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Edited Transcript of MTEDUCARE.NSE earnings conference call or presentation 22-Nov-19 1:00pm GMT

Q2 2020 MT Educare Ltd Earnings Call

L B S Crs Rd, Mulund,Mumbai Dec 11, 2019 (Thomson StreetEvents) -- Edited Transcript of MT Educare Ltd earnings conference call or presentation Friday, November 22, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ajey Kumar

Zee Learn Limited - MD & Executive Director

* Debshankar Brata Mukhopadhyay

Zee Learn Limited - CEO

* Sidhartha Acharya

Zee Learn Limited - IR Executive

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Conference Call Participants

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* Ashwin Reddy;Samatva Investments;Founder

* Dipan Anil Mehta

Elixir Capital Limited - Chairman of the Board

* Hiten Sampat

Quest Investment Advisors Pvt Ltd. - VP of Equities

* Kedar Kalbag

The Xander Group Inc. - Associate VP

* Shailesh Kumar

Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst

* Sufiyan Lakdawala;Lalkar Securities;Analyst

* Vipul Shah;RippleWave Equity Advisors LLP;Partner

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Zee Learn and MT Educare Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Sidhartha Acharya. Thank you, and over to you, sir.

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Sidhartha Acharya, Zee Learn Limited - IR Executive [2]

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Thanks. Good evening, everyone. I'm Sidhartha Acharya, welcoming you on behalf of Zee Learn Limited and MT Educare Limited. Thank you for joining us today on this conference call to discuss our performance for the Q2 FY '20. We would like to add that this call is purely for our investors and analysts. And if there are any person representing media on this call, we would request them to disconnect and log out. Thank you.

We hope you had a chance to go through the results, which has been uploaded on the company's website, that is www.zeelearn.com. To discuss the results and performance, joining me today from Zee Learn side are Mr. Kumar, Director; Mr. Mukhopadhyay, CEO. From MT, we have Mr. Sanjeev Garg, the CEO; and Mr. Bhutra, the Chief Financial Officer.

We will start with a brief statement from Mr. Kumar. Thereafter, Mr. Mukhopadhyay will brief you on the financial highlights and key indicator for the quarter. I would like to remind everybody that anything we say during this call that refers to our outlook for the future is a forward-looking statement and must be taken in the context of the risks we take. I now request Mr. Kumar to address the audience. Thank you.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [3]

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Hello, everyone, and a warm welcome to our quarterly investor call. And this is Ajey Kumar here. So you guys must have seen the results uploaded on our website and reported to the stock exchange. This was a very decent quarter for us. On a consolidated basis, our revenue grew by around 12%, and our PAT increased by about 73%. The result was even better on a stand-alone perspective for Zee Learn. The revenue was up by about 23.5% and PAT was up by about 59%. And because of the high operating leverage that we enjoy, EBITDA as a percentage of the operating revenue grew to about 59.3% from 46.6% last year same quarter. And the business has grown well. And Mahesh Tutorial has also started performing nicely. And I will hand over the call now to Deb to give you some key highlights, and thereafter, we will open the floor to questions. Thank you.

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Debshankar Brata Mukhopadhyay, Zee Learn Limited - CEO [4]

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Hello, thank you, Ajey. And welcome to all of you on the call. On a consolidated basis, for the financial year '20 -- quarter 2 financial year '20 over the previous same quarter of last year, our total revenue is at INR 148.4 crores, which is up by 11.7%; EBITDA is at INR 51.8 crores, which is up by 55.6%; PBT at INR 32.8 crores, which is up by 61.4%; and PAT at INR 24.4 crores, up by 73.1%.

Fee at Zee Learn, I believe, is in a very unique position of being able to provide a plethora of educational offerings to fulfill the demands of our contemporary parents and students. Our student-centric approach through the various brands that we have, have helped us to chart a very differentiated and disciplined path to growth. Our consistent performance over the quarters is a testimony to that. I now would like to open this for questions. And we have a team with us to take your questions, and I'll be more than happy to answer them.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of [Utkarsh Ramayya] who is an individual investor.

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Unidentified Participant, [2]

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Sir, since majority of Zee Entertainment's debt has now been repaid, will Zee Learn's pledged shares reduce?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [3]

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This is Ajey here. The deal has happened only a day or 2 back. So we will wait for the promoters to report the status of pledging -- Class B pledging. And we don't have that available with us as of now. As and when it's available and it's informed to the stock exchanges, I'm sure you would know. But yes, I agree, it's a positive move.

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Unidentified Participant, [4]

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So we -- so go -- we could expect some sort of reduction in pledge? Can you give some light on it? I don't want to...

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [5]

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I'm not privy to the exact numbers. So it will be foolhardy from my part to comment on it. Like I said, the deal happened, I think, only yesterday morning. So they get a certain time period to report to the stock exchanges. So let's wait for that. I also hope like you that there is a significant reduction in the pledge.

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Unidentified Participant, [6]

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Okay. And sir, there has been media reports saying that -- that Kidzee is going to be sold through KKR -- sorry, EuroKids backed by KKR. So can you please say something about that?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [7]

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See, as part of our business, we continuously evaluate both buy and sell-side options. We are a large, vigorous and growing business. It is not -- I would not like to comment on the media reports per se. If there is anything concrete, which comes up, we will inform the stock exchanges, and thereafter, you people also. So let's not go on media reports. They write many things. So let's wait for something concrete to come up, and we will happily share with you.

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Operator [8]

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The next question is from the line of Shailesh Kumar from Sunidhi Securities.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [9]

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Mr. Kumar, I'd like to know that, what we understand, we have been compelled to explore the opportunity to sell some portion of our Zee Learn business because of debt concern. Now that it seems to be resolved or on the verge of getting resolved, are we still exploring the opportunity?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [10]

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Which opportunity? I did not understand.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [11]

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Yes, which was recently reported in media and which was informed by Mr. Punit Goenka in Zee Entertainment con call?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [12]

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Okay. If you are referring to Mr. Punit Goenka's statement, that is something which he in his capacity as promoter group has said that they are open to discussing their stake sale in Zee Learn, which he's referring to a secondary stake sale. So that is their prerogative as a promoter. From our perspective, we have been evaluating many opportunities like real stake of our schools being sold, primary fundraising, et cetera, on which like I answered the first person, there is nothing concrete or on the table as of now. And regarding the statement from Mr. Goenka, he would be able to answer that.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [13]

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Okay. So I mean we don't have anything concrete in terms of disposal of our real estate asset as of now?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [14]

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We have been trying for it. But like I've shared with you guys earlier also, in a sale and leaseback scenario, the type of rentals people are wanting is, we think, it's unfair and very high. They tend to compare our real estate to commercial properties, where the rentals are like about 10% odd. What they forget is, that is for a period of 3 to 5 years, whereas our rentals are for a period of 25 to 30 years depending on the local regulation. So obviously, the rate would have to be much lower. And that's a debate we're having with people. And as and when something comes up concrete, we will be happy to report that to you.

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Operator [15]

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The next question is from the line of [Dinesh Kulkarni], who is an individual investor.

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Unidentified Participant, [16]

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Congratulations on good set of numbers. My 2 questions are, sir, like, can you just explain the difference between the debt consolidated level? Like, if we see, on a consolidated level, the balance sheet debt, short-term debt has remained almost same, but the long-term debt has reduced by almost 90 -- INR 100 crores, sorry. Whereas on the cash flows, if we see, it doesn't really tally, like we have just repaid around INR 25 crores something. So can you just explain me that?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [17]

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Okay, I'll explain to you conceptually. And thereafter, if you have any remaining query, my finance guy will answer. See the reduction in the bank borrowing emanates from 2 parts. On a consolidated basis, Mahesh Tutorial has paid some of its debt, which would have led to long-term borrowing going down. And there would be some changes also because of IndAS adjustments when long-term borrowings shift to short-term or other way around, it's a regrouping effect. And also recently, we had made ourselves, for Zee Learn, some scheduled repayments to our various banks. Now if that explains the numbers conceptually, fine, or my finance person will be happy to explain to you.

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Unidentified Participant, [18]

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No, I think we have drawn more debt on this because it is just not tallying like cash flows have gone up for -- shows repayment of somewhere around INR 35 crores, INR 36 crores, not overly. Whereas total debt has gone down, the long-term debt has gone down by INR 100 crores. If you just look at the balance sheet and the cash flows, you can make out that, yes. I would expect a better answer, a detailed answer there.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [19]

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[Kapil], can you explain to him? Can you come this side and explain nearer to the phone?

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Unidentified Company Representative, [20]

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Which part -- sorry, this is [Kapil]. Which part you are talking about? Which -- long term or short term?

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Unidentified Participant, [21]

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Yes. See -- if we see the long-term financial borrowing on Page 5 of the earnings release of Zee Learn, we can see financial borrowing long-term has gone down from March 30 -- March end, from INR 335 crores to INR 237 crores. That's INR 98 crores...

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Unidentified Company Representative, [22]

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That's in our consol or stand-alone?

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Unidentified Participant, [23]

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Consolidated. Consolidated.

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Unidentified Company Representative, [24]

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Okay.

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Unidentified Participant, [25]

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So that has gone down from INR 335 crores to INR 237 crores. Okay? Whereas, short-term borrowing is almost same, like INR 43.5 crores, something like that, okay? Whereas, cash flow, if we go down and see, cash flows, total repayments are worth almost INR 61 crores, that is long-term plus short-term repayments of INR 61 crores and fresh borrowings of INR 37 crores. Okay? So that shows net repayment of only INR 24 crores in the cash flows. Okay? So there is a difference of INR 100 crores total debt has gone down, whereas net repayments of debt is only INR 24 crores.

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Unidentified Company Representative, [26]

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Okay. I just wanted to highlight you one line, there is -- in current liabilities, there is a line item other financial liabilities, which is of INR 100 crores. So basically, there is a regrouping of current -- noncurrent to current liabilities, which is of approximate INR 95 crores of our one long-term liability, which got shifted to current liabilities. So yes, we have paid some part of our loan, but that got adjusted between the current liabilities only. So we have some part of current liabilities, which is included in current maturities as other financial liabilities, which got repaid during the quarter. But yes, there is a regrouping majorly in between the current and noncurrent. That is why the gap is there.

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Operator [27]

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The next question is from the line of [Ajay Chawla from Master Capital].

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Unidentified Analyst, [28]

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Hello, Hello?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [29]

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Yes, go ahead. Go ahead, please?

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Unidentified Analyst, [30]

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(foreign language)

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [31]

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No problem, sir.

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Unidentified Analyst, [32]

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(foreign language)

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [33]

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We did not understand. Can you repeat, sir? We do not understand the question. Can you repeat, please?

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Unidentified Analyst, [34]

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(foreign language)

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [35]

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We have had a decent result. Our profits were up by 73%. So the results are already pretty good.

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Operator [36]

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The next question is from the line of Dipan Mehta from Elixir Capital.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [37]

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Congratulations on good set of numbers. If you could give us the basic data as in number of centers called, year-on-year how much they have gone up by? Number of students in Kidzee, how much they have gone up by? Those basic statistics -- normally we have been insisting that you have some sort of a presentation, which has all the basic stats.

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Debshankar Brata Mukhopadhyay, Zee Learn Limited - CEO [38]

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Yes. This is Debshankar here. We have just uploaded the key business and financial indicators. However, for the benefit...

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [39]

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No, no, I'll then take it from there. I'll take it from there. So let's not waste time. My second question is that, what is the overall debt, whether it is in various -- wherever it has been grouped, what's the total debt of the company? And how much of it would be payable within 1 year?

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Unidentified Company Representative, [40]

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The total debt. You are talking about the consol level or stand-alone level?

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [41]

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Consol, consol level, obviously, because between subsidiary (inaudible).

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Unidentified Company Representative, [42]

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Okay, okay. So on consol level, there is INR 405 crores of total debt as on 30th September 2019. And we have current maturities of around INR 80 crores, INR 85 crores of -- which could be next 1 year.

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Operator [43]

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The next question is from the line of [Dev Modi], who is an independent investor.

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Unidentified Participant, [44]

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My question is regarding MT Educare. We have seen in the current balance sheet that there is a new line item in the liabilities, in both current liabilities and noncurrent liabilities, which in total adds up to around INR 56 crores. And similarly, there's a contract, which I think adds around to the same amount. So I just wanted to know, what is this? Is this a sale and leaseback transaction that you've done? And has this transaction been done with a related party?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [45]

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Mr. Dev, I think, as per the new IndAS regulations, the rents move from rental per se to a asset-like treatment where they move below the line and depreciation is charged. So it may be because of that. I will ask the finance guy to explain it to you.

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Operator [46]

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The next question is from the line of Ashwin Reddy from Samatva Investments.

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Ashwin Reddy;Samatva Investments;Founder, [47]

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Sir, I have 3 questions. Firstly, if I look at the stand-alone numbers, considering there are over (inaudible) which you've made and whatever debt you have and all the payments you've been making from what we can see in the cash flow statement, is there any debt assignment level contingent liability you have? And the recourse that you have from the other (inaudible), that's a different one? What I am trying to understand is, is there a compulsion to now go direct to sale of Kidzee in terms of your operations and the cash flows?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [48]

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Compulsion is not the right word, Ashwin. See, as part of initiative to make our balance sheet more amenable, to deleverage ourselves, to improve our return on capital employed, et cetera, we keep evaluating a lot of options. Those options do not necessarily mean sale of Kidzee. It could mean real estate asset disposals, which we have talked about earlier. It could mean primary infusion, et cetera. So it's a multitude of things which are under consideration.

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Ashwin Reddy;Samatva Investments;Founder, [49]

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Sir, but the point I'm trying to say is, because Kidzee is really like the (inaudible) cash flow for the company, and that is the declines are (inaudible). So I'm just curious because, again -- and what is the total debt that you have, including whatever is there in the trust and whatever the company is responsible for? What is the overall debt burden, if I so call it, what is the total amount?

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Unidentified Company Representative, [50]

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The total amount of debt is just now explained, it's INR 405 crores. So what next do you want to know?

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Ashwin Reddy;Samatva Investments;Founder, [51]

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From the same -- in case -- with the contract (inaudible), is there any debt in the trust as well? And are you responsible for that? Or are you saying this is the total amount that you had, that's it, and nothing much?

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Unidentified Company Representative, [52]

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Right now, we don't have the trust number. We will have to get back to you on this.

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Ashwin Reddy;Samatva Investments;Founder, [53]

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Okay. Okay. Sure. Got it. Okay. And my second question is on, say, right now for the debt that you have, what is the percentage of Zee Learn shares that has been pledged? How much of that is being done for the loan that you right now have? So I understand some portion of it is done by the promoter for its present capacity. But for the loan that you have taken or the debt in the company books, what is the percentage of equity loans -- equity that has been pledged?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [54]

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The Zee Learn pledge of shares is not -- I don't know the exact numbers per se. But I don't think it is connected to Zee Learn debt. So Zee Learn debt is not adhered to the pledge of Zee Learn shares. Our debt is operational debt.

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Ashwin Reddy;Samatva Investments;Founder, [55]

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Okay. So for debt, nothing has been pledged in terms of shares of the (inaudible)?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [56]

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Pardon?

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Ashwin Reddy;Samatva Investments;Founder, [57]

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No. For the debt that is there in the company's books, there have been no shares pledged is what you're saying?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [58]

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On Zee Learn stand-alone, these are basically working capital loans. And for some loans in DVPL, which is our propco, some school property that propco DVPL loans would be pledged. So these would be asset-backed loans and not really Zee Learn share-backed loans.

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Operator [59]

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The next question is from the line of [Mukesh Kohli from Prudence Capital].

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Unidentified Analyst, [60]

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I wanted to know about the growth rate of Kidzee, which has actually slowed down quite a bit. So if you look at the numbers in March '17, there were around 1,700 Kidzees. And in 2.5 years, we are at only 1,900 figure. And Mr. Kumar had told that every year we were supposed -- like, we planned to add around 300 to 400 Kidzees, but the growth has clearly slowed down over the last 2 years. So I wanted to know the reason behind that?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [61]

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So [Mukesh], we do add about 300-odd Kidzees every year. However, because we have to keep the health and hygiene in our network very high, we have a very stringent mechanism of auditing our centers and checking them for compliance to both safety, hygiene and academic standards because of which there is a churn also, some centers exit. So typically, if you see that, let's say, 300 centers get added, about 150 to 200 will exit. And therefore, the net addition is about 100, 120, 150, something like that. But if we are running a network across the country, in 750 to 800 cities and with 150,000 students, if we don't keep this hygiene very strongly and we just want to push numbers, then this whole thing will not work very well. And that is why you see on top line a moderate growth. However, at the bottom line level because of very high operating leverage that the business enjoys, you see...

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Unidentified Analyst, [62]

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Yes, there is a good growth in EBITDA.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [63]

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Yes, right, thanks.

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Unidentified Analyst, [64]

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All right. And 1 more question I had, in the press release in the balance sheet, there is a figure of right to use in the noncurrent assets, which is around INR 100 crores, INR 99 crores to be precise.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [65]

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That, Kapil will answer.

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Unidentified Company Representative, [66]

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That is basically our new IndAS law is applicable on lease rental liability. So whatever the rental asset we have created on rent given or rent to be given, that is the asset we have to create there on the asset side, right-to-use assets.

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Operator [67]

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The next question is from the line of [Dinesh Kulkarni] who is an individual investor.

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Unidentified Participant, [68]

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Sir, I wanted to know, like in this quarter we have generated almost INR 90 crores of FCF, that's in the second quarter. Do we expect this trend to continue? Like -- or is it -- would slow down from here on?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [69]

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See, obviously, our business is a growing business and highly growing business. In the last 16 to 20 quarters, you would have seen high consistent results where bottom line has grown quarter-over-quarter by 40%, 50% range. In fact, if you look at our annual report, you will see a CAGR of almost 50% plus on EBITDA level and maybe 35%, 40% on the top line level. So there is no question of slowdown. We are not in this business for slowdown. Education is a defensive sector. Even when other industries slow down, defense, education and health care do not slow down. So I don't know whether that answers your question. We obviously as a company, management hope for the best and work here to grow to the best.

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Unidentified Participant, [70]

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Yes. And just 1 more last question, if you may allow. I wanted to know, like, the stock price of this company, like, Zee, for whatever reason, hasn't just really moved from its IPO price. It's just around INR 25 even today. Do we expect some buybacks since we know we are generating good amount of cash? So are you expecting to do any buybacks that will, even in...

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [71]

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[Dinesh], for clarification, this company never went through an IPO. This company was remodeled out of our other company in, maybe, 2010. We never had an IPO. Coming to the second question about the share price, you are an investor and you would be knowing better than all of us that the share prices are a factor of multiple things and not only the company performance. It depends on where we come from? What is the macro environment? What are the government regulations? What is the anticipation for the market environment you have? And we are hopeful that the share market and the investors will reward our organization for our unstinted and consistent and regular growth and which would reflect hopefully in the share prices as well. And I cannot comment on the share buyback. If there is anything like that and we come down to that, there are many regulations to take permission from, and we'll be informing the stock exchange. But as of now, there is nothing like that.

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Operator [72]

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The next question is from the line of Kedar from Xander Financial.

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Kedar Kalbag, The Xander Group Inc. - Associate VP [73]

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You mentioned the consolidated debt as INR 404 crores. The additional disclosures that you have made on the earnings was a net bank borrowing of INR 360 crores. So I just wanted to understand whether the remaining is cash and bank balance to arrive at the net debt number?

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Unidentified Company Representative, [74]

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Remaining is promoter borrowing.

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Kedar Kalbag, The Xander Group Inc. - Associate VP [75]

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No, in Zee Learn, consolidated?

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Unidentified Company Representative, [76]

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Consolidated.

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Kedar Kalbag, The Xander Group Inc. - Associate VP [77]

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Yes. So net bank -- you said the bank borrowing is INR 404 crores, right? But the disclosures in the exchange was INR 360 crores.

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Unidentified Company Representative, [78]

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So the difference of INR 44 crores is the borrowing from the promoters.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [79]

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So INR 404 crores, Kedar, is the total debt. The bank borrowing is INR 360 crores. So the difference is earlier debt which the promoter has kindly given to us.

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Kedar Kalbag, The Xander Group Inc. - Associate VP [80]

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Okay. And against the -- against any of the borrowing -- are the Zee Learn shares pledged against any of the borrowings?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [81]

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Not to my direct knowledge. Someone else also asked that question. I don't think Zee Learn shares are pledged against any of the Zee Learn operational debts.

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Kedar Kalbag, The Xander Group Inc. - Associate VP [82]

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Okay. And the second question is on the -- on MT Educare. There was one advance which is shown as -- which was given out of MT Educare, and in the notes to accounts it mentioned that the advance was returned. So has that cash come into MT Educare, again? A security deposit of INR 66 crores?

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Unidentified Company Representative, [83]

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Yes. So that cash has come in to the bank, along with interest.

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Operator [84]

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The next question is from the line of [Raman], who is an individual investor.

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Unidentified Participant, [85]

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Sir, my question is that, as we came across recent media rumors regarding KKR to acquire Kidzee. So I don't think so that media will react to this without any rumors. But even if media has reason and even if, (inaudible) that to Zee Entertainment promoter sold out their stake. So what is the purpose you still explore to sale out the Kidzee business? And even if we sale out the Kidzee business, what kind of revenues and what kind of future growth we can expect from MT Educare and other avenues?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [86]

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I did not fully get your question, [Raman]. But let me try and explain to you. We don't comment as a policy on media reports. So whether KKR wants to buy Kidzee or someone else wants to buy Mount Litera, those media reports are unsubstantiated, and I would not like to comment upon that. Like I said earlier, Mr. Punit Goenka's statement was about the promoter stake sale, which is their prerogative as a promoter. Regarding the funds requirement for Zee Learn itself, we are evaluating multiple options, which include, amongst other things, sale of and disposal of the real estate property, school property assets that we have. Regarding your hypothetical question, is that whether Kidzee, if it goes away, what will be the revenue growth, et cetera? We don't give forward-looking statements. We do not give earning guidance. So even for the whole organization, I cannot provide that detail, except for the fact that the last 16 to 20 quarters, you have seen us growing at 40% plus CAGR on top line and 50% plus CAGR on EBITDA. So you can form your own judgment about our consistency and high growth opportunities. So I hope I've been able to answer your question.

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Operator [87]

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The next question is from the line of Vipul Shah from RW Equity.

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Vipul Shah;RippleWave Equity Advisors LLP;Partner, [88]

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Yes, I just wanted to -- I had 2 questions. First on MTE. I just wanted to get a clarification that this amount of INR 66 crores, which we have received by fourth mini-quarter ended 30th September, have we repaid the debt in MTE books?

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Unidentified Company Representative, [89]

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So we have repaid partially the debt, not the full.

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Vipul Shah;RippleWave Equity Advisors LLP;Partner, [90]

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Okay. Because MTE's balance sheet also showed a high level of consol debt, so that was the question as to whether the -- so fine, fair enough. Second question was on this -- on the growth rate of the Kidzee enrollment. As of March end, we had close to 1,38,000 students. As of September, as per your press release, we have 1,30,000 students, so...

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [91]

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Ajay here, Vipul. Kidzee has 4 layers; playgroup, nursery, junior KG and senior KG. And unlike regular schools, there is a churn at the end of the year, at least half of the students or 40% of the students pass out. So 138,000 number that you said, that was an end of the academic year number. When the new academic year starts, the number starts from a much lower number and then it will...

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Vipul Shah;RippleWave Equity Advisors LLP;Partner, [92]

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But you will get new enrollments also, sir. You would get new enrollments, right? It's not like if kids move out from senior KG to say Grade I, you also have kids who move out from junior to senior and likewise.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [93]

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Right. Please allow me to complete my answer. These are hypothetical numbers. If let's say, 138,000 was the number of students graduating in a particular academic year, the next academic year will start with, let's say, 80,000 students. And immediately on the opening, let's say, another 30,000 students will come. So 80,000 will become, let's say, 110,000. Then during the year, these are small children, so that many of them do not necessarily come at the beginning of the academic year. Many of them keep coming during the year also. Secondly, the academic year is an amalgamation of 3 patterns. In South and West, academic year is from June to May of next year. In North and Eastern India, it is from April to March. And in the Northeast, that is the Seven Sisters, it is from January to December. So this -- these numbers are all put together to write the academic year number here, right? So therefore, there are mid-season admissions also getting added up. So when you come at the end of this financial year, you compare at that point of time.

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Vipul Shah;RippleWave Equity Advisors LLP;Partner, [94]

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Fair enough, sir. 1 other question was, on this really stupendous growth in the K-12 students and the K-12 schools. So the number of K-12 students, which have increased vis-à-vis the number of schools is really heartening. So you see -- you think, sir, that this trend will continue because K-12 is a much more lucrative and a longer-term opportunity where we capture a larger life cycle of a student's education than Kidzee?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [95]

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Right, Vipul, you're absolutely right. See -- please realize one thing. K-12 starts from Kindergarten up to 12th standard. When the school gets launched, it typically gets launched up till fifth or sixth grade. So here, the growth that you are seeing is not apple-to-apple. Many of the schools are adding 1 more grade. So in Kidzee business, it is the same 4 grades of playgroup, nursery, junior KG and senior KG which keeps churning. In the high schools, assume that you opened a school up till sixth grade, next year there will be a seventh, next year there will be an eighth, ninth. So this growth will continue till there are a number of grades, which are going to get added. And of course, it will come from new schools getting added. And of course, it will also come from more students coming into the existing grades. But because of the new grades keeping added for the schools which are relatively new, it increases the growth.

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Operator [96]

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The next question is from the line of Sufiyan Lakdawala from Lalkar Securities.

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Sufiyan Lakdawala;Lalkar Securities;Analyst, [97]

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Sir, as you say that you cannot comment on the media report or Mr. Punit Goenka's stake sale thing, can you assure that Kidzee will remain with Zee Learn?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [98]

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No, sir, I cannot give any assurance like that. It depends on many permutations, combinations, et cetera. Rest assured, however, that we will or the company and the management will do what is best for the organization, but it would be foolhardy for me or anyone to give you any assurance like that.

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Sufiyan Lakdawala;Lalkar Securities;Analyst, [99]

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Okay. And then the other question is, like, can you give us Kidzee FY '19 and H1 FY '20 revenue and EBITDA?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [100]

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When we report segmental revenues, you can look it up from there.

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Sufiyan Lakdawala;Lalkar Securities;Analyst, [101]

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It's given for both Kidzee and Mount Litera, not specifically for Kidzee, that's the reason, sir.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [102]

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So for that, you can connect with the finance team one-on-one or you can extrapolate it from the Pre-K numbers. I have the data in front of me, which is the data that we have reported as segmental revenue. So right now, I will not be able to give you an immediate breakup.

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Sufiyan Lakdawala;Lalkar Securities;Analyst, [103]

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Okay, sir. And last question. Can you -- in the contingent liabilities, does this include the corporate guarantee given to Taleem, and it's how much, sir?

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Unidentified Company Representative, [104]

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Yes, there is a guarantee given to Taleem, which is around INR 310 crores.

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Operator [105]

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The next question is from the line of Hiten Sampat from Quest Investments.

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Hiten Sampat, Quest Investment Advisors Pvt Ltd. - VP of Equities [106]

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Just a small update I needed with regards to -- because someone else asked whether you would be doing some buybacks. So I was just looking at the cash flow numbers and the amount of cash that is generated. What are the plans for repayment of the company's debt across the board? So would you be repaying them? Because also, this quarter, INR 66 crores come as a refund for some project done at MT Educare also. So do you look at reducing the debt completely in sometime? And what are your plans for dividend payout?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [107]

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First of all, cash, which is there in the business are going to be generated. It is not only there for prepaying debt, right? The cash gets utilized for changes in working capital, for CapEx or, like you said, paying dividends and of course, for bank servicing. So as of now, we have a bank servicing plan for the next year, which is almost to the tune of INR 80 crores to INR 100 crores. That is our first priority that we should be -- both in repaying all the stuff plus we have our -- not very high, small CapEx requirements. And regarding the dividend, we have just recently paid a dividend. So the next dividend is due after quite some time. And I'm sure that your company for the last 2 or 3 years has been a consistently dividend-paying company. And hopefully, we should continue our track record.

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Operator [108]

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The next question is from the line of [Utkarsh Ramayya], who is an individual investor.

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Unidentified Participant, [109]

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Sir, can you tell me the per center peak capacity for Kidzee, please?

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Debshankar Brata Mukhopadhyay, Zee Learn Limited - CEO [110]

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Yes. This is Debshankar. So on an average, the capacity is 100 for Kidzee and we should continue to -- we are currently operating with an average 73 enrollments per center, which also includes new centers and...

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Unidentified Participant, [111]

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Currently -- sorry, I didn't get that, sir, I'm sorry.

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Debshankar Brata Mukhopadhyay, Zee Learn Limited - CEO [112]

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Hello. Can you hear me?

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Unidentified Participant, [113]

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Yes, now I can.

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Debshankar Brata Mukhopadhyay, Zee Learn Limited - CEO [114]

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Okay. So the peak capacity for centers is on an average 100. Typically, each class consists of around 25 children. So there are 4, playgroup, nursery, junior KG and senior KG. And average enrollment per center is 73. However, as you progress in the academic year, this average is expected to further improve.

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Unidentified Participant, [115]

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Okay. And sir, your number of schools and students have increased, but your franchise fee Y-o-Y has reduced from FY '19 over '18. So you think you can explain why does it happen?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [116]

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Where did you see the franchise fee decreasing? We did not understand. Which number are you referring to?

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Unidentified Participant, [117]

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Sir, in the annual report, the franchise fee revenue, it's reduced from INR 13 crores last year to INR 11 crores this year.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [118]

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Franchise fee for Kidzee?

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Unidentified Participant, [119]

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Sir, consolidated results, a part of the revenue.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [120]

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It will be very difficult for answering you like that because the franchise fee comes from Kidzee, comes from Mount Litera High School, also comes from teacher training programs, Kidzee daycare programs, also comes from Zee Institute of Creative Arts, et cetera. Which page number are you referring to, if you can tell? We have got the annual report for fee, which number page?

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Unidentified Participant, [121]

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Yes. Just 1 second, sir. I'll just -- sir, page number 209. Revenue from operations breakup is given.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [122]

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Just 1 second. It will be difficult for us to comment like this because this is a consolidated financial statement, which is along with subsidiaries, Mahesh Tutorial, et cetera. So I suggest, sir, you connect with our team one-on-one because we'll have to see breakup of this and try and understand what it is.

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Operator [123]

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The next question is from the line of [Amit Bagadia] who is an individual investor.

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Unidentified Participant, [124]

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I just wanted to ask you, do we have any strategy for the free cash flow in terms of reducing our debt?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [125]

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The free cash flow, obviously, one of the requirements would be servicing the scheduled debt and for other requirements of the company. Right now, we do not foresee any out-of-turn debt repayment.

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Unidentified Participant, [126]

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So we plan to use the cash flow for something else, like a dividend policy in place or something?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [127]

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Yes, dividend -- we anyway give dividend every year, so...

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Unidentified Participant, [128]

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That's just 5p or something, or 10p at least. 10%, I think it is.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [129]

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So as of now, I can only say that we have been giving dividends and hopefully we will continue giving dividends and we'll not be able to comment upon the exact contents.

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Unidentified Participant, [130]

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Right, right. Just wanted to add on one more thing. As and when the promoters do get free, it would be good to see the promoter finally getting on the Board of Directors and/or attending the con call, which will give a lot of confidence to the company and the shareholders also a lot of confidence. Do you have a suggestion?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [131]

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Promoters and shareholders are a different legal entity, your company is a different legal entity. While our promoters are very esteemed and senior people, rest assured that the management team that you have put in place here is also a good professional team and...

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Unidentified Participant, [132]

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I totally agree. I totally agree on that point.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [133]

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(inaudible) number of years and hopefully we will continue serving you.

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Operator [134]

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The next question is from the line of [Ravinder] Dipan Mehta from Elixir Equities.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [135]

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Sir, this is Dipan Mehta, Elixir Equities, again. I just wanted to ask a question I've asked earlier also, that actually the number of students have hardly gone up for year-on-year as far as Kidzee is concerned, although you are interested in new phase as far as K-12 is concerned. I mean any specific reason for that? Or is it that you're weeding out unprofitable centers because of which (inaudible) because turnover has gone up, sir?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [136]

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See, please understand. Like I explained earlier, you cannot compare K-12 growth rates with the Pre-K growth rates. In Pre-K, there are 4 grades of playgroup, nursery, junior KG and senior KG in which the students keep churning. There I can't add grade 1 over and above that. But in the high schools, every year a new grade gets added compared to when the school is first launched. Let's say, it's launched by fifth or sixth standard, for the next 7 years 1, 1 grade will be coming additionally. So there, the growth rate that you are seeing, some 7% to 8% of that growth rate will be because of the new grades getting added. And that is why the difference is there.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [137]

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Yes. But my question is why that Pre-K, that -- why is that number not growing, Pre-K is 130,064, it went to 130,166 year-on-year. So why is that not increasing?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [138]

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Like I have explained, [Ravinder], the number that you are seeing here is academic year number, which are spread across 3 territories in India, which operates on 3 time lines. What you're seeing here is a consolidated number. Admissions go on through the year. So you should compare at the end of all the 3 academic years, then you will get only an apple-to-apple comparison.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [139]

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Okay. And can you just highlight this consol -- this contingent liability of 300 crore? What exactly is this particular liability? And will it rectify? Or what is the position over there?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [140]

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You said contingent liability?

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [141]

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Yes, yes. There is some (inaudible) and there is some contingent liability.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [142]

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Contingent liabilities are corporate guarantee provided for the loans taken by the school trust, who are just over the contingent liability and the corporate guarantee will disappear.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [143]

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Sir, one last question. For the K-12, the school which we have, are they -- have they broken or are they still little lost as we were looking at earlier K-12 level. I've not had long discussions in this instance.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [144]

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You are referring to our 136 schools or which one of those 136 schools?

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [145]

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Yes, the K-12, the K-12, the K-12 school.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [146]

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Sir, we have 135 K-12 schools.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [147]

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135, yes, that's the one, the 135 number, yes, K-12.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [148]

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That 135 schools, some of them would be highly profitable, some of them would be mid profitable, some of them which were recently launched would be in the negative. So it's a -- the profitability or the operational breakeven is connected to the age. As a thumb rule, these schools start doing operational breakeven in year 3 or 4 depending on how fortunate they are.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [149]

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Sir, my question, at an aggregate level, whether K-12 schools breakeven or they're making loss in total?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [150]

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Sir, what gets booked into my financials is a franchise fee that I receive from those K-12 schools. These 135 schools are run by 135 different trusts. And like I pointed out to you, someone who was launched -- who had launched his school, let's say, this year or last year, obviously, he would be in a loss. But someone who had launched, let's say, 6 years back or 7 years back, he would be making a lot of profit. So I cannot give you an average number, number one, because I would have to go to 135 different franchisees, take their P&Ls and balance sheets and consolidate artificially, which is not my concern directly because what gets booked in my balance sheet and P&L is not those entire 135 schools, but only my franchise fees that I receive. And that number will make no sense, because it's like saying that you take 135 schools of different franchise and take out an average number, which doesn't show really anything.

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Operator [151]

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The next question is from the line of [Dev Modi], who is an independent investor.

There seems to be no response from the line of Mr. Dev Modi .

The next question is from the line of [Dinesh Kulkarni], who is an individual investor.

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Unidentified Participant, [152]

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Sir, I wanted to know, has the growth in LIBERIUM business, that is training and manpower business has slowed down? Because the change in revenue, 6 months, hasn't -- it's not even 10%. Can you please explain that?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [153]

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The LIBERIUM, obviously, when the business had got launched in the first year, when the business is growing up and setting up, obviously, you would see phenomenal growth rates, but that's not really growth. That is the phase of business setting up, right? So now that when the business matures, that's the time the business stabilizes and that is when we need to see. So you will have to wait for a year or so to see the real growth rates rectifying.

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Unidentified Participant, [154]

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Okay. And how do you see the margins or like the improvements at MT Educare? Will they continue? And would we see further improvements in operating efficiency in -- at MT Educare?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [155]

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Our subsidiary, Mahesh -- MT Educare, is one of the leading test prep and tutorial companies in India. It is a very high vintage category set up by Sri. Mahesh Shettyji. And they have always been at the helm and at the front of this industry. And post our turnover, the -- post our takeover, the business has stabilized and has started showing a profit. And we remain hopeful that the business will grow to great heights and give us great profits.

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Unidentified Participant, [156]

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Okay. Sir, at the operating level, would we see even improving numbers from here on is my question?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [157]

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Of course, sir, we hope improving numbers for all our businesses, why only MTE.

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Unidentified Participant, [158]

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Okay. Sir, what is the normalized rate of EBIT margins or operating margins that you would expect, on a stable business MTE?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [159]

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MTE EBITDA margins would right now be about 15%. So last year, if you see, Mahesh Tutorial margins were about 15%. And if I'm not wrong, this year they have already started hitting the 20% to 25% bank. And I believe that the companies who make about 35% margin are good and healthy companies. And I'm sure Mahesh Tutorial will very soon reach there in the coming quarters.

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Operator [160]

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We'll be able to take 1 last question. We take the last question from the line of Ashwin Reddy from Samatva Investments.

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Ashwin Reddy;Samatva Investments;Founder, [161]

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Sir, actually on Kidzee for the next year, what could be the growth rate in schools that we can expect? I understand looking at churn in the past, but what kind of phenomenon do you expect there to be?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [162]

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See, we would expect Kidzee, which is a good and consistent business should grow at a volume of at least 8% to 10% top line. And like I said, operating leverage is very high. So the -- out of the incremental revenue that we receive, almost 70% odd goes to bottom line directly, which is the operating leverage that I referred to. So Kidzee business should grow the top line by 8% to 10%. And of the Kidzee business, the bottom line should grow easily by 30% to 40%.

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Ashwin Reddy;Samatva Investments;Founder, [163]

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Sir, okay. Understood. Understood.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [164]

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Remember this is not an earnings guidance, this is based on my understanding of the business.

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Ashwin Reddy;Samatva Investments;Founder, [165]

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Of course, I understand. And secondly, the K-12 schools that you're running -- sorry, the K-12 schools, which I understand are around 5 or 6 right, sir? For these schools, what is the consolidated debt? Or are you making anything in these schools?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [166]

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See at the EBITDA level, before -- I mean at the operational cash flow level, they are at breakeven. They make a small profit. However, the schools are not full as of now, and there is a journey still for them. And at full capacity, those schools will be making very decent amount of profit. But yes, they are at breakeven right -- they are above breakeven right now.

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Ashwin Reddy;Samatva Investments;Founder, [167]

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Okay. Perfect. And sir, finally -- what I'm trying to understand is, because Kidzee is still the primary business you have. And after doing all the hard work, you should afford to take just about breakeven. (inaudible) in which the management justify the (inaudible). So I'm just trying to understand is there -- or what is the reality? Is there a way wherein can you sustain the bank payment, which you have for this year and next year without any asset change? Or should -- or would there be an asset change or -- I mean is the asset or property or whatever (inaudible) for the servicing of bank payment which we have?

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [168]

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So to answer your questions, all the segments that we operate in, we would never have entered them unless they were very lucrative and unless we have a capacity to become a leader in that segment. In Kidzee, we are Asia's #1. In Mount Litera, we are among the top 3 in India. LIBERIUM, which has recently been set up already is shaping up very well. Mahesh Tutorial is India's leading company in test prep and tutorials. So what you need to understand is all businesses have a certain logic. They are at a different level of evolution that they have reached. Our earliest and most mature business, obviously, is Kidzee. But the other 3, 4 businesses that we are in is more to do with K-12 and the supplementary services that go into K-12, where there is a lot more room to grow. Like you have seen in the numbers, the K-12 business, the K-12 students, you see growing at a much faster rate. So the headroom for top line growth is significantly higher in the K-12, test prep, tutorials, supplementals, vocationals compared to Pre-K, right? So while saying that, I would just like to add that there's no angle of anyone forcing anyone to do anything here. But rest assured that like the Kidzee is an attractive business, our other businesses are also equally or more attractive and, in fact, with a higher headroom available.

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Operator [169]

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That was the last question in queue. I would now like to hand the conference back to the management team for any closing comments.

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Ajey Kumar, Zee Learn Limited - MD & Executive Director [170]

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Thank you, everyone, for attending this call. Please feel free to connect to company's individual management and Investor Relations team for any further queries. And we hope we have been able to live up to your expectations in this quarter, and hope to talk to you again after we declare the next quarter results. Thank you very much.

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Operator [171]

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Thank you very much. With that, we conclude today's conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.