S Chand, one of India’s oldest and largest publishing and education services provider is coming up with an IPO, opening today. S Chand was founded in 1939 and is based out of New Delhi. The company has 110 offices and employs more than 2000 employees.
It claims to sell 15000 titles amongst 20 million students spread across 40,000 schools and educational institutes and runs ‘Destination Success Programme’, through its subsidiary DS Digital. ‘Destination Success Programme’ is a complete education programme integrated with technology for schools. It also offers the S.Chand Intellitab, a tablet-based learning solution.
The makers of the famous ‘R S Aggarwal’ series is kicking off a Rs 728 crore IPO, which will be sold in the Rs 660-670 price band. It comprises a fresh issuance of shares worth Rs 325 crore with an OFS (offer for sale) of 60,23,236 shares. Post issue, the promoters share holding will fall from 58 percent to 47 percent.
The first thing to note here about this Everstone Capital backed company, is that the IPO is at a very high premium. At the upper end of the price band offer, it is priced at 42.9 times of FY 2016 EPS, compare that to Navneet Education, its listed competitor, which is trading at just 25.5 times of trailing 12 month EPS. This makes the IPO suitable only for the long term investors, looking for a defensible sector company.
Recent update about the IPO:
Before we go into evaluating the IPO based on the financials and other metrics of the company, here is a recent announcement which holds great importance.
S Chand yesterday announced that it raised a total of $34 million or Rs 219 crores from anchor investors, a day before opening of the IPO. 15 institutional investors acquired shares in the high range of the IPO and this becomes significant as these investors have accepted a one month lock-in period to be able to buy this sizeable allocation of shares. This represents their belief and confidence in the company and generally seen as a strong backing for the IPO. The investors include big names like Prudential Corporation Asia, one of the leading life insurance companies, and Nomura Singapore Ltd, Indus India Fund (Mauritius) Ltd, Volrado Venture Partners Fund-II and HSBC Global Investment Fund.
Strong points for S Chand
- S Chand and Company is a big name in India’s booming education sector. The company is engaged in the business of publishing books for pre-primary/primary, secondary/higher secondary academics, competitive exams, technical and professional courses.
- Its a very strong brand and includes 55 renowned names such as S Chand, Vikas, Madhuban, Saraswati, Destination Success, Ignitor, Chhaya, IPP, among others. These brands cover educational requirements of students across all age groups and classes.
- It has relationships with 1958 authors and has sold 35.47 million copies of over 11,144 titles.
- S Chand is also a prominent player in K-12 market and cater to the students of both CBSE and ICSE.
- It doesn’t heavily depends on third-party vendors for printing as 85% of printing requirements are met by its in house facilities at Sahibabad and Rudrapur. It has got 42 warehouses in 19 states to handle logistics effectively.
Weaknesses of S Chand
- The biggest weakness of the company is lack of diversification. It also is not much active in state board courses, whose curriculum changes frequently than CBSE/ICSE. Thus the company is losing a chance to generate higher revenues through publishing of revised contents.
- It is focused mainly on publishing alone, and has not diversified. Navneet education on the other hand, gets 40% of its revenues from stationary and digitization. Though S Chand has made an undisclosed investment in online test preparation startup, TestBook & invested in FlipClass, an online tutor search platform.
Major revenues of the company comes from CBSE board publications. But CBSE has recently made compulsory for all schools to use NCERT books as main course books. This will have some impact on the sales.
There are a lot of factors going into S Chand’s favor, plus apart from Navneet Education, there’s no major listed competitor on stock exchange. But, the company hasn’t diversified its revenue streams like Navneet and the IPO is a bit pricey. It is still a buy in my view, but I would prefer waiting it out and finding better opportunity in secondary markets.