Entry into new markets/segments to boost revenues • Navneet Education :: ICICI Securities, pdf link

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Entry into new markets/segments to boost
revenues
• Navneet Education’s (Navneet) Q2FY15 results were below our
estimates on the revenue and profitability front
• Sales grew a mere 2.6% YoY to | 147.8 crore (I-direct estimate:
| 169.4 crore) in spite of the stationery segment growing at 12.6%
YoY to | 49.5 crore. However, marginal de-growth of 1.2% in the
publication segment to | 97.2 crore against our expectation of 16.9%
YoY growth to | 115.1 crore subdued revenues
• The EBITDA margin declined 78 bps YoY to 17.6% owing to higher
losses at the EBIT level in the stationery segment
• Consequently, PAT declined 11.6% YoY to | 12 crore, which was
below our expectation of | 16.9 crore
Revenues to grow at 15.4% CAGR during FY14-17E
In FY14, publication segment revenues did not meet our expectation
growing only 4% YoY. However, the H1FY15 performance has been
better with YoY growth of 14% YoY. The stationery segment has also
gained traction and been growing at a good pace. We expect this
segment to equally contribute to the growth, going forward.
Geared up for steady growth
Apart from the regular business, Navneet has started marketing CBSE and
private SSC related content. This coupled with syllabus changes will aid
the publication segment to grow at a CAGR of 14.2% during FY14-17E.
Similarly, we expect the stationery segment to grow at a CAGR of 14.3%
during FY14-17E owing to increased penetration and strong exports
growth. The tablet (E-learning) launched (August 2013) by the company is
also receiving a good response in Maharashtra and Gujarat. This should
also aid revenue growth, going forward.
Stationery segment to aid elimination of seasonality
While the publication segment continues to grow on the back of syllabus
changes and expansion into newer geographies, the stationery segment
has gained meaningful size and doubled exports. A steady growth of 12-
14% in the stationery segment will aid in removing the seasonality of
Navneet’s quarterly earnings.
Geographical expansion, entry in newer segments to boost revenues
With the introduction of common curriculum, Navneet is considering
entering newer states. Also, the English medium state board schools have
started converting following the CBSE curriculum till the eighth standard.
Navneet has started marketing its CBSE titles in four other states apart
from Maharashtra and Gujarat. A new CBSE e-learning retail product for
standards 1-10 was launched during the quarter and received a good
response. While we have not built in these opportunities in our financials,
we remain positive about the growth prospects from these ventures.
Steady growth to continue; maintain HOLD
We continue to believe in the company and like its strong fundamentals –
stable margins, healthy dividend payout and consistent return ratios.
Navneet’s efforts to boost sales are bearing fruit and they are
continuously scouting for new growth avenues (tapping newer states,
entry into CBSE curriculum). Considering the strong visibility on syllabus
changes, we ascribe a multiple of 14.0x FY17E EPS to arrive at a revised
target price of | 108. We maintain our HOLD rating on Navneet Education.

link
http://content.icicidirect.com/mailimages/IDirect_NavneetEducation_Q2FY15.pdf