Navneet Publications
Navneet Publications business consists of two major segments: Publishing supplementary books and stationery products . NAVNEET is a dominant player in the field of publishing, with more than 5000 titles in English, Hindi, Marathi, Gujarati and foreign languages. NPL produces various titles in the Children and General books category, which are not based on syllabus, such as activity books for children, board books, story books, health related books, cookery books, mehendi & embroidery books, etc.
Navneet is also engaged in the exports since 1993 & has a state-of-art manufacturing facilities in Vasai (near Mumbai) Daman and Silvassa (Union Territories bordering Maharashtra and Gujarat). Navneet also launched its paper stationery products for the domestic market. Products range includes tight bind note books, long books; hard case bound books and drawing books.
The company, now enjoys leading position in stationery markets in India, the Middle East, parts of Africa, U.S.A. and Europe. With now more than 500 Stock keeping units (SKU's) company is one of the largest paper stationery brands in India. In 2006, taking the success of the Paper Stationery products further, Navneet launched its first range of non-paper stationery – FfUuNn Pencils.
Education has been gaining importance as India is growing by leaps & bounds .Each year the allocations in the Union Budget for the education sector are increasing.
E-learning -the new buzz and new requirement in schools…..
As the e-learning platform is relatively new we expect that the company will start generating good revenues through its E-learning segment in FY 11 & FY12 and will enjoy operating margins of ~35-40%. There are around 1,38,000 schools across Gujarat and Maharashtra,of which nearly 32,000 are private schools and the target segment of Navneet. The potential market on e-learning or classroom teaching for the private schools is Rs 650 Cr and provides handsome opportunities to the company. Navneet enjoys a strong relationship with the schools across the two key states of Maharashtra & Gujarat & company has expanded the product portfolio in its content business by creating a digitized version of the textbook based on the state level curriculum with some basic and easy-to-use features.
From FY11 onwards the company will offer modules across the upper primary and secondary classes for the state of Gujarat and Maharashtra in English and regional languages. Navneet has already tied up with 450 schools till Aug, 2010 and is expected to 500 schools for FY11. It is expected that Navneet will break even in FY11 in this business.
Navneet’s Strategy
Indian School Segment
The school segment (KG to 12th standard) is the largest segment ($20bn) within the Indian Education System, which is estimated to grow to $30bn by 2012 world’s largest school-aged population .
Supplementary Books
In India ~ 95 % of the schools follow state level curriculum irrespective of the medium of education.The examination pattern is more theory driven rather than practical. Thus students have to refer large no of text books. Further since more bookish knowledge is appreciated the current education provokes more demand of supplementary books like guides, reference books etc.
Risks ….
Paper is an important raw material & accounts ~ 90% of the total raw material cost consumed by the company. Being one of the few and leading players in the publishing segment company has been able to pass on the increase in paper cost to the customers.
Grafalco the wholly owned Spanish subsidiary of the company performance remains sluggish on account of the global recession. However this would be mitigated to a certain extent as the company has adopted different strategies to cater the demand of OEMS in the packaging segment to tap the existing and potential client relationship around Europe.
Second-hand book market is the biggest competitor in the educational books segment. However, a change in the syllabus reduces the damage done by the second-hand market. Navneet is also coming out with updated versions year after year to counter the same.
Import of cheap stationery from the Chinese market can have an impact on the company.
The supply of paper which is used as raw-material is tight due to environment concerns, but to mitigate this risk, Navneet has deployed policy of having diverse suppliers rather than concentrating on few suppliers.
Investment Rationale……
Syllabus Changes in Key States: NPL has over 80% market share in Gujarat and Maharashtra for curriculum based books. As per government rules, the syllabus in each state should be changed every 5 Years. Hence the revenues are expected to grow since syllabus changes in the state of Maharashtra are commencing from FY11 and the state of Gujarat from FY12.
Strong Presence in Supplementary Books: Navneet has been the leader in the supplementary education book space The supplementary books are more exam-focused questions and provide precise answers and highlights key points in particular chapter this has led to a market share of 60 – 65% in the supplementary education books segment.
Foray into E-learning: We believe that the future growth trigger would be from the “esense” its digital arm since the average instructional days in schools across India are just 206 in a year, student-teacher ratio is skewed, school infrastructure is below standards and this tool can be an aid to the teachers as well as students and lead to holistic view on learning. Navneet has already tied up with 450 schools till Aug, 2010 and is expected to ~500 schools for FY11.
Common Curriculum: An another important growth driver is the common curriculum The Ministry of Human Resources and Development has been considering the proposal to hold a single entrance exam for competitive studies and this would be the key step to provide a common platform to the students and thereby increasing sales of its publishing segment.
Stationery Segment Restructuring: Navneet has undertaken a restructuring exercise in order to improve the scalability and profitability in the business thereby reducing off take by distributors The Company will now focus on five to six states rather than pan India which will improve efficiency in the stationery segment in the years to come. Thus company will reap the benefits ~ 15 % growth is expected in the stationery segment in the next few years.
Play on Education Segment: Navneet is one of the few listed players in stationery and education segment listed on the exchanges and with Indian Governments increased focus on Primary education (ie. Kindergarten – STD XII) it can tap ample business opportunities coming by its way.
Strong Distribution Network: NPL has the opportunity to leverage on its strong network of over 80,000 retail outlets by adding newer products ~1000 distributors and a mammoth sales / marketing team, has touched the lives of million students across India .
Outlook &Valuation
Navneet Publications is celebrating its Golden Jubilee Year and shareholders may be rewarded more than the normal divident, in FY 2011. Navneet Publications Revenue from e-learning to extrapolate FY 12 Onwards……
“Esense” the e-learning segment is expected to generate multifold growth and overtake the major contributor publishing & stationery products division. The potential market on e-learning or classroom teaching for the private schools is Rs 650 Cr and provides a galore of opportunities to the company. The e-learning business which is expected to contribute ~ Rs 10 Cr in FY11 may well cross Rs 250-300 Cr in years beyond FY12. This change in revenue model warrants a strong case of re-rating of the stock. At current market price of Rs. 61 the stock trades at a PE of 12.22 x times of FY 12 estimated earnings of Rs 4.99 We recommend a “Buy” at a CMP with a target of Rs. 90 in next 15 =18 months. Chart of Navneet is given below:
Disclaimer
The information, analysis and estimates contained herein are based sources believed to be reliable. We accept no liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for the completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This information is for circulation only
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