Navneet Publications - Buy@Rs.58, Target Rs.75 - LKP BYTES

The story so far ...

Amidst intense competition in the books publications segment where product offering range from educational books, supplementary books, guides, workbooks, children's books to other general 's books, Navneet been remained the undisputed market leader for the last 5 decades with ~65% market share in western India (Maharashtra 60%, Gujarat 40%). It also sells stationery products besides foraying into e-learning (through subsidiary e-sense). Its products are marketed under the 'Navneet', 'Vikas', Gala' and 'Boss' brands.

Navneet derives 60% of its Rs6bn revenues from sale of publications while the rest comes from stationery product range (notebooks, long books, drawing books, compass boxes, crayons etc). Competition is mainly from Chetna, Reliable & Jeevandeep (all unlisted) in the publication space and ITC & Camlin in stationery segment. The e-learning model is now beginning to make inroads across educational institutions with installation 1600 institutions and over 9700 classrooms.

The story ahead ...

The HRD ministry recently proposed common curriculum based on CBSE pattern for key subjects of maths, science and social science, thus necessitating syllabus change in the state boards. Syllabus change, being the primary growth driver in the high margin publication segment, is expected to propel revenue growth for Navneet even beyond FY14. Further, common content would also enable the company to expand pan India and the company's expansion into new markets of Andhra Pradesh and Delhi (due to significantly higher number of English medium schools) is likely to keep up the growth momentum.

Navneet is also banking on adoption of supplementary books by state owned/public schools, which could be a major growth trigger going forward. (Navneet received Rs.350mn order in FY13 from Maharashtra Government and is expecting Gujarat Government to replicate this model in the near term).

In our view, E-sense, which provides educational services in digital form, offers potential as the market for these services is untapped. We expect E-sense revenues to grow 50% next fiscal to Rs300mn and further to Rs500mn during FY'14-15. Navneet has a huge network and direct relation with ~24,000 schools which will help in selling its e-sense product offering. Its digital learning module is currently installed in 9,700 classrooms. The Directorate of Primary Education, Maharashtra has also floated an order of Rs 15bn for e-learning services, to be shared equally by Navneet and Sundaram.

We recommend a BUY on Navneet trading at 13xFY'13E and 11xFY'14E earnings with a one-year price target of Rs75.

Source : Equity Bulls

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