EdTech and MarTech: CL Educate’s Strategic Shift Towards Higher Margins

Company Name: CL Educate Ltd | NSE Code: CLEDUCATE | BSE Code: 540403 | 52 Week high/low: 91/48.8 | CMP: INR 80.9 | Mcap: INR 445 Cr | PE: 15.3

Company Overview:

CL Educate is a prominent player in the Indian EdTech and MarTech segments, providing education and test preparation training programs, including tuition for school students and coaching for entrance exams. The company has a presence in over 90 cities in India and globally in the UAE. Under the MarTech segment, CL Educate offers Event management, Digital, and CEP services. The company boasts a 35%+ market share in MBA and Law Test preparation.

EdTech Business Revenue Remains Stable as EBITDA Surges 17% YoY

In Q2FY24, EdTech business revenue showed a nearly flat growth of 6.63% YoY, while EBITDA in this segment surged by 17%. The flatness in EdTech revenue is attributed to academic seasonality, with the CLAT (Law Exam) moving from a summer exam to December. The platform business in the EdTech segment grew by 30% in H1, adding 42 new clients. Publishing revenue increased by 18%, with improved margins due to a decrease in paper prices by 18%-20%. The repeat customer strike rate increased by 90%, billing grew by 30%, and collections increased by 40%.

MarTech Business Topline Growth Stalls, but EBITDA Grows 60% – Margins Expand:

While MarTech business topline growth declined by 10.6%, EBITDA in this segment grew by an impressive 60%. The company strategically let go of lower-margin businesses, such as support services, focusing instead on high-margin marketing and B2B demand generation. New customers were added in sectors such as Fintech, FMCG, Financial services, and Automobiles.

PAT Jumps 26.2% YoY on Lower Interest Cost and Tax Rate:

In Q2FY24, Profit After Tax (PAT) increased by 26.2% YoY (1.54% QoQ) to 5.56 Cr, despite flat revenue for the quarter. The growth in PAT was driven by a 14.82% YoY decrease in interest costs to 0.54 Cr and a 16.19% YoY decrease in tax expenses to 1.88 Cr. The tax rate declined by 8.48% YoY to 25.33% in Q2FY24, compared to 33.81% in Q2FY23.

Q2FY4 Concall Highlights:

➡️The CLAT exam’s move to December led to increased sales of long-duration courses, contributing to higher ARPU and margins.

➡️The company will focus on CUET for 2024 test prep and the IPM crash season in H2.

➡️The increasing number of CAT takers, now at 3.3 lakhs, compared to 2.2 & 2.6 lakhs in the last 5-7 years, is expected to bring more business, where the company holds a 25%-30% market share in CAT test prep.

Valuation and key ratio

The stock is currently trading at a multiple of 15.3x EPS (TTM) of 3.13 Rs at a market price of 80.9, with an industry PE at 76x. The company’s stock is valued at 1.56 times its book value of 51.9 Rs per share. In EV/EBITDA multiple, the company holds the 7th position with a multiple of 10.57x, while the industry median stands at 29.63x. Trailing twelve-month ROE and ROCE stood at 8.16% and 6.81%, respectively, while the interest coverage ratio demonstrated the company’s solvency at 6.13x in Q2FY24.

Q2FY24 Result Update – Consolidated

➡️In Q2FY24, consolidated revenue growth was nearly flat, down by 0.58% YoY (-1.08% QoQ) to 89 Cr, primarily due to a decline in the MarTech business segment. The company’s strategic focus on higher-margin services, such as marketing and B2B business, offset the decline.

➡️Consolidated EBITDA declined by 15.52% YoY (-24.05% QoQ) to 6.72 Cr due to lower margins in the EdTech business. EBITDA margins were down 130 bps YoY and 228 bps QoQ to 7.55%.

➡️Operating profit (EBIT) decreased by 41.08% YoY (-39.49% QoQ) to 3.32 Cr due to higher depreciation, with EBIT margin declining by 250 bps YoY and 237 bps QoQ to 3.74%.

➡️PAT surged by 26.2% YoY (+1.54% QoQ) to 5.56 Cr, driven by lower interest costs and tax expenses, leading to a PAT margin increase of 133 bps YoY and 16 bps QoQ to 6.25%.

➡️EPS for the quarter stood at 1.01 Rs compared to the previous quarter’s 0.99 Rs.

Conclusion:

CL Educate demonstrates resilience in its EdTech and MarTech businesses, navigating seasonality challenges and strategically optimizing its service portfolio for higher margins. Despite flat revenue, the company’s focus on long-duration courses and strategic adjustments positions it well for future growth. The positive trajectory of key financial indicators and a strong market share in critical test preparation segments contribute to a promising outlook for CL Educate.

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