Navneet Publications - Q4FY12 Result update - Centrum

Stationary business spurs growth

Navneet Publications (NPL) reported strong results that was better than our estimates. Revenue was up 27.5% YoY to Rs1.2bn during Q4 driven by strong growth in the stationery business. This business, which went through a slowdown in the first half saw revival in order flows from international as well as domestic markets. Going forward, both the publication business and stationery segment are likely to deliver strong growth. We have marginally revised our estimates for both these businesses considering order flow expectations in the next 2 years. We retain Buy rating on attractive valuations, high growth visibility and dividend yield.

- Results better than expectation during Q4: NPL reported 27.5% growth in topline to Rs1.2bn, much better than our expectation due to higher growth in its stationery business. Operating margin also improved compared to Q3 on better margin in the stationery business. However, the operating margin at 12.2% was lower on YoY basis as the publication business witnessed lower margin due to higher raw material expenses.

- Stationery business picks up in Q4: After a couple of quarters of underperformance, the stationery segment picked up in Q4. Revenue grew 32.8% YoY to Rs825mn backed by better order flows from India and abroad. The PBIT margin remained flat at 13.7% YoY. We expect the performance of the stationery segment to improve in FY13E as the company expects strong order flow from international markets.

- Publication segment registers 15% growth: The publication business registered 15% YoY growth to Rs338mn on the back of ongoing syllabus change in Maharashtra and Gujarat states. Operating margin, however, declined by 400bp to 18.9% YoY on higher raw material expenses. We believe that this was more due to higher inventory expenses as growth momentum is going to be strong in FY13E. Historically, Q4 is a weak quarter for the publication business from margin perspective as the company procures raw material in this quarter.

- Attractive valuations; Reiterate Buy: We continue to like the stock due to attractive valuations, better sales mix in favor of the publication segment and improvement in return ratios. We have marginally tweaked our revenue estimates for FY13E and FY14E to factor in better revenue growth in publication and stationery segments. Higher sales growth in the publication business would come from syllabus change in Maharashtra and Gujarat and order flows from governments. The stationery segment will see revival in order flows going forward which will drive revenue. We re-iterate Buy rating on the stock as it gives an upside of 39% with a dividend yield of 2.6% (on Rs1.4 dividend per share).

Source : Equity Bulls

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