Buy Navneet Publications: SBICaps

Company Overview

Promoted by Gala family, Navneet Publications (India) Ltd. (NPIL) is a leading Educational book products and service company providing an array of Educational, Children and General based Publication and Scholastic Paper & Non-Paper Stationery products. It is a dominant player in Maharashtra & Gujarat with a market share of more than ~60% in these states and has more than 5,000 titles to its credit. In 2008, the company ventured into E-Learning space which has now gained significant momentum with 937 schools using its products as on FY12.

With the ongoing change in school curriculum favouring publication business, turnaround of stationery segment and exponential growth potential of e-learning space, we expect NPIL to register a robust topline in the years to come. We initiate coverage on the stock with ‘BUY’ rating.

Investment Rationale

Publication Segment – Riding the Growth

Publication segment is all set to drive NPIL’s growth story with the ongoing change in school syllabus, foray in Andhra Pradesh and new Govt. mandate for uniform syllabus of Maths & Science for all educational boards which will help boost its revenues.

Stationery Segment – Back on track

NPIL’s stationery segment is back on the path of growth post restructuring which is evident from the strong flows of export orders.

eSense to Turnaround in FY13

eSense segment is expected to turnaround in FY13 due to the products rapid penetration in schools. Content development being the one time cost, the incremental revenues will help improve the bottomline.

Education Sector – Huge Untapped Potential

Indian Education sector is slated to grow at a rate of 22% p.a on account of the rise in income levels of the middle class population and shift in GDP structure from agricultural economy to knowledge economy. NPL is all set to take advantage of the huge demand supply gap in quality education.

Financials and Valuations

NPIL’s consolidated revenue is expected to grow at a CAGR of 14% from Rs 560 Cr in FY11A to Rs 836 Cr in FY14E on the back of syllabus changes, turnaround of stationery segment and manifold growth of E-learning segment. At current price of Rs 57, the stock is trading is at 14.1x and 11.8x of its FY13E and FY14E consolidated earnings respectively while on P/BV front it is available at 3.2x and 2.8x respectively. Considering robust business model, healthy balance sheet and high operating cashflows, we value NPIL at 17.5x of its FY13 EPS of Rs. 4.1 which entails a target price of Rs. 71 and upside potential of 25%.