S Chand And Company Limited

S Chand & Company delivered a robust FY25, achieving its highest operating revenues in five years at ₹719.7 crores, marking a 9% year-on-year growth, supported by a 5% increase in sales volumes. Gross margins reached a five-year high of 68%, up from 66% in FY24, attributed to a favorable product mix, content licensing, and stable paper prices. The company's EBITDA also saw a significant 23% increase, reaching ₹135 crores, translating into a five-year high EBITDA margin.

The company demonstrated strong operational efficiency, with operating income surging 65% year-on-year to ₹79.8 crores. This profitability translated into healthy cash generation, with operating cash flows reaching approximately ₹99.9 crores for FY25. S Chand maintained a net debt-free balance sheet, ending the year with a net cash balance of ₹103.6 crores, providing ample liquidity for future growth initiatives and potential M&A.

Management highlighted continued focus on working capital efficiency, achieving the lowest Q4 receivable days at 140 days (down from 143 days in Q4 FY24) despite a ₹15.2 crore increase in receivables on incremental sales of ₹57.1 crores. Inventory decreased to ₹140.1 crores from ₹176.1 crores, with inventory days reducing by 61 days to 223 days. The company adopted a conservative growth strategy, prioritizing quality sales and working capital efficiency over aggressive top-line expansion that could dilute margins or lead to delayed payments, a lesson learned from past experiences.

The company is optimistic about FY26, driven by the upcoming launch of new NCERT books for four classes (4th, 5th, 7th, and 8th) following a CBSE circular in March 2025. Management expects a complete adoption of the new K-12 syllabus over the next two years. For FY26, S Chand targets operating revenues in excess of ₹800 crores and has upgraded its EBITDA margin guidance to 18%-20% from the previous 17%-19%, with volume growth expected to be 5%-7%.

S Chand is actively pursuing M&A opportunities, primarily in the K-12 segment, with a potential investment of up to ₹50 crores, aiming to fill portfolio gaps. The content licensing business showed significant growth, reaching ₹20 crores in FY25 compared to ₹1.6 crores in FY24, with a target of ₹25-30 crores for the current year. However, challenges include piracy, which led to an estimated ₹20-25 crores in lost revenue in FY25, and the slower-than-anticipated, phased rollout of the new NCERT curriculum, which has caused market confusion.

The effective tax rate for FY25 was higher at 35%, mainly due to unrecognized deferred tax in loss-making subsidiaries and previous year tax adjustments. Management anticipates normalization to 27-28% within at least two financial years as they collapse more subsidiaries. Employee costs have increased in the last two years due to investments in personnel for the NCF rollout, but a more stable employee cost base is expected once the NCF process concludes.