Promoted by Gala family, Navneet Publications (India) Ltd. is a leading Educational book products and service company providing an array of Educational,Children and General based Publication and Scholastic Paper & Non-Paper Stationery products.
It is a dominant player in Maharashtra & Gujarat with a market share of more than 65% in these states and has more than 5,000 titles to its credit.In 2008, the company ventured into E-Learning space which has now gained significant momentum with more than 1600 schools using its products by 2013.
In 2011 Navneet picked up a minority stake in Kâ12 Techno Services â a school management company that oversees 93 schools(65k students) in AP under the brand name “Gowtham Model School”.In line with its strategy to expand its presence, it has forayed into new geographies of AP and Delhi with an objective to target the students from CBSE and ICSE Boards as well.
Navneet is one of the largest paper stationery brand in India and it enjoys leading position in the premiere stationery markets of the Middle East, parts of Africa, U.S.A. and Europe.
50-55% revenue and 75-80% EBITDA is contributed by Publication segment. Margins here an in excess of 30%, stationery has margins of 10-13%. E-sense is expected to have high margins in excess of 30%.
Navneet’s publishing business is in an interesting phase which is quite different from what it has seen till now.
The syllabus change playing out in Gujarat and Maharashtra now is different from previous syllabus changes as this is more drastic.The relatively more drastic change is an effort by the state governments to align more closely with the CBSE syllabus. This has given two great opportunities for Navneet.One, the difficult changes increase the requirement for supplementary books and learning aids.Secondly, the CBSE focus has given Navneet enough content to penetrate the non-West market and CBSE Schools. They have already started marketing in AP and North belt.
Ministry of HRD is trying to implement a common curriculum across states which should again help Navneet with its market leader status and CBSE content. This has already started some states. Its partnership with K-12 Techno services of AP, a com in which Navneet acquired 24% stake in 2011, has opened up doors to more than 90 schools and 50000 students there.Navneet is also expected to replicate the school management business in Maharashtra and Gujarat.For the first time the state gov of Maharashtra decided to supply supplementary books for the government schools so that students can compete with their private school counterparts.Navneet received a 35 Cr order for this in 2013. This is a good new sub-segment opening up.
Navneet’s stationery business is also in an interesting phase. It has recently entered the big foreign retail markets with major orders from USA.This can sweat its existing stationery manufacturing capacity to increase revenue in the current offseason time. Dec 2012 quarter had a 48% growth in sales due to this.Navneet’s recent efforts in digitising schools with its product called “e-sense” is yielding good results with 1600 schools signing up already.This is a high margin business and Navneet can exploit its strong bond with 24000 schools in Gujarat and Maharashtra.The product is receiving great response and achieved break even last year. This should start contributing to net profit from this year onwards.The com has also received a 750 Cr order for digital learning from Maharashtra government expected to be executed over next 3 years. This is again a new sub-segment.
With multiple growth drivers the company should clock a 20% growth in revenues for next 3-5 years compared to 15% CAGR in the last 5 years.With margins above 20%, low capital intensity and great dividend payouts in excess of 40%, the ROE is above 25% and is expected to improve further.The management has exhibited high integrity and transparency with good investor communication.A good company in the high growth, recession proof education sector can catch the fancy of the market and trade at a PE of above 15.Both FIIs and DIIs have upped their exposure in the last one year.
With a market cap of 1445 Cr the com looks attractive with sales expected to cross the landmark 1000 Cr mark in FY14.At CMP of 60, the company is trading at a forward PE of 11 on an expected FY14 EPS of Rs 5.6.
Since Q-1 is a major quater for Navneet, it looks worthy of investing now.