S Chand IPO – What are the hidden factors?

 S Chand and Company IPO - What are the hidden factorsS Chand IPO – What are the hidden factors?


Delhi based, S Chand and Company IPO is opening for subscription on 26th April, 2017. S Chand and Company Ltd is a leading Indian education content company. Its unconsolidated revenues grew at 13% CAGR in last 5 years. It earned 5.8% profits in FY16. It has good brand. Amazing right? Wait. What are the positive factors in S Chand IPO? What are the hidden factors in S Chand and Company Limited IPO?  In this article, I would provide some interesting insights and hidden facts and do S Chand and Company IPO Review.

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About S Chand and Company Limited


They are a leading Indian education content company in terms of revenue from operations in Fiscal 2016. They deliver content, solutions and services across the education lifecycle through our K- 12, higher education and early learning segments. They are the leading K-12 education content company in terms of revenue from operations in Fiscal 2016, according to Nielsen, with a strong presence in the CBSE/ICSE affiliated schools and increasing presence in the state board affiliated schools across India. They offer 53 consumer brands across knowledge products and services including S. Chand, Vikas, Madhubun, Saraswati, Destination Success and Ignitor. They believe that these brands have benefited by its strong brand management philosophy which embraces consistent efforts to upgrade content quality and to update content regularly. Further, in December 2016, they  acquired 74% of the outstanding share capital of Chhaya Prakashani Private Limited and they now offer four Chhaya brands including Chhaya and IPP. Its textbooks and instructional materials are supported by its offering of technology driven methods of education and digital learning. They sell knowledge products and services to schools and to students across their lifecycle through its extensive pan-India network of sales offices, distributors and dealers.

Issue details of S Chand IPO


  • IPO opens: 26-Apr-2017
  • IPO closes: 28-Apr-2017
  • Face Value: Rs 5 per share
  • Issue price band: Rs 660 to Rs 670 per share
  • Issue size: Rs 728 Crores
  • Market lot: Minimum of 22 shares
  • Minimum investment: Rs 14,520 on lower price band
  • Leading Managers: JM Financial, Axis Capital and Credit Suisse Securites India
  • Listing: BSE / NSE
  • S Chand IPO Prospectus can be downloaded at this link.

Objects of the S Chand IPO issue


  • Offer for Sale – Selling share holders would sell through OFS. Company will not receive any proceeds from the Offer for Sale.
  • Repayment of loans availed by the Company and one of its Subsidiaries, EPHL, which were utilized towards funding the acquisition of Chhaya;
  • Repayment/prepayment, in full or in part, of certain loans availed of by Company and its Subsidiaries, VPHPL and NSHPL; and
  • General corporate purposes

Company Financials (reinstated-standalone)


  • The company generated revenue of Rs 171.3 Crores for the year ended Mar-12 and Rs 282.2 Crores for the year ended Mar-16. It earned revenue of Rs 92.2 Crores for 9 months ended Dec-16.
  • The company posted a profit of Rs 8.8 Crores for the year ended Mar-12 and profit of Rs 16.4 Crores for the year ended Mar-16.  It incurred loss of Rs 30 Crores for 9 months ended Dec-16.
  • Its restated basic EPS for FY ending Mar-16 is Rs 6.04 and last 3 years EPS was Rs 4.78.

S Chand and Company ‬IPO - Financials - Un-Consolidated

Company Financials (reinstated-Consolidated)


  • The company generated revenue of Rs 174.6 Crores for the year ended Mar-12 and Rs 540.6 Crores for the year ended Mar-16. It earned revenue of Rs 1,508 Crores for 9 months ended Dec-16.
  • The company posted a profit of Rs  14.6 Crores for the year ended Mar-12 and profit of Rs 46.6 Crores for the year ended Mar-16.  It incurred loss of Rs 88.4 Crores for 9 months ended Dec-16.
  • Its restated basic EPS for FY ending Mar-16 is Rs 17.1 and last 3 years EPS was Rs 14.99.

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 S Chand and Company ‬IPO - Financials - Consolidated

What are S Chand Key Strenghts?


  • Comprehensive consumer focused education content player with touch points across education lifecycle.
  • Strong brand equity with high consumer recall.
  • Leading position in the K-12 market .
  • Strong integrated in-house printing and logistic capabilities.
  • Pan-India sales and distribution network driving deep market reach.
  • Focused digital and technology platform

Reasons to invest in S Chand IPO


Good revenue growth of 13% CAGR in last 5 years (unconsolidated). Revenues grew at 33% CAGR in last 5 years (consolidated basis).

Reasons not to invest in a S Chand IPO


  • Its unconsolidated financials indicate that it is generating low margins of 3.3% to 5.8% in last 5 years. It incurred loss for 9 months ended Dec-2016.
  • Based on consolidated financials, it generated profits of 8.6% in FY16. It incurred loss for 9 month ended Dec-16. Investors should invest in consistent margin making companies.
  • The high degree of seasonality of its K-12 business materially affects operating revenue, margins and cash flow from quarter to quarter.
  • They operate in a highly-competitive and fragmented industry, and its business, results of operations and financial condition may be adversely affected if they are not able to compete effectively.
  • For the past two years, CBSE has issued an advisory circular advising CBSE schools to use only NCERT print content for all classes and may issue similar advisory circulars in the future. These circulars may reduce demand for its educational content amongst the CBSE affiliated schools and, accordingly, may adversely affect its business, results of operations, cash flows and financial condition.
  • A significant portion of its revenues are derived from titles of its top authors. The loss of all or any of its top authors could adversely affect its business, results of operation, cash flows and financial condition.
  • They may not be able to complete, or achieve the expected benefits from, current or future investments or acquisitions which could materially adversely affect its business, results of operation, cash flows and financial condition.
  • They have recently acquired Chhaya, and do not yet know whether they will achieve the expected benefits from such acquisition, which could materially adversely affect its business, results of operation, cash flows and financial condition.
  • Due to a number of acquisitions of businesses that they have made, its historical restated consolidated financial statements may not be comparable on a period to period basis and provide a meaningful basis of evaluating its results of operations and financial condition.
  • Due to its acquisition of Chhaya its Restated Consolidated Financial Statements for the nine month period ended December 31, 2016 and for Fiscal 2017 may not be comparable on a period to period basis and provide a meaningful basis of evaluating its results of operations and financial condition.
  • They have an obligation to acquire the remaining 26% of the outstanding share capital of Chhaya Prakashani Private Limited which may need to be financed with additional debt.
  • Its interest expenses could materially impact its cash flows in certain quarters.
  • Its investments in new products and distribution channels may be less profitable or may be loss-making.
  • There are various proceedings pending against its Company, its Subsidiaries and certain of its Group Companies, which if determined against them, may have an adverse effect on its business.
  • Some of its Subsidiaries, Associate and Group Companies are loss making companies.
  • Other risk factors (Internal and external) can be viewed in the prospectus.

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Recommendation / Investment strategy – S Chand IPO


1) On the upper price band of Rs 670 and on consolidated FY16 EPS of Rs 17, P/E ratio works out to 39x. Even based on last 3 years consolidated EPS of Rs 14.99, P/E ratio works out to be 44x. Means company is asking higher price band of Rs 670 in the P/E ratio of 39x to 44x. There is a listed peer Navneet Education which is trading at P/E ratio of 37x. Hence, the issue price is over priced.

2) Company revenues grew at 13% CAGR (unconsolidated) and at 33% CAGR (consolidated) in last 5 years. It earns low margins. It incurred loss for 9 months ended Dec-16. S Chand IPO issue is also over priced. Let us not forget about CL Educate which was also part of education sector where it got listed below issue price recently. Investors should be cautious and stay away from such IPOs.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

S Chand IPO – What are the hidden factors

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