Physicswallah Limited (PWL) Q2 2027 Earnings Call Transcript

Good evening, everyone, and thank you for joining Physicswalla's Q2 FY27 earnings conference call. We hope you had the opportunity to review our financial results and shareholders' letter, which have been uploaded on the stock exchanges and are also available on our Investor Relations website. Joining us today are Mr. Alak Pandey, CEO and Whole-Time Director, Mr. Pratik Hu, Whole-Time Director, And Mr. Amit Sachdeva, Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements made during this call may be forward-looking in nature and should be read together with the risk factors disclosed in our public violence. We request participants to limit themselves to two questions at a time and rejoin the queue for any additional questions. With that, I would like to hand over the call to Mr. Alakbande.

Hello, everyone. Good evening. Namaskar. So, this quarter has been amazing for PW. This was a very strong quarter for us. The Q2 revenue is 1242 crores, which is up by 18% year-on-year. The pre-index EBDA is 233 crores, which is up by 45% at an 18.8% margin. That is positive. It is 142 crores doubled year-on-year. Talking about H1. H1 swung to a 55 crore profit from a 57 crore loss on a 21% revenue growth. Talking about online, the Q2 revenue is 694 crore, up 26.4%. Pre-indice EBDA is 239 crore, up by 47.2% at a 34.4% margin. What were the drivers for this growth? Q2 unique enrollments are up by 12.9% to 1.5 million and 3.44 million unique connecting users or students, up from 3.22 million. ACPU on unique enrollments up 9.2% to Rs. 4280. Infinity Plus Pro collections up by 32%, with their share of collections rising to 35% from 31%. In 3D Pro collections quadrupled in Q2. Skills enrollment up 10.3x to 1.69 lakh. CA enrollments up by 19%. NEET PG enrollments at 9,500 up by 35%. There is one myth, that is the government exams enrollment down by 24% because of the vacancies and the forms not coming out. Need demand that was delayed in Q1, result came out on 16 July, a month late, showed up in Q2. So in Q2, we saw need demand. Online need collections up by 27% and enrollment up over 30%. The gap has not fully closed. Full cycle online need collections are still 7% below last year with enrollments 13% lower. Offline need enrollments for the academic year are 8% lower. And we expect this gap to be reflected in full year NEET numbers. We are launching aggressive crash courses. So we have like pre-poned the crash courses this year. So in Q3 and Q4, we will be launching crash courses, mega crash courses for NEET, both in online as well as in offline. And we hope to cover some of this data. At the company level, we expect to partly cover this gap through K-12 categories, new categories such as earners, and of course the NEET crash shows that I have told you. We expect need demand to recover over the medium to long term, supported by the anticipated transition to a computer-based examination format in FY28, and the structural expansion of India's medical education system. The base is broadening. Categories beyond J&E contributed 73.8% of H1 enrolments, up from 64.8%. Boards and CUAT enrolments up 130%. Foundation enrolments up 15% and collections up 40%. Vernacular enrolments up 77% to 1. 2 lakhs across 10 languages. Higher value categories such as civil services, GATE, and MBA also recorded strong ACPU growth. South India is our next leg of growth. I have been visiting South India frequently. Five states, 15 million students, and an online first playbook. Approximately 10% of the revenue, actually 9% of H1 revenue is coming from South. Next.

Yeah. Good evening, team. Prateek, this side. Quick catch-up on funnel that we have 106 million cumulative app downloads and 4.1 million daily active users with the engagement of 98 minutes. Offline, a calibrated scale-up. Now we are at 370 centers with the highest level admission, 4.13 lakh enrollments in H1 delivered. 66% of the H1 offline revenue comes from our Vidhya Pete. And we are on track to deliver the overall revenue and the EBDA growth numbers which we have stated earlier. AI across PW, we have amazing success, specifically this quarter. A big breakthrough in AI is all of our important live batches will be available in... 12 different Indic languages as we plan the next academic year batches. So you can imagine this as the same set of teachers which are the star teachers in respective exam categories. The students of all Indic languages will be getting benefited with this live AI translation of our batches. This we have already demonstrated and this is helping us in terms of creating South India distribution as well. Another big achievement which we are able to demonstrate in this quarter is our Socratic AI Tutor launch. The product is live at tuto.pw.live, t-u-t-o.p-w.live. And we have completed more than 5,000 hours of learning in this product, and this will be launched at Vishwas at a large scale. Another, we got another big milestone in the company's journey is we got PW Digital University Incorporated, and it is. India's first Greenfield Digital University, which will solve for our forward integration. As we are the largest player of high school examination in the country, this will be the natural forward integration for a lot of our kids. So, this is a quick headline update. A small update around FINSI that the 96 crores of outstanding loan book is sold to Auxilo, FinServ. And the PW translation away from the direct lending, credit risk, and the lending capital requirement moved to lending partners, while students continue to access the financing through third-party lenders. So, these are some major updates from my side. Now, handing over to Amit.

Thank you, Patik sir. Good evening, everyone. Thank you all for joining our second quarter earning calls for physics column. Firstly, wishing all of you and your loved ones a very happy Diwali in advance. We also had a great quarter as a precursor to the Diwali celebrations. Like always, I'll cover revenue and profitability. Aluxa did talk about some of those metrics, our segment's performance, current treasury, and key updates on our capital allocation strategy. And we can then open the floor for questions. All numbers are consolidated and in IR coros. Also, when I say EBITDA, I mean pre-indice EBITDA, which is after lease payments and excludes other income. A quick snapshot of our quarterly results. Revenue for first half consolidated closed at 2,293 crores, up 21% from last year. This was a combination of increasing enrollments and our ARPU improvement initiatives that we've run throughout the year. Our online business grew 29% year-over-year, with revenue closing at 1,242 crores, and offline growing at 12% year-over-year to close at 1,031 crores. Our core business is stronger than ever. Our first half core online business grew at 34%, and overall business growth at 28%. We saw significant growth across all our newer and emerging categories. K-12 continues to grow for us. Collection growth pegged at almost 49%. Our skills and earners program grew 10x as compared to last year. And our finance category that covers courses like CACS, ACCA, CFA, and other similar categories grew close to 30%, making us now one of the leaders in professional finance courses across India. Revenue from operations in Q2 was 1,242 crores, up 18% year-over-year from 1,051 crores last year, which is 18% sequentially both from Q1 and Q2 of last year. One key point I would like to highlight is that this is the highest quarterly revenue we have ever reported in the history of physics volume. Online contributed 694 crores, up 26%, like I said. Offline 541 crores, up 9%, and others at 8 crores. Revenue for Consolidated, you know, which I talked about earlier, continues to grow strong, setting the, you know, the entire core for our portfolio growth. In terms of EBITDA, EBITDA was again highest ever in the quarter at 233 crores in Q2, pretty much in line with the highest revenue quarter that I just talked about. This is up 45% from 161 crores from Q2 of last year, translating into 18.8% margin against 15.3 that we did in the same year, an expansion of 350 basis points. Sequentially, this is a swing from a loss of 43 crores in Q1, which also reflects the seasonality of our collections and the delay in our meet collections. For H1, pre-India's EBITDA was 190 crores, 2.6 times last year's 72 crores, with the margin of 450 basis points to 8.3% as we continue to see leverage across most cost line items. Our profit before tax for the current quarter was 209 crores against 99 crores for last year, same quarter and improvement of 143 basis points. We also turned around a pat of 142 crores for the quarter against 70 crores for last year. Overall, at H1 level, we are 55 crores of pat against 59 crores of pat lost last year, like Alasar mentioned about it. As committed at the start of the year, we are holding ourselves accountable to closing the year at PAD positive for the full year for the remaining H1N to put together. Some color on the key cost levers. Like mentioned earlier, we came strong in our pre-end EBITDA for Q2, closing at 18.8%. Our employee costs without ESOP costs were lower by 2.3% as compared to last year quarter, and at an H1 level, lower by 2.4%. As we continue to operate at similar ESOP costs as compared to last year, with increasing revenues, we also saw leverage coming at almost 1% for both quarter and first half on our ESOP costs. We continue to see managed reduction in our distribution and marketing costs. Our marketing spends for first half were 216 crores against 202 crores, an improvement of 1.2% year-over-year as a percentage of revenue. We will continue to see leverage on this as we improve ROAS and build efficiencies in our newer categories and initiatives. We are continuing to invest in AI spends as we continue to build our AI tutor and other innovations within our batch. Our overall tech spends for H1 were 104 crores as compared to 70 crores last year, and an increase of 1% as compared to the first half of last year as a percentage of revenues. AI now writes 90% of our code, with significant improvement in velocity and timelines. Moving on to the Treasury. As of September 30th, this year, our treasury is 5268 crores, including IPO proceeds of over 1,800 crores. We've talked about our strategy on allocating multiple times in the past, but here are a few updates in terms of what we are doing with that. Like Prateek mentioned, we sold our Finzi book in the first week of October and added approximately 96 crores to our treasury. We also acquired 11% in SARTIS, translating to 71 crores, with that transaction getting contributed in this quarter. With this acquisition, we are now the largest educator in civil service exam in India, both in terms of enrollments as well as collections. We believe we will continue to take a very balanced expansion in terms of our offline, with focus there on whether business turning EBITDA positive this year. We now have, from an overall, you know, use of proceeds, we now have 1,800 crores of IPO proceeds that we will utilize over the next two years. We've talked about multiple times in the past in terms of our M&A strategy. We now have a very robust pipeline of education companies that fit into our M&A strategy of online and AI first. That has always been the, you know, the color of companies that we have been looking at. Subject to CBA disclosure norms, we are now in active discussions with quite a few of them and progressing well in terms of conversations with them. Depending on board approvals, we are confident of closing them or closing a few of them in this quarter. We will also be allocating capital to our south expansion and AI tutor, our personalized AI tutor, though these will not be substantial, given that we have created a solid playbook of creating YP funnel and launching categories around it. A few other updates around the ones that some of them have already been talked about. Finzi update, by the sake of just repeating myself, we had mentioned in the Q1 earnings call that we will discontinue our book lending as part of a sale. Finzi financed PW's wholly owned NBFC subsidiary, signed a deed of assignment on 3rd October with Auxillow Fincest Private Limited, an RBI registered education focused NBFC, under which Finzi sold its entire loan book for a consolidated consideration of 96 crores. This is part of PW's decision to stay focused on its core edtech business. Going forward, student lending will be offered through regulated third-party NBFCs. Finzi Finance will continue as an RBI-registered NBFCs until the closure process, which is subject to RBI approval. Need impact? I would draw your attention to question 2 of the shareholder letter. We continue to track our need performance and recovery for this year. While timing of NEET had an impact across our entire business, especially the offline business, and both core and our subsidies included, our core business has been able to offset some of that slow recovery through other exam categories. Vialem did see an impact on that business, given their dependence on NEET. Digital University, again, like Pratiksa mentioned, we talked about this briefly in our Q1 quarterly annuals call. We now have, you know, the officially, the PWDU has now been officially notified in the Punjab Government's Gazette with effect from October 29th. We believe this will set the foundation for quality online and distance learning with PW that can now offer undergrad, postgrad, and professional level exams through online delivery, digital assessments, virtual labs, and other tech-enabled tools. We'll share more details in the next three to six months in terms of the business plan for our PW Digital University. Our focus remains on effective capital allocation, with PWDU being capital asset, light, and digital delivery. Before I hand it back to moderator, subject to regulatory disclosures, we are also planning our first investor day on November 18th in Mumbai, commemorating our first one year of stock exchange listing. We look forward to welcoming you all to be part of this important event for us as we showcase our online-offline capabilities, PWI tutor, our personalized data tutor, and other key initiatives. Moderator.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then 1 on their touchstone phone. If you wish to remove yourself from the question queue, You may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

Your first question comes from the line of

Gaurav Malhotra with Access Capital. Please go ahead.

Yeah, hi. Thanks for the opportunity. I had a few questions. You have mentioned about, you know, the fact that meat has improved, but, you know, maybe you will not be able to recoup it completely this year. In that context, I just wanted to get a sense on how do we think about the online growth. So till 1H, online growth has been pretty strong, but we see that the collection growth has been around 17% for 1H. So, for like your static guidance of say roughly around 30% for the full year, how much this collection growth will have to increase and if you can also give us some sense on, you know, what are the pockets where you see that this collections will come so that it can flow into the revenue in the second half. That's my fourth question.

Hi, Gaurav, Pratik, this side. So, in terms of NEAT impact, as compared to Q1 to Q2, there is a significant improvement in terms of collection and enrollment, which we have demonstrated. But this year, specifically when the exam cycle is delayed by a month, the same growth, some growth we are expecting in Q3 numbers also in the collection will flow over in Q3 numbers as well. As Alak told that in terms of strategic initiatives, this year we are introducing the... Full length crash courses and we have launched this in couple of other exam categories also and we got good success. So that would be a strategic lever to compensate on the delta on each side. But we are not very sure that we need specific category, how much data will be covered. But we are very quite confident on annual guidance, which we have given. And a couple of other initiatives, for example, short-term skilling courses earners have done quite well for us. And we will double down our efforts. And that is completely 100% online program. PWTalk, PWBooks, NSPY, all of them put together will be another positive 3 to 4 million support in the overall top line. So, in terms of collection, you will see collection numbers coming in next quarter as well. While the overall businesses, I would like to highlight, there are a couple of exam categories have done outstanding for us. For example, CA as exam category, CLAT as exam category. So, the newer exam categories have done quite well for us. So that we could able to compensate it. And this we have covered in our investor's letter as the question number five, that couple of our outstanding exam categories, which is compensating for the delta of the meat.

Gaurav, our online business, just to add to what Prateek mentioned, is already growing at 29% for the first half. If I just look at the core business, online is actually growing at 34%. So I think whatever, in spite of me calling out the neat recovery slow and what we had projected, we are strongly believing that our online business will continue to grow. You know, in terms of the Meet, we also need to appreciate that Meet has an offline component attached to it. And that space of recovery, when I, you know, talked earlier, is probably because of the dependence in xylem, which is 80% NEET, is taking time because they do not have any other categories to recover, you know. That is what we are trying to do now is in terms of a strategy being put around the xylem growth strategy in terms of how do we work out, you know, with the dependence on NEET going down in that end.

Yeah, thanks for this. On offline, you did call out Xylem, and you also mentioned that you are sort of going a little bit slow, otherwise itself. So that obviously we can see in the enrollment. But just in terms of the ARPU, the ARPU growth also has been like this, you know, 5, 6, 7%. This is obviously slower than what you're managing in the online side. So, just wanted to get some sense as to, you know, how do we think about this ARPU growth going ahead in context to how the ARPU growth in online is shaping up.

Sure, no, I think great to call out, Gaurav. I think in terms of the R2 of offline, I think if you look at it, it's more a reflection of the mix of business changing as we, you know, start getting into newer centers that we are opening across both our core business as well as SubteBee. So, also, the offline ARPU is a more reflection of what we do on a full-year basis, and that is what it gets reflected, you know. So, the true metric of ARPU and offline will be actually when the entire fees, you know, gets accrued over the four quarters and give you a little more color and guidance of how the full-year ARPU is. What I can tell you is that Vidya Pete ARPU is almost like 9% to 10% higher year over year in terms of our core business, which is the 70% of our business. So I think what we are seeing in spite of neat softness coming in, in spite of neat dropper business, which is one of the highest Vita business for us, we saw weakness coming in through it. But we do believe that our VP business continues to be strong. We're now almost like 167 centers against the 117 centers that we had with WP last year. So I think the full R2 story, we believe, will get unlocked at the end of the year when the full revenue, you know, gets approved full year.

Understood. And just the last question, you know, just in terms of M&A, you know, should we expect a little bit more focus on South India?

Yeah, so can you repeat your question, Gaurav?

Is it the South India? So, you called out South India to be, you know, a major focus region for you from a growth perspective. So, I was just saying that, you know, since from M&A, would that be a region which you will be more focused on from doing acquisitions? Would that be the right way to think?

No, no. So, South India, we are confident to go organically because of the recent development in AI live streaming product, which I have talked about. So, this is helping us creating South Indian distribution. So, you can imagine our teachers teaching in 12 Indian languages in a real live environment, and this has given us a good distribution push as well as we will be able to monetize the same product. South Indian geographies. So, we are not targeting any M&A growth in the southern part of the country. And dedicated to South India growth, we have covered a question in our industrial newsletters, which is the question 3 on page number 6.

Can I, can I ask one more question?

Sorry to interrupt. Oh, I'll come back. I'll come tomorrow. Thank you. Thank you. We have a next question coming from the line of Abhishek Baathak with Motida Loswal. Please go ahead. Yeah, I'm already. Yeah, sir.

Yeah, yeah. Hi, team. Morning, and congrats on good execution. So, I had a couple of questions. Now, at the beginning of the year when, you know, the need situation happened, as compared to that, where would you say our 30% growth in online revenues is in H1? Do you think we are higher or lower versus expectations? And in that context, if we are launching crash courses in H2, Is there a possibility we are seeing that we can land up at the end of the year at a group rate which is slightly higher than 30% or is that too only to kind of follow? That's my first question.

Yeah, so online is growing quite robust, Abhishek. Like, in H1, the core business grew at 34%. So, internally, we have exceeded our targets of our online growth. And it's slightly too early to say about the crash courses at this point of time. But internally, we are confident that this will cover definitely some delta in NEAT. And we have already launched this in J category and got a good response by kids. So we are confident that NEAT will also have the same user behavior. And in terms of our offline strategy also, if this works out in our online strategy, we'll have a replica in our offline crash courses with a similar strategy. So, in terms of growing more than 30% is not what we wanted to guide at this point.

We launched a couple of initiatives in online as well. For example, we launched a batch folder like a 360 degree tracker in online. So, we did this experiment in JE and we got good success in JE. Now, we are doing the same thing in NEET. So, it's like the same product reposition and like a tracker arranged in the classroom, but students are very much attracted to that. So, we are going with that particular product in NEAT as well. So, a lot of these things are planned. Also, the K-12 growth is very promising right now. They are exceeding their annual operating plan, whether it will be the CodeCBSC or UP or Maharaj or these state boards. So, they are exceeding their target. So, that will actually cover up. But definitely, there is a hit of NEAT, and we are not shying away from it. Definitely, there is a NEAT hit in online as well as in offline. And offline, that is showing more basically because of ARPUs. Of course, because of ARPUs. So, online, if you see... Online contribution of NEET is 15% only, so that, of course, that 15%, we have a hit around that, and we are covering with a lot of other categories, and that reflection of numbers we can see in Q2 as well as H1.

Understood. And just probably a related question around margins. I mean, 35% EBITDA margins and online seems like there's some headroom over there. Any thoughts on whether we can reinvest some of these margins back into the business and probably some aggressive marketing to kind of, you know, again, recoup, let's say, the growth because 35% seems to be pretty healthy. And maybe I'll just follow up with another question around the offline piece. You've guided that the offline centroping will now be much slower, you know, and in that context, I mean, would you like to kind of just highlight a bit on the offline profitability benchmarks? Does this kind of lead to break even slightly faster? How do you kind of build that in going forward?

Yeah, so I'll quickly touch upon both of the questions. In terms of margin, online margins, we are confident that we will deliver as we guided. And there are no aggressive plans to shift those margins into marketing. And there's 100% IBDA growth, which we will deliver at a group level. And mostly this growth will come from online because in terms of offline, inching towards profitability, we are on track. And, um, uh, yeah. Last year to this year, Vidya Peet has already turned profitable at a standalone entity, and overall offline also will inch towards near break-even, is what we are writing. At the minus 12%, it will be near break-even.

So, we will be showing great improvement in offline, very great improvement. And talking about the online profitability, I would just like to add on something to what Sratik said, that the offline, online, if the margins, of course, we can increase. We would have increased this year as well, but we are right now investing on AI Tutor as well. So a good investment in going on the team, which is working on the AI Tutor, and as Pratik mentioned, we launched the app. It's available on the Play Store, so it's the Tutor, and 4,000 students are right now studying over there. We see promising results there, good feedback there, greater engagement in the batch actually there, greater engagement than our live batches. So that is a great product coming up. So we are investing in AI, so online profitability increasing from here to some different margins or we may think next two three years maybe we are not and we don't have any new plans for that.

Got it. Thank you so much. Actually, I was referring to already high online margins, maybe being reinvested. So, it's already high. So, I mean, yeah, my compliments to you on that. Thanks.

Thank you. The next question comes from the line of Swapnil with JM Financial. Please go ahead.

Hi, thanks for the opportunity. My first question is again on the guidance side. See, at the beginning of the year, we were guiding for more than 30% revenue growth on a console level. Obviously, our off-line business is not in a shape where I think we will reach where we would have targeted at the beginning of the year. So, to that extent, is there any change in consolidated revenue guidance from you? Any thoughts around that?

No, there's no change in console revenue guidance at all because the compensation of offline is being done by online. And majority, the hit in offline is because of two reasons. So one is the need impact, where the offline ARPU is significantly higher than online ARPU. So need has impact, a two-fold impact, that is impact in Pw and another impact in Xylem. Another offline thing have happened is the government exam notification, which have adversely affected one of our subsidiary, which is Utkarsh classes. But in terms of the core offline Vidhyapeed business, which is 66% of the total collections of H1, has done phenomenally well.

I think not bifurcating the business to online offline, at a console level, for your guidance, we are holding ourselves around the bill to what we have promised.

And is there any element of M&A also included in your guidance or like that's excluding that?

Yeah, there is, and we are in advance talk on a couple of online assets with us.

Oh, got it. And secondly, on AI220, you just highlighted that you have around 4,000 students working with you on the app side. Can you give us some color on the unit economics that you foresee in this business? Any experiments that you would have done? At what price points people are comfortable paying you a certain amount and the engagement levels? Some color on the side. Thanks.

So price discovery is yet to happen on tuto side. But in terms of product quality or experience, this is the most superior product in terms of learning outcome and engagement which we have ever seen. So price discovery will happen. A broader guidance could be that it will be priced at double the ACPU of our online batches. But since we have very little monetization happening of this product in this year, it will be primarily experimental in nature. And in terms of delivery, this is the most affordable AI tutor, and we have been continuously working on the cost, and we have watered down the cost. Less than 20 rupees an hour of tutoring, and which will further go down significantly in one or two quarters. But the major focus is not the cost, not the revenue or ARPU. Major focus is in terms of increasing the student experience and making it completely interactive and adaptive as per the student's needs. We would like to showcase this product on 18th November on our investor day.

And there are like three different modes of learning in the AI tutor, and we would like to demonstrate that to all of you. It will be like one of a kind of experience.

And this is a product which we believe that can fulfill our international exploration as well. So we are quite bullish on these lines.

Just an extension of that question, is there any specific category that you are working on this right now? NEET, or IED? The first loss will happen between 6 to 12th.

6 to 12th and JE NEET, where we have complete dominance in terms of brand distribution and the students. So, the grade 6 to 12 in JE need is the first category, but AI itself, by nature, is very scalable. This product will be available in 20 ethnic languages, and it will be very easy to scale across category. The first launch might take some time, the paid launch, and it will be synchronous to our academic cycle launches of the product. So, the Vishwaas Divas is the time where we'll launch it for, officially launch it for the students. But right now, also, the product is live on tuto.pdmo.life.

Ali, you can scan the QR code in question numbers. And then also, I will give you a little, you know, a demo of how the AI 2.2 also works.

And just last one on your...

Sorry to interrupt us, sir.

It's a small question, if I can.

Sir, please, there are several other participants waiting for it. Thank you. We have a next question coming from the line of Unmolgurk with Tam Capital. Please go ahead.

Yeah, thanks for the opportunity. I had a couple of questions. First, on the offline side of the business, you have indicated that slowdown is because of our need and government exam notifications. So do you see that the growth will accelerate towards the second half of the year, particularly if you think that the government exams will ramp up? So there will be some delta, but there will be not a complete transformation of numbers in second quarter, I would say. But in terms of the bottom line, we are quite on track.

I believe that it's going to make a strong recovery as we go into the next academic session. So that is how the nature of some of these exams we've seen in the past. Obviously, some of the notifications from the government business are dependent on conditions that we don't control, and it's clearly an indicator of as and when those notifications come. What we have done is that our cost structures are now more aligned to handle, you know, some of the situation that arose this year, and that is the reason why, you know, Pratik mentioned, at least on an EBITDA level, we are more confident in terms of what target that we have set for the start of the year on the offline business.

Understood, understood. Just to follow up on the same question, is that whatever the newer centers that we are opening up, particularly in offline, are they catering more towards JEMEAT or is there any different categories that we are particularly looking at for our offline expansion? In terms of offline expansion, the growth levers are primarily J-meet only, and as we have said earlier also, the 25 to 30 centers is the opening rate of... of our offline centers annually for next two to three years. The another is government examination offline centers. But the nature of our government examination offline centers is independent of any notification because generally first year and second year college students enrolls in our government examination offline center. So that is the offline expansion strategy. Uh, which is in track of what we have guided in the last earning call.

Question 6 will give you the exact breakup of the centers we are going with.

Understood, understood. And lastly, uh, if... Sorry to interrupt.

Anmol, sir, we requested a return to the group of our questions, please.

Okay.

Thank you. We have our next question coming from the line of Pankaj Mehendi Ratta with Bank of America. Please go ahead.

Thank you. Good evening, management. I have a couple of questions. I'll, you know, speak them in once. So while you mentioned about your M&A strategies and, you know, a very interesting when you said quite a few of them, without talking about the specifics, can you please give a broad idea on what is the scale of assets that you are looking at, perhaps online versus offline, and which categories that, you know, these could help you with? And a follow-up to that is that, is it 30% F427 revenue guidance dependent on this inorganic to close, or is it just on the organic side of things? That's the first question.

So, in terms of colors and contours of our M&A assets, which we are, so the strategy remains the same in terms of categorical expansion, we will be doing these assets. All of those assets are 100% online in nature. So, that's what I can say, and we are at very advanced stages with these assets. In terms of overall guidance, the 30% is inclusive of these M&As which we have planned, and this will allow us to expand ourselves into a couple of other online domains of the businesses, and there will be a lot of synergies in terms of tech integrations with these assets, as well as the overall YouTube distribution engine which we have created. We will benefit these assets. in future growth. So in terms of, I think that's all I can say at this point of time in terms of, and this question begins on the forward guidance. So I think that's all from my side.

No, that is helpful. And my second and last question is, you know, how much capital would you be willing to, you know, stream towards the South India expansion and more towards, you know, TUTU essentially? And on the current P&L, where would actually be able to see TUTU related investments, you know, going out there? That is it from my side.

Tutor-related investments, you can see in our AI cost incremental, and the entire Tutor investments rolls up in our online business only, because that is the core online team, the innovation team is with us. And you can see in our investor letter also that our AI cost is getting increased because of the AI experiments which we are doing. The capital allocation for these assets, Will be less than $20 million. And that is the amount which we have from our IPO proceeds. The 10% of the IPO proceeds can be used as unidentified M&As. And all these deals will be very margin-accredited for us.

Thank you. Wish you all a happy Diwali and see you in Bombay in two weeks.

Happy Diwali to you as well.

Thank you. The next question comes from the line of Ritwik Agarwal with 3P Investment Managers. Please go ahead.

Hi, thanks for the opportunity. Just wanted to check on the...

Sorry to interrupt. Ritwik, sir, you're sounding very feeble right now.

I'm audible now. Is that all? Yeah, I just wanted to check on the online guidance. So, right now we are at around 24% collection. Just wanted to check on full year guidance. Is it that substantial part of it will come from inorganic acquisition? Because right now, for the first half, we have only seen 16% collection growth, right? I mean, how do we see it going forward?

So, the collections will flow over in next quarters because of the crash courses and the neat effect is still we can see. And in terms of the contribution of M&As, it would be less than 5%. So, in terms of overall growth, the revenue growth, which we are giving guidance, That is still remains at 30%. And some of the collections will flow through in the next quarter as well.

Got it, got it. That's very helpful. Thank you.

Thank you.

The next question comes from the line of Neeraj with Amaya Capital. Please go ahead.

Hello, everyone.

Good evening.

So, what I wanted to ask are that what are the plans for capital allocation and inorganic expansion plans?

So, as I just answered that, like, we will be allocating around $20 million for our inorganic growth in terms of online categorical expansion. So that is what the plan is, and it is in line with the original plan of 300 crores of IPO fund days for unidentified M&As, which we wanted to do in three years of time.

Okay, I guess. Thank you. Thank you.

Your next question comes from the line of Karma Kapoor with the Ritz Capital. Please go.

Hi, everyone. Thank you so much for this opportunity. So, I would really like to know, could you just explain the concept of a digital university and what it could mean for the future of PW?

So, in terms of the largest online player in the country, we have more than 6 million paid learners every year, and a distribution of more than 100 million learners. The digital university will solve for affordable degrees, diplomas, and certificates. And as per the new education policies, the now students can have dual degrees also. So a lot of students, we have seen a trend in terms of while they are studying in a couple of Tier 1, Tier 2 colleges, they are still pursuing a secondary degree with some other universities. So, the online degree business is very, very new in the country. It started 25 years back in the U.S., and in India, it was five-year-old, and the market is exploding at this point of time, and that's why we came up with the PwDigital University. In terms of forward integration of all of our JE needs students, it will be a key milestone. And the courses which we are planning to offer here are like BCA, BBA, BCom, BA, and MCom, MCA, MBA type of courses. There are two thesis in terms of construction of these courses. One, we wanted to merge the test prep preparation with the university's degree, and there's a near zero capital allocation in terms of these courses delivery because this will be 100% digital universities, which is what we have created. The another initiative is we will be using our PW skills capability, and there will be industry-led curriculum to make country more employable. So, as per our forward integration of our grade 12 students, this will be quite instrumental for a long-term growth of the company. And we are very confident of this particular initiative. Although the admission cycle will be July next year, but the preparation and the work we will start by this year itself.

All right, but additionally, I would just like to know how do you plan to, you know, differentiate yourself from the already, like the players already there, like Igno and other universities that are also offering digital upskilling and digital degrees?

So, by far, by large, we are the most engaging and interactive online learning platform. The same technology will be used here in terms of the live classrooms, which we have used in test prep. So, and this is the most advanced AI-led curriculum which we have created, which is driving personalization as well as adaptiveness in the overall course delivery. So, any which ways, a lot of our students are opting for dummy universities and dummy colleges where they are not attending regular classes. So, and PW as a group, we have already 200 PhDs working with us. In terms of the PG exam categories, now we are number one in CA Foundation, Inter. So, the CA curriculum will be taught along with BCom. We are number one as the UPSC player also. So, the BA curriculum will be blended with the UPSC curriculum and delivered to the students for a long-term three-year courses. So, this will be a test of integration, and we are the fastest-growing CAT player in the company as well, and those students who are not able to secure seats in premium MBA institutions will opt for MBA program with PW. So, in terms of curriculum, in terms of co-designing, we already have a lot of in-house capabilities, and merging test prep with the college curriculum is a relatively easier task for us. And we already have a skilling and earner as a skilling initiative, which are linked to employment. And so those capabilities we will be using in PwDigital University to drive employment-linked degrees and diplomas.

All right. So, I think one last question that I have. How large do you think South India market can be for PW in the next three to five years?

So, we are growing at quite a rapid rate. As we mentioned, 10% of the H1 revenue comes through the Indic languages courses. But with the new development in the live... Live streaming video translation, all of my live batches will be available in 12 Indic languages. And without any incremental academic cost, I could be able to reach out to those students. So, we are quite bullish that it will be significantly large. I don't want to put a number to it, but in terms of paying capacity, we have seen the higher ARPUs also coming up from the south market. So, it will be quite significant at a steady state.

All right. Thank you so much.

Thank you. Your next question comes from the line of Jinesh Joshi with PL Capital. Please go.

Thanks for the opportunity. Sir, my first question is with respect to our guidance on the offline side, whereby we intend to achieve a breakeven in this financial year. Now, if I look at our 1-inch pre-interest beta loss, that's at about 108 growth. And in the base period, we were at about 120 growth, while some reduction has happened on YY basis. And given the fact that our offline expansion plan is slightly pertained, and it might help us to conserve some bit of OPEX spend. But given the growth in one, it is about 11% odd, and the fast factor. Over here, we have high dependence on Xylem and the NEET issue that you spoke about, and also the government examination issue that you kind of highlighted in the opening remarks. So do you think, I mean, the revenue recovery in the second half will be good enough for us to kind of achieve the break-even guidance that we have given for the full year? Sure. No, thank you so much for the question. Two important factors, you know, that we need to include that for offline Q2 and Q3 are strongest quarters, you know. So in terms of the revenue, if you look at it, our overall recovery comes higher in Q3, largely because most of our batches, you know, happen in Q2 and Q3. Secondly, if you look at last year, we opened up almost like 50, you know, Vidya Peet centers, the pace of which expansion costs are all included in the last year's numbers over the second half. This year, like I said, we made a very conscious call of going very, you know, steady in terms of the number of new Vidya Peet that will open up, Which means that in H2, my expansion cost, hiring teachers up front, taking lease rentals, you know, Apex costs all attached with this is much, you know, much lower than what we had done for last year. Secondly, at the time of the academic session, obviously, you know, when marketing and student and infra cost are higher than H1, as you go to in H2, obviously, those costs are much lower, you know. That's a, but having said that, I think that's an aspiration that we have taken, you know, especially on our centers in our subsidies, especially Asylum. Vidya Pete, anyway, like I said, is, you know, either break even this year or make money for sure as we close the enrollment season for this year. I think it's the work that we are doing right now in terms of... Cost, efficiencies, negotiating with the landlords is all going in our subsidy centers. I understand. So just one small observation from my side, I think, if I'm not mistaken, this is the first quarter wherein we have seen the total number of employees decline on sequential basis, as well as if I look at our total faculty count, if I'm not mistaken, this is the first quarter wherein we have seen a dip on sequential basis. So is there anything specific to read into this observation, or is it that there was some flap that we have perhaps cut out in two minutes? Oh, sorry, which numbers are you looking at, at least from the quarter to FI 25 to 26? Q1Q numbers, the total employee count that we have reported in this quarter, as well as the faculty member count, I think that was at about 7,100, and the employee count which we have reported is at about 19,100, and these numbers sequentially have never seen a death, but I think if I'm not mistaken, this is the first quarter where we have seen some kind of a death count. Okay, that's the right observation today.

So essentially, a lot of AI efficiencies, wherein we have earlier also spoken around the content and the QC teams, the test-making team, all of that is now being, and even the gradations that we do in terms of evaluating our subjective copies, all of that is happening now through AI in a much more efficient way. So I think, you know, there is some efficiencies that have come in specific to these pods, whether it is content making, quality checks, test paper making, test paper evaluation. All of these teams have seen some efficiencies coming in. Understood, understood.

Thank you so much and all the best for your full year guidance.

Thank you. Ladies and gentlemen, we will take that as our last question for today. I now hand the contents back to the management for closing comments.

Well, thank you all for joining us for the Physics Valas second quarter earnings call. Like I said earlier, you know, we look forward to welcoming you all on the 18th of November to our first Investor Day, and a happy Diwali to all of you from our side. Thank you so much. Thank you.

On behalf of Physics Valas, that concludes this conference. Thank you, everyone, for joining us and you may now disconnect your lines. Thank you.