CL Educate — Q3 FY25 earnings call

Call held 5 Feb 2025

Management summary

CL Educate reported a mixed Q3 FY25 with overall revenue growing 5.5% to ₹269 crores, driven by strong MarTech performance (up 23.4% to ₹116 crores). However, the EdTech segment faced headwinds, declining 4.9% to ₹153 crores, primarily due to challenges in test prep. Operating EBITDA saw a 10% dip to ₹18 crores. The company is nearing completion of the strategic NSEIT DEX acquisition, expected to add ₹200 crores in revenue and 17% EBITDA margin, and successfully launched its new Kestone Utsav social events business.

Highlights

  • Overall revenue grew 5.5% YoY to ₹269 crores from ₹255 crores.

  • MarTech business revenue increased by 23.4% YoY to ₹116 crores from ₹94 crores.

  • Platform Monetization segment within EdTech grew 20%, with its EBITDA up 84%.

  • NSEIT DEX acquisition is near completion, adding a ₹200 crore top line with 17% EBITDA margin.

  • Kestone Utsav, a new social events business, successfully launched with strong founding members.

Concerns

  • EdTech business revenue declined by 4.9% YoY to ₹153 crores from ₹161 crores.

  • Overall operating EBITDA dipped by 10% YoY to ₹18 crores from ₹20 crores.

  • Test prep business (80% of EdTech) revenue was down 9% due to local competition, online players, and pricing pressure.

  • Law and CUET segments within EdTech were significantly impacted by exam date shifts and slower-than-expected growth.

Key financials

  1. Revenue ₹269 Cr +5.5%YoY
  2. Operating EBITDA ₹18 Cr -10%YoY

What they filed

Q1 FY27: revenue down 12.5%, net profit up 55.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue98 70 97 146 164 +68%120 +73%118 +21%128 −12%
EBITDA11 -0 1 18 24 +121%4 +2607%3 +199%17 −1%
Net profit3 -3 -16 -4 5 +54%-17 −443%-10 +34%-2 +55%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹269 Cr Total
  • EdTech ₹153 Cr 56.9%
  • MarTech ₹116 Cr 43.1%

Capital allocation

high confidence
  • Debt Debt disclosed
    • New borrowing Borrowed funds from The Piramal Group-led consortium for NSEIT DEX acquisition at competitive rates.
    Just on an overall basis where we have borrowed funds from, The Piramal Group, which has led a consortium, and we have, negotiated good competitive rates from them.
  • M&A NSEIT DEX Acquisition · Pending regulatory

    Significant orbit-changing event, expands assessment opportunity in India, provides scalable technology backbone.

    Expected to contribute a top line of ₹200 crores with about 17% EBITDA margin.

    The Share Purchase Agreement ('SPA') has been signed... couple of, absolute closure events that are pending, such as, taking over of the board... We foresee those, completing in the next seven to ten days.

Guidance & targets

NSEIT DEX Growth

  • Revenue Doubling NSEIT DEX Growth · next three to five years · Medium confidence Double current revenue
    doubling from here is the first station for us.

    — Satya Narayanan

Kestone Utsav Capacity

  • Annual Luxury Weddings Kestone Utsav Capacity · year three or year four · Medium confidence 400 to 500 weddings
    can we build capacity and ability to do 400 to 500 weddings annually in year three or year four?

    — Satya Narayanan

Kestone Utsav Profitability

  • EBITDA Margin Kestone Utsav Profitability · near term · Medium confidence 10 to 12%
    10 to 12% EBITDA is what we are thinking. But maybe it can get better

    — Satya Narayanan

What to watch in Q4 FY25

NSEIT DEX acquisition completion

next quarter
Current SPA signed, board takeover pending, near completion
Target Acquisition closed, board taken over

Why it matters

Crucial for the company's strategic expansion and financial impact, as it's a significant growth driver.

The Share Purchase Agreement ('SPA') has been signed... couple of, absolute closure events that are pending... We foresee those, completing in the next seven to ten days.

Risks & concerns

  • Intense competition and pricing pressure in EdTech test prep.

    high

    Local competition and online players offering freemium products are impacting MBA and law businesses, leading to a 9% revenue decline in test prep.

    Management acknowledged

  • Impact of exam date shifts on Law and CUET segments.

    medium

    Shifting exam dates significantly impacted the crash course and repeater markets, and CUET growth has been slower than expected.

    Management acknowledged

  • Lower margins in MarTech due to environmental factors.

    medium

    MarTech margins are 'a bit lower' due to environmental factors, especially with tech companies, but management anticipates improvement next financial year.

    Management acknowledged

Q&A highlights

3 direct
Potential conflict of interest between CL's test prep and NSEIT DEX assessment business. Direct
the areas where CL has test prep interest, we will not venture DEX will not venture into those areas at all, which are, essentially the mandate MBA law, IPM. These constitute 95% of our portfolio as of now.

Addresses a key concern about internal competition post-acquisition and clarifies the strategic separation of business areas.

Growth trajectory of NSEIT DEX post-acquisition. Partial
there is an exceptionally large room for growth at a reasonably healthy, clip over the next three to five years... doubling from here is the first station for us.

Provides management's qualitative vision for NSEIT DEX's growth, emphasizing market potential and international expansion.

Asked by Garvit

Funding for NSEIT DEX acquisition. Partial
we are using a mix of debt and equity. We will share more specific details on that when we do the, specific DEX session on, conclusion of the transaction.

Confirms the funding mix but defers specific financial details, indicating an upcoming dedicated session for investors.

Strategies to mitigate muted growth and regain market share in the EdTech business. Direct
we are broad basing ourselves as far as the UG is concerned... adding a few more segments to them, like hotel management, mass communication, journalism, etc, and broad based in the BBA product.

Outlines the company's strategy to diversify and broaden its offerings in the UG segment to counter competition and pricing pressure.

Business model, unit economics, and potential margins for the Kestone Utsav business. Partial
10 to 12% EBITDA is what we are thinking. But maybe it can get better if we do a few things that we are wanting to do.

Provides initial margin expectations for the newly launched business, indicating its potential profitability.

Update on the GST demand notice. Direct
This is a demand notice. We received a show cause notice on the same... our lawyers remain confident at the same stand and the same stance will apply in this case as well and, that we have nothing to worry about in this specific case.

Clarifies the status of a regulatory issue, indicating management's confidence in its resolution based on past precedents.

3 min read 6 chapters

Detailed narrative

NSEIT DEX Acquisition Nears Completion, Poised for Strategic Growth

CL Educate is on the verge of completing the acquisition of NSEIT DEX, with the Share Purchase Agreement already signed. The company anticipates finalizing the remaining closure events, such as board takeover, within the next 7-10 days. This acquisition is considered an 'orbit changing event,' bringing in a business with a current top line of ₹200 crores and an EBITDA margin of 17%. It significantly expands CL's total addressable market in assessment services, which is estimated to grow from 9 crore to 18 crore people in 5-7 years, leveraging NSEIT DEX's scalable technology platforms.

Mixed Q3 FY25 Financial Performance with EBITDA Dip

For Q3 FY25, CL Educate reported a 5.5% year-on-year revenue growth, reaching ₹269 crores from ₹255 crores. However, operating EBITDA saw a 10% decline, falling from ₹20 crores to ₹18 crores. This dip was attributed to challenges across both EdTech and MarTech segments, with a slightly greater impact on EdTech. The company continues to invest in people and technology for long-term growth, which impacts employee benefits, but expects margins to pick up in future quarters.

EdTech Segment Faces Headwinds and Strategic Shifts

The EdTech business experienced a 4.9% revenue decline, dropping from ₹161 crores to ₹153 crores. The core test prep segment, accounting for 80% of EdTech, saw revenues decrease by 9% due to intense local competition, online freemium products, and pricing pressure in MBA and law businesses. To counter this, CL Educate is broadening its UG offerings beyond MBA and Law to include hotel management, mass communication, and journalism, and is relaunching its CSAT program. The company expects these strategies to show results in the next two to four quarters.

MarTech Business Shows Robust Growth and International Expansion

In contrast to EdTech, the MarTech business demonstrated strong growth, with revenues increasing by 23.4% year-on-year, from ₹94 crores to ₹116 crores. This growth was driven by a 19% increase in India and a 26% increase internationally. Despite this, MarTech margins were 'a bit lower' due to environmental factors and the tech industry landscape, but management anticipates improvement in the next financial year. The company is leveraging its key clients to expand into APAC, with VOSMOS gaining Salesforce as a new customer.

Launch of Kestone Utsav for Social Events with Clear Targets

CL Educate successfully launched Kestone Utsav, its new social events business, on January 12, 2025, with a destination wedding in Jaipur. The company aims to capture 1% of the luxury wedding market, targeting 400-500 weddings annually within three to four years. Management projects an initial EBITDA margin of 10-12% for this business. To manage seasonality, Kestone Utsav will also focus on large format campus festivals and events during the June-October period, complementing the wedding season.

Regulatory Update on GST Demand Notice

The company provided an update on a GST demand notice received, which follows a show cause notice from the previous financial year. CL Educate had appealed the initial notice and is contesting the current demand notice with confidence, citing a favorable ruling in a similar service tax matter at the Supreme Court level. The company's lawyers remain confident in their stance, and the information has been shared with stock exchanges and investors, indicating management's belief in a positive outcome.

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