Shares of CL Educate have done well since August 20. CL’s share price was Rs 38 at the end of July. The price rose to Rs 46.5, and is now around Rs 70.
This is a smart recovery after the fall CL’s shares had suffered in March due to Covid fears. Two events led to the fall. First was Covid: CL’s main business is Test Prep (under the brand Career Launcher), which is conducted in classrooms. CL also has a subsidiary – Kestone Integrated Marketing – into B2B marketing services, where events form around half the revenue. It was expected that both these businesses would be severely impacted by Covid. Secondly, CL Educate declared a large loss in Q4 FY20; though it was mostly exceptional items.
The Q1 performance of CL has bee better than expected. While revenue did fall, EBITDA performance was a positive surprise. The Test Prep business declared an all-time high Operating and Total EBITDA margin; while the overall company also declared a multi-quarter high on Total EBITDA margin.
On the business front, CL made a smooth transition to digital delivery in key business segments. Cost measures enabled Consumer business (Test Prep) to pose record EBITDA margins. Q2 margins will improve on full impact of cost measures, and Enterprise business will see revenue traction from its newly launched Virtual Events Platform.
The company has indicated Q2 could see further improvement in EBITDA margins, since impact of cost cuts was only partly seen in Q1 results.
Shares of CL Educate still hold considerable value. With an EV of around Rs 80 crore, the company is trading at less than 5x EV/EBITDA. It has shown robustness of its business model in the Covid clampdown. If the company can demonstrate return to growth, then the shares may have a long way to go.
(Wisdomsmith assists CL Educate on investor relations)