Navneet Publications - a good com in education sector


(Donald Francis) #61

Hitesh - Agreed with you on this.

I have laboured on on this aspect - for our participating audience to ponder on, and appreciate the difference.

Still want to see some projections to establish the extent of undervaluation. Without a sense of where this is headed in the next 1-2 years I am not comfortable with 15x FY14E - which seems to be the main undervaluation theme.


(Hitesh Patel) #62

fy 13 eps was around 4.5 per share.

30% growth in eps would provide eps for fy 14 at 5.8 whereas 25% growth provides eps for fy 14 at 5.6 per share.

So if u get 15 PE which is less than historical PE then u get targets of 80 plus which provides more than 30% upsides from current levels. Since navneet has a high dividend payout ratio, it is likely to fetch higher PE.

If company delivers 25-30% growth in eps for fy 14 then it would be two consecutive years of great growth… markets usually are enthused by these kind of companies and projections for next 2 years with 25-30% growth thrown in will start appearing… Whether they materialise or not will be a different matter but PE rerating usually starts after such reports and how far it takes stock price is to be seen.

E sense if it fires would be icing on the cake as currently it doesnt amount to too much in terms of contribution to net profits. Same goes with the mah govt order. There could be positive black swans if and when they do occur.


(Vinod MS) #63

Hi,

Here is the quarterly segment Analysis. What you are seeing below just the sales growth figures. What is interesting is the Q-3 Sales growth of 73% in fy13 due to the semester system. There is also a 47% growth in stationery in the Q-4 FY13.
The 2009 growth in stationery and 2013 growth in stationery could lead one to believe that even that is cyclical!!! But its more to do with the export segment opening-up now.
The EBIT analysis will be the next post.
Sales
Publication 2008 2009 2010 2011 2012 2013
Q-1 7% 4% 6% 13% 18%
Q-2 -3% -8% 5% 38% 24%
Q-3 -11% 9% 20% 14% 73%
Q-4 9% 13% 7% 17% 47%
TOTAL 2% 3% 8% 18% 29%
Stationery 2008 2009 2010 2011 2012 2013
Q-1 60% 14% 8% -4% 26%
Q-2 55% 16% 11% -25% 30%
Q-3 52% -9% -3% 3% 25%
Q-4 100% -4% -11% 25% 43%
TOTAL 69% 5% 1% 1% 32%
Others 2008 2009 2010 2011 2012 2013
Q-1 326% 44% -10% 9% 30%
Q-2 185% -15% 15% 2% 104%
Q-3 25% 28% -10% 42% 63%
Q-4 115% -43% -7% 58% -76%
TOTAL 134% -4% -5% 24% 20%

(Vinod MS) #64

Here is the EBIT growth figures followed by the EBIT margin's growth.

Publishing 2009 2010 2011 2012 2013
10% 5% 12% 15% 19%
-8% -13% 15% 53% 13%
-17% 25% 18% 10% 117%
12% 35% 3% -5% 56%
4% 5% 12% 19% 29%
Stationery 2009 2010 2011 2012 2013
141% 45% 19% 5% 10%
25% -235% 152% -152% -189%
1791% -54% 29% -348% -117%
605% -9% -21% 29% 77%
338% 23% 11% -20% 69%
Others 2009 2010 2011 2012 2013
-767% -192% -136% -235% 104%
2917% -67% -71% 753% -101%
300% -179% -129% -696% -103%
452% -131% -150% -105% 1900%
913% -125% -168% -139% 122%

(Vinod MS) #65

EBIT Margin's growth

Publication 2009 2010 2011 2012 2013
Q-1 2% 1% 5% 2% 1%
Q-2 -5% -5% 9% 11% -9%
Q-3 -6% 14% -1% -4% 26%
Q-4 3% 20% -4% -19% 6%
Total 1% 2% 4% 0% 0%
Stationery 2009 2010 2011 2012 2013
Q-1 50% 28% 10% 9% -13%
Q-2 -19% -216% 127% -169% -168%
Q-3 1143% -50% 33% -341% -113%
Q-4 253% -5% -11% 3% 24%
Total 159% 17% 10% -21% 28%
Others 2009 2010 2011 2012 2013
Q-1 -257% -164% -140% -224% 56%
Q-2 957% -62% -75% 738% -100%
Q-3 219% -162% -133% -520% -102%
Q-4 157% -155% -154% -103% 8365%
Total 332% -126% -171% -131% 85%


(Vinod MS) #66

Stationery has a 28% growth in EBIT margins in 2013 on top of the 33% growth in sales. This is encouraging.

Publishing contributes 80% of the EBIT. If we were to focus only there for a moment what Hitesh points becomes clear. There was no price increase in FY13 inspite of 37% growth in EPS. This year in all probability the growth will be repeated.

FY 14 Proj Publication Stationery Others Total FY14
Q-1 270 164 3.3 437
Q-2 119 49 2.868 170
Q-3 100 50 2.52 152
Q-4 60 145 0.516 206
TOTAL 548 408 9.204 965
EBIT Margin 33% 14% 9%
EBIT 181 57 1 239
PAT (57% EBIT) 136
EPS 5.72

What I'll be interested to know is the sub-drivers of publishing growth using the syllabus change schedule posted by Raj - a table with standrad wise, year-wise and state wise split will give the exact picture.
Vinod

(Vinod MS) #67

Hi Raj,

What is you source for the syllabus change schedule? I am getting different information from concalls and some research reports. Getting to understand the syllabus change and its impact on FY14 and FY15 is challenging, but will give a clear vision of sales growth. Margins of publishing will remain unchanged as before as they just pass on the cost increase without any hiccups.

**Generally Maharashtra contributes 65% and Gujarat 35% of the publishing business. **If we can get the exact syllabus change schedule for the 2 states it will be great. Any contacts with the boards/schools?

If there is delay in arrival of the state board text books, the sales will get spilled over to Q-2. Thats why in FY12 there was 13% growth in Q-1 and 38% growth in Q-2. It can happen this year too. In that case Q-1 may not be very big in terms of growth figures. Last year too Q-1 grew by 18% and Q-2 24% for the publishing business.

As per Aug concall upto class IV contributes 25% of publishing sales. 9th and 10th 15%.

Its not just the schedule of which stds in which year and which state, the syllabus change analysis will have further complications with which subjects have changes!

Com had plans to target Karnataka for FY13, don’t know what happened as there was no concall after Aug 2012. Any inputs from Karnataka?

Cheers

Vinod


(Raj Panda) #68

Hi Vinod,

My source for MH curriculum change was based on this new report of DNA

http://www.dnaindia.com/mumbai/1733170/report-new-syllabi-may-delay-classes-1-2-textbooks-next-year

and for Gujarat, Ankit has provided the information above. I agree establishing this is crucial to get a hang of the way things might pan out.

Let me try to find more details of it from my Maharashtra friends.

Regards

Raj


(JatinK) #69

Annual report out. Key take aways-

  • Outlook for the comingyears looks very promising as the syllabus change scenario in the statesof Maharashtra and Gujarat is expected to continue for a couple of years.
  • Publicationwould continueto see good growth for the next few years. Operating margin is maintainedat 33% and is expected to continue in the current year as well.
  • Stationery- company expects double digit growth in this segment in FY14.
  • However,Appreciation of rupee may adversely affect your Companyâsfurther orders.
  • e-sense now caters to 1,645 institutions in Maharashtra and Gujarat, 78% jump YoY

Overall, tone looks positive & FY14 is expected to be good.


(Sudheendra) #70

Hi Jatin

But the Chairman’s message states that they will reach 1000 Cr revenue by FY15 whereas the revenue for FY13 is already 791 Cr. So the expected growth is less than what we anticipated? Also in M&A section they state that stationary business expected to grow in double digits which sounds like lower double digits . Isn’t it? Or did I miss anything.

comingyears statesof

  • Publicationwould continueto maintainedat
  • However,Appreciation Companyâsfurther orders.

(JatinK) #71

1000 crs seems more like a Vision which was stated 3-4 yrs back…

AR says “Company is confident and looks forward to achieve 1,000 cr.milestone by FY15, as communicated in our Annual Reports of 2009-10****and 2010-11.”

So, I wouldn’t read too much into it.

Stationary is a tough business with no competitive advantage. Even Mgt doesn’t seem too confident on it.

Good growth has to come from Publishing only, if it comes.


(Raj Panda) #72

Read the AR, but it left me with more questions than answers :slight_smile: Hope someone can help.

1). Company invested 60 cr. in a new logistics center in Mumbai. Would have liked to hear more on it, what function does it serve ? how will it help the company better the product/service ? Assumptions can be made, but when the company is investing ~50% of this years profit, more clear info. from mgmt. would have helped.

2). I think, the standalone result doesn’t include the e-Sense pvt ltd. & K12 results ? Standalone revenue is 790 cr. & PAT 111 cr. whereas consolidated revenue is 805 cr. & PAT 108.62 cr.

So, does that mean, eSense & K12 combined are contributing only 15 cr. to revenue at 3 cr. loss ?

3). Investment in K12 now goes upto 41 cr. for 24% equity. However, not much information on the revenue,profit and prospect of that business. Is this normal ?

4). eSense, again, not much information on the business model, capex plans etc…Is just the number of schools signing up the only information i need to know as an investor ?

5). Future growth drivers : Company mentions only the syllabus change in this section, no info what about the prospects of eSense & K12 business is disappointing.

6). Whats the capital invested in eSense business ? Can any one point me to that data, i couldn’t seem to find it. Is it about 20cr as mentioned in page 36 ? Any help Donald, Ayush, other seniors ?

7). As of June, 12 the company claimed to have signed up 1300 institute with 7500 classrooms and average realization was mentioned to be 25k per class per year. So, simple back of the envelope calculation for the next 9 months of FY13 put the revenue expectation at 15 cr., is this correct ? Does this figure match up with the revenue diff we got from consolidated results ?

8). Cost of material consumed for stand-alone & consolidated results are same 434 cr. only employee expense show a uptick of around 6 cr. for consolidated results. However , tangible asset show a diff of 12 cr. & depreciation show a diff of 3.5cr.

Question am trying to raise is again same, how is HW cost for eSense business being accounted for ? Is the company accounting for it as a fixed asset ?

Just another back of the envelope calculation is, company added 1645-925=720 schools this year. With a 12 cr. expense , per school expense comes to 16.5k and per class expense comes close to 30k+, which is what i would assume costs to set up a computer and a projector ? (Assuming 5 classes per school, as management had indicated in the past)

Does this make sense ?

Would love hear your views .


(Vinod MS) #73

Hi,

Went through the annual report. It looks promising. Agree with Jatin that 1000 Cr was more of a landmark statement. In all probability they will achieve it this year and state “the com is happy to inform that…in FY14 itself” in the next AR :slight_smile:

Export growth more than doubled. With weak INR this could turn out to be more profitable than before.

As mentioned earlier do not expect too much from E-sense. There is not much capex required for digital content creation, it is more of converting their existing content into digital, exploiting their existing relation with schools and create captive accounts which will give an annuity like revenue flow in future (Rs 50/student per month). There are 2 models - one where school does not need infra and second one in which they buy the hardware too. I do not see any capex requirement as they are not into manufacturing projectors or screens. E-sense is just turning profitable…so its will only add to future prospects column and create some hype as far the market goes.

The meat of the EPS growth will be from the 80% contributor to EBITDA - publishing business. What was encouraging was this statement about publishing business - “We shall continue to see good growth for the next few years as your Company does not depend only on syllabus change cycles, but has ventured into newproduct categories, new markets and also caters to new customers.” I think they are seeing good traction in AP and Karnataka. Concall will give more details.

K-12 is not a subsidiary hence there is no question of consolidation of financials. Navneet is a minority share holder there. They will only have what-ever dividend K-12 paid to them to show as other income. K-12 is more a strategic move to enter the publishing business in AP. They have 93 schools to pitch their tents and sell their books. It was always stated that 41 Cr is the total investment required for 24% stake in K-12. 38 Cr is what is already paid.

Yes, more clarity required regarding the logistics center. It answers the question on where the capex is going.

We also need to see if the gov order is getting executed…because that will be a great kicker with EPS increasing from projected Rs 5.6 to Rs 8+.

There was leadership transition with some 6 promoter Directors retiring and the Chairman passing on the baton. So we have a new chairman who has been a Director since 1992. Hopefully the younger leaders will continue the good work.

The concall will be interesting…

Cheers

Vinod


(Vinod MS) #74

Hi,

Went through the annual report. It looks promising. Agree with Jatin that 1000 Cr was more of a landmark statement. In all probability they will achieve it this year and state “the com is happy to inform that…in FY14 itself” in the next AR :slight_smile:

Export growth more than doubled. With weak INR this could turn out to be more profitable than before.

As mentioned earlier do not expect too much from E-sense. There is not much capex required for digital content creation, it is more of converting their existing content into digital, exploiting their existing relation with schools and create captive accounts which will give an annuity like revenue flow in future (Rs 50/student per month). There are 2 models - one where school does not need infra and second one in which they buy the hardware too. I do not see any capex requirement as they are not into manufacturing projectors or screens. E-sense is just turning profitable…so its will only add to future prospects column and create some hype as far the market goes.

The meat of the EPS growth will be from the 80% contributor to EBITDA - publishing business. What was encouraging was this statement about publishing business - “We shall continue to see good growth for the next few years as your Company does not depend only on syllabus change cycles, but has ventured into newproduct categories, new markets and also caters to new customers.” I think they are seeing good traction in AP and Karnataka. Concall will give more details.

K-12 is not a subsidiary hence there is no question of consolidation of financials. Navneet is a minority share holder there. They will only have what-ever dividend K-12 paid to them to show as other income. K-12 is more a strategic move to enter the publishing business in AP. They have 93 schools to pitch their tents and sell their books. It was always stated that 41 Cr is the total investment required for K-12. 38 Cr is what is already paid.

Yes, more clarity required regarding the logistics center. It answers the question on where the capex is going.

We also need to see if the gov order is getting executed…because that will be a great kicker with EPS increasing from projected Rs 5.6 to Rs 8+.

There was leadership transition with some 6 promoter Directors retiring and the Chairman passing on the baton. So we have a new chairman who has been a Director since 1992. Hopefully the younger leaders will continue the good work.

The concall will be interesting…

Cheers

Vinod


(Raj Panda) #75

Hi Vinod,

Could you please guide me on, how you found the profitability of Esense ?

Regards


(Vinod MS) #76

Hi Raj,

The June concall had mentioned about the e-sense business model of Rs 50/student/month.

I had also mentioned in one of the concalls that some schools do not buy the hardware from them. That lead me to the low capex requirement for e-sense conclusion. But do let us know if you have read this differently…I might have got it wrong.

Cheers

Vinod


(Raj Panda) #77

Hi Vinod,

I agree on the revenue model, but am not so sure about the hard nos. on the profit for this unit. After your clarification about k12 as an equity investment, it leaves only Esense as subsidiary? I have tried to deduct the revenue & profit nos for Esense from the diff. In standalone & consolidated nos. please see my comments above.

Is there any flaw in my conclusion ?

From what I understand from con call, this business requires lot of marketing manpower , in terms of visiting schools, convincing them etc…

Seniors like ayush, neeraj, donald please help on the point about deducting the nos. for Esense.

But overall, this is a very small contribution to company financials, so can be ignored for time being ?

Regards


(Vinod MS) #78

Hi Raj,

Exactly what I think…it can be ignored for the time being as there is not going to be much contribution from it in the near future…but prospects are good. Imagine Rs 50/student/month from just 200 students from 12000 schools (they have relationship with 24000 schools, already cracked 1600 schools). And anyway most of the capex has gone into the logistics center, so e-sense is not eating much capital.

Check Page 95 of AR for Revenues and Profits of subsidiaries…your calculation is spot on. 15 Cr sales and 3 Cr loss for E-sense.

Cheers

Vinod


(Raj Panda) #79

Thanks Vinod, that helps.


(Hashims) #80

Hi,

In my glance to this website, I could see CBSE ebooks also listed. Does this kind of business have any relevancy or competition with the kind of business Navneet is into?

S Banerjee & V Hariharan’s Attano: Making profit from educational e-books

http://economictimes.indiatimes.com/s-banerjee-v-hariharans-attano-making-profit-from-educational-e-books/articleshow/21036519.cms

From the picture thatSoumya Banerjee, CEO of Attano, a Mumbai-basededucational e-bookscompany, paints, it seems that the humble chalk and board might not have much time left. “Attano’s products is being used by students in over 80 towns in India. We see a lot of traffic coming in from tier 2 towns, where people are using personal computers to consume our e-Books,” says Banerjee. With rapid advancement in engineering, while ensuring that technology is getting into the hands of all, the education market is poised for a paradigm change in the means of imparting scholastic instruction. With technological applications invading the classroom, it is becoming imperative for schools to rethink the tools to be used.

Banerjee feels eventually, when tablets enter the classrooms of regions beyond metros, the market for e-Books will expand exponentially. He shares some figures to back his argument. “Education in India is a $16b market. Three times the size of the media andentertainment, which includes Cricket and Bollywood. We believe that by 2016, educational eBooks in India will be a billion dollar opportunity andAttanois creating a new market for educational e=books,” he says

Attano is India’s first interactive educational eBookstoreand was founded in 2009 byViswamitra Hariharan(chairman) and Soumya Banerjee. It is a private company funded by Helion Ventures. The company’s three founding aims were to make the best content available to students, parents and teachers across physical boundaries; using technology on personal devices to provide a personalized learning experience to a student and finally to allow students to learn at their own speed and convenience, anytime anywhere.

They have tie ups with over 26 publishers including Pearson, Tata McGraw Hill, Allied Publishers, Nirali Prakashan and attano.com has over 1800 interactive educational eBooks from K.G to P.G level. The product range covers text books, reference books, assessments and tests and competitive test preparation. All of these e-Books are available on attano app, available for free onandroid, windows and for ipad.

India, according to Banerjee, needs the technology aids to make a higher number of the demographic education-inclusive. “Technology in class rooms already exists,” he argues, “Students now want similar immersive educational experiences in their hand and at their home.”

The factors that has made e-Books’ future bright in India is because of an increase in adoption of personal devices and fall in hardware/tablet pricing. “Every month sees a drop in tablet pricing and an increase in their capability. There is also a marked increase in awareness of tablets amongst the educated population,” points Saumya.

Another factor he credits for the trend is the increase in exposure of students to digital content, introduction of digital content in schools and an increase in consumption ofdigital mediaon the internet. Attano is utilizing online advertising to cut across local boundaries and to enable students all across the country to get access to their products.

He concludes, “The cost and capability of devices, cost and nationwide availability of quality internet access have carved a space for e-Books in the education market.”

Banerjee brushed aside the question on competition, saying that, “Educational e-Books need special handling and technology to convert and our platform allows us to do so in an intelligent and accelerated manner. Something no direct competitors in our business space have.”

E-books firm Attano opens a new ‘chapter’ for students

http://articles.economictimes.indiatimes.com/2013-06-02/news/39691021_1_publishers-android-tablets-chapters

E-booksmarketplace Attano has partnered with publishers likePearsonto sell chapters instead of complete books to students, helping college goerssave money.

Under ‘Chapterbuy’ facility, Attano will make available over 10,000 chapters, priced Rs 3.5 onwards, for engineering, management and commerce students.

“We want to democratise content forhigher educationby making it available and affordable. Students cannowjust buy the chapters instead of buying the whole book, which can be quite expensive. The pricing will ensure that students do not turn to photocopying,” AttanoChief ExecutiveSoumya Banerjee told PTI.