S Chand and Company IPO

Leading text book publisher S Chand and Company IPO (S Chand IPO) is scheduled to open on April 26 and close on April 28. S Chand and Company IPO comprises of fresh issue of equity shares amounting to Rs 325 crore. Existing shareholders will offload 6,023,236 shares as part of offer for sale (OFS). At the upper end of the price band, S Chand and Company IPO issue is expected to fetch Rs 728.55 crore.

Related Link : S Chand and Company IPO: Peer Analysis
S Chand and Company IPO Details””
Issue PeriodIssue Opens On: Wednesday, April 26, 2017
Issue Closes On  :  Friday, April 28, 2017
Price BandRs.660 – 670
Bid Lot23 Equity Shares and multiple thereof
Issue Size (No. of Shares)Fresh Issue of Rs.325 Crore
Offer for Sale of 6,023,236 Equity Shares
Issue Size ( Rs.)Rs.722.53 – 728.56 Crores
Issue Structure : 
QIB*50% of the Offer -Rs. 363.28 crores
NII15% of the Offer Rs. 109.28 crores
Retail35% of the Offer Rs. 244.99 crores
Lead ManagerAxis Capital, JM Financial, Credit Suisse Securities
RegistrarLink Intime India Pvt. Ltd.
About S Chand and Company

Incorporated in 1970, S Chand and Company Limited is one of the Leading Book Publishing Company in India. S Chand and Company has graduated to become a leading Indian education content company which delivers content, solutions and services across the education life cycle through K- 12, higher education and early learning segments. S Chand and Company is 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. As of December 31, 2016, S Chand and Company offered 55 consumer brands across knowledge products and services including S. Chand, Vikas, Madhubun, Saraswati, Destination Success and Ignitor.

in December 2016, S Chand and Company acquired 74% of the outstanding share capital of Chhaya Prakashani Private Limited a company focusing on K-12 textbook publication.  Broadly the  activities of  company encompasses :

S Chand and Company
S Chand and Company has an extensive pan-India network of sales offices, distributors and dealers. In Fiscal 2016, it sold 35.47 million copies of a total of 11,144 titles. Additionally, Chhaya sold 9.88 million copies of 433 titles. Its top ten best-selling titles accounted for sales in Fiscal 2016 of 2.96 million copies, and 15 of its authors have each sold over one million copies of their titles during the last five fiscal years. it hasa contractual relationship with at least 1,958 authors (including co-authors) for over five years as on March 31, 2016.  Further  Chhaya acquisition done in Dc 2016 will add to these numbers.
As of December 31, 2016, S Chand and Company had distribution and sales network  of 4,932 distributors and dealers, and n in-house sales team of 838 professionals working from 52 branches and marketing offices across India. S Chand and Company has developed a robust supply chain by rationalizing and integrating our procurement, manufacturing and logistic capabilities. In Fiscal 2016, over 85% of its printing requirements were met by company’s facilities located in Sahibabad and Rudrapur. These print facilities and distribution networks are supported by logistics network of 42 warehouses located in 19 states to allow coverage across India. Its paper purchases are integrated, which helps it to achieve economies of scale and improves our bargaining power with raw material suppliers.
S Chand and Company IPO – Objectives of Issue:
  • Repayment of loans availed by the Company and one of their Subsidiaries, EPHL, which were utilized towards funding the acquisition of Chhaya (Rs. 150.40 Cr.)
  • Repayment/prepayment in full or in part, of certain loans availed of by the Company and their Subsidiaries, VPHPL and NSHPL (Rs. 104.60 Cr.)
  • General corporate purpose.
S Chand and Company; Financials:
Particulars9M FY17201620152014
Revenue from Operations149.51537.75476.66370.01
Revenue Growth (%)12.82%28.82%32.62%
PBIDT-83.568128.216104.04379.779
Profit Before Tax-126.30572.65553.65958.585
Net Profit as restated-88.48846.64232.76142.571
Net Profit Margin-59.19%8.67%6.87%11.51%
Share Capital14.9220.2020.2170.217
Reserves438.758483.798297.664290.174
Net worth453.68484297.881290.391
RoNW (%) 9.64%11.00%14.66%
NAV Per Equity share (Rs.)152.02162.16150.35139.91
Face Value5   
EPS 17.1010.5217.56
IPO price670
Price to Earnng (PE)39.18  
Post issue Share Capital17.348  
Price / Book Value4.41  
EPS on Post Issue Equity13.44  
PE on Post Issue Equity49.84  
Cagr sales 1 yr 12.82%  
Cagr sales  3 yr 24.45%
Cagr  PAT  1 yr 42.37%
Cagr  PAT  3 yr 13.38%
Market Cap 2325  
Market Cap/Sales Ratio 4.32  

74% stake in Chhaya was acquired by S Chand and Company in Dec 2016. As the  2016 figures do not include profits and revenue the addition to net profit for purpose of determining PE has been considered & shown separately to get a true picture. Chhaya also had a revenue of 126 crore, which has not been proportionately included in the above working.

Assessment 

Plus Points:
  • Consolidated revenue of the company has grown at CAGR 32.64% & Net Profit  grew at CAGR of 33.48% over last five years.
  • Apart from Everstone, S Chand and Company is also backed by International Finance Corporation. Everstone has invested a total of 230 crore  ( 170 + 60) in two tranches in the year  2012  and 2015  bring its stake to about 32% in the company , while IFC has made an investment of 110 crore in the year 2015. Everstone is  making a partial exit through this IPO 
  • Chhaya Acquisition has expanded presence of S Chand and Company presence in Eastern India to & contributed to  additional  distributors and dealers.
  • The company has a legacy of many decades of leadership in K-12 education content market, and strong  consumer brands across knowledge products and services which should help it to continue its growth story. 
  • The company has a Strong integrated in-house printing and logistic capabilities. With recent Capex in printing facility and company meeting 85% printing work in house, company can get economies of scale by lowering cost.
  • SCCL has invested in two companies which own the online test preparation brands, Online Tyari and Test book. It can benefit from expanding its business in this area.
  • S Chand and Company is a leader in CBSE/ICSE  books. It can reap benefit by its focus on books for other Boards as well
  • Reduction of Debt by Rs. 255 crore  which amounts to 75% of the debt , shall add to its profitability.
  • Chhayya was acquired by S Chand and Company in Dec 2016. The 2016 figures do not include profits and revenue of Chhaya in which S Chand and Company has bought 74% stake.  If this is taken in account S Chand and Company Net profit will increased and offer is value at a PE of 35 on Post issue share capital.
Minus Points
  • A threat to Company’s business could emerge from a new CBSE advisory  advising CBSE schools to use only NCERT print content for all classes this will adverse effect the revenue in future board that student cannot be forced to buy books from school only will effect future ties up with school and publishers.
  • S Chand and Company has incurred loss for 9 months ended Dec-2016 which is indicative of highly seasonal nature of business.
  • S Chand and Company has an obligation to acquire remaining 26% stake in Chhaya Prakashan.
  • P/E ratio works out to 39x. listed peer Navneet Education is trading at a lower P/E and has higher margins and higher return on Net worth. Hence, the valuations  demanded appear to be on the higher side. However adding figures of Chhaya brings some comfort. Chhaya acquisition is a double edged sword for S Chand and Company. It could add substantially to its profits or bring it down. See S Chand and Company IPO: Peer Analysis
Final Notes
  • S. Chand is a strong brand in the publishing business and its  dominating presence spanning over seven decades, leadership in K-12 education content ,  & growth prospects have been fully captured  at the valuations of ₹ 660-670 per share  at 39XFY16 earnings. However since 74% stake was acquired in Chhaya Prakashani by S Chand and Company in Dec 2016. the reported  figures do not include profits and revenue of Chhaya  If this is taken into account S Chand and Company Net profit will increase and offer is thus valued at a PE of 35 on Post issue share capital shown in table earlier. 
  • Grey Market premium of S Chand and Company as on 24/04/17 was reported to be  Rs. 180 .
  •  The company could do well going ahead & may be able to justify the price being sought. However the issue has been  aggressively priced and even as it has started commanding good premium in Grey market it cannot be considered entirely in the safe zone.
  • Given no other issue at this point of time, proliferation of Demat accounts and past performance of IPOs, S Chand and Company IPO is likely to witness good demand despite a rather stiff price. However Chayya contribution in 2016 bring some comfort to valuations as reported  earlier.
  • I intend to apply in S Chand and Company keeping in mind that it is bit risky one and return may perhaps get impacted by market conditions on listing. At this point of time, I intend to apply in the IPO but mostly sell on listing unless there are some other developments. 

 

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.