CL Educate’s FY24 show that the company is moving in the right direction in both its businesses.
In its education business, the main point for investors to focus on is – how are the new business segments of Study Abroad, CUET and Platform services are growing. In FY24, these business segments grew between 20-30%, making up for the slow moving segments of MBA, Law and other traditional test prep segments.
The new segments now comprise over 15% of overall EdTech revenues. In other words, they have reached a size where they can start making a meaningful impact on overall EdTech business segment growth.
One big historical issue with CL Educate’s education business has been lack of meaningful topline traction. This was largely due to stagnation in the numbers of MBA test takers for several years. The MBA entrance test, better known a CAT (combined admission test) is the flagship business segment for CL’s EdTech business. It is also the market leader in the law admission exam, CLAT. The revenue in CLAT grows in line with market growth rate, which is under 10%. In other words, the EdTech business was looking for a growth engine. FY24 results suggest that it seems to be getting there.
In FY24, overall Edtech revenue was up 15%. It now appears CL has reached a stage where it can regularly show >10% sales growth in its Edtech business, given that the new business segments can bump up overall growth by 3-4% at their current size. As their relative contribution to the overall EdTech revenue increases, the new businesses could exert even more influence on the topline, assuming they are able to maintain growth rate of over 20%.
In the MarTech business, run under the brand Kestone, which is the B2B experiential marketing services business, the key trend to watch out for is increase in EBITDA margins. This business has reported 6-8% EBITDA margins historically. CL management has a stated goal of doubling EBITDA margin in 3-4 years, on the back of expansion into international markets, where the gross margin is much better than in India.
EBIDTA margins for CL’s MarTech business were up 210 bps during the year to 10.9% in FY ’24, as growing share of international business helped improve margins. Share of International business has risen from 21% in FY ‘23 to over 25% of overall revenues in FY ’24.
In short, there are positive signs in both the businesses. The one area where CL needs to show more progress is in the addition of new franchisees for its EdTech business. While around 25 were added in FY24, given the management’s goal of exceeded 500 franchisees in 2-3 years, this needs to speed up, if all the additions were to occur organically.