CL Educate : Transcript of Analysts/Institutional Investor Meet/Con. Call

"CL Educate Limited Q2 FY 2023 Earnings Conference Call"

November 03, 2022

Management:

Mr. Satya Narayanan R - Chairman, CL Educate Limited

Mr. Arjun Wadhwa - CFO, CL Educate Limited

Video Link:Earnings Conference Call Q2 FY2023

Results Link:

Consolidated Results - Q2 FY2023

Standalone Results - Q2 FY2023

Investor Presentation:Q2 FY2023

CL Educate Limited - Earnings Conference Call - Q2 FY 2023

Arjun Wadhwa: Good Afternoon Ladies and Gentlemen. Welcome to CL Educate Limited's Q2 FY23 Investor Conference Call. I am Arjun Wadhwa - CFO, CL Educate Ltd. I will your host today. Joining me on call today is Mr. Satya Narayanan R. - Chairman, CL Educate Ltd. This analyst call as always will be recorded, transcribed, and made available in the investor zone on our website within next 24-48 Hrs.

I will start by taking you through the early part of our presentation - Corporate Updates & the Financials. Following which Mr. Satya will run you through the business updates. As always there will be an opportunity for you to ask questions after the presentation concludes. So, I request you to please type your questions in the chat box at the bottom right-hand corner of the screen. Preferably note them down and add to the chat box later and we will address them as we come to end of the session.

Firstly, let me just say that it is a great privilege for us to host you in the Metaverse. As you are aware, we have developed the Metaverse completely in house from scratch and we thought this was a great opportunity to give you, our shareholders, our ambassadors an opportunity to see the Metaverse in action and up close and of course if you like the experience, do spread the word. In case if you have not already explored the Metaverse, please spend some time after this call to explore all that Metaverse has to offer. There are 3 buttons on the bottom left-hand corner of your screen, which on being clicked will give you an opportunity to explore various sections of Metaverse. You can walk into the mall, check out some deodorants which one can buy online right now. Its pretty amazing experience. So do check out the same when you do get the chance. As you might have noticed if you would have logged in a little bit early, in our pre-session video we had an Avatar based Metaverse experience as well, which is under development. What we see right now is very much the tip of the iceberg and of course the possibility of the Metaverse once you start plugging in things like Augmented Reality (AR), Virtual Reality (VR) are simply mind-blowing and endless. From our business perspective, our role is to help the brands move out of the 2D environment that a dot com (".com") universe currently limits them and to give their consumers an experience of the new 3D world that exists for the youngsters of the day. But we will cover that and much more in the MarTech part of the presentation.

Let me get started by walking you through a strategic roadmap and the specific corporate actions we have taken over the last 12-18 months.

Coming straight to slide #6 of the ppt. Specifically over the last 12-18 months all of you would have followed, as our long-time shareholders, you would have noted that we have made a very conscious attempt to liquidate our unproductive land and building assets that used to exists, most of which belong to our K-12 business or our B-school business from the early 2000s. The market was conducive for this for over the last 12-18 months and we have made a conscious effort to liquidate these assets. This has resulted in a potential release of about Rs 78 Crores Cash. As you can see, the Indore transaction is in progress as we speak, and we have received Rs 3 Crores advance. The remaining amount of Rs 14.5 Crores will flow to us by the end of this financial year. All of this was also meant to a conscious effort into also returning the value to the shareholders. We have made certain very specific activities in terms of our Stock Split - Q2 FY22, Buyback - Q4 FY22 which carried in to first quarter of this year and as we have recently announced 1:1 Bonus Issue yesterday. This is very much

part of our strategic roadmap and as you will witness in the next 12-18 months, we will continue to find ways to return value to our shareholders.

Moving forward, I spend a little bit of time on our financials. As you would have seen in the results which we announced yesterday, our revenues are up significantly by 53% from Rs. 106 Crores in H1 FY22 to RS. 161 Crores in H1 FY23. Correspondingly our EBITDA is up 24% from Rs. 15 Crores in H1 FY22 to Rs. 18.6 Crores in H1 FY23. There is a gap between revenue growth and the EBITDA growth, which we will discuss as we move forward in the presentation. The margin flow will run slightly behind the revenue growth, largely on the account of our conscious attempt that we made towards our marketing spend and the investments in product, people, and technology. Specifically in terms of PAT, it has grown from Rs. 6.2 Crores in H1 FY22 to Rs. 17.2 Crores in H1 FY23, a growth of 177%. This includes the net exceptional gains which we had on account of the sale of our Greater NOIDA property which would account for Rs. 6.5 Crores on the PAT level. So, on an apple-to-apple basis, it would be Rs. 6.2 Crores in H1 FY22 of PAT as compared to Rs. 10.5 Crores in H1 FY23. Our EPS is also up by 172% from 2.14 in H1 FY22 to 5.82 in H1 FY23.

Moving forward, there are 2 additional things to be shared, as we had mentioned in our previous calls that we want to be a Net Debt Free Company. We have made a significant jump towards achieving the same. Our Long-term Debt is down by couple of Crores, but our short-term debt is almost down by Rs 27 Crores as compared to similar period last year. So, the cash that we have accrued on account of the Land Sale, some of it has been used to retire our debt and our cash position remains quite healthy right now having grown from Rs 27 Crores in H1 FY22 to about Rs. 81 Crores in H1 FY23. Also, in terms of our RoE and RoCE, at our last AGM, Mr. Satya Narayanan - Chairman spoke about taking these into double digits. We were at 5.3% - ROE and 7.6% - RoCE at the end of last year. If things go the way, they are going we should end this year at 8.9% - RoE and 9.6% - RoCE.

Quick look into our segmental position. I have already spoken about total revenue and EBITDA. Our EdTech segment grew 14% in terms of revenue on a Q-o-Q basis i.e., from Rs. 45 Crores to Rs. 52 Crores with a marginal EBITDA growth. As we shared previously as well, our focus has been gaining market share and deeper penetration in specific markets. With centers fully operational now and returning to business as usual, the costs corresponding to executing physical businesses also increases. And, as we shared, we will also be investing in specific areas including marketing.

On Y-o-Y comparison perspective, our revenues are up 52% and total EBITDA is up 23%. Of which EdTech revenue has contributed 48% with an EBITDA jump of 31%. The MarTech revenues has also grown substantially because of the returns of the physical events. What one will see now is a lot of hybrid events taking place with virtual and physical coming back together and organizations making best of both the worlds. From a short-term perspective, that has resulted in marginal dip in margins. However, if you look at it from a Q-o-Q perspective we are up from Rs. 1.5 Crores in Q1 FY23 to Rs. 1.9 Crores in Q2 FY23.

Satya I will now handover to you to give us some Macro view of the business.

Satya Narayanan R: Thank You Arjun. Coming to the Slide labelled Macro view. Focusing on the Education related Macros. One of the things which I repeat often enough and is worth repetition is that the implementation by various government policy implementing machinery post the parliaments adoption of NEP 2020 is something that we are seeing on the ground in the last 12 months, and we think that it is still early days. To give you an example, the unified entrance examination, which is quite directly relevant to us, has come into existence. The first edition of it got implemented and the

likelihood of it being held in the summers of 2023 has begun to appear in the media. So, CUET is one downstream visibility of this educational policy reforms that we are witnessing.

Secondly, there is a very conscious effort at the policy level to take Indian Education global in both ways, which is - Can Indian products and services go abroad, and can we emerge as a higher education hub through a study in India theme / project which is run by Ministry of HRD. Both of these are beginning to gain a lot of traction.

How this would be relevant to us?

Visualize that the number of students seeking admissions in India moves from 40,000 to the 400,000 that is being aimed which is going to come through from this model. CL is equipped with presence in a bunch of places overseas, but we will move in this direction as this opportunity gains traction. Similarly, the last point for me to mention here is that the way you are queued into or wish to get more information about Indian markets are likely to emerge post variations, it worth looking at the way USA has emerged through the 90's all the way till 2005 and how China has emerged between 2005 all the way to 2015 or even 2020. I think, India we believe that 2020 to 2035 including the immediate 10 years beginning 2022 it could see a lot of those happening and the outcome of that it is that Kaplan, Princeton Review etc. emerged in the USA and Tal-Education, New Oriental emerged in China. That is the broad thing which I wanted to cover on this slide.

Moving forward, taking some business updates. Firstly, we will look at Test Preparation business and then move on to the Kestone (MarTech) business.

For the EdTech business, YTD Sep 22 vs YTD Sep 21 the topline has grown from Rs. 65.4 Crores to Rs.

96.8 Crores where as the EdTech EBITDA grew from Rs. 16 Crores to Rs. 21.2 Crores. The last full years numbers were Rs. 129.3 Crores of Revenue with an EBITDA of Rs. 27.9 Crores. Hopefully, we will do better than the last years numbers. That is our view but as you know as a matter of approach, we don't put out very specific numbers about the future. And I should mention right away, literally going away of the COVID phenomenon and the offline businesses coming back into action coupled with the introduction of the CUET in the 11th and 12th standards, we are finding a lot of tractions. New centers are getting added. This is the largest number of centers that we would have added in any half year in the last 25 years. We hope that its still the early stages. We have added 41 new centers in the H1 FY23. On the enrolments for test preparation, we have grown by 11% and ARPU (Average Revenue Per Unit) has grown by 30%. However please do not build too much of this into modelling, since a lot of this is because of significant chunk of online business has become hybrid and hence ARPU has grown by such huge number. Usually, the ARPU grows every year by the rate of inflation - 5%, 7%, 9% and not more than rate of inflation. Business partner billing is up by 65%. One particular change that has happened which is law exam has moved to December-November cycle. What it does is not affect the number of students but what it does affect the seasonality, consumer behavior, propensity of when to buy and when not to buy, when will they buy the Two-year and One-year program will undergo slight modification which are reasonably predictable with our experience but that is something that we must be prepared. Coming to the content, the publishing volumes are up 24%, though the paper cost as you are aware went up dramatically over last 6 months. Through various measures, our team has been able to preserve the margins. The third arm of the EdTech business is the platform business where the institutions, schools, colleges, universities, brands use Career Launcher platform to reach out to their stakeholders or customers. We have signed up 23 new universities as clients. The business has gone by 42%. Again, there are Pre & Post COVID assumptions which one can attribute to this business. The MBA Colleges beginning to push for businesses is also helping our business and one very interesting thing which is emerging for the platform thing is the gathering of momentum of CUET which is very