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Navneet Education Ltd
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Ladies and gentlemen, good day, and welcome to Navneet Education's Q3 FY '23 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Jinesh Joshi from Prabhudas Lilladher. Thank you, and over to you, Mr. Joshi.
Yes. Thanks, Nirav. On behalf of Prabhudas Lilladher, I welcome you all to the Q3 FY '23 earnings call of Navneet Education Limited. We have with us the management represented by Mr. Sunil Gala, who's the MD; and Mr. Kalpesh Dedhia, who's the CFO; Mr. Roomy Mistry, Head IR; and Mr. Sanjeev Shah, who's the Joint MD of Navneet Future Tech.
I would now like to hand over the call to Sunil Bhai for opening remarks and maybe then we can open the floor for Q&A. Thank you, and over to you, Sunil Bhai.
Thanks, Jinesh. Good morning, all of you. And first of all, thanks, Prabhudas Lilladher for arranging this call. So looking at last 3 quarters, we believe even regional medium schools have stabilized. I'm just repeating again that -- and as mentioned in my last call that ground reality in 3-tier and 4-tier cities are much different than what we see in metros. But looking at this stabilization even in 3-tier and 4-tier cities, now we are confident on full-fledged running of schools with good admission numbers from next year. There is still uncertainty on paper prices, which is our biggest raw material.
In Q3, a certain variety of paper prices did soften. But again, paper mills are talking upward revision going forward. We believe it is very, very temporary because of the demand-supply situation in the country. Fortunately, the company has built good inventory of paper for and same season for its publishing and domestic paper businesses. At EBITDA level for your year -- for the year-to-date, we achieved INR 302 crores on standalone basis, a little lower than pre-pandemic level, but we are sure of catching up in last quarter. No doubt, EBITDA as a percentage is also lower compared to pandemic year and which is mainly on account of increase in various expenditure -- expenses in last 2 years without increasing revenue.
Now let me give you my view on each of the businesses in brief. So first, I'll talk about traditional businesses. So as you all know, that bulk of our business resides in the standalone entity and consist of publication and stationery business. And we also have subsidiary Indiannica, which caters to CBSE textbook market. Considering impact of COVID and traditional seasonality of the business, which got shifted in COVID years temporarily, it is best to compare our performance with '19/'20 numbers.
The performance of these businesses is given in our presentation on slides which is 17 to 19. So let me again talk about our first publication business. That, as you all know, will largely cater to regional private schools of Maharashtra and Gujarat. What I mean regional means, SSC schools of Maharashtra, where we have more than 2/3 market share and cater to regional languages as well, largely catered to workbooks, guides and question banks for students. Quarter 1 is the dominant portion of our revenue for this business.
This business got impacted in '23. It means in the current year as compared to 2020, which you can see from 9 months performance. Certain percentage of students had shifted from regional to government schools, where our workbooks and guides are not used. These students could not written by the time 2023 session started as the financials of the families were impacted and benefits of recovery from COVID were still to set in.
For obvious reasons, many of the students who stay away chose not to come back in mid-session even as economy recovered, while some did come back. So further inventory of 2022 piled up at dealer's end, and we witnessed increase in sales returns in '23 compared to 2020. Thus, while you see company-level sales, they are post netting of sales return. But in reality, retail level sales actually had increased. But because of sales return, the numbers compared to 2020 is a little lower.
I'm sure all of you know that education for most Indians in urban India is #1 priority after food and clothing. As economy unemployment has picked up, we are quite hopeful of good growth in this part of business in 2024 based on our interaction with the schools. Further beyond 2024, we should be a key beneficiary of NEP, National Education Policy, for many years. NEP will make second-hand books, which is a key competitor of our business irrelevant in the years, of course, change. We also would need to come out with additional books and add the actually pages to the existing books to cater to a more comprehensive curriculum under NEP, which will increase our revenues. So this is on core publishing business of Navneet.
Now on stationery business, I would rather first divide into 2 parts, which is domestic stationery and exports. We are the second biggest player in domestic stationery market in India or in organized sector. Domestic station revenue grew much better than our expectation this quarter due to impact of paper prices and COVID on smaller paper players. Market seems to have consolidated, which is good for a company like us for our long-term margins and revenue, though margins have fallen temporarily due to steep hike in paper prices. And we feel business cycle for paper prices have peaked, though I did mention that they are talking of increasing paper prices, but we believe it is a question of a month or so where they would speak for higher and as history says that by the month April paper prices starts coming down.
Then in exports of stationery, as you all know, that we are the largest player from Indian market and cater largely to the U.S. market with customers like Walmart, who are our biggest client. We are really very, very bullish on this business for many years due to benefits of China One on our businesses and the progress we are making in introducing new products to our clients. What I mean new product is other than paper products in stationery. No doubt, there is a margin pressure, good margin pressure, I should say, on this business as well due to higher raw material pricing. But as I said, it is temporary.
In exports, let me once again remind you that we book orders for back-to-school season. So these orders are decided from December to February every year, which we have to supply to them at an agreed price. Now over the years, we had control on the paper prices, but this year, in particular, which again, I'm repeating, it is a temporary phenomena that we could not pass on the incremental pricing on -- in our exports business.
So overall, I should say that all 3 standalone businesses that is publishing exports of stationery and domestic stationery. We are on a real sweet spot for next couple of years. The other traditional part of our business caters to CBSE market under the subsidiary, Indiannica, there we published textbooks for the CBSE schools. Now bulk of the sales happens in March and other quarters are loss-making due to piling of overheads, which we made good in March quarter.
Therefore, one should not read too much into 9 months numbers and wait for March quarter to analyze the number. We are very, very sure that by the year-end, the company will be cash positive, what I mean is Indiannica.
Now we have 2 large investments. Largest investment is in K-12, where we now post dilution on around 22%, where Sequoia is the largest shareholder. We have cumulatively invested around INR 118 crores in last 7, 8 years. K-12 raised further money from 2 of our present investors being Sequoia and Sofina in Q3 of '22. Based on the large transaction value, we are setting on a large unrealized gain. Same is also part of our presentation on Page 21.
Just like you are investors in your company, we are also nonstrategic investor and have no, say in, running of the business. It is largely Sequoia and professional team hired by them. We have not participated in last couple of rounds of investment into the company. But we are very, very confident of realizing substantial gain on our investments in next couple of years. You would have seen, we have restated some numbers during -- in last 2 quarters as well as last year. It was due to change in accounting policy by the management of K-12. And therefore, profits we had to restate for earlier period.
However, cash flows have remained the same. So these are just accounting entries that were restated. Regarding SFA, that is Sports For All, we invested INR 75 crores in 2 tranches with a cumulative investment. We are delighted by our investment as business is doing exceedingly well and much, much better than expectation. We are likely to be sitting on nice unrealized gains, and we have a better sense of valuation in next round.
Other than these 2 investments, we have no further plans of any investments. Now the major focus, which is the Navneet Future Tech or EdTech business. So at present are -- we are currently majorly focusing 2 verticals, both being B2B. One is school business and other is tutoring platform with content. Both these businesses are based on pan-India basis and not just Maharashtra and Gujarat. No doubt, our initial all trials would be focused to Maharashtra, Gujarat, where we have very, very strong relationship with the schools and the tutors.
As far as B2B school business is concerned, which is a CBSE school business is already launched in Q3. And as we speak, we are looking orders from the schools. And as far as tutoring platform is concerned, we'll be launching that in Q1 of 2024. We will frankly have an idea about our progress post Q1 numbers. And at this stage, due to competitive reasons, we will not be able to discuss more details on its strategy and execution plan.
However, the business will be loss-making in initial years. The way investor, I suggest all investors here that you all should view or invest future investments in tech in a way that while we are in a golden period for our traditional businesses for next many years, these investments in tech are required to be made now to sustain growth beyond these years. This is onetime golden opportunity to grow pan-India. And if Navneet does not capture this, someone else will. At the same time, we are conservative management, and we don't plan to go overboard in funding the losses of the business. And therefore, we will explore raising external money. Depending on the traction of business, we will explore fundraising in second half of '24 or in '25.
So in a nutshell, I should say that we are quite hopeful of our tech journey, and hopefully, will create a huge value for our investors, just like we did in other investments. Of course, I'm preempting a few concerns of some of you. And therefore, I should say that in worst case scenario, even if we are not successful executing the business well, we will seriously look at this business and take appropriate action very soon. It means the day we see that we are not able to do well, we will take appropriate action very first.
Of course, every one of you know that one can look this investment in tech of next 2 to 3 years will be much lower than the gains that we are likely to receive from the 2 investments that we have made. So this is basically brief on all businesses. Now I request all of you to ask questions on core business first, and then we can discuss on our tech business.
Sanjeev Shah, who is on the call, joined MD at Navneet Future Tech, will address your questions on Future Tech also. That is Navneet Future Tech.
So I would like to open the floor for questions now. Thank you.
We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Amit Khetan from Laburnum Capital.
So my first question is we've seen a sharp contraction on the stationery margins. Now you explained in the last quarter as well that there was a fixed price contracts on the export side. And -- but we've seen a lot of growth in the domestic stationery. And so does the RM entirely explain the margin contraction? And how should we think about sustainable margins, both on the domestic and the export front on the stationery side?
So you are very right. Margins have really contracted in stationery, both domestic as well as exports. Now the reason we feel is the same that I had explained last quarter and today also. We believe that the acceptance level of our product is so high that our customers, be it international or domestic, they will not shy away from buying an alternate.
But because we are not able to change pricing in exports in particular, we have to take the additional expenses of our raw material. And as I explained, see, in the seasonal business, it takes a little time to set the prices based on the raw material prices, where it is not that easily possible in stationery market -- stationery business. And therefore, we saw a reduction in margins. But on a long-term basis, immediately, I should say, from Q1 itself, we should be much back to our margins.
Got it. And this -- on the export side, you mentioned that the contract is -- for the new season is taken from December. So this takes care of our next year's margins. Is that understanding correct?
Partly correct. But at present, we have another challenge that internationally, paper prices have not really hardened as what has happened in India. So we are getting little roadblock in getting orders first from our customers. So we are negotiating and also trying to change the composition of our product so that we can retain the same margins and achieve the same volumes as earlier. So a little -- it is every day process as of now. So little in advance. But I strongly feel that we should be back with the same margins going forward with change in composition of products.
Secondly, you moved about INR 97 crores to the EdTech subsidiary this quarter. My guess is this is for the future expenses. How should we think about investments here, both in terms of OpEx as well as CapEx that we might require either on a quarterly or on an annual basis?
So of INR 97 crores, partly were already given...
Sir, sorry to interrupt you. Amit, may I request that you mute your line from your side, please.
Yes, sure.
So yes, Amit, part of INR 97 crores actually were already given by way of loan a little earlier, and which then we invested as an equity and took back the loan. But overall, I should say all invests -- and 1 of the reason was the investment in SFA with the last tranche that we had to invest. Now going forward, it will be purely requirement for our organic business. That is the 2 business is mainly that I explained. And for that, around INR 20 crores to INR 25 crores would be required every quarter.
Sir, the line for the participant dropped. We'll move on to the next participant. [Operator Instructions] Next question is from the line of Niteen Dharmawat from Aurum Capital.
Sir, this is regarding the EdTech business that we are having. You mentioned that we have put in almost close to INR 200 crores in 2 businesses. So what is the additional investments that we'll be putting in, in these businesses since you said that you won't be exploring any additional new businesses? But within these businesses, will there be any further cash burn from our side?
Sanjeev, would you like to answer this?
Yes. So we've actually the business plan for the next year. And at that time we believe we will need close to about INR 20 crores to INR 25 crores per quarter, as Sunil put it. So that is the expectation.
Sorry. Your voice was scrapping initially. Can you please repeat that? Sorry about that.
Yes. As Sunil explained, we are expecting close to INR 20 crores to INR 25 crores of funding in the EdTech business per quarter for the next 4 quarters.
Okay. So for how many quarters, 4 quarters you said?
That's right. That's right.
So additional INR 100 crores, you are saying, right?
That's right.
Okay. Got it. And regarding the books business, I wanted to take some sense about how it is going right now considering 1.5 month has already gone and the new academic year is going to start. So wanted to see the traction in that. And have we taken the price hike over there?
Yes. So on books, whatever additional input costs that would have come in last 1 quarter also, we have already taken price hike on our final products. And as far as readiness is concerned for the next academic year, we are in full swing or we are in a time where the huge printing is taking place. So we are building inventory for the next academic year. And we have lots of clarity as to what type of demand would come. And accordingly, we are preparing ourselves for -- to cater to the market.
Got it. So how much percentage hike we have taken across the board in general?
So in general, considering last quarter price hike, around 15% to 17% hike we have taken.
[Operator Instructions] Next question is from the line of Amit Doshi from Care PMS.
Sir, you mentioned that the students shifted from regional school to government schools and government schools doesn't use our workbooks, et cetera, are not used. And I believe government school market is a significantly big and a strong market. I'm sure the ticket size or the value would be very low. But any plans to then use that as a -- to increase our market? Because anyway, they're market leaders in the 2 states, and state board or regional board is anyways not significantly growing. So any thoughts around that?
So government school, first of all, they are not allowed to buy any private publishers product whatever books that they get free of cost from the State Government. And therefore, I said that when students are studying -- more students are studying in government schools, we have no opportunity to sell unless we go to government and request them to prescribe our book.
But as principle, we always would like to do business with the private schools. Therefore, what I said is that whoever has shifted in the last 2 years in government schools, finally, have already shifted back to the private schools, be it regional medium or English medium. And therefore, we are now confident that going forward, business from the private school itself will increase and will come back to normal as earlier years.
Okay, okay, okay. You mentioned there's a strong demand in the upcoming year and upcoming academic year. And you've also raised the prices by 15% or so. So you believe the growth would be higher than 10%, 15%, which you guided earlier than...
Yes. In value terms, 100%, it will be higher than that.
Okay, okay, okay. Sir, second 1 on the stationery business. On one side, you mentioned that our acceptance of our product is extremely high. But then the paper prices or the raw material is causing an issue at an international level. And if I remember prior calls, you've mentioned domestic margin -- domestic business, stationery business is not lucrative. And therefore, we would want to focus more only on the export side. But with this growth on the domestic, very strong growth, I mean all these 3 points I'm unable to connect the dots. So if you can just slightly highlight or throw some light.
Yes, you are very right. Earlier, I said that domestic market is too competitive to cater to. But because of these 2 pandemic years, somehow small players we see have vanished or have stopped production or have reduced production. And that opportunity received by organized players like us. And therefore, we saw tremendous growth. But obviously, when we receive orders, we can't say that we don't want to grow. And therefore, we cater to those markets.
But looking at the scenario today, there seems to be a good opportunity in domestic market as well. So -- and therefore, now I'm saying that domestic market, we will not focus. It's not that we will not focus, we will have to focus because overall, production has reduced at unorganized sector, and therefore, it is an opportunity to us.
Okay. But will it not come back? I mean things -- now things are streamlining. So is it like a temporary or you...
No. Unorganized players, they were playing on very, very thin margins. And with these paper prices and 2 years of pandemic, they support huge financial setbacks. And therefore, for them to come back, of course, a few of them will come back, but not all. And therefore, there is an opportunity for the organized players like us.
Okay. Okay. So in view of this, your earlier guidance, having a margin, EBITDA margin of 20% or so would continue or would reduce because of this stationery business primarily? I mean, more -- I mean, increased focus on domestic as well as pricing pressure on the international level.
Yes. Of course, you all would look at margin at the company level. But the way we look at it internally that we would like to maintain margins for our publication business, which is quite high. So that business will throw up good numbers for sure.
As far as stationery business is concerned, as I said in my call, we believe the pressure on margin is temporary and it is not going to be the same going forward. So it is a transition period, I should say, that we have to live with, where we are not able to pass on every incremental pricing to the end customers, but it is a temporary phase.
Okay, okay, okay. For this EdTech business, should I ask the question now or...
Yes, please ask. Sanjeev will answer that.
Okay, okay, okay. So you mentioned you are extremely happy about the Sports For All investments, which you've done. And so anything in terms of numbers you can share, like what kind of revenues you had in mind and what kind of revenues they have started generating? Or whatever loss could be lower than what was your expectations? Anything that you can.
So before Sanjeev says, I should say here that now SFA and K-12 are actually not managed by us. And they have -- and therefore, we feel that at the year-end, if we give the audited numbers of this to all of you would be a better way instead of stocking every quarter. So that is my general statement, but Sanjeev you can answer now.
No, I agree with you, Sunil. It would not also be correct to give specific numbers on their behalf like this. But safe to say that they have increased their revenue by 2x compared to what we had budgeted for the first 9 months. They have also, in fact, reduced their budgeted loss by about 60% compared to what we were looking at about 6 months ago. So that business is actually doing far better than what we had even forecast 6 to 9 months ago.
And naturally, there is a huge structural push for sports coming from the central government and from various state governments. So the momentum has picked up significantly. And like Sunil said earlier, in the next few years, we will be able to establish the upside in that investment as SFA goes for further funding. But at this point of time, we are extremely happy with the way that business has rolled out, and the management team has done far better than what was originally planned.
Sure. For K-12, like K-12, we have additional investors like Sequoia and all. Anybody else in the SFA or?
Yes.
No, there is --
Sorry, Sunil, do you want to answer that?
So at present, there are only 3 investors, and of course, the management which holds is off. So these are via the 3 investors only.
Yes. And the other 2 are HNIs actually. So I don't think it would be correct for us to give the names. But they are very respected.
No. He's asking about K-12.
I'm so sorry, my apologies. I thought it was for SFA. Sorry about that, Sunil. Yes, please continue with that.
Amit Doshi, sorry to interrupt you, may I request to come back in the question queue for a follow-up question. The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
My first question is, is it possible to get the margin breakup for domestic and export business for stationery? What was it this quarter?
There are so many, including infrastructure, including rather the raw material, there are so many common components for us that the margin, even if we say it will be too tentative. So it would always be better to look at the consol level of stationery business.
But is it fair to say that even in this quarter, the domestic margin would have been lower than the export margin?
Yes, yes, yes. So in both stationery businesses, there was margin pressure because sudden increase in paper prices. So the -- as I said that certain raw materials, they had softened, but those raw materials contributes very smaller percentage of raw material as a percentage.
Basically, the board paper or kraft paper that had reduced substantially. But the core raw material, which is writing and printing paper, that prices had not softened. And therefore, we had to -- we cannot change pricing every now and then. It is a seasonal business. And therefore, these incremental pricing, we had to incur ourselves. So yes, there was some reduction in domestic stationery business also.
Coming to NEP, you highlighted in your opening remarks that Navneet will be a beneficiary of NEP. So is it fair to say that over the course of next 3 to 4 years, given that the NEP is rolled out standard-wise, next 3 to 4 years look to be very good as far as the publication business is concerned, given the rollout timelines by the government on the NEP front?
Yes, yes, 100%, which have been repeatedly saying in the last 2, 3 quarters that once NEP is introduced in statewide manner for different standards, all publishers, including Navneet, will be benefited.
And lastly, on the EdTech business. If I look at the revenue for the third quarter as well, it's about INR 2 crores. So when do we see a sizable ramp-up as far as revenues is concerned? And how far is that product away from market fit?
Yes, Sanjeev.
Yes. Yes. So the ramp-up will happen gradually as we move to new markets outside Maharashtra, Gujarat, and we increase our focus on the CBSE school segment. The ARPU from the state board schools is significantly lower than CBSE. And like Sunil said right in the beginning, it is very important for Navneet Group to diversify and go outside the traditional strong areas of Maharashtra, Gujarat. It can only happen with the EdTech business at this point. So for us, it's critical that we continue to build scale in the school business, which Sunil referred to right in the beginning, and increase our focus on CBSE.
The second business, which is rolling out is the tutoring business in Q1 of the next financial year. That by nature, we are dealing with a smaller customer from a valid point of view. So his ARPU will be significantly lower than the school. But there, the volumes are larger. That business will take 2 to 3 quarters to really add any significant contribution to the overall NFL revenue pie because of the build-out in the first 2, 3 quarters. So we believe that the school business will drive the contribution in NFL for a very long time, even when the other businesses reach a stage of maturity.
And amongst the competitors who are present in the kind of businesses in which we are on the EdTech side, what would be their revenue size? Would it be substantially different from us? Or would it be very similar to us?
No. So they definitely are ahead of us when it comes to the revenue side, and I am speaking, this is unverified market feedback about what is resumed as their revenues. They are not -- they don't have any obligations to report these figures publicly.
So there is no way to validate this. But they have also been around for far longer and have been funded with private equity more than 2 to 3x over. So they have had the benefit of a longer run rate, and we are confident that with the overall Navneet integration on the front end, we will definitely be able to establish a strong presence in the school segment in the next 2 to 3 years, which would be relevant from an industry comparison point of view. But today, they would be ahead of us.
Okay. So what you...
If I can add here, they are very -- as Sanjeev said, they are far ahead of us. And one of them had been 3-digit number. There could be almost closing to 3-digit number. What...
Sunil sir, sorry to interrupt you. There's a slight crackling sound coming from the line.
Is it okay now?
Yes, sir.
So what we should rather look at it that is digital education in the school is required or not. I think it is quite well established that only the elite or high-end CBSE schools. But overall, digital education in classroom is must now. And thankfully, even NEP also has mandated at various places to use digital as an learning tool for the students. Therefore, it is very important that initial period, we may not see big numbers coming in, but adoption is increasing very, very fast. And therefore, not only us, but all the competitors who are there in the business will have a very, very bright future going forward.
Okay. And we stick to the philosophy that we'll get into the hardware business, right?
Never. And even if we have to, let me at least tell you that compulsory, if we have to, it is against 100% advance. And that will be hardly 5% of our total business.
Next question is from the line of Sonaal from Bowhead Investment.
I have a few questions. Sir, firstly, sir, out of this INR 210 crores spent on acquisition in the 9 months and INR 83 crores in Q3 in the tech space, have you included the SFA numbers also in this?
Yes, Sanjeev.
Yes. Sorry. No, can you repeat the numbers again, please?
Sir, in the presentation, you have written that you spent INR 210 crores on acquisitions in the first 9 months and INR 83 crores in Q3. I was just wondering whether by any chance you have clubbed SFA investments also into this because the nature is totally different in both the cases.
Yes. Can I lean on Kalpesh to help me with this answer, please. Kalpesh?
Sonaal, which slide you are referring. Sorry, I'm...
See in the presentation, there's a slide. It's not open at my end. Just let me see if I can open it, where you had given your money in the tech, you have a tech slide where you've written the OpEx on tech, and the amount spent on acquisitions and CapEx on tech.
So there you've given a number of INR 210 crores spent on acquisition in the first 9 months and INR 83 crores in Q3. So I was trying to ask that this is your strategic tech business spends only on acquisitions or it includes the investments you've made in SFA because you said that's an investment, and that's not your tech spend for building the business?
We try to look at that is not INR 83 crores, INR 8,29,00,000 lakhs.
I'm sorry? That is in millions.
Yes, it's in lakhs. So INR 8,29,00,000 lakhs. We are in the business NFL and GenX.
Okay. This does not include SFA, right?
That's right.
Secondly, out of the amount spent on -- you said INR 20 crores, INR 25 crores per quarter will be your amount spent on take in answer to one of the participants. What I meant to ask you was this is your OpEx or this is your loss because you will have some revenues, right?
Yes. So this will be an OpEx maybe partly to build the technology and for expenditure. And you're right. I missed that, that it is not a loss number that I was talking because there will be revenue also coming in.
And sir, your traditional eSense business, which is bulk of your technology revenues as of now. Does it have any seasonality? And which is the peak quarter for that?
Sanjeev.
So the market for eSense and now it is called TOPTECH actually. So the legal entity has also been rebranded as Navneet Future Tech Limited. The business of TOPTECH is now focusing on CBSE. And that seasonality is actually from -- starts from November, December all the way to April, May. So that is the 5-, 6-month period when schools take their decisions for signing up technology partnerships.
So can I say that March quarter, like your CBSE business, Indiannica business, this is the peak revenue quarter for you?
Let me add what Sanjeev said, that order booking is for CBSE by the end of March. Whereas for SSC, it is, of course, first quarter of every year. But as far as accounting is concerned, Sonaal, we do not recognize the revenue on the day of receiving orders fully. It is -- as per the accounting principles, we book revenue only for the usage period. So even if we have received orders in the month of March for CBSE or by the month of April, May, June for SSC, we will not recognize all revenues, the day we receive orders.
Sure, sir. So what I was trying to understand is that your EdTech revenues, which I'm seeing currently, because a large portion as of now because you still have to roll out. I think broadly all of it is your traditional EdTech business and not these 2 new segments. So they had a revenue of INR 9 crores in 2023 so far. And last quarter was INR 2 crores. Is there any seasonality in this? So can I say that if 9 months and INR 9 crores, your full year revenue would be INR 12 crores? Or it could be much more in case Q4 is a bigger quarter it could be much less because Q4 is a weak quarter. That's what I'm trying to understand.
So for every new order that we received in last quarter, there will be increase in revenue to the extent of usage till March. But otherwise, you are right that if we see 9-month period, whatever number, there will be a similar number for rather 1/3 number for the next quarter.
Understood. And sir, your OpEx intake last quarter was INR 15 crores. So as you roll out, that's why you need this INR 20 crores, INR 25 crores run rate so that it will be making more investments in marketing, training and so forth?
That's right. That's right.
Understood. Sir, my second -- my third question was your domestic stationery revenues, like you rightly said, are way higher than what you have been guiding for historically. In light of what you have seen in the market now, is there any revised number you could give?
And secondly, I wanted to ask in case paper prices are not shocked by Q1, let's say, another 6 months from now, it's a reasonably -- reasonable period to take a call on the business. As you said that seasonal you can't in every quarter. But let's say, another 6 months, Tier 1 passes by -- would you then decide to take price hike at least in Q2?
Yes, yes, 100%. We can't keep margins so low for a long period. So by the time new season starts from April and if prices happen to soften, we will definitely revise our prices upwards.
Sonaal, sorry to interrupt you, I'll request you to come back in the question queue for a follow-up question. [Operator Instructions] Next question is from the line of Rishikesh Parikh (sic) [ Rikesh Parikh ] from Rockstud Capital.
Sir, I just wanted to understand that you mentioned that international business, we closed within November to February. So just wanted to have a thought on so what is the kind of order booking we have seen for the current year?
I should say, current year also, we have received more or less similar type of orders as earlier and that to additionally for the new items that we have launched. We also have received orders for that. So order book is quite good. I should say the decision is a little bit delayed because of pricing negotiation. So this year, we may have to extend that period by 15, 20 days to close on the orders. But the demand has seen is quite substantial, a little better than, I should say, of earlier years.
On the margin side, means, I understand last year, we would have closed the negotiation by February. So it will be better than that or and so slightly on a relative basis compared to last year?
Yes, yes, better than that. Yes, yes.
Okay. That helps. Second thing, under the new education policy, the K-22 has been announced as such. While the implementation will happen. So are there any when it is implementing in Maharashtra, Gujarat? And secondly, for the 3 to 5, when they will be announcing, any thoughts on that?
So you're right, K-22 has been announced. And accordingly, the new content creation has already started at our end. So it will be rolled out in the Q1 of next year. For Grade 3 to 5, which grades will they take, they have not, as such, announced for subsequent year. But that we should know in next 2 to 3 months because even they have to start preparing for themselves. So we still do not have clarity on which grades will change in '24, '25. But as far as current year is concerned, whatever changes have been announced, Navneet is preparing itself to take care of that.
And sir, on the OpEx side, can you just give -- throw some light on how many schools tie up for how much growth we are seeing over there in terms of tractions entire?
Yes. So the number of schools, we are chasing both state board and CBSE schools at this point. And given the seasonality of the order book for state boards, for the central board, sorry, we are targeting a number in excess of 45 to 50 schools for this season. And that's the number that we will be able to report at the end of March, which will effectively then gives the predictability on the revenue for the contract period. That's the update on the number of schools that we are targeting this year.
And what is the base is current right now? Number of schools?
Current base, it is, I think, 10 or 12, I'm not sure of the number, but 12 at this point.
Yes. So I can add here that last year was first year of launch and that too in the midyear of academic year. And therefore, we had received orders, as Sanjeev said, between 10 or 12 schools. And this year, of course, our endeavor is to close much higher number. But conservatively, I should say that we will be close to around 50.
Rikesh, I'll request to come back for a follow-up question. [Operator Instructions]. Next question is from the line of Kartik Gada from Multipl Wealth Management.
Am I audible?
Yes, please.
So a question on K-12. So can you elaborate what was the accounting change, why it had such a substantial impact?
So there were 2 major. One, ESOP was agreed, but not accounted. So the whole ESOP pool was accounted in last year. And second, the bigger amount was the booking of marketing expenditure in the same year. Earlier, they were carrying it forward for the new schools for 1 year, which auditors insisted that in the year that you spend, marketing has to be accounted in the same year. So that -- these were the 2 major changes were 98%, 99% of the impact has come.
Okay. So basically, going ahead, it shouldn't have any further impact of achievement?
No, no, no. And as I said, there is no cash flow impact on the company. It is just the accounting entries that were shifted as far as marketing is concerned. Instead of subsequent year, it got accounted in the same year. And the impact of ESOPs given both were accounted in last year, and therefore, we got this impact.
Right. Okay. Secondly, on the EdTech. So you alluded a little bit. But this quarter 2, I mean, in your view, you mentioned earlier that the model will be B2B2C, what we have followed in the traditional business as well. So what are you levering from the school? How they are taking it up? Are they asking for more content, more products?
So actually, I'm sorry, I don't know how the B2B2C got established. But we are not in the B2B2C business. Our customer remains the school. We only collect money from the school. The school may be charging more to its students, but we have no access to the revenue pool, neither are we involved in that decision by the school. So our business is very clearly school-focused business. We do have some filters of what should be the size of the school for us to target, how many classrooms we need to have digitized. So we have our filters to arrive at the size of market, which is linked to the number of students and the hardware capability in the school, but it is not a B2B2C business. That's 1 small clarification.
The second part of your question was relating to additional features and product improvement being sort. Now as all of you will know, there is a huge interest from customers to improve their life from an operational perspective and all the digital conveniences that they seek not necessarily do they deliver value to the service providers. So we have been extremely careful in building our product pipeline looking at what is a very critical need for the school and obviously then overlaying the commercial value of that technology investment. So we have a product pipeline which extends for the next 4 quarters with a very strong accent on making sure that all decisions kick in on product investments are with a commercial orientation.
So for example, the sales guys hit the sales -- the revenue hedge sits in the product decision on what should be released 4 quarters later. It is not a decision made even by the technology guys. The revenue guy has an accountability in those decisions.
Next question is from the line of Rajen Shah from PwC Canada.
Hello.
Yes, please.
Hello? Yes, first of all, I'm not from PwC Canada. There's some error. I'm just an Individual Investor. Yes, so I would like to ask my question is for Sunil Bhai. Sunil Bhai, hope you're fine.
Sir, you mentioned that the operational expense per quarter for the EdTech business would be about INR 20 crores to INR 25 crores. The revenue this year in the first 9 months is about INR 9 crores. Assuming that revenue goes up even 200% from the current levels, are we looking at a loss of about INR 70 crores, INR 75 crores in EdTech business for next year?
Yes, please. Okay. So we'll be suffering a loss of about INR 70 crores, INR 75 crores. Yes, that is the conservative number. Now it all depends on the faster adoption by the school and the tutoring community. So our endeavor would be to target much higher. But yes, conservatively, I should say that the number you spoke is may be the number for next year.
Yes. But sir, in the earlier by talk, which I think Sanjeev Bhai was having with one of the participants, he mentioned that the largest player in this industry is having 3 digit revenue. And the second largest is close to 3-digit revenue.
So even assuming that in the third or fourth year of operation, we touch INR 100 crores of revenue, we'll still be making any profit in the EdTech business. Am I right? I mean, what I need to understand is that are we looking at not even breaking even in the third or fourth year of operation.
So that we are very clear that third year of operation breaking even has to come. Now there has been the first year practically for all the new products or new activities that we have launched. So in 3 years' time, we should reach breakeven. But simultaneously, as I just mentioned to someone else earlier, that we are just not focusing EdTech as a totally separate business vertical.
What I'm trying to say is that with the increase or whatever traction that we get in EdTech simultaneously benefits the group at a group level also because our publications also will go to the same user that is schools and the tutors. And therefore, we believe that as a group, we will benefit a loss, even though as a separate entity, we may be seeing losses. So -- but on a very long-term basis, yes, EdTech, we have no option but to invest money and long term looks very, very big in terms of numbers also.
So if we talk of 3 years, yes, I agree with you that in the third year, we will achieve breakeven for sure. But it may be a smaller number at the end of 3 years, but if we talk of a little longer period, then profitability will really jump a lot.
Can you throw some light on that Sunil Bhai? I mean long term, like, let's say, 5 years, what kind of revenue can we expect from the EdTech business side?
So Rajen Bhai, to be very frank, we are talking of a business which has no past. And -- but we are clearly seeing the need of such products or services to the user community. And therefore, we are very confident on its future growth path. But as far as numbers are concerned, very, very difficult for us to comment right now.
Okay. And sir, you mentioned that you will be raising files in the third quarter of '24 or maybe first quarter of '25. So on this kind of revenue, would raising funds would be possible. I mean, our revenues will not be more than INR 20 crores, INR 30 crores probably next year, looking at what they are right now. Can we raise a substantial amount of money depending on this revenue selling? Is it possible?
So Rajen Bhai, I should at least tell you that I also mentioned our revenue recognition policy. So it's not -- the investor will not just come on a number of '24. But what they will see the traction or total number of customers that we have, what are the pending revenues likely to come in '25, also '26 also that they will see. And the way we continuously go on increasing our customer base. I think all these factors will be seen on deciding the investment in EdTech business, not '24 numbers.
Okay. But can you give us some idea on what kind of amount you are planning to raise approximately?
Yes, I think before I answer that question, I wanted to add a point to your earlier statement that the losses because of the competitors being at INR 100 crores plus, and then we will reach the INR 100 crores figure. I think one good thing that has happened in the last 2 years is there is a lot of cost rationalization which has come into the entire digital economy. The obvious news about layoffs and about how people are getting extremely careful in taking decisions, customer acquisition cost, which is a big cost for digital companies, the spends on technology. A lot of that filtering has happened so aggressively, thanks to the tightening in the market in the last 2 years.
My personal view, frankly, is that the cost for every INR 1 crores of revenue that our competitor has spent we will spend less than that. Any new player is likely to spend less than that. There is also a certain equity flow, which has resulted in some behavior, which when you are sitting on a lot of cash, I think there is a certain aberration that comes in execution, we given that name like Sunil said, it is a conservative group. We are very careful. We will not finance a loss-making business forever extremely responsible from that point of view. I very much doubt that our expenses will be in line with the same percentage expenses that our competitors have used to get to INR 100 crores. That is the first point.
As far as the fund raise amount is concerned, at this point, we don't have a number that we are chasing. We know that we will need funding for the next 3 years. And by Q3 next year, we will be in a position to correlate the valuation with the funding ask and that's the time really to take up serious look at the amount of dilution in correlation to the funds. But we don't -- we are not chasing a number today. That's the specific answer.
Sunil Bhai, I wanted to ask 1 more question, if you permit.
Yes, yes.
Sunil Bhai, actually see, basically, based on the conversation we are having today, I am assuming that because of NEP, the traditional business of publication will be doing very well, it will get changed and all that, we should be doing about 10%, 15% kind of growth in the publication business over the next 3, 4 years. In the stationery and the domestic and the export specialty business also, we are doing reasonably well.
But because of the EdTech business, will be making a loss. I mean, the EdTech business. So net-net, what I'm looking at is that, see, as an investor, we look at the path because that determines the market cap of the company and return for shareholders. So my point is that the stand-alone business will be doing well. EdTech would not be doing so well. So net-net, probably -- are we sitting at the same consolidated fact as we are sitting right now?
So yes, one way to look at it would be that we are -- we will be seated on the similar numbers. So all incremental profits of traditional business we will have to invest in tech business. That is the general statement. I agree with that. But simultaneously, you may look at it on encashing our investments also in next 2, 3 years or 4 years. So with that, you may consider that all these tech investments we are doing from our future realization of unrealized gains. So that we also -- you can look at it. But just for a very long term of the group or Navneet we have to continuously invest in tech is for sure.
I now hand the conference over to the management for closing comments.
So thank you all for sparing your time today. And we had a wonderful session on Q&A as well. I can request everyone that whoever has any more questions can write to us. We will try and answer them very fast. Thank you once again, Prabhudas Lilladher and Jinesh in particular for organizing this call and thank you very much.
Thank you very much. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you.