What you must know about Chetana Education IPO: Price Band ₹80 to ₹85 per share

About Chetana Education Ltd

Chetana Education Ltd was incorporated in the year 2017 and is into textbook publishing. The company specializes in printing and publishing textbooks for CBSE and State Board curriculum for the K-12 segment. To assist in the education process, Chetana Education Ltd also offers focused educational software as well as educational videos for teachers and students. Most of these videos are accessible through a QR (Quick Response) code. Chetana Education Ltd essentially caters to the Maharashtra State Board and the Central Board of Secondary Education (CBSE). It covers the entire spectrum of textbooks from early pre-primary education to K-12 courses. Till date, the company has sold more than 60 lakh books for students at various grade levels; ranging from pre-primary to primary to secondary, and senior secondary. Content creation is managed through a team of 400 author contributors. Chetana Education Ltd has a portfolio of over 700 titles with 15 differentiated brands. 

These educational brands include Master Key, Self-Study, Firefly, Bright Buddies, My Skill Book, Grade Me, etc. Apart from the traditional physical and textual content, the company has developed an array of digital content tools to improve the level of understanding of the students. It also has strategic partnerships with edtech and this initiative has produced more than 30,000 educational videos targeted at students. The front end marketing is handled by Chetana Education Ltd through its network of over 500 distributors and dealers; with a full-fledged feet-on-street sales team to assist them. Currently, the company employs more than 400 personnel on its rolls. Chetana Education Ltd has been a consistently profit making company over the years.

Highlights of the Chetana Education IPO

Here are some of the highlights of the Chetana Education IPO on the SME segment of the National Stock Exchange (NSE). 

•    The issue opens for subscription on 24th July 2024 and closes for subscription on 26th July 2024; both days inclusive.

•    The stock of Chetana Education Ltd has a face value of ₹10 per share and it is a book built issue. The book building price band for the IPO has been set in the range of ₹80 to ₹85 per share. The final price discovery will happen in the above price band only.

•    The IPO has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion, the company will issue a total of 54,00,000 shares (54.00 lakh shares), which at the upper band IPO price of ₹85 per share aggregates to fresh fund raising of ₹45.90 crore.

•    Since there is no offer for sale, the fresh issue will also double up as the overall size of the IPO. Therefore, the overall IPO size will also comprise of the issue of 54,00,000 shares (54.00 lakh shares) which at the upper band IPO price of ₹85 per share aggregates to overall IPO size of ₹45.90 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 2,73,600 shares as quota for market inventory. Hem Finlease Private Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Anil Jayantilal Rambhia, Rakesh Jayantilal Rambhia, and Shilpa Anil Rambhia. The promoter holding in the company currently stands at 100.00%. Post the fresh issue of shares, promoter equity holding share will get diluted to 73.53%.

•    The fresh issue funds will be used by the company for repayment / prepayment of some of the company borrowings and for funding the working capital needs of the business. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•    Hem Securities Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Hem Finlease Private Ltd. The IPO of Chetana Education Ltd will be listed on the SME IPO segment of the NSE.
 

Key Dates for Chetana Education Ltd IPO and Application Details

Here are the key dates about the IPO:

Data Source: Company RHP

In ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 30th 2024, will be visible to investors under the ISIN Code – (INE0U1T01012). This credit to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Investor Quota Allocation

As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI/NII investors. The table below captures the allocation to various categories:

Data Source: Company RHP

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹1,36,000 (1,600 x ₹85 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 3,200 shares and having a minimum lot value of ₹2,72,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

There are no upper limits for investments by HNIs / NIIs in the IPO of Chetana Education Ltd.

Financial Highlights of Chetana Education Ltd

The table below captures the key financials of Chetana Education Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have grown at a healthy clip, with FY24 revenues more than twice the revenues of FY22, despite a slower growth in sales in FY24 over FY23. However, the net margins are quite attractive at 12.87% and the good thing is that the margins have consistently improved in the last 2 years, as input costs have been kept under check in the latest year, a factor that has boosted the net profits. 

•    While net margins of the company have been relatively tepid at 12.87%, the other return margins have shown better traction in latest year. The return on equity (ROE) stands robust at 47.67% in FY24, while the return on assets (ROA) is also modestly strong at 12.7% in FY24. Both are up sharply from the previous years.

•    The asset turnover ratio or the sweating ratio has been modest in the latest year at 0.99X and that only gets further accentuated when you look at the healthy levels of the ROA. However, in an IRR based pricing model in this industry, it is less about asset turnover and more about how the net margins traction gets built.

The company has latest year EPS of ₹8.02, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹85 per share at 10-11 times P/E ratio. That is not too expensive if you factor in the robust growth in the ROE, and the return on assets in the latest year. Also, if this growth continues into FY25, then the forwards valuations should be a lot more attractive.

To be fair, Chetana Education Ltd some bring some intangible advantages to the table. It has a mix of digital and physical content and that mix is maintained in the case of marketing strategy also. With an established network for marketing and for content creation, the company is strongly positioned in the K12 market. This business model is also relatively asset-light. Its network partnership is extensive and should be a great support. Also, the rather delicate status of companies like Byju’s is likely to revive the investors interest in the traditional schooling model. 

The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years. Ideally, investors must be prepared for modest returns since the stock has a rather stable business model and growth is likely to be steady. For now, the company has the moat to play out competition in the industry, so investors can look at the IPO favourably. However, educational content is a constantly evolving field and that remains a risk for the business of Chetana Education Ltd.