, sir, EBITDA and INR 70 crores, PAT.

Okay. This would be the reported numbers, right, not like the -- sorry?

After Ind AS adjustment...

After Ind AS adjustment, that's fair, sir. And sir, just wanted to know like when -- so next year, we'll see the benefit completely of the lower finance cost because of our QIP raise. So I just wanted to know currently like -- so any kind of guidance you want to give for FY '27, sir?

FY '27, so it will be...

So for FY '27, basis our reported numbers. I think one of the key changes that will happen is we'll start reporting as 2 independent entities as we had mentioned. So we expect the listing of J.K. Shah Commerce Education Limited to happen by end of June, July 1st week. So that would report a separate set of numbers. The non-commerce business will start reporting its separate set of numbers. So for FY '26, the guidance, as Mohasin had mentioned is for the combined entity that we are projecting. But going forward, this will become 2 different entities. Now for the commerce part of the business, it is expected to get towards INR 200 crores of EBITDA. The finance cost is not expected to be there because it's going to be demerged as a debt-free business. As I mentioned, the -- all expansion is asset-light. So investments will happen in these deposits and possibly some bit of working capital in the first year of expansion, be it in terms of commerce colleges, junior colleges or online course expansion or offline centers that are being established nationally. From the non-commerce part of the business, that's expected to achieve about INR 50 crores to INR 60 crores of EBITDA for FY '27. As I mentioned, it will carry a residual debt of about INR 150 crores, INR 155 crores of residual debt, which will be carried by the system. Currently, the residual debt is from Ascertis, which is a high-cost debt. We expect to switch it from a debt from a public sector bank with whom we are in advanced stages of conversation. So the cost of money is expected to significantly come down. So from an EBITDA perspective, about INR 50 crores to INR 60 crores of EBITDA that we expect to see from our government test prep and academic. The cost of money is expected to come down from about 17% of the Ascertis debt that we have to probably a high single-digit debt that we will have. So the cost of money is also expected to significantly come down. Obviously, it will not be debt-free like the commerce vehicle. But as I mentioned, we expect the debt to EBITDA to be in the range of about 3x and be in a high single-digit percentage cost of debt annually compared to what it is now.

Correct, sir. That helps a lot, sir. And sir, just wanted to know like so currently, I think we have a finance cost of around INR 20 crores for the quarter. So that would include -- that would be currently high cost debt, right, that we are carrying, right, sir? So that in Q3 itself will reduce or what is the time line for that, sir?

We expect refinancing to happen in Q3. I'm not able to put an exact date to it, but I would think it will happen in December of Q3. So in Q3, the cost of money might not significantly change, but you will see it dramatically coming down in Q4.

Okay. So Q4 -- maybe Q4 onwards because -- why I was asking that because that would impact very positively to our PAT number also. That's right. And sir, just wanted to know like currently, our run rate for our non-commerce segment is around, I think, EBITDA of INR 16 crores for the year -- for half yearly. So what gives the confidence of being able to reach INR 50 crores because that would indicate a significant leap, right, sir?

So as I mentioned, from an academic part of our business, the increase comes from a higher student intake, maybe about 7%, 7.5%. We expect the fees to go up by about 7% to 8%, which annually happens as far as school fees is concerned. So that is expected to help move the EBITDA of the -- academic part of our business to around INR 27 crores to INR 30 crores. As far as the government test prep is concerned, this year has been a good year. There is significant plan to expand deeper into Kerala, where we are integrating the brands that we have there. And there is also a plan to expand our offerings as far as Tamil Nadu and Karnataka markets are concerned. So it will come from expansion into new courses, consolidation in couple of geographies across brands that we own in the government test prep. And that is expected to probably give us again INR 25 crores to INR 30 crores of EBITDA. So roughly equal contribution from both academic and government test prep, in academic coming from expansion of student intake and increase in course fees by 7%, 8% as far as government test prep is concerned, consolidation in couple of key markets, introducing a few new programs that is in the anvil for being launched and of course, about 6%, 7% increase in fees. The equal parts coming from both of them.

Okay. Fair enough, sir. And sir, just wanted to know in terms of how we account. So currently, we have seen a really great jump in our enrollment, right, sir? So that revenue will start coming in a bit later, right, because they would have just given us a fees and they are -- the course would just be starting? Or how would that be because our enrollments have jumped from like 62,000 to 108,000. I just wanted to know how would that fees be accounted for? How would that -- when would that start flowing, sir?

I'll take that sir.

Yes.

So every -- we can see in the balance sheet. So there will be a deferred revenue accounted. So our movement of deferred revenue is a bit same. So actually, as per June, deferred revenue was INR 101 crores. As of September, it's INR 94 crores, which means that we already have a pipeline of INR 94 crores for the current year in the top line, which will stay, for example, Q3, we'll start all the batches for commerce government, which will recognize revenue in Q3 and Q4. So the movement is not so heavy. So it's like a cycle we have.

If you look at the collections we had system-wide in Q2, it is probably one of the highest this company has had in its history. We collected about INR 173 crores of cash. But as you mentioned, these are accounted as advances received and the revenue recognition happens over the duration of the course. So this INR 90 crores to INR 100 crores of deferred is really advances received. Collection has completed, revenues yet to be recognized, and you should see that coming in strongly in Q3 and Q4.

Yes. I get that, sir. I just wanted to understand like -- so example, when I see in March, we had INR 117 crores that maybe we had to collect. And right now, you're saying it's around INR 97 crores. So ideally -- and the enrollments are going higher, right? So our deferred revenue should be higher? Or how would be correlated because we see such a big jump in enrollment, there should -- will there be a commensurate jump in the revenue that's going to flow in maybe in the future? So just that's what I wanted to understand. How would we see a jump in enrollment and how do we link it to jump in revenue for our commerce segment, sir?

So a couple of factors you need to consider because last year, our online revenues were minimal because BB Virtual really got consolidated only in the last quarter, given that it was acquired late during the last financial year. This year, it's a significant part of our revenue. Now the online programs comes as live and the online programs also comes as USB sticks that we sell, which is recorded, where the students can watch it 1.5x. Now the revenue recognition for that is slightly different compared to a live program. So if we do a live online or an offline program, which goes for 6 months, then the revenue is recognized over the duration of the course. So there, you will find that our deferred revenue is higher because usually students pay in advance, but the revenue recognition happens later. So that leads to a higher accumulation of deferred. But when we sell the USB sticks, which is basically recorded programs, the revenue recognition is significantly accelerated because we have already sold the product. The student can see it 1.5x over the next 3 months or 6 months, but our revenue recognition is accelerated to the point of sale. So that reduces the deferred revenue that we capture where the collection becomes almost the same as sales. So you will see that our deferred revenue when we offer live online or offline programs, deferred revenues are more. When we are selling recorded programs, the revenue recognition is accelerated. So you will find that the deferred revenue has come down. Our EBITDA and revenues have gone up this year. It is exactly because of the fact that the mix of programs that are recorded and sold is now a significant part of our business because BB Virtual now is part of our business for the full 12 months compared to the last 3 months that we had in financial year '25.

The next question is from the line of Deepesh J. Sancheti from Maanya Finance.

Now first sort of question is regarding how will the management rationalize the corporate overheads and the shared cost between Veranda and newly demerged J.K. Shah Commerce entity?

Mohasin?

Yes. So there has been reduction in the corporate cost rationalization, sir, actually. For example, when compared to last financial year, we had INR 24 crores of corporate costs annually, which has been reduced to INR 15 crores already, which means that all the rationalization of corporate costs has been happened. And also, we have moved all the respective finance teams, management to the respective segment verticals. So most of the corporate cost sitting now is like a management level, which will be absorbed by the respective segments on a revenue sharing or a cost-plus markup basis, which has to be studied with the help of outside consultants, which will be planned in the future. But limited point that there has been a rationalization in the corporate cost, which you can see in the press release which I discussed -- shared. We are on that.

Just to add to it, currently, while the scheme has been filed, the commerce business continues to be part of the overall business. Post the demerger, for instance, the commerce business under J.K. Shah Commerce Education Limited will have its own finance, will have its own secretarial department. And basically, what that means is cross-charging from Veranda non-commerce to the listed commerce business will not be there. So currently, while the demerger scheme has been signed, it continues to operate as one company. So the finance secretarial, all of this is a shared cost at this stage because it is still part of the same listed company. Post the demerger, that teams will be formed and there will not be any cross-charge from non-commerce to commerce.

Okay. Also sir, can the management outline the expected EBITDA margin traction for each vertical post demerger, especially considering the commerce verticals guidance of INR 135 crores to INR 140 crores EBITDA contribution for FY '26?

So traditionally, we are trading at a margin of 35%. So over the next 3 -- if I say to you next 4 to 5 years, we plan to reach at 47%.

Can you please repeat the numbers? 35% you said, right?

Yes.

Okay. And it will reach to around 47% or 42%?

46% to 47%.

47%, okay.

Yes, because of the online model increasing and we go into asset-light model, colleges expansion, which breakeven over the next 4, 5 years, we are expecting to achieve these numbers.

Okay. And what will be the reinvestment strategy for the surplus cash flows generated post the debt repayment and the demerger?

I think Aditya was saying that it's more into expansion of the centers, its asset-light model on the lease deposits and working capital, more on to that, not on acquisition side, anything, nothing else, only on the internal expansion and CapEx. Not anything else.