Varthana Finance, a prominent school finance company based in Bengaluru, faced a decline in scale over the past two fiscal years. Its revenue, which stood at Rs 211 crore in FY21, dipped to Rs 190 crore in FY22, and further decreased to Rs 183 crore in the fiscal year ending in March 2023. The company’s revenue from operations contracted by 3.4% during FY23, as indicated by its annual financial statements filed with the Registrar of Companies.
Empowering Education in India:
Established in 2013, Varthana Finance operates as a non-banking finance company (NBFC) specializing in providing credit to low-budget private schools and students pursuing higher education across India. With a strong presence in 15 states, the company caters to more than 8,500 schools, benefiting over four million students. Remarkably, Varthana Finance has disbursed over 15,000 loans and forged partnerships with more than 750 loan institutions.
Interest Income Dominates Revenue Composition:
As a loan financing firm, Varthana Finance heavily relies on interest income, which contributes 86.8% of its total operating revenue. However, in FY23, this income witnessed a decline of 13% to Rs 159.3 crore. In addition to interest income, fees/commissions, and other operating revenue collectively contributed Rs 24.15 crore during the previous fiscal year.
Expense Analysis and Profit Growth:
Among the expenses incurred by Varthana Finance, finance costs accounted for 35.5% of the overall cost structure. Impressively, the company managed to reduce these finance costs by 20% to Rs 63.83 crore in FY23, despite the scale downturn. However, the employee benefit cost and legal professional fees increased by 17.4% and 78.4%, amounting to Rs 59.3 crore and Rs 6.6 crore, respectively, in the last fiscal year.
Managing Financial Instruments and Overall Cost:
During FY23, Varthana Finance recorded an expense of Rs 41.7 crore related to the impairment of financial instruments. Despite this, the company successfully reduced its overall cost by 4.1% to Rs 179.7 crore in the preceding fiscal year.
Effective Cost Management and Improved Bottom Line:
Despite facing a decline in scale, Varthana Finance displayed adept cost management practices. This efficiency is reflected in the company’s bottom line, as its profits surged 2.1X to Rs 5.44 crore in FY23. Moreover, Varthana Finance registered an ROCE of -17.6% and an EBITDA margin of 39.37% during the same fiscal year. Notably, the company spent Rs 0.98 to earn a rupee of operating revenue.
Challenges and Opportunities in Education Financing:
Although Varthana Finance experienced a revenue decline in FY23, it remains optimistic about future prospects in the education financing sector. With its strong presence in the school finance space, the company is well-positioned to capitalize on the growth opportunities in India’s education sector. As Varthana Finance diversifies its income streams, it aims to achieve sustainable growth and expand its impact in the education financing landscape.
Focus on Efficiency and Profitability:
Varthana Finance continues to focus on effective management of expenses, particularly in relation to finance costs, to improve its overall profitability. By maintaining prudent financial practices and optimizing costs, the company aims to bolster its financial performance and enhance shareholder value.
As a leading school finance company, Varthana Finance plays a crucial role in empowering educational institutions and students across India. Despite encountering a revenue decline in recent years, the company has demonstrated resilience through efficient cost management, leading to improved profitability. With its strategic approach and commitment to the education sector, Varthana Finance is well-poised to contribute significantly to the nation’s educational growth and development.