NAVNEET PUBLICATIONS (INDIA) LTD.

KNOWLEDGE IS WEALTH
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14 April 2011 Microsec Research

 Navneet Publications (India) Ltd.
BUY Sector – Publications
Market Data We rate Navneet publications a BUY. Navneet Publications incorporated in
Current Market Price (INR) 63.00 1984 was founded by Gala Family. It is engaged into publishing educational
Target Price 76.00 and children books and stationery products. Navneet is a leading player in
the field of publishing, with more than 5000 titles in English, Hindi, Marathi,
Upside Potential 21%
Gujarati and foreign languages. The company markets its products under
52 Week High / Low (INR) 76 / 46
the three brand names namely 'Navneet', 'Vikas' and 'Gala'.
Market Capitalization (In INR CR) 1,500.70
Investment Highlights
Shareholding
Public Syllabus change in Maharashtra and Gujarat to increase income in FY12E :
28.76%
Maharashtra Board has proposed to change the syllabus for 1st standard,
2nd standard, few of the subjects in 4th and 8th standards, few of the
subjects in 10th and 11th standards for the year FY12. Also Gujarat Board
has proposed to change the syllabus of Class IX of Maths and Science
subject. Since the company is a dominant player in both the states for
supplementary books, the said move will benefit the company in increasing
its income in double digits.
DII
5.55%
Promoters
Sound Financials with higher EBITDA Margin, Higher ROE and low D/E ratio:
61.81% Navneet has been maintaining an EBITDA Margin of ~20%, Average ROE of
FII
3.88%
~22% and lower D/E ratio of 0.28 from the last 5 years. PAT has been
continuously rising gradually from the last 5 years. In 9M FY11, PAT jumped
by 16% to INR70.2 crore
STOCK SCAN Developed brands & pricing power The Company has got major brands like
BSE Code 508989 Navneet, Vikas, Gala and ‘FfUuNn’. The brands allow the company to
NSE Code NAVNETPUBL maintain its leadership. Due to the brands and quality of content, Navneet
has the pricing power for its product which is visible in its EBITDA Margin.
Bloomberg Ticker NPI IN
Reuters Ticker NAVIN.BO Penetrating into high margin Digital learning busines : Navneet is penetrating
into high margin E-learning or digital learning business through its
Face Value (INR) 2.00 subsidiary ‘e-Sense’. As on date in class-room teaching modules it has
Equity Share Capital (INR CR.) 47.64 installed 460 schools and the company is focusing on signing newer schools
Average 2 Year P/E 18.5x to achieve a target of 475 schools in FY11 with a curriculum based content
Beta vs Sensex 0.85x gaining acceptance in two core areas which is Maharashtra and Gujarat. It is
expected to reach 2000 schools by FY12.
Average Daily Volmes (6 M) 690,000
Dividiend Yield (%) 1.59 Exhibit 1. Navneet Publication – Historical Financials and Projections
Stock Return (1 Yr) 25% Particulars FY2008A FY2009A FY2010A FY2011E FY2012E
Net Sales (INR CR) 411.10 516.90 532.50 571.60 690.00
Growth (%) 25.74% 3.02% 7.34% 20.71%
EBITDA 82.90 104.10 107.80 124.70 160.20
EBITDA Margins (%) 20.17% 20.14% 20.24% 21.82% 23.22%
Net Profit 54.20 56.40 64.00 75.70 98.20
Net Profit Margins (%) 13.18% 10.91% 12.02% 13.24% 14.23%
Net Profit Growth (%) 4.06% 13.48% 18.28% 29.72%
EPS 2.28 2.37 2.68 3.18 4.12
BVPS 9.60 10.84 12.34 14.50 17.60
P/E 27.54 26.50 23.43 19.75 15.24
P/BV 6.54 5.79 5.09 4.33 3.57
RoE 25.0% 23.0% 23.1% 23.7% 25.7%
Analyst : Naveen Vyas Source: Bloomberg , Microsec Research (In INR CR)
Email : nvyas@microsec.in

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14 April 2011 Microsec Research

 Key Product
Books - It has a wide range of products such as Digests (Guides), Workbooks
and 21 Question Sets, most of which are published in four languages -
English, Hindi, Marathi and Gujarati. It also publishes story books, health
related books, cookery books, mehendi and embroidery books.
Stationery - NPL’s stationery business is split into two categories: Paper
based, which comprises notepads and notebooks, and non-paper based,
which comprises pencils, erasers, sharpeners, crayons, geometrical boxes,
etc. under the brand name ‘FfUuNn’.
E-learning - Navneet has expanded the product portfolio in its content
business by creating a digitized version 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. It has developed interactive notes with visuals and
animations.

Segmental Break -up

70.0% 66.4%

60.0% 53.8% 54.3%

50.0% 45.2% 44.6%

40.0% 33.1%
30.0%

20.0%

10.0%
1.0% 1.1% 0.6%
0.0%
FY10 FY09 FY08

Publication Stationery Others

PBIT Break -up

PBIT Break -up

35%
29% 29% 29.60%
30%

25%
20%

15% 12%
10%
10%
4%
5%
0%
FY10 FY09 FY08

Publication Stationery

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14 April 2011 Microsec Research

 Industry Profile
The books and stationery market is largely fragmented with large number of
small, regional players dominating the market. But there are players like
Navneet, Sundaram, Staples Camlin and even ITC who are now looking to
grab a larger share from the unorganised segment and create a brand name
for themselves. The market for books and stationery segment is expected to
be in the range of INR11,000 crore. Out of the total pie, around 6000 crore is
estimated to be paper stationery, while the rest is categorised as non paper
stationery comprising writing instruments, art materials etc. Market players
estimate the growth rate for both segments to rise to around 15% annually in
the time to come, fuelled by the interest and investment in the education
sector, both from public and private sector.
Thus ITC’s education and stationery products business may be just six years
old, but it has a turnover of 400 crore and is clocking a growth of 20%,
according to CEO, Chand Das. So the business has acquired enough traction
in the market now to aim for the big bucks in the future. Global chain
Staples present in India via an association with Pantaloons retail focuses
more on the office supplies side of the stationery business. Staples is today
the largest organised office products player in the India market, reaching
200 crores in sales in the third year of operation. Both the consumer and the
business segment in India have already found great value in the model.
The common thread running between the above mentioned names is that all
of them are looking to either reinforce or create a rock solid national brand
name in a highly commoditised and fragemented market. Sure, we all have
heard about Navneet notebooks and Camlin colour pens and even
Classmate, but chances are these brands are the last thing one thinks of
while actually making a purchase decision. Even if one does have a brand
preference, one works just as well as the other. It’s in such a cluttered
environment that these brands are looking to create a niche for themselves.
Education segment as a whole is getting priority in the Indian private as well
as government sector due to the ‘focused’ approach of the central
government and the education ministry. There is more market spread
happening for the stationery segment, in the last few years resulting in
higher consumption. There is an effort by each market player to target B and
C Class cities/ towns so as to expand the market size and consequently
increase their sales revenue. New players scout for new markets to gain
some respectable market share as early as possible. At the same time, old
players do not want to lose their market share and are consolidating on
their strengths in the existing markets.
Text-content has been a major issue in Education segment because India is
a very diverse market with many national languages and at times, the text
books’ distribution do not make any commercial sense; especially, when
economies of scale is not achieved. Players like Sundaram Publishers have
started novel ways of text content distribution through pen drives
addressing the e-class that stores syllabus on pen drives. Advent of Internet
and other new technologies has enabled to create a knowledge library and
the content can be accessed by students even on TV or laptops. Now, this
makes sense as the distribution costs are much lower and wastage due to
carrying non- saleable inventory is not there.

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14 April 2011 Microsec Research

 New players like ITC group have focused on this market early or rather within
a short period of time; by applying FMCG distribution principles in the books
and stationery market. Aspects like trade marketing, merchandising (in a big
way), sign-ages, school and college contact programmes are being added –
all this create more touch points with the market to boost sales! Staples has
a ‘back to school’ sales discounts’ schemes etc to create more avenues to
boost their sales, when schools re-open after summer vacation. Camlin, one
of the oldest players in this market, are getting geared up to add on to their
existing large network of retailers – so as to increase the number to a stag-
erring figure of 2,50,000 retailers all over India, in next couple of years.
In some sectors, brands have become commodities, while the reverse is
been attempted in the books and stationery segment. The journey of
product, price, packaging and distribution is bound to see some interesting
chapters ahead.

Peer Comparison
ROE
9M 9M 9M EBITDA PAT (%) D/E P/E P/E
Company Name Sales EBITDA PAT (%) (%) FY10 FY10 MCAP CMP P/BV TTM FY12E
Navneet Publication 453 112 70 24.6 15.5 23.1 0.24 1501 63 4.2 19.3 15.3
Camlin Ltd. 268 22 10 8.3 3.6 18.8 0.69 462 76 6.3 32.6 20.2
DB Corp Ltd. 939 324 186 34.1 19.6 40.2 0.51 4536 248 5.5 20.5 16.2
HT Media Ltd. 1297 247 132 18.8 10.1 14.9 0.32 3678 157 2.9 20.3 17.3
Jagran Prakashan 815 271 164 32.5 19.7 30.0 0.20 3819 121 4.9 19.1 14.8
Source: Bloomberg, Accord (Financial INR Crore)

VALUATION
The stock is currently trading at INR63 at a ttm P/E of 19.1x. It discounts its
Consolidated FY12E EPS of Rs.4.1 by 15.3x. It’s 2 years Average
consolidated P/E as per Bloomberg is around 18.5x. With Developed Brand,
Consistent Financial Performance, syllabus change in Maharashtra and
Gujarat and penetration into E-learning, the prospect of Navneet publication
looks good. The stock should trade at a P/E multiple of around 18.5x which
put our Target Price to INR76 (20.6% upside) based on FY12E EPS of INR4.12
for a time period of 12 months.

Key Concern
Publishing sales of the company is seasonal in nature: The Publishing sales of
the company is seasonal in nature as maximum sales occur in the first
quarter of the financial year.
Competition in stationery market: There is tough competition to the
company from the organised and unorganised players which limit the
margin in the stationery business.

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14 April 2011 Microsec Research

 Disclaimer
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14 April 2011 Microsec Research

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14 April 2011 Microsec Research