Navneet Publications - a good com in education sector


(Sunil Bakshi) #41

Vidur,

Navneet was at 17-18 PE last year and is now at 12. Though it had a good earnings growth in FY13, there was no price change and PE got compressed. Perhaps this was due to the general aversion to education stocks ( educomp, edserv etc). Looking at the data that Donald and Vinod have collated and presented, this does seem to have good business characteristics and is at reasonable valuation. I tend to think that this could be a good long term investment and not just medium term. Perhaps Donald needs to stamp this for us to take the plunge :).


(Donald Francis) #42

Anyone can throw more light on how to objectively look at the BS of Navneet where the Sep Snapshot looks much better (most of the Working Cap needed is out of the way) than the March Snapshot?

What are the other examples that come to mind?

Ayush, Neeraj Marathe, Abhishek Basumallick, Subbu - any pointers?

Thx

-Donald


(Donald Francis) #43

Vidur,

One of the reliable places for historical PE is our own Screener.in. Based on last 10 year pricing data. Ayush maintains this is more accurate than many other places because it takes care to calculate average annualised P/E from daily/monthly and adjusts for …(will let Ayush/Pratyush explain that:)).

They don’t display it upfront on the Summary Page (wonder Why?). That might be a good addition. You gotta dig that out from the Excel datasheet. While looking at Navneet Publications for example

http://www.screener.in/company/?q=508989

Click on Export to Excel. Check P&L statement worksheet. It has P/E calculated for last 10 years. You can then calculate Average of last 10 years from that.

For Navneet, that appears to be 14.67


(Ayush Mittal) #44

Perhaps taking an average would be better as it may be possible the other way too…that the cash flow is good during sept and they reduce debt and working capital then.

Other way to look is the int cost the co is paying for the year and get an idea about the quantum of loans considering int cost @12%

Ayush


(Donald Francis) #45

Sunil,

Glad more folks like you and Vidur are putting forward your views. ValuePickr is a collaborative research experiment :)…that is progressing. We need to energise more and more folks especially for that crucial field-input that guys like Ankit are coming forward, putting efforts and sharing it back, towards that collective effort. Thanks you all once again!

In Navneet’s case, I am purposely wearing the “Skeptic” hat. The historical performance has certainly been lumpy - no one can deny that. As Vinod has been maintaining 6 year cycle. Usually 2 Good, 4 so-so. So I find it’s crucial for us to establish how good is FY14 & FY15 going to be on the back of an already good FY13 (38% growth in earnings).

From the way it looks FY14 may certainly be good. FY15 & FY16 - open to hard questioning??The research process also needs to establish many more things like - Is there a case forthe E-sense segment to contribute significantly to alter the current lumpiness in business cycle dynamics. How soon? E-Sense used to be 5 year contracts with the schools. 4 years are already over? What happens after a year - automatically renewed? While current program is for select classrooms, will renewal ensure coverage to all classrooms, 2x or 3x the number of classrooms? Stationery Exports segment needs to be again properly assessed. Domestic segment is anyways very competitive.

Gathering more data, thinking thru segment-wise, focusing on where the growth will come from with what margins, getting a feel for Management quality, our collaborative efforts will help focus attention to properly scoping the eluding “big picture” perhaps and also prepare us for asking all the right questions.


(Raj Panda) #46

Some more data points,

1). MH , from where navneet derives 60% of its publication revenues is taking a 3 year approach to syllabus change.Class 1-2 in 2013, class 3,5,7 in 2014, and 4,6,8 in 2015. From what I understand , if the bet is on sale of supplementary & aid books , that must be coming from higher class students, hence the sale is not going to contribute immediately. If the regular curriculum books are to contribute significantly, then we have a 3 year work horse in the making.

2). Again for MH, There has been a delay in publication of books , so we can expect a little spill over of sales from this quarter to next ? And should prepare ourselves for a little less spectacular quarter than expected?

3). I have doubt, is this the first year , that MH govt. is going to distribute books in the public school under RTE?

They have already given a 35 cr. order for this fiscal to navneet. Will this impact the margins in any ways ?

4). As per a research report of IFIN on navneet site. the e-learning order for 150bn is to be shared between navneet and sundaram,

and it has got approval already, but navneet is waiting for funds to be released from govt.

5). Few answer to the questions on e- sense model, from the same report.

Navneet provides the service of installation of HW and content.The contract is for 5 years,company charges

500 per student per year, average realisation is 25k per class peryear. At the end of 5 years ownership of hw

passes to school.

Question on my mind are, who funds the HW cost upfront? Given the experience of educomp,what makes navneet

confident of implementingthis model successfully.


(JatinK) #47

Donald Ji,

Since most of borrowing is for WC needs for Mar-June quarter, I would say that we shouldn’t be too worried about debt here.

Inventories build by Mar end which are cleared in next 3-6 months & we move to low debt- low inventory levels by Sept end.

This kinda Inventory increase- decrease looks similar to Kaveri Seeds.


(JatinK) #48

So, of out of two major segments- Publication & Stationery, clearly Publication is a high ROCE business (46% in FY12, FY13 AR not released) with a decent moat because of Brand & Switching Cost as well as high entry barriers.

But Stationery is a poor business (11% ROCE in FY12) without any entry barriers & zero switching cost.

Wish they demerge the two!!! :slight_smile:

A month old interview on MC-

http://www.moneycontrol.com/news/business/eye-15-growthrevenue-bumper-exports-navneet_895290.html


(JatinK) #49

Coming to growth front-

From FY12 AR-

“Syllabus change cycle has started in Maharashtra and Gujarat from FY12. As a result, your Company has posted strong numbers. As expected,revenue from publication business grew from 299 cr. in FY-11 to 354cr. in FY 12, a jump of 18% y-o-y. This segment shall see good doubledigit growth for the next few years.”

So, **we already have 2 years of good growth due to syllabus change. **How much time this syllabus change takes??

Also, when was the last time this syllabus changed??

What was the growth that time & for how many years? Some one plz help.


(Raj Panda) #50

Hi Jatin,

The last time syllabus change happened was in 2008 & 2009, Navneet showed a jump in sales of 24 & 25% and growth tapered to 3% in 2010 with a profit growth of 22 & 23% respectively. However my guess is, that may not be a effective guide to the way things will pan out this time, reason being the syllabus change in MH is happening in 3 phases this time spanning 3 years.

Reading news reports, i get a sense that MH syllabus change is happening starting this year whereas change for Gujarat’s 9th and 10th standard happened last year. So we can expect Gujarat driven sales to continue through this year.

expected,revenue 354cr. doubledigit ** we How**


(Raj Panda) #51

Few notes from the Conf call of Aug 2012

1). Growth drivers identified by Mgmt.

20% growth guidance for 2013, and will continue to grow at same rate for 2014 & 15.

)- Curriculum change in MH & Gujarat

)- Government orders because govt. feels students need supplementary products beyond classroom (expect this to be sustainable business)

)- Have already created the content for Andhra Pradesh state syllabus, it will take 2-3 years for completing the full range.

)- started marketing in the northern market and expects that to drive growth by the time MH & Gujarat market complete curriculum cycle change.

)- Already cover 1300 schools & should cover 1700 schools in 2013 for e-learning business.

)- Since the chnage in syllabus is more drastic (alignment to CBSE), both student and teacher will face difficulty and hence a wider demand for supplementary books is expected.

2). Few other data points.

)- Workbooks & Guides contribute 85% sales in curriculum segment & the rest of 15% is contributed by 21 question sets meant for 10th & 12th standards.

)- eSense business supposed to break-even in 2013.

)- Growth in stationary segment is coming from export market. End customer is big retail chain of the developed coutnries which has started giving large volume and year round orders.

)- Govt orders give same margin as others, payment is received within 3 and half months.

)- As a strategy navneet has decided not invest more in fixed asset for stationary business. They hope to grow it 15-20% YoY.

3). Few other points

)- Content creation is the toughest part in this business. Some times new player come and take away some sales. But after user tries their product in 1st year, they mostly come back to navneet in 2nd year.

)- Same thing in eSense, some competitions are just creating some animated stuff or even some ppt and offering them at lower prices, client has difficulty in understanding why eSense is priced higher. So, it needs customer education, but navneet is not going to reduce price to fight this kind of competition.

)- Normally company is able to pass on higher input cost or rise in cost due to inflationary pressure. 2012 there was a price hike of 7% to counter the inflationary cost.


(Ankit Gupta) #52

Hi,

Got an update from one of the four distributors of Navneet’s publication business in Anand. He told me that the sales are up by 30% in Q1FY14 as compared to the same quarter of the last year. This was primarily on account of change in syllabus in 6th, 7th and 8th standard. Other main reason for increase in sales is that more and more schools recommend Navneet’s supplementary books. I also spoke to one of the Navneet’s sales guy who sits in their Ahmedabad office. He told me that sales were pretty good this year all over Gujarat but he didn’t quantify the growth figures although I tried a lot.The sales of supplementary is more currently as exams sets’ sales pick up usually one or two months before exams. Navneet has some competition from local publishers like Bhavik but they don’t have muchacceptability. The syllabus changed for 9th and 10th standard last year. In this year the syllabus for 6th to 8th standard has changed while next year the syllabus for 1st to 5th standard will be changed in Gujarat Board.I also sat at the stationary shop for half an hour or so. One thing which impressed me was the sales of stationery products like colors, pencils etc (I hardly remember buying Navneet pencils, colors etc when I used to study 6 - 7 years back). Navneet has capitalised its brand name pretty well and has eaten into the market share of Camlin in this segment. On the notebook front, my brother in law told (BIL) me that this year at least in his shop he has sold more notebooks manufactured by Navneet than by Classmate (which was opposite last year). Vinod regarding their e-schooling business, I couldn’t get much useful information but my BIL told me that it is getting more acceptance. My BIL didn’t have much information regarding e-sense or digital classrooms but he said that their digital classroom business is gaining good ground. For e-sense distributorship business one requires a technical person’s support.

Regards,

Ankit


(Raj Panda) #53

Great inputs Ankit,

Looks like, the curriculum change can be summarized as below:


2012 2013 2014 2015
Gujarat 9th & 10th 6th-8th 1st-5th
Maharashtra 1-2 3,5,7 4,6,8

If you can help me these few questions,

1. I get a sense that state board still publish the curriculum books. Navneet's bread & butter is supplementary books and mostly for higher classes like say 8-10th for subjects like math & sceince. So, my question is, is Navneet's supplementary books relevant for classes 1-5 ? How is the usage pattern of supplementary books in Gujarat ? Will course change for standard 1-5 impact sales ?

2. I see there was good growth for Navneet during 2008-2009 period due to curriculum change. Do you know for which standard the curriculum had changed in 2008-09 ?

3. Looks like once the curriculum change happens, the impact on sales last for 2 years. Because the first years publication may have lot of errors and ppl buy the improved version next year too. I remember it was same during our time too.


(Vinod MS) #54

Hi Ankit,

Great inputs! Again goes to show there is this “informational edge” we can built in this collaborative platform.

I had the same question in mind which Raj has put forward. Is there much business in the 1-5th segment? Supplementary books are used for higher classes right?

Hitesh Bhai, did your son and you yourself use suppl. books in initial classes? :slight_smile:

But you still have classes 3,5,7 of Maharashtra in FY14 and going by the growth achieved in FY13 with syllabus change in classes 6, 7 ,8 of Gujarat I think FY14 will be good. FY14 will also have the 2nd year sales after syllabus change for the same Gujarat batch.

FY14 will have syllabus change for 4,6,8 of Maharashtra and 2nd year sales for 3,5,7 there.

Since Maharashtra is the bigger market, I guess it will be good in FY14 AND 15. We need to get the exact picture about this. Good direction set by Raj and others. Publication being the most critical segment its logical to focus there more.

Cheers

Vinod


(Ankit Gupta) #55

Hi Raj & Vinod,

Ya, Navneet publishes supplementary books only. See here the thing is the text books are not sufficient for the students. Schools & tuition centres recommend using work books, guides, question papers etc. Even when I was a student we used to have work books even in 3rd & 4th standards. I think Hitesh bhai can guide us about the current trends. I am not sure about 2008-09. Will ask some one or my BIL and get back.

Cheers

Ankit


(Vinod MS) #56

In my previous post pls read

“FY14 will have syllabus change for 4,6,8 of Maharashtra and 2nd year sales for 3,5,7 there”

as

FY15 will have syllabus change for 4,6,8 of Maharashtra and 2nd year sales for 3,5,7 there.


(Hitesh Patel) #57

vinod,

regarding ur query about using navneet books – I dont recall when I started using navneet books but all my student life I have been using navneet books and with greatest of pleasure and admiration. My son I think had started using navneet books since almost 3rd std and is currently in tenth std and still using navneet books…

Regarding the current trends ankit wanted to know about – now also navneet is the king by far in terms of supplementary books. Even for stationery quality of navneet is unmatched.

I think people outside gujarat and maharashtra dont fully understand the brand power of navneet.


(Manish Vachhani) #58

Normally, students from std 5 to 10 extensively use the workbooks, guides, Essay books, grammer books, question paper sets etc from Navneet. For std 3 & 4 lesser students(30-40% less) use it compared to std 5-10 while for std 1 & 2 it is sparingly used. Also for std 11 & 12, there are other publishers like modern - c jamnadas, yogi prakashan which are used extensively while navneet has less presence(especially in the science subjects).


(Donald Francis) #59

Thanks Raj, Jatin and others for taking the discussion forward. Good to see enthusiastic participation.

I would like to steer back attention to something I have been asking Vinod to establish -something that Raj has pointed out again - the E-Sense Capex model.

I am pretty sure that the Schools are unlikely to fund the Hardware. Its more likely a fee-model per student for the Content which doesn’t place any burden on the Schools upfront. Indiainfoline Report if I remember correctly, also projects quite a bit of Capex on this front for Navneet for FY14.

Let’s try and find more information to establish this.

The company’s quarterly results provides breakups of Segment Revenues, EBIT for the 3 main segments. Once we have a hang on Capex and other Costs,etc we should have a go at projecting for 2 years ahead.

That will tells us most things we want to know/establish. I still can’t find a great big picture in Navneet. E-Sense on the face of it, doesn’t look good enough to stabilise the lumpiness of the business, nor does the low-margin Stationery business.


(Hitesh Patel) #60

donald,

For me navneet is an opportunistic bet for next 6-9 months… After that I would like to take it as it comes rather than projecting 2 years prospects…

as a business it is nowhere in the class of our A grade businesses like astral, polymed, or page or such other businesses…

The main element to exploit here is the undervaluation post the expected excellent q1 fy 14 and fy 14 full year results.

hitesh.