Education
Seasonally weak quarter
Education companies are likely to deliver lower growth in Q1 as it is a lean period from a business stand point. However, we expect the companies under active coverage to register flat growth during Q1FY13 due to the seasonality factor. In the coverage universe, Navneet Publication is likely to post strong growth of 16%. But, NIIT and Educomp will register lower growth due to the seasonally weak quarter. Within the space, we like Navneet Publication and NIIT considering attractive valuations, strong topline growth and better prospects of improving their margin profiles in FY13E.
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m Topline growth to remain subdued on seasonality factor: Q1 is seasonally a weak quarter. Educomp and NIIT will consequently report lower growth. In the case of Navneet, revenue is likely to grow 16% YoY on the back of strong growth in the publication segment. Career Point, on the other hand, is facing challenges due to the change in entrance exam pattern.
m Operating margin too is likely to remain weak: NIIT’s margin would be subdued as the individual learning segment is in the process of integration and lower topline growth will put pressure on margin. We believe that NIIT’s margin will expand in FY13E on the back of better sales mix in favour of individual learning solutions and school learning solutions.
m Prefer Navneet Publication and NIIT in the space: We prefer NIIT in the space considering attractive valuations and prospects of margin expansion in FY13E. Within the Publication space, we like Navneet Publication given its strong growth momentum for FY13E/14E and margin expansion and improvement in return ratios.
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