Multi Baggers

Navneet Publications

Company Background

Navneet Publications (India) Limited (NPIL) is in the business of curriculum and non-curriculum based publications, scholastic paper and non-paper stationery products. It has presence in Maharashtra and Gujarat with ~65% market share. In line with its strategy to expand its presence, it has forayed into new geographies of Andhra Pradesh and Delhi with an objective to target the students from CBSE and ICSE Boards as well.

Publication business to witness robust growth on the back of multiple drivers

On an average, NPIL has witnessed ~19-20% revenue growth during the syllabus change phase. With proposed change in school syllabus by state boards of Maharashtra and Gujarat, we expect the revenues from curriculum-based segment to continue to report robust growth during FY12-14E. Further, proposed common curriculum, which is to be implemented pan India, should provide further impetus to the publication business revenues even beyond FY14. NPIL also plans to extend its reach Pan India. Over the next 3-4 years, we expect a complete rollout of its offerings in AP. We expect this stream to grow at a CAGR of 19.6% over FY12-15E to Rs 606.2 crore on the back of multiple drivers.

Digital learning business to attain breakeven in FY13

The key differentiator of NPIL's eSense products is its one-to-one mapping with state board textbooks as against competitors? focus on advanced learning beyond school textbooks. We expect revenues from this stream to grow multifold to ~Rs 46 crore by FY15E on the back of increased penetration. Moreover, with the likely breakeven in the current year coupled with its low and fixed cost model, majority of the incremental revenues will flow to EBITDA.

Further, NPIL has received digital learning order of Rs 750 crore from Directorate of Primary Education, Maharashtra in Dec 2012. The orders are likely to be allocated in phases over the period of three years. Since its allocation is yet to be announced by the government, we have cautiously not factored them in our model as the awarding of the order will solely depend on the availability of funds with the department.

After the recent lull, Stationery business is all set for steady growth

NPIL's stationery business witnessed muted growth from Rs 230 crore in FY09 to Rs 249 crore in FY12 (~2.8% CAGR) due to severe domestic competition and de-growth in exports. However, owing to the demonstrated revival in the export business, we expect revenues from stationery business to grow at a healthy CAGR of 12.9% to Rs 359 crore by FY15E. The company will not be undertaking any fresh capex as it has adequate capacities. In case of capacity constraints, company has the option of outsourcing.

Valuation

We initiate coverage on Navneet Publications (India) Ltd (NPIL) as a BUY with a Price Objective of Rs 79 representing a potential upside of ~34.4% over a period of 24 months. At a CMP of Rs 57.25, the stock is trading at 12.2x and 10.0x its one year forward earnings for FY14 and FY15 respectively. Historically, the company has traded at an average of 13.5x its one year forward earnings and we have assigned a similar multiple for the valuation purpose.

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