CL Educate Ltd

NSE:CLEDUCATE

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Arjun Wadhwa, executive]

A very good afternoon, ladies and gentlemen, and welcome to CL Educate Limited's Q1 FY '25 Analyst Call. My name is Arjun Wadhwa. I'm the CFO of CL Educate and I'll be your host today.

Welcome once again to a homegrown Metaverse platform called VOSMOS, which we have been using for the last 10 quarters now for our analyst calls. This call, as always, will be recorded, transcribed and made available in the Investor Zone on our website in the next 24 to 48 hours. [Operator Instructions]

Joining me on this call today is Mr. Nikhil Mahajan, he's our Executive Director and Group CEO of our Enterprise business; and Mr. Satya Narayanan, our Founder and Chairman. I'd like to start by inviting Satya to say a few words before Nikhil runs us through the presentation, spending some time on the financial and business updates. Over to you, Satya.

[R. Narayanan, executive]

Thank you, Arjun. Welcome, everybody. Good afternoon. I will dive straight into the one-slide summary that I'll take you through. As you might have already taken a look at, the Q1 was a bit of a flat quarter. We will explain some of those in detail. However, our forward-looking outlook continues to be healthy. The quarter 1, as you know, also was a big event from the perspective of general elections. Many things were in a slightly -- in a state of limbo or some important decisions, seasons, all of those, got deferred by a few weeks, but all of those will catch up in Q2 and Q3.

Giving a little bit more texture to it, on the EdTech side, the MBA side, Test Prep. One of the things that we also have been consciously working upon is to grow our market share. And if it means that there are places and markets where we have to be a little bit more aggressive in our pricing to gain more market shares, we have done that, especially in the MBA segment. You will hear a little bit more about those numbers down the line. And as a result of that, while the enrollment numbers have gone up, there is a bit of a drop in the margins, et cetera. We think that these things can be recovered once we get to a certain state of market share that we have set for ourselves.

On the Kestone side, a little bit of delays and a little bit of price [ indiscernible ] has been evident in Q1. But as you all know, the coming quarters are traditionally been more important for us. And we think that there will be a makeup to be able to reach our internal set goals for the year. We look forward to that.

Overall, a little bit of a tightness of pricing is visible. We are very aware of that and appropriate decisions on managing costs, overheads, et cetera, also being kept in mind without losing out on being on a positive and investment kind of an outlook that we are holding for our results for the next 4 to -- 4 to [ 5 ] quarters.

Investments are continuing to happen from a medium-term to long-term perspective, both on the EdTech side as well as the MarTech side. We've added the bandwidth in terms of people, investments in technologies that are happening. On the Test Prep side, this has been especially in the realm of partner and franchisee expansion and also making additional investments in the digital as well as the CoCo center side.

On the Kestone and the platform monetization part, we think that they are at a good place. So as you know, investments of people to get in additional industry verticals -- vertical heads, strengthening our teams in Singapore, Indonesia and the U.S., those are continuing. So it will be a [indiscernible] of our temporary phase of margins or the profitability feeling squeezed, but we think that these are very necessary and desirable things for us to do, keeping 4 to 8 quarters in mind. As I mentioned, Q2 and Q3 are crucial and they are looking okay from our internal assessments point of view.

On the broader, larger growth trajectory, we are focused on both kinds of opportunities, organic wherein the BAU, additional drawbacks, additional geographies, those are happening. At the same time, we are also looking at a couple of M&A opportunities, which is too premature to perhaps go deep into it. But I think in the next quarter, it'll -- one -- at least one of those is likely to take some complete shape and at the stage, we'll come back and give you the updates on the sale.

So the business as usual and the new products that I mentioned, both of those are going to be focused on ensuring that the targets set for organic growth and '25 financial year numbers, those are met.

I'll pause there and hand it back to you, Arjun, to get Nikhil in for the detailed presentation.

[Arjun Wadhwa, executive]

Thanks, Satya. Nikhil, would you like to just provide a quick overview of our businesses for new joinees and then maybe jump into the financial updates and the business updates for the quarter?

[Nikhil Mahajan, executive]

Yes, sure. Thanks, Arjun, and welcome, everybody. CL Educate has 2 broad lines of businesses. One is our EdTech business, which largely goes under our consumer-facing brand Career Launcher. We are a pan-India Test Prep player with multiproduct penetration, with presence not only in India, but also in Middle East, with about 7 locations outside India. We are -- our product segment are reasonably diversified with significant or large market shares in MBA, Law, IPM, CUET, study abroad and that helps us diversify any product risk which might come once in a while in one product segment or the other.

We are currently present in close to 200 locations, of which about 190 are in India and about 7 in Middle East. We have been focusing significantly over the last 4 to 6 quarters to work towards enhanced center coverage, enhanced locations being manned by CL partners, where we had set an ambitious 3-year goal to reach 500 locations. We are working tenaciously towards that goal without compromising on the aspect of being able to get the right people to be our partners. We have not -- we have decided not to lower our benchmarks in terms of the people whom we sign up as our partners, because that work has helped us over the last 20 years with a partner retention of close to 80% and with many partners being in the system for last 20 years plus.

Our endeavor is anybody who comes in, signs up as a CL partner, stays for almost his lifetime, and that's what we are consciously working. So while the sign-up rate might appear slow, but we are continuously working towards getting the absolutely best fit right partners to us.

Arjun, can you move forward? As I shared earlier, predominantly in the Test Prep segment, we are market leaders in 3 to 4 product segments like MBA, Law, IPM. CUET is an emerging segment, product segment, with the number of test takers are pretty huge in terms of about 1 million plus. But the opportunity is still evolving and developing because currently, the exam appears to be pretty simple, reasonably simple. And over the next couple of years as it gets more settled in with adoption by a larger number of universities and the playing field will become more -- slightly tighter and more defined, we expect that the volumes, the students will need prep assistance to able to reach out to the right college would only increase. So it's a game which has to be played out over the next 3 to 5 years. And we are consciously investing both in locational coverage as well as the right people at the right places to be able to corner a larger market share.

Arjun, can you move forward? Kestone, our experiential business marketing support service business, is close to $17 million, $18 million business last year with presence in India, Singapore, Indonesia, U.S. and Middle East. The international business contributes roughly around 35% of the total of this segment and has been growing at a pretty fast clip. Even in the last quarter, it has grown at over close to 50%. And we are extremely bullish in terms of our international expansion and penetration in the existing markets as well as getting into newer markets as and when we think the opportunity and timing is right for those markets.

As you can see, some of the most -- some of the largest brands are our customers. We keep on adding newer and more powerful brands to our portfolio. Yes, as Satya outlined, there has been a bit of enhanced cost cautiousness in terms of slight trimming in the marketing spend, marketing budget spend, that scale of experiential marketing event is slightly on a smaller scale. There is heightened margin pressure, slightly more tight-fisted. But that has impacted our gross margins a bit. It happens once in a couple of years.

We are re-pivoting our revenue mix in order to realign towards slightly higher-margin businesses and larger events, larger experiential properties, wherein we are able to get higher margins. First quarter was slightly slow because as Satya outlined, the general elections in April and May, until the new government came in, most companies wanted to play a wait-and-watch game before they started opening up their marketing spend.

Our pipeline and execution outlook for Q2 and Q3 is pretty healthy with some big ticket events lined up for execution in the months of August, September and October. So we are significantly optimistic and bullish about a reasonable growth in this line of business in the current fiscal.

Arjun, you can move ahead. Now coming to a brief snapshot of the financials. Last year, in Q1, we did INR 92 crores of revenue. This has grown marginally only by 4% to about INR 96 crores this year. EBITDA is also more or less flattish with hardly at 1 or -- hardly a 1% growth from going from INR 11 crores to INR 11.1 crores.

Profit after tax has declined. But that's not an absolute cause of worry because last year, in the first quarter, the taxation was rolled under a minimum alternate tax regime. And then subsequently in the third and the subsequent quarter, we moved into the normal taxation. So this year, in the first quarter itself, we are in the normal taxation at 27%. So I think over the -- from a year-to-year full year comparison between FY '24 and FY '25, there's one quarter blip, a slight dip in profitability, predominantly because of the tax rate impact, would get normalized and on a full year basis, our average taxation would more or less come to a similar level as last year.

Cash position continues to be healthy despite a buyback of about INR 11 crores, INR 12 crores last year. Our cash position, we have a gross cash of about INR 110 crores, including -- and our borrowing level is very marginal at around INR 20 crores. So we continue to expect accretion of cash in the remaining 3 quarters of the year. So I think we would remain a reasonably cash positive company over the next couple of quarters until this cash is appropriately deployed for either organic or inorganic business growth.

A brief detailed business insight. As Satya had outlined, consciously, we had set out a goal for working towards enhancing our market share in both MBA and the Law segment. And in order to achieve that goal, we had to tweak our pricing strategies to stay ahead of the competitive line. We have definitely added volumes, enhanced the market share. But because of the suitable pricing adjustments, our billing has more or less remained flat or even in a couple of product segments, declined marginally.

Our platform and publishing business is doing reasonably well with a 25% growth over -- quarter-to-quarter over last year. And our platform business, which basically caters to the business -- the marketing outreach and admission services to universities, starts peaking in Q2 and Q3, as right in Q1, they are mostly involved in closing the admissions for the academic season, which has just about started or will start in a couple of weeks.

As I stated earlier, our international business in the MarTech space continues to grow pretty handsomely with -- in first quarter growing at 50%.

EBITDA margins have more or less stayed at a similar level because of slight tightness in the gross margin because of the customers keeping a tight fist on the size and the pricing of the services which we offer. Quarter 1, in a sense, also they were waiting and watching out for election and setup of the new government in 2 of the -- in both India as well as Indonesia. So as I think the new governments are settling down, businesses are more reassured and I think the pipeline for Q2 and Q3 strongly reflect the outlook for these markets.

Arjun, if you can move ahead. A slightly more deeper dive. As shared earlier, MBA enrollments, our volumes grew by 40% in Q1, and that was our stated goal, to garner a larger market share, even at cost of slashed pricing. In Law, there was a marginal enrollment dip, but the overall trajectory stays positive. Due to the change in the examination season in the last 6 quarters, earlier, the exam used to be in May until '22, but subsequently, it has moved to December. So there is a chunk of population which feels that they are unable to concentrate and devote adequate time in the preparation for a competitive exam in the month of December as well as stay focused for the Grade 12 board exams. So we have seen a slight dip in the test takers. But I think that's beginning to normalize and I think over the next 2 years, I see no reason why the number of test takers won't go back to the level where it was 2 years ago. And CL, being the largest market player with our market share close to 50%, any uptick in the test takers, CL would be the largest beneficiary.

So another positive thing, the way we look at it is, a larger chunk of students who used to initially come only for a 6-week, 8-week crash course, now are exploring possibility of starting to work on it immediately when they move to Grade 11. So we have seen a larger transition of students looking for Law prep in Grade 11 and 12. And that obviously happens at a higher price point. And however, the shift from the entire segment of crowd, which used to earlier come for the crash course, hasn't yet moved into a 1-year or a 2-year course. May take a couple of more years for it to stabilize back at 2022 levels.

As I stated, franchise expansion and more and more cities coverage has been our stated goal. We have done 3 major franchise appointment, engagement events, starting with Delhi, then in Bombay and the last one in Chennai, wherein we have met and engaged with 500-plus potential partners. While in the last quarter, so we have done 9 significant -- 9 sign-ups in significant markets, but the pipeline is strong enough for a significant larger sign-up in the coming couple of quarters. And as I said, we, in order to ensure long-term survivability and good outcomes, we are not lowering our benchmarks in our endeavor to hit the 500-city mark, by lowering the benchmarks of the type of people who become CL partner. So while the growth rate of accretion of partners might be slightly slow to start with, ensuring the quality of people who become partners will play strongly over a long run of period from CL's point of view.

Arjun, we can move ahead. On the EdTech platform, we have -- it's doing well. We have added -- we grew by about 18% in revenue. We have added new clients. I think Q1 is not a quarter to talk too much about because that's the leanest quarter in the entire 4 quarter cycle. Q2 and Q3 are the biggest ones and our pipeline is absolutely packed in order to be able to grow significantly over last year. As shared earlier, we had launched a new common application form, fully digital platform, about 2 quarters ago. That has gained significant traction. We are working towards onboarding roughly around 100 institutions. During the course of this year, we have already hit the 50 mark. And we are looking at 10,000 unique individuals buying at least on an average 2, 2.5 forms.

So depending upon -- and the season just is about to begin. The CAT notification came out last week, the Law notification is expected shortly. And students will start applying gradually over the next couple of weeks. And we see a significant booking for students to use our platform to go to the -- apply through our platform to these institutions.

Our new product inventory in forms of video asset monetization was launched last quarter. I'm happy to share that we have started onboarding customers on a low ticket size to begin with. And as the season gets into full scale beginning Q2, this will gain greater and greater traction. And this is a very high-margin business and any scale-up in this business from a 3- to 5-year perspective will not only result in significant revenue ramp-ups, but also significant expansions in the EBITDA margin for this line of business as well as the overall CL's EdTech business.

Arjun, we can move forward. Publishing business did reasonably well in the first quarter with our revenues growing 27%. Our online sales to online players also grew very handsomely by about over 100%. And that as a conscious strategy post COVID, we had chosen to realign our business sales strategy to either focus largely on institutional business to colleges, libraries, other players or go through the online channel. And I think that's beginning to pay results. Our collections to sales ratio has begun to hit the target level, which we had aimed at. All in all, this business is showing a very positive healthy growth rate and we expect that the remaining 3 quarters, we will continue to see a positive traction in this business as well.

MarTech business, as shared earlier, the revenue increased by about 50%. EBITDA was more or less flat. Part of the reason was not just slightly tightening of the margin, but also the revenue mix. In absence of many corporates not willing to take a clear bite in absence of a clear direction on the political outcomes of the result, at least in India in the first quarter, the businesses which we executed were more run of the mill, which are slightly lower margin. Most of the higher-margin businesses, either the large ticket experiential events or the digital marketing spends and the digital large conventions, most of them are getting rolled out in Q2 and Q3. And we see that on a yearly basis, we expect the gross margin to broadly stay within 100 basis points plus or minus of what we had. And we're still at the beginning of the year. So I think when we meet again in 90 days for the Q2 thing, I would be in a position to share that the margin story is looking significantly better than what it is apparent in Q1.

Arjun, we can move ahead. Here are some of the -- basically, we did a -- the right-hand corner, we did one of the largest events for Salesforce recently in which they invited the 1983 India cricket team. You can see Kapil Dev there. There were 12,000 participants who attended this event globally in a virtual manner. And there are significant large-size similar events in pipeline over the next 3 quarters. And the VOSMOS business, though not growing as -- because a lot of event activity, which had in '21 and '22, gone totally virtual, the hybrid is now playing a significant role. A lot of physical events are taking place. But the VOSMOS and the virtual events platform is continuing to grow steadily at 25%, 30%, and we expect that steady growth rate to be maintained.

Arjun, I think that's all. And we are all happy to take any questions from all of you. Arjun, over to you.

[Arjun Wadhwa, executive]

Yes. Thanks so much, Nikhil and Satya. I've already got a slew of questions that have come my way, so I'll jump in right away. One of the early questions that has been asked by [ Subrat Das ] is how many new CoCo centers have been opened during the last 1 year?

[ Subrat ], the answer is -- and Nikhil, please correct me if I'm wrong, Satya, but I think we refrained from opening any new CoCo centers. The way our business model works is we're looking to expand our franchise network and that's where the focus is. So our investments continue to be in franchise expansion as a mode of growth towards achieving our goal of 500 centers over the next 3 to 5 years.

Another question is on 361, that we have programs now from one IIM, that is Amritsar. How do we plan to compete with other platforms? And what other IIMs or IITs are we planning on signing up with?

[R. Narayanan, executive]

Arjun, maybe you can stop sharing the presentation so that they -- if that's okay.

[Arjun Wadhwa, executive]

Yes, sure. I will do that.

[R. Narayanan, executive]

Okay. So I'll take that 361 question, Arjun. So -- okay. So yes, we have signed IIM Amritsar and the idea is perhaps to add 1 or 2 more marquee institutions that have a strong pull factor and making enrollments successful for IIM Amritsar and whichever 1 or 2 that come on board will be an important MVP or a project for 361. Otherwise, the earlier institutions which are already there on the platform and their enrollment, those are happening as usual. But one of the things that we have undertaken after coming on board is to see if we can add more reputed institutions which have a natural pull. But it's too early, we're just finishing one quarter. I think the important principle that we are letting the management team know is to make sure that the pilots are successful and we don't go over aggressive on marketing spend, et cetera, until certain go-to-market pilot are successful.

[Arjun Wadhwa, executive]

Thanks, Satya. While I have you, I'll just throw one more question your way. Can you talk about the regulatory impact on the physical centers on Career Launcher as well as our competitors?

[R. Narayanan, executive]

Unfortunately, the loss of those lives of young students has come under hard gaze by the government, including the judiciary, Supreme Court, has taken a suo moto cognizance of the matter and certain observations have been made. We have been fairly militant about not violating most of these to the extent that we can. So we continue to be vigilant.

One of our centers in Noida was affected. It temporarily, it had to move for -- to online delivery. And the gaze is that much harder more in the NCR region. And almost all players are affected, some more and some less, depending upon how much each organization has been vigilant about it or self-restrained about it as far as safety norms are concerned.

[Arjun Wadhwa, executive]

Thanks, Satya, and if it's okay, I'll just throw one or two more questions your way before I move on to Nikhil. There are a couple of questions about CUET and study abroad segments in terms of both our focus in those areas going forward. And what kind of growth we expect, both in those and in the MBA and Law segments specifically towards achieving a target of them becoming INR 100 crore businesses.

[R. Narayanan, executive]

Yes. I think MBA, Law and IPM, they would need strategies that help us succeed in increasing our market shares, penetration and a mix of online and off-line. Those are underway. So I will skip that, but I think I can close that particular observation by saying that the targets of getting to that INR 100 crores, the road map to that, those look achievable as per our internal estimations.

CUET, we just wish that the examination became a little tougher because that is necessary, both from an academic fidelity point of view and also for the -- for any entrance exam to be discerning enough to categorize students and discriminating enough for the right goal to be reached. If the -- currently, the paper is slightly easier than it should be. As a result, the 97 percentile and the 100 percentile look the same, because everybody is getting 100 percentile.

So we are aware of these conversations happening in the expert groups. We think that, that will catch up as Arjun also mentioned, over the next season or 2. And the international education or study abroad, that is something that we are bolstering further and we are taking some steps to further strengthen the team, in addition to executing it the way organically, we've been executing in the last 2 years. I think we will be able to share some updates about our team strengthening, once a particular conversation or two, they're going through fruition in the next quarter.

[Arjun Wadhwa, executive]

Thanks, Satya. I'll give you a bit of a break. Nikhil, there are a few questions I'd like to throw your way from the group that has come. One of them -- in fact, actually, 3 different people have asked about the reason for increasing our borrowing power to about INR 400 crores. And if there's an acquisition likely to come out -- or if there's an announcement in the near future expected? So maybe you'd like to take that on first and then I'll...

[Nikhil Mahajan, executive]

I think the answer has been given in the question itself. It's a preemptive in-principle approval, as Satya had outlined, there are a couple of inorganic discussions at critical stages right now. We don't know whether they will fructify. We are putting in all our efforts to hopefully take them to a logical conclusion. The reason for enhancement in borrowing power is to be able, if and when such thing -- anything like that materializes, we don't have to go back to the shareholders to take an enhancing of our borrowing limit. So we are just taking a preemptive approval of that at this stage, and will be put to use if and when necessary if the opportunities do really materialize. I think as Satya said earlier, if and when there is a concrete update which is worthy to be shared, you will be the first guys to hear about it at an appropriate stage.

[Arjun Wadhwa, executive]

Thanks, Nikhil. There's also a request from [ Puneet ] that if we are planning a buyback this year, to do so before 1st October before the taxation kicks in, so that's something we'll take under advisement, [ Puneet ]. Obviously, it has to fit in with the rest of our corporate action strategy. So we'll -- your feedback is well taken. We continue to do what we can from a shareholder perspective to return as much value to shareholders and we'll keep you apprised of developments over the next quarter depending on what else moves for us.

[Nikhil Mahajan, executive]

Arjun, just to add to that, anyhow, we can't -- the, 12-month limit doesn't end until November. So there's no way, even if we wanted to, 1st October is...

[Arjun Wadhwa, executive]

It's not really an option right now, because...

[Nikhil Mahajan, executive]

Off the table.

[Arjun Wadhwa, executive]

Our last buyback started in August and ended in 28th October.

[Nikhil Mahajan, executive]

28th November.

[Arjun Wadhwa, executive]

November, I beg your pardon, 28th November. There are continued questions on CUET and about what growth rate in CUET and international mobility we can expect going forward? And is there any kind of guidance we'd like to give for FY '25 as a whole, both from a revenue and a margins perspective?

[R. Narayanan, executive]

Arjun, I think as we will refrain from giving any specific numbers guidance, but both of these are very much part of our hard focus for growth. And I think over a couple of seasons, both of these should end up together contributing a sizable business when we compare them with Law or MBA, okay? So if they become comparable in 3 years' time together, that's -- I would not be surprised. I think we need to aim at that or more.

[Arjun Wadhwa, executive]

Right. Thanks, Satya. There are more questions about possible M&A and acquisitions, which I will refrain from taking at this point in time. I think Satya and Nikhil have both addressed that appropriately for now. As soon as we have something more to share on these, we will definitely keep everyone in the know if something does fructify.

[R. Narayanan, executive]

Arjun, just to kind of just chip in with one sentence, the approval, like Nikhil mentioned, is for something for which we have been at work for the last 6 to 9 months. And this is directed, this step is directed as a state of preparedness for something like that. So it's not a random thing and then we don't have anything to go with. So I just thought I'd clarify that. However, perhaps it is premature for us to share until certain concrete milestone is crossed. Yes, thanks, Arjun.

[Arjun Wadhwa, executive]

Yes, thanks, Satya. I'll take one last question. Again, a generalization from 2, 3 questions that others have posted, that we had exhibited considerable growth in Q1 last year, especially in the Test Prep space and what has changed this year?

[R. Narayanan, executive]

Yes. I refrained from referring to the 43%, 44% kind of a growth last year first quarter, and this one was on top of that. So we think that for reasons such as the shift of exam and the little bit of a pushing of admissions season owing to the elections. And as you know, it affects educational institutions', schools' and colleges' calendar a little bit. We think that some of it is a deferment of enrollments and business. Along with that, in MBA, there is a conscious price-led intervention that we did to garner market share in a few crucial markets, okay? But overall, we continue to think that we have guided to the goals that we have set internally for ourselves for FY '25.

[Arjun Wadhwa, executive]

Right. Thank you so much, Satya and Nikhil. And thank you, everyone, for having joined this call this afternoon. Wish you a pleasant day ahead and look forward to seeing you in 3 months at the most, yes. Cheers.

[R. Narayanan, executive]

Thanks, Arjun. Thanks, Nikhil.

[Nikhil Mahajan, executive]

Thanks, everybody.