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Edited Transcript of MTEDUCARE.NSE earnings conference call or presentation 16-Aug-19 11:30am GMT

Q1 2020 MT Educare Ltd Earnings Call

L B S Crs Rd, Mulund,Mumbai Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of MT Educare Ltd earnings conference call or presentation Friday, August 16, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ajey Kumar

MT Educare Limited - Executive Director

* Debshankar Brata Mukhopadhyay

Zee Learn Limited - CEO

* Sandesh Naik

MT Educare Limited - CFO

* Sidhartha Acharya

Zee Learn Limited - IR Executive

* Umesh A. Pradhan

Zee Learn Limited - CFO

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Conference Call Participants

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* Shailesh Kumar

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

* Vipul Shah;RippleWave Equity;Partner

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the Zee Learn Limited Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Sidharth Acharya. Thank you and over to you, sir.

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

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First of all, sorry for the delay. Thank you, Uri. Good evening, everyone. I'm Sidharth 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 Q1 FY '20. We would like to add that this call is purely for our investors and analysts and if there are any persons representing media on this call, we kindly request them to disconnect and log off. Thank you.

We hope you had the chance to go through the results, which has been uploaded on the company's website that is www.zeelearn.com. To discuss the result and performance, joining me today from Zee Learn side are Mr. Kumar, Director; Mr. Mukhopadhyay, Chief Executive Officer; Mr. Pradhan, Chief Financial Officer; and from MT Educare Limited, Mr. Naik, Chief Financial Officer.

We will start with a brief statement from Mr. Kumar. Thereafter, Mr. Mukhopadhyay, Mr. Pradhan and Mr. Naik will brief you on the financial highlights and key indicators for the quarter.

I would like to remind everybody that anything that 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.

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Ajey Kumar, MT Educare Limited - Executive Director [3]

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Thank you, Sidharth. A very warm welcome to everyone on the call. So this has been a decent quarter for Zee Learn. The business has done well. The total revenue is up by 40% year-over-year in the same quarter. EBITDA is up 30% again year-over-year on a consol basis.

If you look at the historical performance of Zee Learn, you will see that from FY '15 to FY '19, total revenue has gone up from INR 132 crores to INR 549 crores in the last FY, which is a 43% CAGR. And similarly, EBITDA also has moved up 38% CAGR in the same period from INR 30-odd crores to INR 158 crores. So in this period, you will see that the top line -- the total revenue has become 4.2x and EBITDA has become 5.2x. So your company has been giving consistent results quarter-over-quarter over the last 5 years. And today, the company is more robust, is of bigger size and better placed both in financial and business parameters to take its rightful place in the education segment.

Coming briefly to the original Zee Learn core businesses. You have seen steady and annuitized growth. The operating leverage has truly come to play in these core education businesses. You will see that the EBITDA of Zee Learn's standalone business has become 52% and that is a good and high degree of profitability.

In the recently acquired business of Mahesh Tutorial, you might see a flat revenue; however, that is probably because of certain changes in accounting and also because certain admissions in the new colleges sanctioned -- in new junior colleges sanctioned in Mumbai, they have got postponed to the second quarter. And therefore, revenue is flattish to slightly less in year-over-year. However, there is a good bottom line growth in place of a very low bottom line in the last quarter -- last year same quarter. You see almost INR 4 crore, INR 5 crore PAT this time.

In financial terms, debt has gone down a little bit in line with the planned schedule of the debt repayment. The free cash flow generated is of a decent nature and is able to service the scheduled principal and interest payments.

Coming to the group issues. While the group is better positioned to comment on this, but our take on this is very simple: For the group, half the deal of the promoter's level has already been announced. And with that money coming in and payment to various lenders, the pledged shares are likely to get depledged. While we don't know the exact quantum, but it is likely that Zee Learn shares would also get depledged to some extent and some number. And like we had said earlier also in our various communications, that Zee Learn is fairly ring-fenced from the group issues being able to take care of its own financials and -- now anyway, the group issues are in the process of revaluation. And therefore, things should come back to normal for everyone in the group pretty soon.

Looking ahead, another thing I would like to share with you in the recently concluded Board meeting, the Board has formally approved the proposal to -- an enabling resolution was passed to aggressively looking at disposing of real estate assets connected to our school operations, at which time primarily reside in the DVPL, which is 100% subsidiary, and we are working diligently to talk to various parties to explore options both within India and outside India. The proceeds from this would obviously go towards deleveraging, to a large extent. And the promoter group continues to be highly interested in Zee Learn business especially given that Zee Learn is probably one of the largest companies in the education segment right now, and education is a good annuity business. And we are now present both in core and supplementary education, so we are almost like a 360-degree education company. And over and above this proposed asset sale, the company also keeps looking for opportunities in our businesses to fund and grow them, like Robomate or for potentially primary infusion. You know that in Mahesh Tutorial, Mr. Mahesh, MT and Zee Learn are joint copromoters and -- to bring the company in line with minimum public shareholding norms of 75% anyway. Some stake sale is required from Mr. Mahesh Tutorial side -- Mr. Mahesh's side. So whether by way of primary infusion or way of secondary infusion, we keep looking for opportunities for [add] also.

So this was a brief overview and an insight into the business. I will now hand over the call to Deb and thereafter to Umesh. And thereafter, we will be open to questions. Thank you very much. Deb?

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

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Thank you very much, Mr. Kumar. And apologies at the beginning, we are starting slightly behind schedule, and thanks for attending this call today. From my side, we see customers continue to spend on the growth and the transformational initiatives better reflected in our business. [We are left] with various forays including Early Childhood Care and Education, K-12 school business, youth and vocational education, test prep infusion courses is playing a pivotal role in India's education system. The new initiatives that we have spoken about in the past are being well received by the children, parents, franchisee partners and all other stakeholders, and we are fairly confident that Zee Learn will continue to grow its business and is committed to create long-term value for its franchisees, parents, students and shareholders.

Our contextual knowledge, full-spectrum capabilities and investments in research and innovation are the bedrock of our continuous growth and transformational initiatives.

I now hand it over to Umesh to take us forward.

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Umesh A. Pradhan, Zee Learn Limited - CFO [5]

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Hi, everyone. Before we start with question and answer, I would just like to touch base on a few of the key financial parameters, which you guys would be glad to understand. And this will also give you a further confidence that our core business, which is basically a franchisee business of preschool and K-12, is well growing and that is helping us in order to take care of our debt servicing, et cetera.

So just to give you a glance, our borrowings at a standalone level have come down to INR 171 crores from INR 181 crores as of March.

Our consolidated borrowings have come down to INR 413 crores. Now there is a slight kind of printing mistake in the admin release that we published. The consolidated borrowing is not INR 423 crores, it's INR 413 crores. We beg your pardon for that. So our consolidated borrowings is INR 413 crores, which have come down from INR 431 crores. So there's a INR 20 crore reduction in our borrowings in the quarter at a consolidated level.

Our debt/equity ratio has improved from 0.71 as at end of March to 0.65. And our EPS has improved to INR 3.03 from INR 2.33 as of March.

We delivered a free cash flow at a standalone level of about INR 31 crores, which was in the same quarter last year, which was about INR 28 crores. So there's an improvement in free cash flow also. And the all standalone EBITDA margin stands as of June end is 52%; which was 42% last year in the same quarter. Kidzee, which is our preschool business, is -- currently has now [first] the EBITDA margin of about 58%. Same time last year, it was about 50-odd percentage. So all the parameters of our growth initiatives are growing, and you guys will be happy that we are well covered in terms of servicing all of our debt -- [add-on] debt with our core businesses.

So with this, I now open the call for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Sumesh Kumar from Sunidhi Securities.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [2]

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I'm Shailesh Kumar, not Sumesh Kumar. The 2 questions, which I would like to know, what is the CapEx of -- or divestment of Robomate+, which we have been exploring? So that is the first thing.

Second thing, for the quarter ended March '19, Zee Learn Limited has extended an advance of INR 89 crores to DVPL. So I mean what are the terms of the advances and why does that extend it?

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Ajey Kumar, MT Educare Limited - Executive Director [3]

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This is Ajey. I don't know from where you got the information about the divestment of Robomate. We are open to investments or partnering in Robomate, but there is no question of any divestment as of now.

Second question, I'll ask Umesh.

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Umesh A. Pradhan, Zee Learn Limited - CFO [4]

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Yes. There's a lot of disturbances from your side. Anyway, yes. So the advances given to DVPL is largely to -- in order to fund their services requirements -- debt servicing requirements.

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Ajey Kumar, MT Educare Limited - Executive Director [5]

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Internalizing.

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Umesh A. Pradhan, Zee Learn Limited - CFO [6]

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Yes. This is internalizing, and this is -- we are charging interest at the market rate. So this is on our [Ankurum] business.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [7]

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And when is it ratable?

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Ajey Kumar, MT Educare Limited - Executive Director [8]

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We show it as a short term. Basically, it's 100% [subsidiary] advances, so it's a short term.

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Operator [9]

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The next question is from the line of [Avinash Kumar] from Moon Capital.

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Unidentified Analyst, [10]

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Yes. A couple of questions from my side. First, Umesh, can you clarify if the debt paydown during the quarter, has that been from your internally generated FCF?

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Umesh A. Pradhan, Zee Learn Limited - CFO [11]

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Yes, absolutely. I would like to tell you, in the first quarter or rather for the past 5 years or so, 5 to 6 years, definitely, the servicing, all its debt, including the interest part and the principal repayment, through its internal cash flow generated through the core operations.

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Unidentified Analyst, [12]

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Okay. So I mean can we expect Zee Learn business to be well placed to generate adequate free cash flow to meet all its annual interest and principal payment for the year?

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Umesh A. Pradhan, Zee Learn Limited - CFO [13]

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As far as scheduled repayments are concerned, interest payments are concerned, yes. Yes.

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Unidentified Analyst, [14]

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Okay. That's good. Second question is, what are the promoter plans for Zee Learn going forward? I mean given the inherent strength of the business, there will be many potential investors who would be interested in a controlled buyout deal for Zee Learn. And given that so much is happening at the group level, is the promoter inclined to take a controlled stake deal for Zee Learn at the right valuations?

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Ajey Kumar, MT Educare Limited - Executive Director [15]

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[Avinash], Ajey here. The promoter group has always been very interested in the education sector. And even as of today, they continue to be very interested in the education business. There are a couple of reasons for this. First of all, like I said in my opening remarks, in the last 5 years, almost at 43% CAGR for our top line and 38% CAGR for EBITDA. Both the top line and the bottom line have become 5x, and it's -- the core business is almost like an annuity business. When a child walks in, in the playgroup and passes out of [12] standard, he stays for 16 years in our various schools. So both from our financial perspective of the segment, also from the performance perspective of our particular company and also from the change -- the potential to create change from a societal perspective, the promoters have a very high degree of interest in the business while they may be open to be minority, primary infusion and secondary sale, et cetera, options. But as of now, they are very committed and would like to continue being the majority shareholders. And also, there are a lot of synergies for Zee Learn from our associated entities in the group. For example, you may be aware that Zee5 is planning to launch its educational segment. Now obviously being part of the group, there's a strong likelihood that we would be the guys creating content, curriculum, et cetera, for that offering, which would mean incremental businesses. So there are synergies also. And both for financial and strategic perspective, there are almost 4 lakhs students in our system, which means 4 lakhs families are part of our system. But the promoters continue to be very inclined, and they're also very clear that if any fund infusion or any other requirements are there to make the business even more robust and growing, they will be happy to contribute for the same. Thank you.

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Unidentified Analyst, [16]

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Okay. I did -- just one more question, if I can squeeze it in, and then I'll join the follow-up. Can you update us more on the asset sale -- school asset sale process? How is the whole process moving along? And are we looking at any time lines to complete this loan? Because this will go a long way in deleveraging your ZLL balance sheet. So can you just give us more insights on this?

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Ajey Kumar, MT Educare Limited - Executive Director [17]

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So earlier, we have been trying to sell and do a leaseback. You would have -- you would remember from my earlier -- from our earlier calls that in this option, the rental yield expectation from parties was of a very high nature, which almost made it unviable for the business to support it. And therefore, this time, we are looking at not only the asset and sale-leaseback option, we may even look at letting some of these grow more holistically. And therefore, the gamut of people that we are talking to is much wider now that we are interested in multiple options. It could also be that someone may want to take the (inaudible) for both and may want to use our brand name only and convert it to a management services or a franchisee model. So there are multiple options. While because of reasons of confidentiality, I cannot tell you the exact parties that we are talking to, but we are talking to almost 6, 7 parties, a couple of them from India and a couple of them from global markets who are interested in this piece. We would like to finish this at the earliest, but because there's nothing concrete on the ground yet, I would not be able to exactly tell you when it will be completed. But everyone has taken it as a high priority, especially with the need to deleverage, and we are working on it diligently. And as and when something concretes come, which is worthwhile reporting, we'll be informing the stock exchanges and coming back to The Street on this.

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Umesh A. Pradhan, Zee Learn Limited - CFO [18]

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I would like just to add how would it help ZLL. It would help ZLL obviously, as we said, that it will deleverage the balance sheet as well as it will also free up the free cash flow because, currently, as all of you are aware, that we are funding the 100% subsidiary [that is the EPA] for certain loans on these properties as well as we are funding that also against their debts on some of these properties. So this will, to a great extent, free up the amount of fixed debt and cash flow.

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Unidentified Analyst, [19]

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Umesh, what is the deal size you're looking at?

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Umesh A. Pradhan, Zee Learn Limited - CFO [20]

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All the fixed assets put together have a balance sheet size of almost INR 650 crores to INR 700 crores. We would like the proceeds to be obviously higher than this, but we'll not be able to put a number to this right now because it's a matter of negotiations.

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Operator [21]

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The next question is from the line of [Anupam Chandra] from A.R. Securities.

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Unidentified Analyst, [22]

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Yes. There's a lot of disturbance from my side, I'm sorry. My only question is, how did the net working capital look at the present in the standalone balance sheet and the consolidated balance sheet?

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Umesh A. Pradhan, Zee Learn Limited - CFO [23]

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It's negative working capital currently, Anup.

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Unidentified Analyst, [24]

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May I know the reason as such, as to why is it negative?

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Ajey Kumar, MT Educare Limited - Executive Director [25]

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Negative, [Anup], is good. Negative means that...

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Umesh A. Pradhan, Zee Learn Limited - CFO [26]

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Managing our cash flow in a...

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Ajey Kumar, MT Educare Limited - Executive Director [27]

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In a very good way, and you are doing the -- even your business operations have been funded by people outside the company. That's good.

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Umesh A. Pradhan, Zee Learn Limited - CFO [28]

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Well, you talk about working capital. You said working capital, right?

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Unidentified Analyst, [29]

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Correct, net working capital.

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Umesh A. Pradhan, Zee Learn Limited - CFO [30]

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Yes. net working capital.

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Unidentified Analyst, [31]

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Yes. The current assets minus liability -- current liability.

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Umesh A. Pradhan, Zee Learn Limited - CFO [32]

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(inaudible)

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Unidentified Analyst, [33]

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And you have a negative result right now?

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Umesh A. Pradhan, Zee Learn Limited - CFO [34]

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(inaudible) March balance sheet also, obviously June we don't update the balance sheet.

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Unidentified Analyst, [35]

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So it's...

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Umesh A. Pradhan, Zee Learn Limited - CFO [36]

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(inaudible) back in for the business.

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Unidentified Analyst, [37]

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Sir, I just want to know if it's positive or negative, that's all.

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Umesh A. Pradhan, Zee Learn Limited - CFO [38]

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Negative.

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Operator [39]

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The next question is from the line of [Pramod Rayn], individual investor.

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Unidentified Participant, [40]

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Congrats on great performance metrics compared to last year. So I have a couple of questions. So the first one is -- I'll just ask them in line, and then you can choose to answer the way you want. So one is, please let us know if there is any update on the promoter pledge side because of that, there is some apprehension from The Street. And that is one thing. And the second small question is, how is MT Educare acquisition funded? Is it like through debt and internal accruals or through equity mechanism?

And the third one is, so right now, India seems ripe for the offering like BYJU's, okay, that charges something like in the line of INR 30,000 to INR 40,000 per annum per student, and the they're selling multiyear packages. And dealers may happen to have the -- a very good setup for students on [summer] school. So does Zee Learn have any idea or any new product road map to do a product like that in the coming future? So that's all the questions I have.

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Ajey Kumar, MT Educare Limited - Executive Director [41]

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So I'll answer your question, [Pramod], right?

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Unidentified Participant, [42]

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Yes, sir.

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Ajey Kumar, MT Educare Limited - Executive Director [43]

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Regarding promoter pledge, as I had explained in my opening remarks, with the promoter stake sale in Zee TV, half of has already been announced to the tune of INR 4,200 crores and some more may be expected as we understand from the market. This will go down to pay down their loan from various mutual funds which were taken against debt shares of various group companies. So in a couple of days, when this INR 4,200 crores or whatever proceeds are there gets paid, the various group entities' shares in promoter's name would get the pledge. And I don't know exactly what percentage, but some percentage -- significant percentage of Zee Learn shares of promoters will also get the pledge. And when the entire loan is paid off, I assume even more will get the pledge. So that's the first part.

Coming to MT acquisition. The MT acquisition was funded by a -- from Zee Learn Limited, which is 60% shareholder in MT Educare to Zee Learn's own sources.

And coming to your third question of BYJU. See, what is the basic premise of BYJU? BYJU says that if your school doesn't teach you well, I teach you, right? Now if we run a very successful school business and if we claim to be handling 2.5 lakh students in our system teaching them very well, I would actually expect these students who study well in the school and not actually require to use something like BYJU. And therefore, that's the first reason why Zee Learn itself cannot do a quasi-BYJU product.

Secondly, while BYJU is a very esteemed and innovative and entrepreneurial company, I will hold my horses before putting them on a pedestal. In the education segment, there have been many other companies which earlier have been put on a pedestal to the regret of people later. There is something called KEN report, K-E-N report. Google it and read it for yourself about BYJU sales and other processes, et cetera. You will maybe have a more holistic view of the same. So I don't want to comment upon BYJU's performance, et cetera. They're a different company, and these questions may better be answered by them. But Zee Learn schools, if they do well, the students really don't need a BYJU-like product. And that's where I would like to sort of end my answer.

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Unidentified Participant, [44]

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Agreed, sir. Yes, I read the KEN report. So what I see is, we don't want any of our students to go and buy any of the packages, okay, as just as an example. BYJU is just an example. We don't want them to buy any ancillary item from anyone outside. So are you planning to provide that material from others itself, okay,] it's for the multiyear?]

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Ajey Kumar, MT Educare Limited - Executive Director [45]

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When the student studies in our school, we stand for holistic education. Why should the student go out and buy anything else? In our school, we are supposed to teach the student everything. Whereas the question of student delivers like, you go to a restaurant, have a nice meal. And thereafter, the guy says he saw a bar (foreign language) right? You are supposed to [give this on.] Sorry for my strange example.

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Unidentified Participant, [46]

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No, sir. No. It's okay. I think, yes, that's perfect actually. That's very good that you gave a confident answer from Zee Learn. I think, yes, definitely, I wanted to understand because -- anyway, the market is not so ready, I think, now for these kinds of offerings. We see a lot of potential in local media. Thank you for your candor.

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Operator [47]

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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 [48]

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I would like to extend from previous participant's question. Basically, in the last question, I asked about the divestment. Let me rephrase the same question. A couple of media reports suggested that we are looking for a strategic partner in Robomate+ form, content development and all these things. So if I may request, what exactly is the current status? And how do we plan to take it further?

And second is a housekeeping question. I have observed a big jump in depreciation and amortization for the quarter, INR 14.94 crore in first quarter and INR 6 crores Y-o-Y and lastly, INR 7.5 crore in Q2. So how come this big jump in depreciation and amortization? And when we have repaid the debt sequentially, almost INR 18 crores that we have retired, our interest expense is still higher sequentially, INR 14.8 crore versus INR 13.45 crores. If you could help me with this.

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Ajey Kumar, MT Educare Limited - Executive Director [49]

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Okay. I will answer the first one on Robomate. Media publishers, many things, Shailesh. And I have seen couple of reports and one particularly reading the Business Daily, where it seems they know more about our business than we know about our business, and that's a little bit strange. I've heard them -- I've read saying that we are doing an IPO for Robomate. We are doing the stake sale in Robomate and blah, blah, blah. All right. Do not believe everything you read in media. If there is anything worthwhile to report, we are not responsible to media. We are responsible to our investors and our stakeholders. We will communicate directly with you. And before communicating to you, we will communicate to the stock exchange. Your company is a company of high repute and high corporate governance, and anything which is materially significant will get reported to the stock exchanges and thereafter to you guys very quickly.

There is no angle of IPO in Robomate. There is no angle remotely right now of any complete sellout of Robomate, et cetera. However, Robomate is a high-potential product. Till now, Robomate has been used mostly for delivering internal products of Mahesh Tutorial. All their various businesses on tax preparation, tutorials, et cetera, they use the Robomate platform. And to that platform, they have added something called R+ Notebook, which is basically a printed book which has a QR code. And when you scan through your device on that QR code, the same lectures, et cetera, from the Robomate app and in the various other helping parts, come on your screen. So it's very convenient. It's a lot like having the teacher on your side. So Robomate is a very potential product. Till now, it has been used mostly internally.

In the last 6 to 8 months, we have tried to focus Robomate for external users also. The team has tied up with some schools, school chains, other organizations for monetizing Robomate. In order to grow Robomate, we may also need more marketing spends, more business development expenses, et cetera. And therefore, we might be open to getting some minority investors there. When, where, how, et cetera, it's too early to say, and there's nothing specifically concrete right now. But as of now, there is no talk to completely sell out Robomate or do an IPO indefinitely of Robomate. If you start doing IPO like that, you'll [navigate] listed companies, and it doesn't make much economic sense to do business like that, all right? I will now hand over to Umesh to handle your question on depreciation, amortization and interest.

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Umesh A. Pradhan, Zee Learn Limited - CFO [50]

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Shailesh, as far as depreciation is concerned, it's largely on account of the new standard that has been applied for this quarter on lease accounting, the accounting standard of 116. The depreciation has increased on that account. You would -- if you read through our notes for accounts given around these details, you will understand the impact. This figure was impacted...

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Ajey Kumar, MT Educare Limited - Executive Director [51]

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(inaudible).

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Umesh A. Pradhan, Zee Learn Limited - CFO [52]

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Yes. And partly due to increase in CapEx, but that's a very small portion that's essentially in MT Educare. But largely it's because of the new standard that has come on lease accounting and both the companies have applied this for this quarter, this standard, obviously, like all other companies, has not been applied for the performance because of the previous quarter. So you'll see those impact on debt position.

Similarly, that is for interest also, there is also impact of the same standard on -- of lease accounting. However, as far as interest is concerned, there's another reason. If you're comparing it with the same quarter last year, if you remember, last year same quarter, the consolidation of MT Educare had happened only for 1 month. So you'll see the interest portion of MT Educare, the impact only for 1 month. However, in this quarter, this is for the 3 months. So lastly, these are the reasons for the valuations.

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Operator [53]

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The next question is from the line of [Avinash Kumar] from Moon Capital.

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Unidentified Analyst, [54]

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Yes. Ajey, as you mentioned in your opening remarks, are you looking to collaborate with Zee5 to provide them education material? So can you just help us understand more on that? And any incremental or rental revenue we can derive from that partnership?

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Ajey Kumar, MT Educare Limited - Executive Director [55]

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Avinash, a lot of money is being spent on Zee5 by the independent people. While I'm not privy to exact numbers, but I guess it will be part of the results and announcements somewhere. Just to sort of give you a little bit of a background, a couple of years back, they had launch a channel called Zee Q, which was for children. There also, Zee Learn had played a very important role in providing the program and current curriculum, et cetera.

So similarly, I expect something significant. Very difficult to put a number on that. But my general -- I wouldn't say sense, but expectation is it should be at least be INR 25 crores, INR 50 crores otherwise we wouldn't have too much interest below that number. Our business is also growing large. So if it's exactly the INR 25 crores to INR 50 crores, then only it would be of interest to us. And given the quantum of money they are investing in with Zee5, which is maybe in hundreds and thousands of crores, I'm sure this is the least amount that they would have to invest to make it work. So that's the only sense I would be able to give now.

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Unidentified Analyst, [56]

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Okay. That's fair enough. And secondly, just building on the previous participants. Given there is a lot of media reports, which we know is not very reliable, but are you open to any strategic -- bringing any strategic partner or stake sale in MT given that you have to reduce the promoter holding, especially from Mahesh Shetty?

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Ajey Kumar, MT Educare Limited - Executive Director [57]

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Yes, Mr. Mahesh Shetty and Zee Learn together hold today almost 83% to 84% of the company shareholding. This minimum public shareholding regulation now mandates that promoter shareholding cannot be more than 75%. So around 8% of Mahesh Shetty's holdings need to be decreased as for the shareholder agreement between Zee Learn and Mr. Mahesh Shetty at the time of the acquisition. Now one way could be that Mahesh Shetty sells 8% to someone. The second way, which is probably a more elegant way and beneficial to the company, is that some timely infusion happens from another party. It could be a financial or a strategic investor which dilutes the promoter holding of the 2 people from 83%, 84% to 75%, which means potentially 15%, 16%, 17% sort of timely infusion at a good valuation obviously can be accommodated.

Connecting it to the Robomate question someone asked earlier. If some strategic investor who has a play or interest in the Robomate angle can also become a partner here, rather than at a Robomate level. So yes, there is a potential, and some people had some [connecting] sort of discussions also with us, and we are open to that. It will solve both purposes, infusion of some growth capital into -- at Mahesh Tutorial level, which can also be partially used for deleveraging and partially be used for building up Robomate further, and also decreasing of this 84% to 75%.

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Operator [58]

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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;Partner, [59]

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There were some notes to the accounts in this quarter's results. And obviously, auditor also has emphasized [an item] without qualifying these demands. About INR 16 crores being given by MT to a party of an agreement, and that has been reportedly terminated by the group. So can you give any color on who the counterparty is? And are you confident about receiving back between the amount of money which you have lent?

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Umesh A. Pradhan, Zee Learn Limited - CFO [60]

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What's your name? Sorry.

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Vipul Shah;RippleWave Equity;Partner, [61]

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Vipul Shah.

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Umesh A. Pradhan, Zee Learn Limited - CFO [62]

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Yes. So Vipul, we are very much confident, and you would have seen the remark of the auditors. Certain stakes or certain amount has already been secured. It is mentioned in the remarks. And yes, [this is] the record back. And if Sandesh can throw some more light on this particular thing.

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Sandesh Naik, MT Educare Limited - CFO [63]

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Yes. Yes. So as rightly said by Umesh Pradhan, the money is fully deployable. In fact, in most of the financial statements we have mentioned we have received some checks or something like that.

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Vipul Shah;RippleWave Equity;Partner, [64]

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You mentioned that checks have not been deposited so far. So...

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Sandesh Naik, MT Educare Limited - CFO [65]

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Yes. Because we had additional [investments]. And as for the discussions [develop] we are supposed to deposit about 1/3 of this money within the coming week. And balance payment, we are expecting it in the next 90 days. So there is no -- so basically, as further [argument,] the money way to be -- was given for a bid of 1 year because the tenure of the project was 1 year. However, we are in a hurry for [Borivali] . So that project was on standstill. And we had in our workflow other endeavors.

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Vipul Shah;RippleWave Equity;Partner, [66]

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Can you give us some light on who the counterparty is? I mean, we may not know their name, but...

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Sandesh Naik, MT Educare Limited - CFO [67]

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So basically, this lender is [Interior Bank TB]. Basically, they deal with interiors. So that's how the name -- how their name comes to be, Interior Bank TB .

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Vipul Shah;RippleWave Equity;Partner, [68]

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And they are not related parties, right?

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Sandesh Naik, MT Educare Limited - CFO [69]

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They are not related parties. (inaudible) any less than 70, 80 lakhs what we are expecting. And to add one more point, we have received the interest in this quarter's exchange rate. It was an interest-bearing deposit which we have paid to them, and they have issued the interest in the first quarter amounted to INR 2 crores. So we expect, let's see, now around 50% of (inaudible).

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Operator [70]

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The next question is from the line of [Nemit Prasan], individual investor.

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Unidentified Participant, [71]

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Yes. I was listening to -- about the BYJU. It's not about the tech that Zee Learn is having from BYJU. But is it possible that we would like to utilize our resources to develop a model like BYJU where you can cater to many other students besides the poor like which are registered with our institutes?

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Ajey Kumar, MT Educare Limited - Executive Director [72]

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[Nemit], we have to also understand what our business is, right? The Zee Learn business is pre-kindergarten and K-12 brick-and-mortar model, right? That model is what is called core education. For Zee Learn to develop something, which is completely different to that is a strategic call. It's not normal business for us. So if we want to start something else BYJU -- like BYJU, that will be -- if ever it happens, it will be like sitting down, doing a full strategy session, considering the pros and cons.

Do you even have sense how much BYJU spends every year? BYJU spends something like thousands of crores every year. I don't know whether you saw the movie [in the wild] or the cricket matches. You see BYJU's name everywhere there. So Zee Learn, we're not in a hurry, decide to get into a business with which -- because the current model has no connection. Secondly, it is obviously winning those eyeballs and stuff, and creating huge losses is not the ballgame we are particularly interested in as of now, neither we have the financial capacity, nor it is of immediate strategic interest to us.

So yes, as any other market observer, we also see and learn. But if ever we do something like that, it will be a separate business. The Zee Learn business, where the free cash flow is INR 100 crores, and you guys are always asking us how do we share these loans and this and that. Out of that, how do I take out INR 2,000 crores to INR 3,000 crores per year to create something like a BYJU?

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Unidentified Participant, [73]

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No. But as I understand, isn't our Robomate model something of that sort? And can we leverage that and take some baby steps and then see how it works?

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Ajey Kumar, MT Educare Limited - Executive Director [74]

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We are taking those baby steps in the first 1 or 2 years. The investment in Robomate is something to the tune of INR 40 crores, INR 50 crores. The investment in BYJU must be -- I don't know the exact numbers, would be in the tune of INR 5,000 crores to INR 10,000 crores.

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Unidentified Participant, [75]

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And then they are doing $1 billion round now, and they are...

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Ajey Kumar, MT Educare Limited - Executive Director [76]

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They are actually doing a $6 billion round, okay? So let's not compare apples with...

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Unidentified Participant, [77]

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No. We are not comparing. We are just understanding that ROE (inaudible) reason statement.

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Ajey Kumar, MT Educare Limited - Executive Director [78]

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One -- one -- one -- one second. One second. Do you remember a company -- these companies named Everonn, Educomp, Core, Tree House, et cetera? Where are those companies right now? So let's take on this call to Zee Learn. What happens with BYJU? That's a different model, different business, different company. It is not in core education, which is what Zee Learn's business is. It's not a business which has the intent or the desire or the capability of Zee Learn. Yes, they must be a good company, regardless of what KEN report writes about them. So that is their wish, their call. If my students ask me, I tell them, "Guys, please study diligently what is taught to you in school." We don't encourage our students to go to any outside body. Otherwise, we are a failure as a school model.

And regarding Robomate, yes, Robomate was an acquired business for us. They have been taking baby steps with the INR 40 crores, INR 50 crores that they invested. (inaudible) And I'm proud to say that they have made their own forays, but Robomate was started for a different reason. Robomate was started to get rid of the star teacher phenomena, where when the star teacher used to walk away, all the knowledge in the student seems to go with them.

So Robomate is basically a product which helps deliver their test-prepared tutorial classes where all the knowledge and the lectures, et cetera, are captured in various forms and shifts along with the content and curriculum in the Robomate delivery platform. Robomate is a much more bigger, and it's more like a platform rather than being a stand-alone app. And if at some point of time, Robomate gets that sort of traction and has that sort of money to make it big and get INR 5,000 crores, INR 10,000 crores, who knows? We might have an answer to BYJU call RYJU from Robomate. It's too futuristic. Realistic of me, don't you want me to answer you diligently in these quarterly calls? Or you want me to report that I spent INR 500 crores in...

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Unidentified Participant, [79]

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No. No. No. I was just understanding, are there any future plans on that? That's all.

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Ajey Kumar, MT Educare Limited - Executive Director [80]

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Our future is not for me to comment. I can only comment upon what I can share as concrete and visible and what I can say public information. We also have lots of desires. Why BYJU? I want to become like Pearson, I want to become like Nord Anglia, I want to become like [Publica] right? But what is on the ground is what we can discuss. BYJU is an admirable company. It's an epitome of entrepreneurship and raising money for venture capitalists. But our business is different, and I'm sure BYJU will list one day, and we should all -- all investors should invest in BYJU.

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Operator [81]

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The next question is from the line of [Paver Shan] from [Millennium Capital].

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Unidentified Analyst, [82]

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Sir, my question is on MT Educare. If I exclude the other expenses by adding the rent of INR 6.1 crores, the other expenses have grown to be at a much faster rate of around 24%, 25% year-on-year.

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Umesh A. Pradhan, Zee Learn Limited - CFO [83]

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So for the other expenses are categorized under direct expenses and not other expenses. So if we add -- if we see right now because of the accounting standard 116, around INR 6 crores 80 lakhs [presenters] have been taken out of direct expenses. And again, (inaudible) finance and not (inaudible) expenses, okay? So if you reduce that -- so if we exclude accounting standard 116, the depreciation would be (inaudible).

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Unidentified Analyst, [84]

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And I'm saying, in other expenses, if I add the INR 6 crores, it comes to around INR 14.5 crores. Versus last year, it was around INR 11.7 crores.

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Umesh A. Pradhan, Zee Learn Limited - CFO [85]

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But why even add just to explain other expenses? That's what I'm saying.

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Unidentified Analyst, [86]

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For like-for-like comparison?

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Umesh A. Pradhan, Zee Learn Limited - CFO [87]

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No. No. No. Rentals will get added to direct expenses and not to other expenses, which is INR 31 crores. And last year, it was INR 41 crores.

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Unidentified Analyst, [88]

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Okay. Then if I -- then any specific reason for the other expenses to come down from INR 11.7 crores to INR 8.5 crores?

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Umesh A. Pradhan, Zee Learn Limited - CFO [89]

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So in last year first quarter, we spent around INR 5.5 crores in marketing. And in this quarter, we have spent already [INR 2.5 crores] So already [3 crores] into the marketing, which we -- is not an actual but we'll be spending over the next quarter.

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Unidentified Analyst, [90]

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Okay. So what is the -- any budget we have fixed for this branding or this promotion for this year FY '20?

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Umesh A. Pradhan, Zee Learn Limited - CFO [91]

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FY '20 should be in the range of INR 6 crores to INR 7 crores, not more than that.

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Unidentified Analyst, [92]

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Okay. And this other income, may I know what this INR 8 crores comprises of? INR 2 crores was the interest on the INR 66 crores security deposit. The rest INR 6 crores comprises of?

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Umesh A. Pradhan, Zee Learn Limited - CFO [93]

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The INR 66 crores, the interest is around...

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Unidentified Analyst, [94]

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INR 2 crores. It has been said on the call just now.

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Umesh A. Pradhan, Zee Learn Limited - CFO [95]

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It's INR 2.5 crores. Yes, so that money which are -- which was INR 2 crores because of [operating figures] and all, so the interest comprised around INR 2 crores 70 lakhs, please. And then other -- so we have loans to do some [society and industry] like Sri Gayatri Society, who are running colleges in Andhra and Telangana. Basically, yes, those we have still an interest.

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Unidentified Analyst, [96]

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Okay. So the balance is on that particular loan.

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Umesh A. Pradhan, Zee Learn Limited - CFO [97]

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Yes.

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Unidentified Analyst, [98]

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And what interest rate?

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Umesh A. Pradhan, Zee Learn Limited - CFO [99]

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Interest income consists of our interest from that rental of INR 66 crores from Sri Gayatri and as well as Aryan Foundation.

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Operator [100]

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(Operator Instructions) Next question is a follow-up from the line of [Paver Shan] from [Millennium Capital].

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Unidentified Analyst, [101]

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Sir, how many -- Kidzee, how many of the school franchises we are planning to add this year?

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Ajey Kumar, MT Educare Limited - Executive Director [102]

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The addition would be in line with what we have added last year, around 200 to 350, some 10 to 20 high schools,.

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Unidentified Analyst, [103]

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Okay. And all within your franchisees? Or are you planning to add your own schools also?

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Ajey Kumar, MT Educare Limited - Executive Director [104]

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In Kidzee, couple of -- very few number of schools are self-operated schools. So typically, they get added about 5 or 10 every year [in saturated]. We don't have any immediate plans to add a high school which is self-operated.

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Unidentified Analyst, [105]

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Okay. And sir, in this manpower and training, the margins have come down in this quarter.

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Ajey Kumar, MT Educare Limited - Executive Director [106]

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Margins should come down. Otherwise, we are pleasing the client. The most famous company in the sector is called TeamLease. Their margin -- EBITDA margin is 1.5%. We are at 5% or 6%, right? So if the margin has moved from 6% to 5%, you should be happy, which means we are being more aggressive and proper. Without any investment, this is a negative working capital business. There's hardly any investment. ROCE is infinite.

And it's the collected pay model, meaning you take the money from the client, and then you make payment to the associates. So actually, a 2%, 3%, 4% margin in a business like this is very healthy because there is no capital employed. And that is why the investors love this sort of a model. TeamLease with 1.5% margin, their P/E ratio would be up somewhere between 70, 80, something like that. With the INR 70 crores, INR 80 crores PAT, their market cap must be INR 6,000-odd crores.

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Unidentified Analyst, [107]

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Right. But there are other companies also, sir, like [Quesco] which is getting a much lower P/E. So I'm not talking about those valuations. I'm just saying you -- eventually, it will settle like 1% to 2% margin. Should we assume that?

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Ajey Kumar, MT Educare Limited - Executive Director [108]

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No. I'm not ready to do business at 1% to 2%. It will be -- even if it goes down further, it would be at least 3% to 4%. 1% to 2% business, we don't have much interest.

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Operator [109]

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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 [110]

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Is it a regular trend that our previous students in June quarter is less than March quarter?

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Ajey Kumar, MT Educare Limited - Executive Director [111]

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We have 4 grades, Shailesh. We have group nursery, junior KG, senior KG. There is almost 70% to 80% churn every year. So these students pass out. A lot of these students pass out. And therefore, the number at the end of the year goes down, and the fresh enrollment starts. Large chunk of the fresh enrollments happens at the year beginning, but there are some cases sometimes joining midyear also. But you can see it happening. And therefore, you would see the end of June quarter number always being lower than the end of March quarter number.

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Umesh A. Pradhan, Zee Learn Limited - CFO [112]

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You have seen last year, June, we had about 1 lakh of students. We went up to 1 lakh, 37,000 almost at the year-end. 1 lakh 9,000 will go to around 1 lakh...

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Ajey Kumar, MT Educare Limited - Executive Director [113]

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1 lakh 45,000, hypothetically. You should see -- at the same time, you should see in our business you should also see numbers Y-o-Y rather than Q-o-Q. Because our fourth quarter is biggest then the first quarter and second and third quarters are lower. It has a cyclical nature, so it's always important that you see at the same point last year.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [114]

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Got it. And then just one more question. Do you also have plans to cater to overseas market soon?

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Ajey Kumar, MT Educare Limited - Executive Director [115]

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See, we already have about 15 to 20 Kidzees in Nepal, if you call that overseas. It's a good business for us. So your answer, I will give in 2 parts. First of all, we have enough and more to do in India, so I do not imminently want to go and open new markets. Second, Indian diaspora, which you referred to, is in the Middle East. And Middle East has lots of these companies which are focused on serving the Indian diaspora, but that is a fairly catered market. So therefore, we do not have much interest in the Middle East. If at some point of time, we get into international markets, we should get into the mainstream international markets like U.S., maybe through an acquisition, but these are all like long-term stories which would be in the many, many years from now. As of now, we want to focus on India and build up our business.

We are already the largest -- Kidzee, we are already the largest preschool chain in Asia. Our K-12 business is around the top 2 or 3 K-12 chains in India. So we would want to build up these businesses where we are at leadership stage. And the [need of dollar] is more consolidating what we had in our post-acquisition of Mahesh Tutorial, deleveraging, improving shareholder value, improving ROCE, et cetera, et cetera. At some point in time in our evaluation, when we are ready, we will look at markets outside of India, not directly as of now.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [116]

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Sir, just one question purely out of curiosity. You may choose not to respond. But according to what I read in Economic Times, that Blackstone is acquiring EuroKids.

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Ajey Kumar, MT Educare Limited - Executive Director [117]

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Yes. Yes. I would love to answer that. Tell me.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [118]

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And an evaluation is something around 4.5 to 5x their sales. Being the largest player in the space, I mean, did it ever come to our mind that we could have acquired this? Or maybe after selling the real estate business, will we muster the courage to acquire those kind of opportunities?

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Ajey Kumar, MT Educare Limited - Executive Director [119]

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Mustering the courage is not the right word. Our group has lots of courage. You must have seen it historically here forayed into sectors like infrastructure and many other sectors which are [awarded] sectors. So courage is ample in our group. Don't worry about the courage. On EuroKids, yes, the proposal has come to us. However, we were not interested. If I'm already the leader, what do I acquire? I have 2,050. EuroKids has, let's say, 800 or 900 preschools under the brand name EuroKids, and they also happen to own this Kangaroo Kids, which is maybe 100-odd. So between Kidzee -- sorry, between EuroKids and Kangaroo Kids, they have, let's say, 1,000 stuff. Now we end up adding 300-odd preschools of our own every year, let's say.

So why should I pay INR 2,000 crores for acquiring EuroKids when I can create that extra 1,000 centers on my own in, let's say, 3 years, I think, on my part? Secondly, we believe that our schools are much more superior than EuroKids. Our brand name is much more superior than EuroKids. So why would I buy something which we feel is lower than us at a valuation which is 5x us, which is completely idiotic. When one does acquisition, it -- they do it for a couple of reasons. They do it, first, because they don't have skill set in that area and they want to acquire those skill sets. So for example, when we wanted to foray into supplementary education over and above the core education we have already into our schools, we acquired Mahesh Tutorial because it would have taken us time to set up that know-how. The second reason is, if my, let's say, multiple or valuation is much higher, let's say, my [EV] EBITDA multiple is 20, and someone else is selling at 10, so then there is an opportunity of multiple arbitrage, so I buy that guy at 10 multiple. And then that part -- the chunk of the business gets re-rated at 20 multiple. Here if we buy something at 20 multiple, when I am at maybe 7, 8 multiple, it's arbitrage destruction. It's negative arbitrage.

Thirdly, your question is very interesting, but we have not touched on the core point. A company which has half the number of my preschools and maybe 1/3 the number of my high schools with a similar model and having financials which are -- I'm not privy to their financials, honestly, but I would like to believe that they are slightly lower than us. But they are also similar model, a little bit maybe self-operated. Mostly, it's a franchise model. So their valuation, like you rightly pointed out, is 6x us. So they are talking about INR 2,000 crores valuation if you read in the Economic Times report. I'm assuming that was the enterprise value. My enterprise value is hardly, let's say, INR 1,000 crores. So I'm double the size of their business. My evaluation is half, which means that we are performing very well. However, my investor is not valuing me appropriately.

So it just goes on to prove to all of you who are on the call that the moment you get out of the call, you should immediately acquire more of Zee Learn shares because they are a very strong value pick. The company is doing very well, but the market valuation, which is not a barometer directly of the company's performance, is 1/4. You are sitting on a golden opportunity. Thanks, Shailesh, for pointing this very important thing out because normally, I tend to avoid referencing competitors in a call like this. We are all very esteemed people, and their owners, promoters and officers, they are known to us in the market. They would not like our commenting on it. But this just goes to show that our issues here at Zee Learn, because of which our share prices are depressed, is not because of my company's performance. It is because of more macro issues linked to economy, linked to the tailwinds going across various segments in India, and obviously because of our group issues. They are very lucky that they are not publicly listed, so they are valued at what their business is, right? And therefore, they are at a 4x valuation. And if we were on that valuation, your share price should not be $20, it should be at $80.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [120]

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You're absolutely right, sir. Actually, I have circulated a note pointing out this anomaly to our associated banks yesterday.

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Ajey Kumar, MT Educare Limited - Executive Director [121]

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And you are from which firm, sir?

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [122]

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Sunidhi Securities.

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Ajey Kumar, MT Educare Limited - Executive Director [123]

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Thank you, sir. Umesh will contact you.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [124]

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I'm in touch with Mr. Pradhan. I'll get in touch with him.

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Ajey Kumar, MT Educare Limited - Executive Director [125]

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Very valid point, Shailesh. Being listed has advantages and disadvantages. It gives you access to public funds, it helps your company grow big. But if the markets are not right, it might be a drag also. So good and bad goes together. We don't regret being listed, obviously, but it shows the potential that is there in our shares and our company.

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Operator [126]

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Thank you. That was the last question in queue. I now hand the conference over to the management for their closing comments.

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Umesh A. Pradhan, Zee Learn Limited - CFO [127]

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Thank you all, and thank you, everyone, for participating and patiently hearing us out. And we appreciate all your questions. Thank you so much for your time and support.

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Ajey Kumar, MT Educare Limited - Executive Director [128]

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Thank you, guys. Thanks very much. We look forward to more interactions with you people. And any of you who want to get more color into our organization and financials, et cetera, please feel free to contact our Investor Relations team or Umesh or Deb, et cetera. We would be happy to engage and answer your queries further. We are successful because you support us, and we really appreciate that. Thank you very much.

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Operator [129]

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Ladies and gentlemen, on behalf of Zee Learn Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.