Navneet Education’s is primarily engaged in the business of publishing educational
material, in both print and digital formats. The company also manufactures paper and
non-paper stationary products.
Investment Arguments
Business expansion to mitigate cyclical risk: NEL’s Publication business is seasonal in
nature and any strong growth is dependent on major changes in the syllabus of
Maharashtra (market share of 60%) and Gujarat boards (market share of 65%). Now,
the company is attempting to increase its revenues through business expansion in
different segments. It is taking initiatives like
(a) Content publication for CBSE syllabus: Apart from Maharashtra and Gujarat, NEL
is targeting to grow its presence in other states through its CBSE content business. It is
anticipated that the growth may continue to be strong in the segment on account of a
syllabus change and also with more schools in different states adopting CBSE curriculum.
(b) Selling supplementary books to government: NEL takes orders to sell
supplementary books to Maharashtra government, which get distributed to students in
government schools. In FY2013, NEL generated ~Rs27cr through this business. But in
FY2014, there were no government orders after many controversies arose related to
the issue of tenders. The tenders issue then got resolved and in FY2015 the company
generated a revenue of around Rs25cr. Going forward, we expect the company to
achieve strong revenue from this segment.
Higher exports to drive stationary growth business: In the Stationary segment, we
expect the company to report healthy growth in coming financial years on back of
higher growth in exports. The company mainly exports to USA and Africa. Also, the
company is looking to tap newer geographies like the Middle East. In FY2015, exports
in the segment reported a yoy growth of ~33% to ~Rs170cr. In FY2016, the company
expects around Rs200cr from export sales. On the margin front, the company is
expecting a margin improvement by 30-40bp, benefitting from economies of scale.
Outlook and Valuation: Given the company’s proven track record, its strong brand,
consistent performance of Government projects and E-Learning (Digital) segments,
and with it tapping new segments like CBSE across India, we expect it to report a
healthy top-line and bottom-line CAGR of 4.1% and 5.5%, respectively, over FY2015-
17E. Moreover, NEL has repaid the Rs90cr loan which will lead to significant saving in
interest cost in the coming financial years. At the current market price, the stock trades
at a P/E of 14.4x its FY2017E EPS. We initiate coverage on the stock with an
Accumulate recommendation and target price of Rs97 (16x FY2017E EPS), indicating
an upside of ~11% in the stock price from the present levels.

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