S Chand and Company (SCHAND IN)

Rating: ACCUMULATE | CMP: Rs76 | TP: Rs90

February 14, 2020 On track to be FCFF positive in FY20

Q3FY20 Result Update Quick Pointers

☑ Change in Estimates | ☑ Target |  Reco  Top-line is expected to be in the range of Rs6.5-7bn with EBITDA margins of
~18-20% for FY20E.
Change in Estimates
Current
FY21E FY22E
Previous
FY21E FY22E
 Program 3.0 aimed at improving CF situation is yielding results. In 9MFY20,
Rating ACCUMULATE ACCUMULATE pre-tax OCF was Rs169mn against negative OCF of Rs476mn in 9MFY19.
Target Price 90 92
Sales (Rs. m)
% Chng.
7,123
(2.0)
8,398
(2.1)
7,271 8,574
 Net debt at the end of FY20E is expected to be Rs1-1.2bn.
EBITDA (Rs. m) 1,364 1,654 1,614 1,899
% Chng. (15.5) (12.9) We maintain our ACCUMULATE rating on S Chand as 1) program 3.0 aimed
EPS (Rs.) 17.0 22.6 23.0 28.4
% Chng. (26.0) (20.6) at improving the working capital efficiency (engaging with quality channel
partners, lowering inventory levels & improving the collection cycle) is
Key Financials - Consolidated bearing fruits with pre-tax OCF improving to Rs169mn in 9MFY20 2) cost
Y/e Mar FY19 FY20E FY21E FY22E rationalization program is on track (Rs600-800mn of reduction aimed for
Sales (Rs. m) 5,220 6,328 7,123 8,398 FY20E) and 3) sales return of Rs1.4bn for 9MFY20 (in line with historical
EBITDA (Rs. m) (312) 1,187 1,364 1,654
range) indicates that the aggressive push which resulted in exceptional
Margin (%) (6.0) 18.8 19.1 19.7
PAT (Rs. m) (645) 417 595 790 returns in FY19 is unlikely to be repeated. In addition, New Education Policy
EPS (Rs.) (18.4) 11.9 17.0 22.6 (draft already announced in May 2019) will lay foundation for strong runway
Gr. (%) NM NM 42.7 32.8
DPS (Rs.) - 1.5 1.5 1.5 going ahead as 2nd hand books go out of the system. Given the attractive
Yield (%) - 2.0 2.0 2.0 FCFF yield of 20%, clearly outlined debt reduction plan (FCFF generated will
RoE (%) (6.7) 4.4 6.0 7.5
be utilized to pay down debt first) and cheap valuations of 4.4x FY21E and
RoCE (%) (3.7) 5.9 7.0 8.3
EV/Sales (x) 0.8 0.6 0.5 0.4 3.3x FY22E we retain accumulate with a TP of Rs90 (earlier Rs92). We keep
EV/EBITDA (x) (12.7) 3.2 2.8 2.2 our target P/E multiple of 4x unchanged but roll forward our valuation to
PE (x) (4.1) 6.3 4.4 3.3
P/BV (x) 0.3 0.3 0.3 0.2 FY22E as full blown impact of NEP will be witnessed in that year.

Results below estimates in a seasonally lean quarter: Consolidated top-line

Key Data SCHA.NS | SCHAND IN
52-W High / Low Rs.221 / Rs.47
increased 108.8% YoY to Rs96mn (PLe of Rs500mn) in a seasonally lean quarter.
Sensex / Nifty 41,258 / 12,113 Consolidated EBITDA loss stood at Rs831mn (PLe of Rs380mn) while consolidated
Market Cap Rs.3bn/ $ 37m
Shares Outstanding 35m loss stood at Rs748mn (PLe of Rs416mn). Going ahead, implementation of S
3M Avg. Daily Value Rs.3.94m Chand 3.0 program is likely to improve EBITDA margins and working capital cycle
due to rationalization of costs and improved trade terms with channel partners. We
Shareholding Pattern (%) thus expect EBITDA margin to improve to 18.8% (EBITDA loss in FY19) while the
Promoter’s 47.24 working capital cycle is expected to improve to 255 days in FY22E (318 days in
Foreign 1.87
Domestic Institution 11.18 FY19).
Public & Others 39.71
Promoter Pledge (Rs bn) -
Con call highlights: 1) Launched Learn-flix (e-learning app) with Sourav Ganguly
as its brand ambassador. The pricing is Rs2,000-2,500 per student and investment
Stock Performance (%)
1M 6M 12M
made towards it is Rs40-50mn 2) Receivable days declined to 102 (reduction of 48
Absolute (17.0) 31.5 (64.8) days on a YoY basis) 3) WC cycle declined to 184 days (a reduction of 11 days on
Relative (15.6) 18.9 (69.4)
a YoY basis) 4) Target is to improve EBITDA/FCFF ratio over 50% 5) Post NEP,
topline growth is expected to be in higher teens 6) In 9MFY20, sales return was
Jinesh Joshi
Rs1.4bn and for FY20 it is expected to be Rs1.5bn 7) Tax rate is expected to be
jineshjoshi@plindia.com | 91-22-66322238
27-28%/24-25% for FY20E/FY21E respectively. 8) Total investment made in digital
ventures is ~Rs1.45bn.

February 14, 2020 1

 S Chand and Company

Q3FY20 Result Overview (Rs mn)

Y/e March Q3FY20 Q3FY19 YoY gr (%) Q2FY20 9MFY20 9MFY19 YoY gr (%)
Net Sales 96 46 108.8 266 975 729 33.8
Expenditure
Raw Materials 278 (10) NM 202 809 485 66.9
% of Net sales 288.2 (21.7) 76.1 83.0 66.5
Personnel 320 403 (20.6) 313 948 1,127 (15.9)
% of Net sales 332.7 874.4 117.7 97.2 154.6
Selling , dist & Other Exp 329 504 (34.7) 387 985 1,256 (21.6)
% of Net sales 341.8 1,093.8 145.6 101.0 172.3
Total Expenditure 927 898 3.3 903 2,742 2,868 (4.4)
EBITDA (831) (852) NM (637) (1,766) (2,139) NM
Margin (%) NM NM NM NM NM
Depreciation 93 67 39.6 90 271 177 53.2
EBIT (924) (918) NM (726) (2,038) (2,316) NM
Interest 86 71 21.0 89 258 182 41.6
Other Income 7 32 (79.5) 10 40 74 (45.8)
Share of P/L in associates (13) (10) NM (3) (20) (19) NM
Exceptional items - 226 NM - - (284) NM
PBT (1,016) (1,193) NM (808) (2,276) (2,728) NM
Tax (267) (378) NM (205) (546) (844) NM
Tax Rate (%) NM NM NM NM NM
Reported PAT (748) (815) NM (603) (1,729) (1,884) NM
Minority interest (2) (1) NM (2) NM
OCI 2 (6) NM 7 1 3 (69.8)
Total comprehensive income (747) (821) NM (596) (1,729) (1,881) NM
Reported EPS (21.4) (23.3) NM (17.2) (49.5) (53.5) NM
Source: Company, PL

Highest reduction in receivable days in 3QFY20 Highest reduction in net working capital days in
since FY17 3QFY20 since FY17

60 55 60 54
50
50
40
40 30
32 21
30 20 12
20 10
20
0
10 7 3QFY17 3QFY18 3QFY19 3QFY20
-10
-20
0
-20
3QFY17 3QFY18 3QFY19 3QFY20 -30

Source: Company, PL Source: Company, PL

February 14, 2020 2

 S Chand and Company

Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E Y/e Mar FY19 FY20E FY21E FY22E

Net Revenues 5,220 6,328 7,123 8,398 Non-Current Assets

YoY gr. (%) (34.3) 21.2 12.6 17.9
Cost of Goods Sold 2,255 2,491 2,831 3,342 Gross Block 2,654 2,904 3,154 3,404
Gross Profit 2,965 3,837 4,291 5,055 Tangibles 1,505 1,755 2,005 2,255
Margin (%) 56.8 60.6 60.2 60.2 Intangibles 1,149 1,149 1,149 1,149
Employee Cost 1,511 1,250 1,389 1,612
Other Expenses 881 750 805 924 Acc: Dep / Amortization 673 1,010 1,377 1,774
Tangibles 353 564 804 1,075
EBITDA (312) 1,187 1,364 1,654 Intangibles 320 446 573 699
YoY gr. (%) NM NM 14.9 21.3
Margin (%) (6.0) 18.8 19.1 19.7 Net fixed assets 1,981 1,894 1,777 1,630
Tangibles 1,152 1,191 1,200 1,180
Depreciation and Amortization 237 350 367 397 Intangibles 829 703 576 450

EBIT (549) 837 997 1,257 Capital Work In Progress 110 110 110 110
Margin (%) NM NM 14.0 15.0 Goodwill 3,374 3,374 3,374 3,374
Non-Current Investments 350 355 360 365
Net Interest 272 320 256 256 Net Deferred tax assets 593 593 593 593
Other Income 116 70 70 70 Other Non-Current Assets 287 287 287 287

Profit Before Tax (938) 587 811 1,072 Current Assets

Margin (%) NM NM 11.4 12.8 Investments 216 216 216 216
Inventories 2,048 1,560 1,854 2,186
Total Tax (283) 159 204 270 Trade receivables 4,446 4,854 5,074 5,752
Effective tax rate (%) 30.2 27.0 25.2 25.2 Cash & Bank Balance 604 416 499 695
Other Current Assets 152 182 219 263
Profit after tax (655) 429 607 802 Total Assets 14,318 14,012 14,549 15,674
Minority interest - - - -
Share Profit from Associate (14) (12) (12) (12) Equity
Equity Share Capital 175 175 175 175
Adjusted PAT (645) 417 595 790 Other Equity 9,129 9,493 10,035 10,772
YoY gr. (%) NM NM 42.7 32.8 Total Networth 9,304 9,668 10,210 10,947
Margin (%) NM 6.6 8.3 9.4
Extra Ord. Income / (Exp) - - - - Non-Current Liabilities
Long Term borrowings 727 727 727 727
Reported PAT (645) 417 595 790 Provisions - - - -
YoY gr. (%) NM NM 42.7 32.8 Other non current liabilities 66 68 71 74
Margin (%) NM 6.6 8.3 9.4
Current Liabilities
Other Comprehensive Income 25 - - - ST Debt / Current of LT Debt 1,409 1,100 1,100 1,100
Total Comprehensive Income (620) 417 595 790 Trade payables 1,944 1,820 1,756 2,071
Equity Shares O/s (m) 35 35 35 35 Other current liabilities 831 578 633 705
EPS (Rs) (18.4) 11.9 17.0 22.6 Total Equity & Liabilities 14,318 13,999 14,535 15,661
Source: Company Data, PL Research Source: Company Data, PL Research

February 14, 2020 3

 S Chand and Company

Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY19 FY20E FY21E FY22E Year
Y/e Mar FY19 FY20E FY21E FY22E

PBT (938) 587 811 1,072 Per Share(Rs)

Add. Depreciation 237 350 367 397 EPS (18.4) 11.9 17.0 22.6
Add. Interest 256 320 256 256 CEPS (11.6) 21.9 27.5 33.9
Less Financial Other Income 116 70 70 70 BVPS 266.0 276.4 291.9 313.0
Add. Other 108 (40) (46) (53) FCF (2.6) 14.2 11.3 14.6
Op. profit before WC changes (337) 1,217 1,388 1,671 DPS - 1.5 1.5 1.5
Net Changes-WC 1,200 (311) (537) (642) Return Ratio(%)
Direct tax (478) (159) (204) (270) RoCE (3.7) 5.9 7.0 8.3
Net cash from Op. activities 386 748 647 759 ROIC (2.8) 4.5 5.5 -
Capital expenditures (466) (250) (250) (250) RoE (6.7) 4.4 6.0 7.5
Interest / Dividend Income - - - - Balance Sheet
Others (373) (5) (5) (5) Net Debt : Equity (x) 0.1 0.1 0.1 0.1
Net Cash from Invt. activities (839) (255) (255) (255) Net Working Capital (Days) 175 175 170 160
Issue of share cap. / premium - - - - Valuation(x)
Debt changes 709 (309) - - PER NM 6.3 4.4 3.3
Dividend paid (52) (52) (52) (52) P/B 0.3 0.3 0.3 0.2
Interest paid (253) (320) (256) (256) P/CEPS NM 3.4 2.7 2.2
Others (16) - - - EV/EBITDA NM 3.2 2.8 2.2
Net cash from Fin. activities 388 (681) (308) (308) EV/Sales 0.8 0.6 0.5 0.4
Net change in cash (61) (188) 83 196 Dividend Yield (%) - 2.0 2.0 2.0
Free Cash Flow (91) 498 397 509 Source: Company Data, PL Research
Source: Company Data, PL Research

Quarterly Financials (Rs m)

Y/e Mar Q4FY19 Q1FY20 Q2FY20 Q3FY20
Net Revenue 4,491 613 266 96
YoY gr. (%) (31.4) 6.3 150.6 108.8
Raw Material Expenses 1,771 329 202 278
Gross Profit 2,721 284 63 (181)
Margin (%) 60.6 46.3 23.9 (188.2)
EBITDA 1,827 (299) (637) (831)
YoY gr. (%) (45.4) (41.6) (17.9) (2.4)
Margin (%) 40.7 (48.8) (239.4) (862.8)
Depreciation / Depletion 60 88 90 93
EBIT 1,767 (387) (726) (924)
Margin (%) 39.3 (63.2) (273.1) (959.7)
Net Interest 90 84 89 86
Other Income 42 24 10 7
Profit before Tax 1,770 (447) (805) (1,003)
Margin (%) 39.4 (73.0) (302.7) (1,041.8)
Total Tax 560 (73) (205) (267)
Effective tax rate (%) 31.6 16.4 25.5 26.6
Profit after Tax 1,210 (374) (600) (736)
Minority interest 2 (4) (2) (2)
Share Profit from Associates 5 (4) (3) (13)
Adjusted PAT 1,213 (374) (601) (746)
YoY gr. (%) (45.8) (23.8) 6.3 (8.3)
Margin (%) 27.0 (61.0) (226.0) (775.1)
Extra Ord. Income / (Exp) - - - -
Reported PAT 1,213 (374) (601) (746)
YoY gr. (%) (45.8) (23.8) 6.3 (8.3)
Margin (%) 27.0 (61.0) (226.0) (775.1)
Other Comprehensive Income 22 (7) 7 2
Total Comprehensive Income 1,235 (381) (594) (745)
Avg. Shares O/s (m) 35 35 35 35
EPS (Rs) 34.7 (10.7) (17.2) (21.3)
Source: Company Data, PL Research

February 14, 2020 4

 S Chand and Company

Price Chart Recommendation History

(Rs)
No. Date Rating TP (Rs.) Share Price (Rs.)
700
1 13-Nov-19 Accumulate 92 75

537 2 28-May-19 Hold 125 115

3 5-Apr-19 Hold 234 180
374

211

48
May - 17

Aug - 19
Sep - 18
Oct - 17

Apr - 18

Mar - 19

Feb - 20
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Dish TV India NR - 74
2 Entertainment Network (India) Hold 287 260
3 Indian Railway Catering and Tourism Corporation BUY 1,656 1,580
4 Inox Leisure BUY 476 424
5 Music Broadcast Hold 39 27
6 Navneet Education BUY 108 91
7 PVR Accumulate 2,053 1,900
8 S Chand and Company Accumulate 92 75
9 V.I.P. Industries Hold 472 486
10 Zee Media Corporation Under Review - 14

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

February 14, 2020 5

 S Chand and Company

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recommendation or views expressed in this research report.

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February 14, 2020 AMNISH

Digitally signed by AMNISH AGGARWAL
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ou=organisation, cn=AMNISH AGGARWAL,
serialNumber=7a6f13691881d5a8af6353865a61b48b7040e
6
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Date: 2020.02.14 20:04:01 +05'30'