S Chand & Company Ltd Management Discussions.


Backed by strong growth and promising partnerships,India is expected to be one of the top three economic powers of the world over the next 10-15 years.We are showing GDP growth averaging around seven per cent over the past five years which makes India the fastest growing major economy in the world.

As per the World Economic Outlook of 2019, Indias economy is set to grow at 7.1% in 2019-20and is expected to accelerate to 7.3% growth in 2020-21 and to 7.5% in 2021-22 supported by continued recovery of investment and robust consumption amidst a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

On the global front, growth has been forecast to moderate to 3.3% in 2019 from 3.6% in 2018 with a downside risk due to trade tensions between US and China, and chaotic Brexit.


Out of a total population of approximately 1.2 billion people, India has 500 million people, the worlds largest number, in the age bracket of 5-24 years.By 2025, India will have 119 million in the age bracket of 18 to 22 years, which means India will be home to the largest student population in the world. This in itself provides an optimistic picture for potential high growth in this sector.

The education sector in India was estimated at US$91.7 billion in 2018 and is expected to reach US$101.1 billion by 2019.India has over 250 million school going students - more than any other country in the world. A huge demand supply gap arising out of an additional requirement of 200,000 schools, 35,000 colleges, 700 universities and 40 million seats in vocational training centres will create manifold opportunities for the expansion and future growth of the education sector.

The Government of India is targeting a Gross Enrolment Ratio (GER) of 30 per cent for higher education by 2020 and is expected to drive investments of US$200 billion in the education space during that time. The government is also planning to promote the education sector to help increase the share of overall services sector in the GDP of the country.

With the increasing use of device based learning and increasing internet penetration, the importance of digital education and related learning tools is irrefutable. As of December 2018, internet penetration in India had reached approximately 46% of the total population. Deepening internet penetration will ensure consistent growth in the digital learning segment in terms of size and importance. As per a KPMG report, India has become the second largest market for e-learning after the US. The sector is expected to reach US$2 billion by 2021 with around 9.5 million users. The Education sector in India continues to be a strategic priority of the government. The Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in the education sector through the automatic route since 2002.The sector has received cumulative FDI worth US$2.2 billion up to December 2018. It witnessed 18 merger and acquisition deals worth US$49 million in 2017.3,500 of all the start-ups in India are in the education space and received close to US$700 million funding in 2018.

Education being regarded as an important pillar in the growth of our economy, the Government has come up with significant reforms and changes in the New Education Policy. The details of the Policy canbe found in later sections.


India has the largest education system in the world with an extensive network of more than 1.4 million schools (with over 200 million students enrolled) and more than 850 universities and 40,000 higher education institutes. The sector is expanding rapidly in light of rising income levels and growing demand for quality education in the country.

The Education sector in India can be broadly classified into three categories - the formal segment, the informal segment and the ancillary segment.

The Formal Education Segment comprises of K-12 schools (including secondary and senior secondary schools) governed by CBSE/ICSE/State Boards/International Boards and higher education institutions including colleges. The formal education sector has a high level of government participation in all aspectsfrom curriculum design, the running of educational institutions, and the awarding of degree/diploma/certificates. The Informal Segment is highly unstructured and unregulated. It consists of test preparation, tutoring, early education and vocational/skill-based training services, coaching and so on.

The Ancillary segment consists of industries that are related and supplementary to the formal and informal education segments. The ancillary segment includes publishing content, digital content and services such as curriculum managementand facilities management among others. The Indian school market is currently exhibiting strong growth. India holds an important place in the global education industry with over 1.4_million K-12 schools and a student base of over 200 million. According to a report published by CARE ratings agency in 2017, the market size of the pre-school segment was estimated at Rs130billion in 2017 and is expected reach Rs 225 billion in 2020.

The K-12 market (schooling from Kindergarten to 12th grade covering primary and secondary education) is expected to reach Rs 24 lakh crore by 2020. In line with the Governments focus on providing primary and secondary education across the nation, the total number of government schools in India grew at a CAGR of 1.2%, from 10 lakh during 2008 to 11.2 lakh during Financial Year 2017.

Government schools accounted for 76% of the total K- 12 schools in India during 2017. With the increasing shift towards private schools, the total number of private schools in the country grew at a CAGR of 4.1%, from 2.4 lakh during 2008 to 3.5 lakh during 2017. Also, the share of private schools in the total number of K-12 schools in India grew from 19.6% during 2008 to 23.8% during 2017 thanks to enhanced affordability and growing awareness about the importance of quality education.

K-12 segment (Source: IBEF)

• As of 2016-17, India had 1,467,680 elementary schools with 7,606,638 classrooms and 260,155 secondary schools with 1,423,494 classrooms

• At elementary level, Gross Enrolment Ratio was 93.5% (189.9 m) in 2016-17 and at secondary level it was 79.3% (38.8 m)

• 73.1% of the elementary schools were government schools

• Pupil Teacher Ratio (PTR) for elementary and secondary education in the country was 1:23 in 2016-17

Higher Education (HE) segment targets ~13% of the Indian population in the age group of 18-23 years.The Indian higher education system is one of the largest in the world and it ranks second in terms of student enrolment. India had over 36 million students enrolled in higher education in 2017-18. Governments initiatives to increase awareness among all sections of the society has played a major role in promoting higher education among the youth.

The number of colleges and universities in India crossed 40,000 and 850 respectively in 2017-18. Total number of agricultural universities in the country increased from 35 in 1999 to 75 in 2017.There has been a significant increase in the share of state private universities as part of total universities. In 2017-18, 29.71% of universities in the state were state private universities and 9.07% were private deemed universities.

Digital - The future of Education Industry

The e-learning industry in India is a dynamic one, witnessing a steady growth rate of over 25% year-on-year. It is projected to be a $1.9 billion industry by 2021.The key factors leading to the growth of the digital market in India are rising demand from various segments, growing number of smartphone users, improving penetration of internet services, and increasing participation at the government level. New age technology platforms help in assessing the performance of students, teachers and institutions as a whole and are increasingly being adopted by educational institutions in India. Cloud-based platforms which help classrooms go paperless are also finding takers. Apart from the latest developments in ICT classrooms, Augmented Reality and Virtual reality is being adopted in the field of education.

As of March 2019, the Government of India is actively encouraging colleges to offer online courses in rural areas to ensure education for all.

(Source: Ibef, care ratings, IMF world outlook report)


Broadly speaking, this year has been a challenging one for the Educational Publication industry. The Company has a very seasonal business on account of K-12 segment, which accounts for more than 80% of the business. 80-85% of the annual revenues come just in the fourth quarter. This year when we entered the sales season, we were impacted by the anticipation of the announcement of the New Education Policy (NEP) which was however deferred till after the elections. This led to the following challenges:

1. Expectation of the Education Policy impacts Financial Year 2019 Sales.

The Honourable Education Minister of the 2014-19 NDA government, Mr Prakash Javdekar,gave the impression during various media interactions that the Education Policy was ready to be announced. The expectation of the industry is that when the new government is formed, the New Education Policy would be one of the early initiatives on their agenda. The New Policy became long over-due as the last comprehensive education policy came out as far back as 2005 when the NCF was also formed.

The expectation of New Education Policy led to:

Destocking of Inventory by the Channel Partners. Since the Channel Partners perceived the announcement of the new education policy as an event which would happen within CY2019, they destocked during the current fiscal assuming that the inventory they were holding may become obsolete and result in higher returns to the Company, over and above historical averages.

Reduction in Sales Velocity. Further, in the current season in order to tackle future inventory levels on the back of the proposed New Education Policy announcement, the Company and channel partners took cognizance of inventory that would remain from the current sales season. Keeping this in mind, the Company also ensured that the channel inventory was kept lower during the current academic season.

2. The Company has taken a conscious decision to work with preferred channel partners.

As in any distribution network, the Company had some channel partners who would fall short on the parameters of timely payment, returns and overall revenue growth. During the current season of January-March, 2019, the Company had taken steps to reduce exposure or hold supplies to certain of these partners. This has also contributed to an impact on revenues which the Company is confident it would regain through the preferred partners during the next academic session.

3. External factors impact sales.

The industry also faced headwinds on account of various circulars/notices issued to private schools which compelled them to prescribe NCERT books and in order to reduce the weight of the school bag, to lower the number of subjects being taught. The uncertainty and media stories impacted and delayed decision making by schools about prescribing books. The Company has encountered similar experiences by the introduction of monthly/semester books, digital products and value-added services like workshops and seminars to enhance engagement with schools.

Monthly/semester books are books created with content relevant to a specific month/semester rather than the whole year which helps reduce the bag weight of a child. This can be done for a subject or for all subjects for the term.

We are also part of the Federation for the Publishing Industry which has represented against these various circulars/practices in the appropriate courts/forums.

4. Reported Revenues impacted by Provisioning.

In our view, Financial Year 2019 reported Revenues of Rs. 5,220 million have been impacted by -:

Higher incremental provisioning of Rs 682 million on the back of a conservative view in light of the trends seen in the year ending March 2019 and the New Education policy. In our opinion, the incremental provision will be non-recurring.

40% higher level of sales return received on a YoY basis by the channel on the back of an expectation of the New Education Policy.

We would like to highlight that the reported net revenues gives a distorted view of the sales season since our gross sales dispatches were down by ~16% in the K-12 Academic season for Financial Year 2019 vs. Reported Net sales down by 34%. The reduction in channel inventory, preferred partner sales, focus on high margin stock keeping units (SKUs) and improvement in productivity will help retain revenues and margins in the near future.


For the year under review, S Chand reported consolidated total income of Rs 5,336 million as against Rs 8,070 million in the comparable period of the previous year, registering a decrease of 34% Y-o-Y. Our income was hit due to the higher sales return from our channel partners in anticipation of the draft of New Education Policy (NEP), one time higher incremental provisioning, our strategy to work with preferred channel partners, and other external headwinds like circulars from state governments on reducing bag weight for students, pressure for adoption of NCERT books and reduction of certain noncore subjects in junior classes etc.

The K-12 segment is the largest revenue contributor (~80% of the total revenues) followed by Higher education, early learning and digital. The Company reported consolidated EBITDA loss of Rs 195 million against EBITDA profit of Rs 2,054 million in the previous year and consolidated post tax loss (net of minority interest and share of loss in associate companies) of Rs 644 million against profit of Rs.1,072 million in the same period last year. The reasons for decline in revenues and profitability can be attributed to the points mentioned above. We ended the year with reduced consolidated debtors of Rs 4,446 million as against Rs 6,312 million in the previous year. This decrease in debtors was driven by lower sales. The Company recorded year-end consolidated inventory of Rs. 2,048 million as against Rs 1,562 million in the previous year. This increase in consolidated inventory was driven by higher than expected sales returns on back of expectation of Draft NEP from our channel partners. We expect FY20 to see the benefits from S Chand 3.0 plan implementation to flow through leading to improved profitability. We are focusing on improving efficiencies and reducing operational costs. The company is targeting annualised cost savings in the range of Rs. 600 million to Rs 800 million from these cost saving initiatives. We are also targeting a higher conversion of EBITDA to cash flow in excess of 50% for FY20. We see ourselves well positioned to benefit from the Draft NEP which has been announced which should lead to a period of strong & sustainable growth in the medium term.


1. Focus on improving internal efficiency and reducing operational costs.?

We have turned our focus on eliminating inefficiencies from our business. This would include working on improving the efficiency and productivity of our sales force and delivery teams, eliminating non-core projects and investing in technology to improve decision making. Various steps are being taken on this front including the rationalization of the number of offices and warehousing space across India, rationalisation of payroll through consolidation of shared services, improving revenue per MT of paper consumed and increasing consumer engagement through digital marketing and products. The Company is targeting annual cost savings in the range of Rs 600 million_–_Rs_800_million from_these steps.

2. Increased focus on free cash flow generation for Financial Year 2020.

The Company has announced that it will enhance focus on improving free cash flows from operations. This strategy of focusing on cash flows has started yielding results with cash generated from operations of Rs 386 million in Financial Year 2019 (vs. Rs 390 million in Financial Year 2018). This is despite the 34% drop in net revenues for the year. We are looking to increase this by focusing on inventory reduction going ahead, improving the collection of receivables and reducing costs in our system. We are targeting a higher conversion of EBITDA to free cash flow in excess of 50% in the future.

3. Benefit from New Education Policy to flow though from Financial Year 2021 onwards.

While there has been an impact on revenues in the current financial year from multiple factors discussed earlier, a New Education Policy is normally followed by a change in curriculum which is greatly beneficial to the Company and sector as it removes piracy and used book circulation. This helps publishers by netting higher than normal volumes for multiple years. This phenomenon has been noted consistently with State curriculum changes and we expect to derive benefit from the same in due course of time.

4. Increase in share of Digital & Services business.

The Company has forayed into various other products and services in the past few years to build alternate product and service lines. Some of the initiatives have gained traction - Destination Success, Mylestone, Smart K, Test Coach and Risekids, have all carved a niche segment in the markets in which they operate. This will help the Company spread revenue through the first three quarters, enhance visibility and de-risk the present business model.

To augment books the Company has also rolled out the App Mystudygear (approximately 0.5 million downloads) for ensuring the books of the Company offer a blended learning solution in the form of Digitally Enabled Books (i.e DEBs). The Company recognises the need of the Gen X student to learn on various media not limited to printed books, but augmented by Interactive Videos, Test Generators, Online Assessments and Analytics, Virtual Reality and Games. Almost 2/3 of the titles in the K-12 segment are DEBs which enable this 360 degree learning. The Company is also geared to launch its all-in-one learning platform Learnflix in Financial Year 2020. This will enable a larger audience to learn on the move.

5. Going ahead.

With our increased focus on free cash flow generation, going ahead the Company has an ambitious target of turning debt free in the next three years and increasing EBITDA to free cash flow conversion rate to over 50%. We see ourselves well positioned to benefit from the New Education Policy which has been announced which should lead to a period of strong & sustainable growth in the medium term.


The draft New Education Policy (NEP) had kept us waiting for a long time. The chart below shows how media has been reporting the announcement of the New Education Policy during the past 12 months.

The draft New Education Policy was released on 31st May 2019 and the details and the potential impact that it can have on the industry and our Company has been detailed below:

New Education Policy

The draft of the New Education Policy (NEP) 2019 was submitted to the Honourable Union Human Resource Development Minister, Mr. Ramesh Pokhriyal ‘Nishank and Honourable Minister of State for HRD, Mr. Sanjay Shamrao Dhotre on 31st May, 2019. This draft policy comes after extensive consultations undertaken across multiple levels ranging from village, block, urban local bodies, district, state, zonal and the national level stakeholders.

Timeline for Implementation

The Draft NEP has called for announcement of New Curriculum Framework (NCF) by the end of December 2020. Post the release of the NCF, the publishers would start to develop content and then publish books adhering to the new curriculum.

Impact of NEP Going ahead

We see the following impact arising from the changes suggested in the draft NEP. Do keep in mind that this NEP is a draft and the final version can have changes to these draft provisions.

Partial impact in Financial Year 2021, Full impact from Financial Year 2022 onwards. If the NCF is announced by end 2020 then we, at S Chand, being a leader in the space with in-house content development teams would be able to cater to demand for new books from the Academic year 2021-22 itself. However, we foresee a scenario where a huge part of the industry would not be able to deliver content pertaining to the new curriculum in Academic year 2021-22 due to the paucity of time for developing and publishing new content. Thus, there can be a situation where a lot of schools would be able to adopt the new framework books from Academic year 2022-23 onwards. This means that on the sales front we can see an uptick in Financial year 2021 from partial sales of new curriculum books but the complete impact would be felt from Financial Year 2022 onwards.

Strong runway of growth for at least 2-3 years. Since the New Curriculum is being developed after a gap of 15 years, it would remove the second hand book market for few initial years and would lead to very strong growth for at least 2-3 years.

Lessons from 2005 NEP/NCF roll out. During 2005 NCF announcement, the new syllabus was rolled out over a period of 3 years with 5 grades moving to the new syllabus in Year 1, another 5 grades moving to new syllabus in year 2 and 2 grades moving to new syllabus in year 3.

Key changes proposed in draft New Education Policy 2019 (NEP 2019)

The draft policy is a comprehensive 484-page document. Following is the list of some of the key changes that the policy is proposing for the education sector going ahead-:

• In school education, a major reconfiguration of curricular and pedagogical structure with Early Childhood Care and Education (ECCE) as an integral part of school education is proposed.

• Restructuring school curriculum and pedagogy in a new 5+3+3+4 design.

• No hard separation of learning areas in terms of curricular, co-curricular or extra-curricular areas and all subjects, including arts, music, crafts, sports, yoga, community service, etc will be curricular.

• Exposure to three or more languages in schools and have flexibility in the choice of languages. A two-year relevant course on a classical language in Grades 6-8 with the option to continue through secondary education and university.

• Introduction of course on critical issues facing the community, the country, and the world for all students in Grades 7-8 and course on current affairs for all students in Grades 9-12.

• Following the shrinking of the curriculum content in each subject to its core, NCERT textbooks will be revised to first contain only the essential core material in each subject, keeping in mind a constructivist, discovery-based, analysis-based, engaging, and enjoyable style of learning in accordance with the revised NCF.

• Census examinations in Grades 3, 5, and 8 in addition to board examinations in 10th & 12th.

• Restructuring of Board examinations to eliminate the "high stakes" aspect of Board Examinations, all students will be allowed to take Board Examinations on up to two occasions during any given school year.

• Moving towards a higher educational system consisting of large, multidisciplinary universities and colleges

Opportunities from Draft NEP 2019

• Mandate for regional variations means new content opportunity from customisation for "local flavours".

• Enlargement of market for workbooks and side books on languages and maths in 1 to 5 for "writing hour", puzzle solving etc.

• Development of new series for art integration and 21st century learning subjects.

• New market would be developed with focus on classical languages.

• Larger market for regional languages adoption in schools.

• Many new courses to be introduced - Languages of India, Vocational Skills and Crafts, Ethics and Moral Reasoning.

• Many extracurricular subjects to move to core subjects should lead to higher adoption rates - Sports/Yoga, Music, Dance, Art etc.

• Fixed syllabus for pre-primary would help regularise this segment for us.

Media Links

• https://mhrd.gov.in

• https://mhrd.gov.in/sites/upload_files/mhrd/files/Draft_NEP_2019_EN_Revised.pdf


As of March 2019, the Company at a group level has 2,348 employees, including a sales and marketing team of 932 employees, and an editorial team of 246 employees. We would like to highlight that as per the human resources rationalization exercise carried under S Chand 3.0 plan, we have had a further reduction in work force during the first half of FY20.

A Rewards and Recognition program and adequate growth opportunities help to ensure that employees are motivated and performance oriented. The Company also offer an incentive program to its sales employees, pursuant to which sales executives and managers receive additional financial remuneration if they achieve a defined percentage of their annual sales targets and budget.

S Chand has established extensive requirements relating to workplace safety. To ensure that the Company adheres to all statutory laws and regulations on environment, health and safety, it has implemented an environmental, health and safety program. In addition, S Chand has implemented programs related to electrical safety, the handling of equipment and materials, the handling of hazardous chemicals, fire safety, monitoring of the work environment (including air quality, ambient noise and the quality of drinking water), first aid, hazardous waste disposal and housekeeping.

The Company has also implemented a system of accident reporting and investigation, pursuant to which all accidents, both fatal and non-fatal are reportable to health and safety authorities. Employees are also encouraged to report on "near miss" accidents.


S Chand is closely linked to the central curriculum academic cycle, which is seasonal in nature. The seasonality in the K-12 market has a direct impact on S Chands operating revenues, margins and cash flows on a quarterly basis. There are several underlying strategies undertaken to mitigate this risk. The Company is focusing on growing its higher education business, which experiences limited seasonality. The Company has also introduced certain products for schools and students that makes it more relevant throughout the school year The Company is also faced with other external challenges like circulars from state governments on reducing bag weight for students, pressure for adoption of NCERT books and reduction of certain noncore subjects in junior classes etc. We have mitigated the threat through introduction of monthly/semester books, digital products and value-added services like workshops and seminars with schools to enhance engagement with schools A significant portion of the Companys revenues are dependent on the titles of a few top authors. To maintain on-going harmonious relationships, the Company ensures that its authors are compensated well. It believes in maintaining mutually beneficial relationships, and having a strong feedback mechanism to ensure longevity of the S Chand brand.

In parallel, the Company continues to widen and expand its content and author base on a continuous basis. To protect its content ownership and dissemination, S Chand has a dedicated legal team that strongly manages its Intellectual Property Rights on an ongoing basis. The Company views the advent of disruptive digital technologies and the development of open-source content, more as a business opportunity, rather than a threat. It owns and manages online content application called "Mystudygear", "Testcoach", "Learnflix", VRX etc. These are strategic assertions of S Chands presence in the online education content space. We are aiming for digital enablement of our content in a repository.


S Chand deploys its own servers for SAP, ERP, and content (text, animation, videos etc.), as well as other office data. The e-mail and CRM servers are on the Cloud, while regular back-ups are conducted on Company servers. A cloud based SAP disaster recovery is also in place with the help of a third party. Some key investments that enhanced S Chands IT framework include:

• The enhancement of the publishing software licenses to keep up with technical enhancements in the field of digital content creation.

• The enhancement of the operating system licenses.

• The Company has strengthened its CRM solution.

• An SAP disaster recovery on the cloud (third party).

• Ordering mobile and web-application SCOT for customers.

• Availability of digital resources to teachers and students on company website.

• Enabling books with digital content using QR codes.

• Implemented AR solution

Our group website is: www.schandgroup.com. To protect the servers and data from being hacked and data loss, S Chand has firewalls and SAP_/_ERP access is largely through VPN for all Company locations. This is in accordance with the IT Policy guidelines that are in place.


The following list highlights S Chands comprehensive Internal Control Framework:

• Key Policies are formulated, circulated, approved and reviewed annually, in addition to being published online.

• The Authorization Matrix is clearly defined with segregation of duties to ensure internal controls.

• Internal Control Testing is conducted by Internal Auditors , with low failures under the Risk Control Matrix process.

• Application authorization are given to employees based on level and work profile

• An Internal Audit Department independently audits for Branches for processes etc.

• Regular Internal Audit is conducted for the company and subsidiaries throughout the year

• External Software to track Statutory Compliances.

• A robust Corporate Governance approach is followed, with Independent Directors in Company and all material subsidiaries.

• Related Party Transactions are approved by Audit Committee and Board wherever required

An arms length approach is followed, even between subsidiaries/associates and the holding company


This document contains statements about expected future events, financial and operating results of S Chand, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirely by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of S Chands Annual Report, FY2019.

S Chand and Company Limited

Standalone financial statements for the year ended 31 March 2019