navneet publications (india) ltd - npl “buy” 02 sep, … coverage report on...navneet...

201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 1

Stock details

Shareholding pattern as on 30th June 2010

RESEARCH ANALYSTS

ANSHUMAN JAIN DIVYA KANT

[email protected] [email protected]

BSE Code 508989

NSE Symbol NAVNETPUBL

Bloomberg Code NPI IN

CMP (Rs) 58.15

Market Capitalization (Rs. in Cr) 1385

Face Value (Rs.) 2.00

EPS (TTM) Rs 3.12

Book Value (Rs.) 12.62

52 Wk High (BSE) Rs 61.75 (24 Aug,2010)

52 Wk Low (BSE) Rs 36.00 (28 Oct,2009)

Target Price (Rs) 83

Time Horizon 18-24 Months

Navneet Publications (India) Ltd - NPL “BUY” 02nd Sep, 2010


Company Profile….

Navneet Publications business consists of two major segments: Publishing supplementary books(educational, children & general books - like children’s activity books, health books, cookeries,mehendi, feng-shui, etc) - and stationery products including paper and non-paper based stationeryproducts.

Navneet has been a major force in the propagation & distribution of knowledge. NAVNEET is a dominantplayer in the field of publishing, with more than 5000 titles in English, Hindi, Marathi, Gujarati andforeign languages.

NPL in order to strengthen and consolidate the business of book publishing, NAVNEET installedultramodern printing press at Dantali, District Gandhinagar, Gujarat .

In 1991 sophisticated printing and binding machineries were imported by NPL to complete themodernization-cum-expansion plans of the company.

Over the decades, Navneet has emerged as a leading Educational Products and Services company inIndia.

The company's products are sold under the 'Navneet', 'Vikas', 'Gala', ‘FfUuNn', ‘Boss' and ‘Navneet Nxt'brand names. It's portfolio of syllabus based Books includes high quality supplementary books likeDigests (Guides), Workbooks and 21 Question Sets, most of which are published in four languages -English, Hindi, Marathi and Gujarati.

The company has a dominant market share in Gujarat and Maharashtra. The company has also forayedinto range of supplementary books targeting the students from CBSE and ICSE boards, company’seducational products are now made available across India.

NPL produces various titles in the Children and General books category, which are not based onsyllabus, such as activity books for children, board books, story books, health related books, cookerybooks, 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). Navneetalso launched its paper stationery products for the domestic market. Products range includes tight bindnote books, long books; hard case bound books and drawing books.

The company enjoys leading position in premiere stationery markets in India, the Middle East, parts ofAfrica, U.S.A. and Europe. With now more than 500 Stock keeping units (SKU's) company is one of thelargest paper stationery brands in India.

In 2006, taking the success of the Paper Stationery products further, Navneet launched its first range ofnon-paper stationery – FfUuNn Pencils. The company has aggressive plans in this segment.


NPL – An Overview….

Source: Company

Books: Navneet till date has published till date more than 5000 titles in several Indian andInternational languages. Its curriculum books cater to the KG to STD XII students ofMaharashtra, Gujarat, CBSE and ICSE Boards. Children books range from coloring books,activity books, storybooks, interactive books, etc. Navneet also produces general interest bookson subjects like Mehendi, Health and Hygiene, Cookery, Rangoli, etc.

Stationery: Navneet is amongst India’s first Branded Paper Stationery manufacturer. NPL has astrong hold in Products like Tight-Bind™ Notebooks, Long Books, Drawing Books, havebecome the largest selling in their respective categories. NPL has successful presences in areaslike Pencils, Erasers, Sharpeners, etc.

eSense: This is a pedagogy empowered by digital technology. eSense can broadly be classifiedas distance learning and computer based teaching/learning .NPL being content company hasfocused on computer based teaching/learning and would be a key growth driver going ahead.

FundoO: This is the Creative Business Unit of NPL to market its exclusive range of innovativelearning products in India catering the segment of kids between 3 to 10 years. However theseproducts were only being supplied in the international markets. However first franchised retailoutlet of FundoO was inaugurated in Ahmedabad in 2009.


Strong Clientele Base….

NPL has established strong relationships with various Indian & international brands across diversifiedsectors

Closeup Montex

Airtel Sanyo

Casio Kingfisher

Aptech Add Gel

Perfetti RasnaSource: Indiamart.com

Flagship Company of the Group & Strong Presence….

NPL is the flagship company of the Navneet and Gala group & the promoters have an enriched

experience of 5 decades now. It is promoted by the Navneet group and is managed by members of the

Gala family.

NPL has ventured into over 22 states, where it provides non-educational books and stationery products.

Navneet has 5 plants located at Vasai, Silvassa, Daman, Santej and Dantali. It has 2 main offices in

Mumbai and Ahmedabad and over 25 branches across India. It also has operations in North and Central

America, Africa, Europe, Australia and Oceania.


Industry Overview….

Education is one of the important growth drivers of a nation and is one of the most important indicatorsof a country's growth and development. In fact, at a global level, education has been reinforced as thekey economic and business driver.

Government of India’s XI Five Year Plans (2007-2012) …..

The Eleventh Five Year Plan seeks to strengthen India’s talented people, making scientific andtechnological advancement and innovation which a key to for economic and social development. Itseeks to give strategic importance to education and training of quality talent while striving to build aninnovative country with rich human resources.

Key Points

Emphasis on investing more in education by ensuring higher financial expenditure for educationso as to gradually increase the proportion of financial expenditure for education in GDP to 4%.

Popularize & consolidate of nine years of compulsory education in rural areas and elimination oftuition and incidental fees for rural students during the compulsory education period.

Education has been gaining importance as India is growing by leaps & bounds .Each year the allocationsin the Union Budget for the education sector are increasing.

Increased emphasis by parents on the need to educate their child

Better prospects for educated people

Globalization, which has increased the importance of higher education

Union Budget 2010-11 to have Positive Impact on Education….

Plan allocation for school education increased by 16 % from Rs. 26,800 crore (US$ 5.81 billion)in 2009-10 to Rs. 31,036 crore (US$ 6.72 billion) in 2010-11.

In addition, States will have access to Rs. 3,675 crore (US$ 796.1 billion) for elementaryeducation under the Thirteenth Finance Commission grants for 2010-11.

(Source: Union Budget 2010-11)


E-learning -the new buzz and new requirement in schools…..

NPL recently started offering computer based teaching and learning solutions through its E-learningventure called e-Sense. Navneet has developed syllabus-based content called “Classroom teachingmodule in English as well as other regional languages which can be used in classrooms and is alsoworking towards a student centric product called “Top Scorer”. As the e-learning platform is relativelynew we expect that the company will start generating good revenues through its E-learning segment inFY 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 privateschools and the target segment of Navneet. The potential market on e-learning or classroom teachingfor 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 digitizedversion of the textbook based on the state level curriculum with some basic and easy-to-use features.Navneet operates in this segment through its 91% subsidiary eSense Learning Private Limited.

The company has received encouraging response for its classroom oriented e-learning modules in

Gujarat and Maharashtra over the last two years. Considering the benefits of the classroom oriented e-

learning module, schools in Gujarat and Maharashtra have expressed their desire to subscribe to the

classroom module instead of the audio-visual room module will further stimulate the momentum ahead.

From FY11 onwards the company will offer modules across the upper primary and secondary classesfor the state of Gujarat and Maharashtra in English and regional languages. Navneet has already tied upwith 450 schools till Aug, 2010 and is expected to ~500 schools for FY11. It is expected that Navneetwill break even in FY11 in this business.

In the subsequent years, they are expected to add many schools and expected to cater many morestudents since e-learning products in the classroom would be a vital part in the curriculum going ahead.


Navneet’s Strategy

Indian School Segment

The school segment (KG to 12th standard) which is the primary education segment is the largest

segment ($20bn) within the Indian Education System, is estimated to grow to $30bn by 2012 world’s

largest school-aged population .This segment is controlled by standalone schools and chains confined to

charitable, political and religious individuals/ groups, corporate activity pressure. However even now

today the number of schools is less as compared to the requirement and provides enough opportunities

to the company.

Primary Focus on State Boards

NPL main focus on SCERT (State council for Education, Research & Training) i.e. school within the

respective states of India and who follow state level curriculum and navneet has a strong presence in this

segment and publishes books and most of the schools in different states follow state board pattern only.

Digital Technology/Multimedia

As primary education is gaining more & more importance and quality education being the need of the

hour there has been incorporation of multimedia products for schools. This has demonstrated a better

delivery of education by teachers & more enhanced learning by the students instead of the traditional

black board thus making teaching more effective the currently nascent market has potential of US $

20Bn from kindergarten to Class XII students. Co is already tapping this area by its presence by way of

eSense its digital arm.

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.


Strengths & Opportunities….


Risks ….

Paper is an important raw material & accounts ~ 90% of the total raw material cost consumed

by the company. The company sources its requirement through the domestic market. However,

ever since the beginning of 2010 paper prices have turned very volatile and after starting the year

with a downward trend have started looking upwards and have shown a rising trend particularly

every month, rising almost 15% over the last 3 months. However paper prices are expected to

fall in FY11 from current levels. However, being one of the few and leading players in the

publishing segment company has been able to pass on this burden to the customers.

Grafalco the wholly owned Spanish subsidiary of the company performance remains sluggish

on account of the global recession. As the prospects of Spanish economy appear gloomy the

performance of this unit will remain a drag on the financials. 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.

The 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. With

changes in the syllabus in Gujarat and Maharashtra, Navneet is not likely to face problems on

this front. 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 Indian education system is more theoretical and more success is equated with

high marks. 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.

Good Brand Recognition: Most of the student community has been referring Navneet guides & books

and the student community is quite receptive since it helps in better understanding of the subjects and

scoring good grades & marks. Further the books are readily available in the local stationery stores and a

reach in 22 states of India.

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 the key step since this would lead to common curriculum across

India and would 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. The new digital

initiative would lead to enhanced learning by the students instead of the traditional black board thus

making teaching more effective the currently nascent market has potential of US $ 20Bn from

kindergarten to Class XII students.

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 , via direct and indirect efforts.

Consolidation of the strong content library, coupled with potential for using the same with minor

modifications in other states and also for CBSE/ICSE students as and when Navneet gets the requisite

permission.


Financials - Income Statement – (Rs. in Cr except EPS)

Particulars FY 10 FY 11E FY12 E

Revenues 532 570 686.85

Other income 6 5 6

Total Income 538 575 692.85

Expenditure 424 431.30 490.56

Interest 2 4 6.20

PBDT 112 139.70 196.09

Depreciation 13 14 16.00

PBT 99 125.70 180.09

Tax 35 42.74 61.23

Net Profit 64 82.96 118.86

Equity Share Capital 47.64 47.64 47.64

EPS 2.69 3.48 4.99


Balance Sheet – (Rs. in Cr)

Particulars FY 10 FY 11 E FY12 E

LIABILITIES

Share Capital (A) 47.64 47.64 47.64

Reserves and Surplus (B) 246.33 272.68 334.93

Net worth C(A+B) 293.97 320.32 382.57

Secure Loans (D) 70.94 75.44 83.94

Unsecured Loans (E) - - -

Deferred Tax Liability (Net) (F) 2.3 2.9 4.5

Total G(C+D+E+ F) 367.21 398.66 471.01

ASSETS

Gross Block 204.46 216.66 225.66

Less: Depreciation 109.86 123.86 139.86

Net Block (H) 94.6 92.8 85.8

Investments (I) - - -

Net Current Assets (J) 272.61 305.86 385.21

Total K(H+I+J) 367.21 398.66 471.01

Cash Flow Statement (Rs in Cr)

Particulars FY 10 FY 11E FY 12E

Net Profit before Tax 99 125.70 180.09

Net Cash Flow from Operating Activities (A) 72 72.53 78.81

Net Cash Flow from Investing Activities (B) (9.46) (7.2) (3)

Net Cash Flow from Financing Activities (C) (59.41) (56.11) (54.31)

Inc/(Dec) in cash & cash equivalents during the year (D) 3.04 9.22 21.50

Cash and Cash Equivalents at the beginning of the year (E) 8.05 11.09 20.31

Cash and Cash Equivalents at the end of the year F (D+E) 11.09 20.31 41.81


Outlook &Valuation

Navneet is expected to benefit significantly from restructuring in the stationery segment, expected

syllabi changes in Maharashtra (in FY11) and Gujarat (in FY12) to boost publishing revenues and new

opportunities that the company has ventured into like E-sense digital learning is expected to breakeven

in FY11.

Further the company also has a strong presence in the supplementary book segment ~60- 65% market

share.

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. There are around 1,38,000 schools across

states of Gujarat and Maharashtra, of which nearly 32,000 are private schools which are gearing

to embrace the e-learning module for there students. 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. 58.15/- the stock trades at a PE of 11.65 x times of FY 12 estimated

earnings of Rs 4.99

We recommend a “Buy” at a CMP with a target of Rs. 83 /- in next 18 – 24 months.


For Any Queries please feel free to contact our Institutional Team

Names Designation E-Mail Id. Contact

Nagji Rita CMD - -

Sales

Ravinder Kasliwal Head Institutional Sales [email protected] 40751565/66

Dealing

Shiv Damani Institutional Dealer [email protected] 22723797

Vinit Rita Institutional Dealer [email protected] 40751565/66

Rashda Ainapore Institutional Dealer [email protected] 40751565/66

Research

Denil Savla Research Analyst [email protected] 40751515 * 581

Sheetal Nirmal Research Analyst [email protected] 40751515

Pankti Shah Research Analyst [email protected] 40751515

Divya Kant Research Analyst [email protected] 40751515 * 582

Anshuman Jain Research Analyst [email protected] 40751515 * 579

Sanjeev Haria Research Analyst [email protected] 40751515

Sibayan Banerjee Technical Analyst [email protected] 22723797

Ashok Patel Technical Analyst [email protected] 22723797

Madhu Patel Technical Analyst [email protected] 22723797

Disclaimer

Inventure Growth & Securities Ltd has prepared this Document. The information, analysis and estimates contained herein are based on Inventure’s

assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or

associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its

completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only

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navneet publications (india) ltd - npl “buy” 02 sep, … coverage report on...navneet...

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