Buy this paper stationery brand for an upside potential of ~27% | Buy Navneet Education | Attractive valuations, Buy |

Company Background

Navneet Education Limited (NEL) is one of the largest paper stationery brands in India founded by the Gala Family. It is in the business of Educational, Children and General books Publication, Scholastic Paper and Non-Paper Stationery products. Navneet Education derives 54% of its revenue from publishing and 44% from stationery. Navneet holds around 65% market share in Maharashtra and Gujarat. Presently it holds more than 500 Stock Keeping Units with premier stationary market in USA, Africa, Europe and Middle East. Its stationary manufacturing plant is located at Vasai, Silvassa and Daman and publishing plant is located at Dantali and Santej.

Investment Rationale

– Navneet recently acquired ‘Encyclopaedia Britannica (India) Pvt. Ltd. now renamed into ‘Indiannica Learning Pvt. Ltd.’, enables it to diversify its geographical reach and make it a pan- India player. The company will marketBritannica’s existing India specific curriculum titles such as ‘Know for Sure’ and ‘The English Channel’ and also publish text books for the CBSE board which will help in expanding Navneet’s curriculum. Indiannica plans to add 3 new series of 24 titles, which will boost the current library and help the company to venture into newer geographies.

– National Council of Educational Research and Training (NCERT) have updated its syllabus and even recent change in the state board syllabus in Gujarat and Maharashtra for major classes will have significant growth opportunity. NEL is also well placed to capture growth triggers like common curriculum across India, and conversion of SEB schools to CBSE.

– NEL through its digital subsidiary eSense provides eLearning solutions to schools and students in India and thus integrates technology with learning. Its digital segment through its classroom teaching tool models and management focus on B2B model is likely to provide sustainable growth.

– Government initiatives and increase in spending towards education will result in increased business opportunity for the company.

– Export sales in stationary segment is expected to grow which will help to have more predictability of business.

– Company’s standalone revenue for the quarter remained constant at Rs. 565 crore as against Rs. 560 crore in corresponding quarter of last year and PAT for the quarter came in at Rs. 110 crore, YOY decline of 3.4%. Its consolidated topline and bottomline grew at a CAGR of ~9.85 % and ~12.45 % respectively. In FY17, its EBIDT and Net Profit margin improved to 23% and 14 % respectively.

– The company is on the right track to reap the benefits of changing syllabus, common curriculum across India, and conversion of SEB schools to CBSE. Moreover growth opportunities in exports and the eLearning platform are additional triggers. The current valuation of 15 times FY19 earnings looks attractive. We recommend a BUY on the stock with a Price Target of Rs. 213 (19 x FY19 EPS) with an upside potential of ~27% from the current level with an investment horizon of 12 months.

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