Broker's call: S Chand & Co (Buy)

CMP: 225.2

Target: ₹400

In our recent interaction with S Chand management highlighted that 1) top-line growth guidance of 13-14 per cent for FY19E remains intact; 2) EBITDA margin expansion is on the cards as paper prices are locked in at just 4-5 per cent increase over last sourcing cycle by preponing purchase contracts; 3) working capital cycle is expected to ease out by 15-20 days on renegotiation of credit terms for certain best sellers and launch of dealer finance programme; 4) no incremental investment (around ₹143 crore so far) in digital space is lined up with break-even expected in 3-4 years; 5) collectively the company will have to shell out around ₹100-120 crore in FY19E for Chetana’s acquisition and buying out balance 26 per cent stake in Chhaya Prakashini; 6) tax rate will be lower by 100-200 bps in FY19E due to lower tax on few subsidiaries (more than ₹250 crore in revenues) and tax break in impending restructuring exercise.

We feel S Chand’s industry-leading position in K-12 publishing space with 12-13 per cent market share, long standing relation with more than 2,400 well‐known authors, strong brand equity built over eight decades and management pedigree acts as moat which we believe is difficult to break into. We believe recent correction in stock price (about 53 per cent since our last update) and valuations at 6.6x FY19E and 5.5x FY20E EPS make the stock attractive from long term.

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