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S Chand & Company IPO: Nirmal Bang recommend to subscribe to the issue - IndiaNotes.com
S Chand & Company IPO: Nirmal Bang recommend to subscribe to the issue
Nirmal Bang | Published: 26 Apr, 2017  | Source : IndiaNotes.com

S Chand & Company Ltd. - IPO Note


Price Band: Rs. 660 – Rs. 670

Issue Date: 26rd – 28th April

Recommendation: Subscribe


Background


S Chand operates as an education content company in India. The company delivers content, solutions and services across the education lifecycle through its K-12, higher education and early learning segments. In K-12 business segment the company largely provides content to the CBSE and ICSE affiliated schools. Its major offerings are S Chand, Vikas, Madhubun, Saraswati, Ignitor and Destination Success as well as the Chhaya and IPP brands added recently as part of its Chhaya Acquisition.


Investment Rationale:


a)      Increase in bag share of a K-12 student

b)      Diversification of the business

c)      Focus on digital

d)      Growth in the education industry will lead to growth to the company


Details & Objects of the Issue:


The public issue of S Chand & Co ltd consists of fresh issue of Rs 325 cr and offer for sale of equity shares of Rs 403 cr by the promoter group and selling shareholders (includes Everstone Capital Parteners II LLC). The object of the issue is mainly to repay the debt  and for general corporate purposes


a)      Repayment of debt of  Rs 255cr

b)      General Corporate purposes of Rs 70cr


Valuation and Recommendation:


Over, FY12- FY16 the company sales has grown at a CAGR of 32.8% however Ebitda has grown at a CAGR of 48.9% driven by both organic and inorganic growth. Going forward, with the increase in spend by people towards better and higher education people would opt more for CBSE and ICSE board mainly because of its syllabus. S Chand being widely present in the growing segment of the education industry and having a strong brand value accompanied with a shift from unorganized to organized sector will lead to growth for the company. The working capital cycle of the company for FY16 stands at 229 days which blocks the free cash flow of the company. From FY12 to 9MFY17 the FCFF of the company stands at negative Rs 579 cr which is mainly on account of  higher working capital requirement & acquisition cost.  For FY16, ROE and ROCE of the company stands at 7.8% and 9.6% respectively. On the valuation front, at the given upper price band of issue of Rs 670, as per our rough estimates, S Chand  is offered at PE of 18.6x its FY18E EPS of Rs 35.9 and FY18E EV / Ebitda of 10.6x which is lower to its peer. We believe negative FCFF & lower ROE is on account of aggressive acquisition in last 3 year. With Organic operation we feel company can get positive FCFF & ROE can improve.  We recommend subscribing to the issue.

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About Nirmal Bang

Founded in 1986 by Nirmal Bang, the Nirmal Bang is recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.