SCHAND - S Chand And Company Limited Share Price

S Chand And Company Limited's management provided a positive outlook for FY26, targeting operating revenues exceeding Rs 8,000 million, which indicates a growth expectation of around 11% year-over-year. They have also upgraded their EBITDA margin guidance to a range of 18%-20%, an improvement from the previous year's guidance of 17%-19%. Management emphasized a cautious approach to growth, prioritizing the quality of sales over aggressive revenue increases, as they aim to maintain working capital efficiency and avoid diluting profit margins.

Key forward-looking points include:

1. Operating Revenues: Targeting growth in excess of Rs 8,000 million for FY26.
2. EBITDA Margins: Updated guidance set at 18%-20%, aiming for improvement based on operational efficiencies and product mix.
3. Focus on Working Capital: Continued emphasis on improving working capital metrics and cash flows, with a history of achieving solid operating cash flows (Rs 999 million in FY25).
4. M&A Opportunities: The company remains open to evaluating mergers and acquisitions that would enhance their portfolio, with an emphasis on leveraging their net cash balance (Rs 1,036 million) for potential internal growth opportunities.
5. Curriculum Adoption: Anticipated growth from new NCERT curriculum books for classes 4th, 5th, 7th, and 8th, expected to support sales in FY26 and FY27.

Despite encountering challenges such as competition and piracy, the management is optimistic about leveraging their strengths and responding to emerging opportunities in the education sector.

1. Question: "Sir, my compliments to you on the balance sheet transformation that you have achieved in last few years, and also thanks for listening to the shareholder feedback on increasing the payout. My first question is around the top line, actually. We had given a guidance of minimum double digit last year, but we have fallen short of that, and the top line growth is 8.5% in FY25. Why is that the case?"

   Answer: "We are being a bit conservative in our guidance because we want to maintain the quality of sales in a competitive market. We had to refuse many business opportunities that did not meet our margin criteria. Faster growth often leads to higher cash burn, and we prefer to focus on sustainable operations rather than risking our working capital by pushing sales aggressively."

2. Question: "Okay. And second, could you please also comment on the earlier part? Why have we fallen short of our guidance actually in FY25?"

   Answer: "The shortfall in revenue growth stemmed from denying credit sales to channel partners with previous outstanding payments. While faster growth requires more working capital, we've prioritized maintaining profitability and cash flow. We might consider seeking inorganic growth opportunities instead of relying on existing customer bases to drive sales."

3. Question: "What is the progress on the AI content licensing business? And again, going ahead, how do you see this panning out?"

   Answer: "In FY25, we generated approximately Rs20 crores in AI content licensing compared to Rs1.6 crores in FY24. For FY26, we are targeting growth to Rs25-30 crores. The licensing opportunities are promising, with potential to become a significant revenue contributor in our portfolio as we expand collaborations with various partners."

4. Question: "The dividend that we have announced is interim dividend. So, does that also mean that we would also have some final dividend coming in as well, right?"

   Answer: "Yes, there may be a final dividend depending on board decisions. If any attractive inorganic opportunities arise in the coming months, we will evaluate the overall cash requirements before determining the final payout to shareholders."

5. Question: "So, goodwill is a considered portion of our asset base. So, I just wanted to know if you have any plans of writing off our goodwill as the current goodwill levels are suppressing our ROEs?"

   Answer: "Writing off goodwill is complex as it's tied to our consolidated statements. We'd need to adjust our subsidiary investments, which could impact our P&L significantly. Thus, eliminating the Rs332 crores in goodwill doesn't make financial sense at this moment."

6. Question: "Sir, when do we see EBITDA margins getting back to the previous 24%-25% level?"

   Answer: "Predicting a timeline for reaching those EBITDA margins is challenging. Our margins are influenced heavily by market conditions, especially paper prices. We have experienced a steady improvement in our EBITDA over the last three years despite a competitive market landscape."

7. Question: "Can you mention which four classes it will be changed for?"

   Answer: "The syllabus has been changed for 4th, 5th, 7th, and 8th grades, and the new NCERT books will be launched accordingly as per NCERT directives."

8. Question: "How much is volume growth out of this? And during the previous year, did we sign any new schools in our book distribution network?"

   Answer: "For FY25, we achieved a volume growth of about 5%. Looking ahead, we are targeting a similar volume growth of 5% to 7% for FY26, with the remainder of growth driven by product mix and price increases."

9. Question: "So, how are paper prices now? Will we be having any gains or losses due to inventories in the upcoming quarters?"

   Answer: "Currently, our paper inventory is limited, and the prices are stable or slightly lower than last year. We do not anticipate any inventory losses since we've kept our paper stock low and managed sourcing wisely in relation to market visibility."

10. Question: "You mentioned that piracy is a challenge for the industry. So, any estimated revenue that we would have lost because of piracy, and what are the steps we are taking to protect it?"

    Answer: "We estimate losses of about Rs20 to Rs25 crores due to piracy. To tackle this, we've engaged a firm for surveillance and raids to counteract piracy and issued notices to non-compliant e-commerce platforms."