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Navneet Education: Buy for an upside potential of 37%

Motilal Oswal | 30 Aug, 2017  | Follow Author | Add to my Favourites 
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Publication: Continuous growth, aided by syllabus change

The publication business grew 10% YoY in 1QFY18 despite deferment of publication of 9th grade text books in Maharashtra by the education board. Growth going forward is expected to be stronger, with likely spillover of revenue of its supplementary books in 2QFY18. The business is expected to continue benefiting from syllabus change in Maharashtra and Gujarat in FY19 as well. We expect the segment to grow 15% in FY18. Moreover, the acquisition of Indiannica Learning Private Limited is not only expected to boost CBSE revenues by strengthening current library but also help NELI to venture into newer geographies, both domestic and overseas.

Stationery: Growth to pick up after muted 1QFY18

The stationery business declined 12% YoY in 1QFY18, led by the decline in exports on account of unfavorable currency movement. However, the decline is expected to be reversed in 2QFY18 and 3QFY18, resulting in 10% growth in exports in FY18. Further, exports should witness an even distribution of growth across the remaining quarters. The domestic stationery business did not witness much traction in order book in the month of June, resulting in a flattish 1QFY18. However, with 4Q being the strongest quarter for the domestic stationery, the segment is expected to get back on track, with an expected growth of 15% in FY18.

Indiannica content to promote growth

The subsidiary, Indiannica Learning Private Limited, acquired on December 30, 2016, had a loss before tax of INR146m in FY17. Indiannica is planning to add three new series of 24 titles in 3QFY18 to boost its library. 50% of the sourcing and manufacturing is expected to be carried out by NELI, with the share expected to increase gradually. The subsidiary is expected to post revenue CAGR of 22% over FY17-20 (with a growth of 15% in FY18) on the back of strong content addition.

Valuation and view

NELI is set to witness steady growth on account of syllabus change, growing momentum in stationery exports and robust addition of content in the current library through Indiannica. However, muted growth in 1QFY18 will put pressure on annual growth. We cut our earnings estimates by 7% for FY18 and by 3% for FY19. We expect 16% revenue CAGR and 19% PAT CAGR over FY17-20, with a flattish EBITDA margin. We value the stock at 20x FY19E EPS, arriving at a TP of INR215. Maintain Buy.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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