Booking profits the old-school way

With Rs 325-crore IPO proceeds, S Chand aims to consolidate

Its books have helped school students of several generations pass many examinations. Last week, the 78-year old text book publisher S Chand & Co is in the middle of a test of its own.
 
Though the final results will be known when its stocks list on the bourses, a 60-times subscription in the Rs 730-crore initial public offering (IPO) has raked up, suggesting a distinction, if not flying colours. Of the proceeds, Rs 325 crore would come to the company, while selling shareholder, Everstone Capital, would take the rest.
 
Sitting at his second floor office in the capital’s Mohan Estate, Managing Director Himanshu Gupta looks pleased as he thanks investors.

 

High investor interest is a reflection of a lack of quality education players in the listed space. While a couple of new-age education companies have bitten the dust, the only listed traditional player in the segment is Navneet Publications.
 
The only grandson of Shyamlal Gupta, who founded the company in 1939, Himanshu says he believes books are here to stay for several years and feels there is scope for expansion of the listed universe. “More is better. Competition is good; it will help bring more investments and expand the sector.”
 
S Chand’s books cater to an estimated 30 million students, mostly under CBSE and ICSE boards — the 11-12 per cent market share in a universe of around 270 million students in 1.5 million schools, including 350,000 private ones.

 
The market size for books is estimated to be around $500 million. According to the publisher, it caters to around 12,000 schools affiliated to both CBSE and ICSE boards. The sector is fragmented, with over two dozen players. Among larger rivals are Ratna Sagar and Navneet, and international giants Oxford, Pearson and Cambridge.
 
Gupta feels there is a case for consolidation in the sector, as smaller- and medium-size firms would find it difficult to sustain, amid a rise in distribution costs and associated expenses such as teacher training and demand for quality work.
 
Given the state of infrastructure in schools, especially in tier-II and III centres, Gupta doesn’t see technology making much impact in the near future. S Chand is hedging bets by making financial investments in five new-age companies that operate in the EdTech space, including Testbook, OnlineTyari and flipClass.

 
“Our business model is such that we monetise content through print medium. Through smart classes and investment in latest Edtech space, we hedge our risks,” Gupta said.
 
Around 95 per cent of S Chand’s revenue comes from its content and publication businesses. Revenue from digital is five per cent.
 
Dinesh Jhunjhunwala, executive director, said digital content world over had not made much dent on books in the K-12 (class 1 to class 12) market. If digital contributes to 13 per cent content in the US and UK, it is less than a per cent in India. “Digital is in a very nascent stage in India. Neither people nor teachers are ready,” he said. 

 
After dilution, the promoters together will hold around 47 per cent in the company. Everstone Capital will have eight to nine per cent.
 
The Samir Sain-promoted fund, which first invested $28 million in 2012 for a 31 per cent stake, has helped S Chand professionalise its management and pursue an aggressive inorganic growth strategy in the K-12 market.
 
This funding also helped S Chand acquire rival Madhubhan, a publishing arm of Vikas Publications that has a strong presence in the K-10 market, in the same year. Madhubhan owns 700 active titles and has a pan-India presence. Two years later, S Chand acquired Saraswati House, a six-decade-old publisher. This helped S Chand to sell books through 3,500 retail outlets.

 
In 2016, it acquired West Bengal-based Chhaya Prakashani. This gave S Chand greater access into the eastern market. Chhaya Prakashani contributes around one-third to its business. However, these acquisitions left S Chand with a debt of nearly Rs 340 crore. With the public offer in its kitty, the firm wants to repay a part of its debt (Rs 270 crore), while acquiring more publications.
But the publisher is not taking its feet off the pedal in its stronghold. “Organically, our company has been growing at 20 per cent in the K-12 space over the FY12-FY16 period,” Gupta said.
 

He wants to add 4,000-5,000 schools every year for the next five years and double the reach to about 70-80 million students, growing at a rate of 10-12 per cent.