Navneet Publications - a good com in education sector


(Ayush Mittal) #21

Going by the work done by Vinod, the key thing Vinod is pointing to is high possibility of 25-30% in coming qtr and hence the co crossing 1000 Cr turnover in FY14. Given the excellent brand name and high div payout, the current PE should maintain and hence possibility of good returns over medium term. Going by the datas, the above seems possible to me.

I agree with Donald that it would be tough to say that the co can maintain high growth rates for next few years. Other things to look at the balance sheet is - the co is increasing debt quickly despite being good with cash generation and yet paying out high dividends.

Ayush


(shrey) #22

Existing strengths:

**Types of businesses:**The company has a strong consumer monopoly in Publication of curriculum books(focus pre-primary,primary and higher secondary in regional andEnglish languages) which contribute ~97% to domestic publication revenue and ~60% to total domestic revenue.It has 60% market share in Maharastra,40% in Gujrat and65% share in the whole Western part of India.Thecurriculumbooks have the bestcharacteristicsamongpreferred medium of learning like high penetration, are affordable, better teacher acceptance, higher student usage and are syllabusfocused. Here in this case high penetration of product works in thefavourof the company as book is arecurring need(due to syllabus change) and increasing number of students inexisting and new schools drive volume growth with minimal advertising expenditure.

Its paper stationary derives ~20% of total domestic revenue. The is one of the premium note book brand alongside Classmate of ITC. Its notebooks are priced at a premium to local brands and have decent pricing power.

**Strong distribution Network: **In publication the marketing team size is 300+,which targets schools every year. In stationary segment it has a distribution network comprising of 3 mother deports,16 C&F Agents, marketing team of 425+ in size,1200 distributors and a reach of 85,000 retailoutlets higher than that of"Classmate" which has a distribution footprint of over 75,000 stationeryretail outlets across the country. In E-learning segment 1,400 institutions covering around 7,700 classrooms are using its product as on September 2012.

The companyâs distribution network comprises over 700 direct distributors inMaharashtra and more than 1,100 wholesalers in Gujarat. The network caters to about 28,000 retaileroutlets in each of these states.

**Unique strength:**Navneet has a strong Content Team of 185 + authors . Also, the focus on quality content in the Supplementary Books makes Navneetâs product recommended by the teachers to the students.

Exciting prospects:

**Large Market Size :**There are 8,000 Private Institutions and 16,000 Government Institutions in Western India.TheCurrent Penetration is 1,305 Institutions,this leaves aLarge market still to be tapped.

**Expansion ofexistingmarket:**TheCurrent business is focused in Western India.Total number of schools in India is approximately 13 lacs. Out of which 99% of the schools are governed by respective state boards.The high overlapping ofCurriculum across various states presents a lucrative opportunity to expand the market size and Navneet with its experience in western India is well placed tocapitalize on this opportunity.

Implementation of common curriculum by MHRD is the talk of the town.However it is subject to significant political risk.If at all it materializes,the whole process will atleast take 7-10 years.By then the company would have probably established it self in other regions as well and will be in a position to yield maximum from the transition.

**E-Learning:**TheMarket still at a nascent stage with more than 90% potential still untapped.With theGovernment’sinvestment ofRs.132 bn to push IT initiatives in Public Schools,issues like shortage of teachers & lack of quality education andHigh returns & Annuity being the key characteristics especially in the multimedia segment the opportunity is mouth watering!

The company has showntremendous growth in its ability to reach institutions in providing multimedia solutions.The no of Institutions have increased from 372 to 937in last 3 years.

**Foray into school management company: **During FY11, NPL forayed into school management services. It acquired ~25% stake in Kâ12 TechnoServices Pvt Ltd, a Hyderabadâbased school management company. Kâ12 serves ~67 state board schoolsrun by several trusts across Andhra Pradesh and run under Gowtham Model Schools (GMS) and theâOrchidsâ brand.This can serve as a whole newdimension for growth and the company will be able to sell its products from itsexisting portfolio to these schools.In a way it looks like forwardintegration.

Triggers

1.Syllabus expected to change from 8th class onwards in Maharastra.

2.Historically major sales in 1st quarter.(50-55%).


(Donald Francis) #23

Hi Samir,

This is a known pain point for all of us.

Admin had to abort the decision to move to an upgraded forum/platform (with some bells & whistles) at the last min in Mar 2013:( due to other show-stopper challenges on CMS workflows (create-edit-review-publish) implemented in the new platform.

The work has got stalled since then. There is an attempt to re-start it in coming months. We need to be patient and thankful that the old 2010 system is otherwise robust and still serving us adequately (maybe with a few aches/wrinkles).

Hope we all will get a better platform soon. we deserve it!

PS: Any hardcore hands-on python techie with 10-12 hours bandwidth per week are welcome to contact editor at valuepickr dot com.

-Donald


(Hitesh Patel) #24

I saw ads for UTOP tablets of navneet in gujarat samachar and times of india both today.

tagline is LEARNING WITHOUT BURDEN

the study material conforms to guj state syllabus and contains matter both in english and gujarati for classes from std 1 to 10.

they have provided phone nos to contact for free demo at home.

This is an interesting concept and product. Once the initial costs are recovered, most of the incremental sales are going to add to the bottomline.

But I doubt whether people are going to latch on to it in a hurry for cost of close to Rs 10000. They will need very strong sales pitch to generate meaningful sales in this product.

How the sales of this product progresses could be interesting to watch.

One thing in its favor is that parents usually dont count costs while going for their kids’ education.


(Excel Monkey) #25

Would be better to launch android and iPad application and charge a subscription fee of say a 1000 rupees a year.


(Ankit Gupta) #26

I spoke to my Brother-in-law yesterday who has the distributorship of Navneet’s stationery business in Anand district of Gujarat. He told me that they sold stationery of more than Rs.50 lakh in Q1FY14 (April - June,2013) as compared to around Rs.30 - 32 lakh in the same quarter of last year. The main reasons for such an increase was change in the sales policy of ITC’s Classmate and their deteriorating quality. ITC has started asking for dealer advances which has impacted their sales. As per his estimates and information (the dealership for the publication business is with someone else), the sales of publication business of Navneet in Anand district has crossed Rs.1 crore in April - June 2013 as compared to around Rs.70-75 lakh of sales in the same quarter of last year. In Gujarat state board, the syllabus of all the subjects has changed in the standard 6th - 8th for English medium students while for Gujarati medium the syllabus has changed for three subjects (English, Sanskrit & one more). He also told me that he can arrange for a visit to company’s plant. If any one else is ready we can plan something.


(Donald Francis) #27

Thanks Ankit.

Excellent on-the-ground inputs. There is no substitute to these kind of inputs - where we as users of products/services - have an edge over analysts.

Will wait for MS Vinod -owner of this stock idea -to revert on what he reads from this. he might point you to ask for more.


(Vinod MS) #28

Dear Ankit,

Great work! I was out of station last 7 days and could not find enough time to read up, analyse and respond.

The publishing business growth indicated by your BIL is encouraging. 33% growth in this high margin business will give good upside in EPS. What according to him is the driver for this growth. As I had mentioned earlier is the syllabus change more drastic than the previous ones we have witnessed?

It could also be because of the change in exam pattern as pointed out by Utkarsh Patel. Just check is the higher sales is due to supplementary books, question banks or something else.

Also the syllabus change started in 2012, is a larger chunk being implemented this year?

What is his take on e-sense tablet? Is it being distributed through retail outlets?

Does he have some idea on digital classroom product and its growth?

The visit he offered is only to the plant or does it include a management meet too? Then we can prepare accordingly.

Warm Regards

Vinod


(Ankit Gupta) #29

Hi Vinod,

I am meeting him this Saturday andwont have much work to do there (no social commitments as of now). I will ask him the questions pointed by you. Along with the distibutorship business, he also has a stationery shop which sells all the books as well as stationery. Will just sit with him at the shop for some time discuss and will also see the buying trend among students.

Regards,

Ankit


(Vinod MS) #30

Hi Donald,

As usual you have looked straight at the gaps in the numbers in quick time :slight_smile:

I think the numbers would look totally different if the year ending was Sep instead of March. Their working capital requirements are highest by March end but it almost becomes a zero debt com by Sep. The ROCE, Cashflows and working cap will all look attractive if we use the half year balance sheet assuming the com has a Sep year end. That is why they are able to pay good dividends. Would request Ayush and others to confirm this.

The company has stated that it does not intend to add any more capacity for the stationery business and will only focus in fully utilising its current capacity. I read it as exploiting off-season and higher margin stationery business. The export business is done during the current off-season. They could also outsource stationery manufacturing if required, as they are doing for non-paper part of the stationery. Net net capex requirements will be very low.

The idea is to see if we can convince ourselves on the better growth rates possible from 2013. I think there is high probability for a great 2014.

Cracking AP might be easier than many of us would imagine. Om had mentioned that his daughter’s text books are Navneet’s. She is studying in an ICSE school in Hyderabad. Gowtham model school has 75000 students in the state syllabus. This could give a good entry there. If the content quality is indeed good as most of us believe they should be able to do a good job outside West with supplementary books, question banks etc.

Warm Regards

Vinod


(Donald Francis) #31

Thanks Vinod for some answers.

MY observations:

1). Agreed BS is a point of time snapshot. And granted a Sep snapshot would look much better than the Mar snapshot. But I am sure this is not the first company having such an issue. There are ways around looking at the same thing; you will know better/ can find out more with your CFA skills. Some suggestions

a) establish Sep BS figures

b) look at average figures for the year

c) look for consistent trends vs volatile trends - is the company getting operationally better over the years or worse, or just here and there

BS after is all about establishing the Value for the company. How would an acquirer for this business look at the valuations, how would he quantify where Navneet stands? What would he feel about the abysmally slow addition to Retained Earnings, etc.

2). Future visibility

Sorry to say, everyone is being pretty wishy washy on this crucial aspect:(. What is that “big” picture? Instead of quoting random success here and there, a marginal product or a marginal entry in some market, or plans in the making, or what I call “hope”, lets try and establish what is certainly a given

a) one can easily put down existing segments - expected growth for FY14 - vs historic

b) additional/new segments - put them down - and put a figure alongside

When every analyst and the company is guiding for a 19% CAGR for next 2-3 years, how and why are we so optimistic for a great 2014. Please let us try and put facts on the table. And let the facts speak for themselves.

e.g. if you think the 750 Cr Govt order is a certainty for execution partly in 2014, please put a figure out - 20% of the order, 30% of the order - and we can go about establishing that in some way.

Please don’t get me wrong. It’s critical to get the sources of growth and the quality of the growth within some boundary conditions. Same goes for profitability. We can surely create a hypothesis. Having that hyopothesis can help us examine things quickly and re-assess/refine as we come across more information, meet company management, meet others from the Industry.

Not having that hypothesis or remaining satisfied with something pretty hazy - something that is not easily transferable to others - is often the cause for big missed opportunities, or worse getting caught unawares.


(Raj Panda) #32

Hi Donald,

Could you please explain the point about"What would he feel about the abysmally slow addition to Retained Earnings, etc."in more detail.

My understanding was, lower addition to retained earnings is not bad, accompanied with higher payouts.

But i think I need a better understanding on this topic.


(Donald Francis) #33

Here are my views. I am no expert:), so always looking to refine what I have understood so far.

Any company earning profits has 2 choices.

a) Re-invest wisely in the business

b) Return the money to shareholders by way ofDividends, share buy-backs, or bonus issues

A prudent mix of both may be advisable for a reasonably established business. Ability to use Retained Earnings wisely is a sign of good management according to Buffet.

Here is what Buffet has to say about Retained Earnings

"Unrestricted earnings should be retained only where there is a reasonable prospect â backed preferably by historical evidence or, when appropriate by a thoughtful analysis of the future âthat for every dollar retained by the corporation, at least one dollar of market value will be created for owners.

This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.

In the Indian economy context, most “growing” businesses (atleast those that we are typically interested in, unless it is a FMCG-type hugely negative working capital business) must be capable of generating higher incremental earnings through re-investing in the business - atleast a good portion of earnings. I don’t know what’s a good benchmark! Reasonable to expect - 20% and higher? Besides higher retained Earnings increases the Quality of the Balance Sheet. My ability to fund the business on my own increases. Higher Equity would allow me to leverage better, should need for more funds arise. Lenders would look at me more favorably?

Else (if it’s say under 10%), it’s an admission of sorts that the company’s business and growth prospects/quality are not exciting enough for the company - it can’t put higher incremental capital to good use - at much higher returns than say market rates.

And if that is the case, we are better of slotting the company in that Category - no harm with that. For those who look to preserve capital - high dividend payout may be the primary criteria. But for me, allocations will differ drastically between this type of a company and one that CAN put incremental capital to very good use.

On a related note - I have always been wondering, where is the best use of Capital in my business. Given say similar Return rates, where would I be happy to see most of my Assets tied up in? - Retained Earnings, Plant & Machinery, or Working Capital - anything else?

Varies form industry to Industry. Industry nature, capital intensiveness etc play its part for sure. But if I have to purchase a business outright, which kind of a business will I see the most value in?

Look forward to your views Raj.

Look forward to other views - especially if radically different. Especially from those formally schooled - I have learnt on the job mostly, and I had done most of my reading way back in 2008 and 2009. Post that practicals took over completely - regret not devoting enough time to re-tooling myself up!


(Vinod MS) #34

Hi Donald,

Thank you for your critical views.

The issue in forecasting segment wise is that latest data is not available. The last concall I heard was in Aug 2012. A management meet will be great.

The 33% growth in high margin publishing business in FY13 is unheard of in the last 7 years. The previous highest growth was 23% in 2008. The Dec quarter had a 48% growth in sales and March quarter had a 40% sales growth. This Dec and March growth has come with 5-6% margin expansion leading to 180% and 255% growth in PAT in these 2 quarters. I think the more drastic syllabus change is playing out well now. Inputs from Ankit will substantiate this.

Inspite of 38% EPS growth in FY13 the share price is roughly the same as what it was at the beginning of the year. I think Navneet results got ignored in the current sentiment. Past analysis of the business cycle shows there is atleast 2 more good years left. We need to verify this through more research and management interview.

The 26% growth in inventory is much higher than 23% growth in FY12 and no growth in inventory in FY11. This again points to the fact that com is preparing for a better 2014.

The gov order of 750 Cr for digital classroom, some growth in the 35 Cr sales to gov schools in 2013, e-sense contributing to PAT for the first time, AP sales growth can be treated as bonus. But its good to have so many bonus candidates.

Its the first time both stationery and publishing are showing growth. Stationery segment grew by 31% in FY13. I don’t think anti-dumping duty will come in suddenly as quality is established and manufacturing facility has been certified by international clients. So stationery business growth in the export segment should continue. Yes, conviction on this front is less than the publishing segment. But then publishing contributes 75-80% EBIT.

Cheers

Vinod


(Sunil Bakshi) #35

Donald,

Remembered reading a report on this and found it from the net:

http://www.equitymaster.com/detail.asp?date=04/16/2012&story=6&title=Small-Caps-that-pass-the-One-Rupee-test

Navneet is there in the list. Not sure about the veracity of the data though.

â âthat

** This investors.

**


(Donald Francis) #36

Any objections in listing out Segments and putting some figures alongside them?

As we go along and learn more, we can refine progressively. It's a good tenet to stick our neck out, take some beatings alright -that's how we learn, but ultimately deliver a better job:)

Going by your notes, I would be happy to work on a Table like this in a bid to establish boundary conditions. See if you would like to take this forward.

Why isn't this doable?

Navneet Publications FY13 FY12 % G 2H FY13 2H FY12 %
G
FY14E % E FY15E
Segment Revenues





Publications
Stationery - Domestic
Stationery - Exports
Others
Segment EBIT
Publications
Stationery - Domestic
Stationery - Exports
Others
EBIT Margin
Publications
Stationery - Domestic
Stationery - Exports
Others

(Donald Francis) #37

Thanks Sunil for the article. This is indeed a good point worth pondering over.

Delta MktCap/Delta Networth over long enough periods is interesting to look at. But once you start looking at this a bit closely, it starts to get confusing. Let me copy-paste some findings from when I had last-looked.

Let me share first where the IMPACT is crystal clear and then I will get to where its starts to get confusing me:)

Delta MarketCap/ Delta Networth

Nestle

Page

CRISIL

10 YR

26

16

13

7 YR

24

17

17

5 YR

22

24

27

3 YR

16

28

22

1 YR

10

29

15

These are businesses earning a much superior Return on Invested Capital over & above the cost of Capital, and naturally the market has rewarded them handsomely. It's also interesting to note the pattern trend over recent years - increasing or decreasing - that can also tell us something more:)
If I remember correctly all these had Retained Earnings/Assets >20%.

---
And now let's look at some of our other multibaggers (popular at ValuePickr) and also include Navneet for good measure.

Delta MarketCap/ Delta Networth

Astral

Mayur

Ajanta

Poly Med

Navneet

10 YR

2.17

2.59

4.27

3.63

3.96

7 YR

2.29

2.63

3.19

3.74

5.12

5 YR

2.21

2.80

3.72

4.51

4.56

3 YR

3.68

3.49

4.22

6.78

8.24

1 YR

2.41

3.13

5.34

3.48

2.88

I was actually expecting a different picture here :). Obviously there is much more to market success - there is no one holy grail ratio. What I figured out for myself last, and I look to be corrected/educated here
a) Both the size of the Reinvested Capital and the Spread (Diff between RoIC - Cost of Capital) matter
b) If you re-invest little, the results can show a more "flattering" picture
c) If you re-invest above a certain threshold, results can be more comparable perhaps

(Raj Panda) #38

Thanks guys, good learning emerged from the discussion.


(Vinod MS) #39

Hi Donald,

There is no issue with that breakup. But we do not have sub splits of the publishing and stationery business even for FY13 as the annual report is not out. If you see my excel file its only there till FY12. The split b/w the 2 broad segments i.e publishing and stationery is available.

Publishing Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Educational Books 187.16 231.49 237.73 251.68 273.78 326.62
Childrens & Gen Books 12.69 11.88 15.2 15.69 16.36 19.13
Export Chil & Gen Bks 9.55 13.63 12.3 9.26 9.56 8.27
TOTAL 209.4 257 265.23 276.63 299.7 354.02 472
OPM 32.53% 32.50% 31.30% 32% 31% 31%
Growth 19% 23% 3% 4% 8% 18% 33%
Stationery
Exports 22.58 19.01 70.45 69.66 55.44 54.24
Paper Domestic 82.72 107.51 137 144.93 160.88 164.94
Non Paper Dom 2.83 7.77 19.75 25.53 27.75 30.09
TOTAL 108.13 134.29 227.2 240.12 244.07 249.27 326
OPM 6.02% 11.54% 12% 14% 10% 13%
Growth -2% 24% 69% 6% 2% 2% 31%
Others 15 20 23 15 17 27 7
This split does not include the gov orders and other "bonus" segments mentioned in my previous post. Without considering those itself a growth of 25-30% is possible in FY14 leading to the 1000 Cr sales mark. Since margins are expected to improve, the EPS growth can be even higher.
Cheers
Vinod


(Vidur Chhabra) #40

Looks like another good medium term find, and the quality of discussion in this thread is fantastic. Great job Vinod, Hitesh, sunil etc. Just a query what has been the historic p/e of Navneet ( also do let me know if there is any site which gives historic P/E ratios?) thanks!