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Navneet Education Q1FY25: Exceptional Gains Boost Profits Amid Sector Challenges
Research, Research Reports, Result Updates - August 22, 2024

Navneet Education Q1FY25: Exceptional Gains Boost Profits Amid Sector Challenges

Navneet Education Q1FY25: Exceptional Gains Boost Profits Amid Sector Challenges

About stock

Navneet Education Limited (NEL) is a prominent player in the Indian education sector with over 60 years of experience. The company specializes in syllabus-based content for both print and digital mediums and is a major manufacturer of stationery products, both for domestic and international markets. NEL’s portfolio includes non-curriculum books, supplementary curriculum books, and CBSE textbooks, alongside a wide array of stationery products.

Financial Performance Q1FY25

The company reported a modest revenue increase of 0.8% to INR 794 crores in Q1 FY25 compared to the previous year.EBITDA grew by 5% to INR 226 crores, resulting in an improved EBITDA margin of 28.5%. While PBT surged to INR 798 crores due to exceptional gains from the sale of a stake in K12 Techno Services, the normalized PBT margin excluding these gains also improved from 25.5% to 28.5%. Consequently, PAT skyrocketed to INR 742 crores, marking a 310.5% increase year-on-year. The exceptional items significantly inflated the PBT and PAT margins to 100.4% and 93.5%, respectively, compared to the previous quarter 27.4% and 22.9%.

Future Outlook

Navneet Education Limited is expected to continue benefiting from its strategic initiatives, with a focus on expanding product offerings in both domestic and export markets. The company aims for a 12%-15% growth in domestic revenue and 12%-14% EBIT margins in the stationery segment for FY25. The ongoing investments in R&D and infrastructure, coupled with a favorable market position, are anticipated to drive future growth.

Q1FY25 Segment wise performance

Publication stationary:
The publication business experienced a revenue decline in Q1FY25 of approximately 3% to ₹417 crores compared to ₹431 crores in the previous quarter. This contraction was attributed to curriculum reductions in certain grades by state boards, necessitating product redesign. However, absolute sales volume showed a slight increase.

Domestic stationary:
The domestic stationery business recorded a marginal revenue decline to ₹135 crores in Q1FY25 due to product repricing following a drop in raw material prices. While volume growth was observed, margins were impacted by high-cost inventory from previous quarters. Encouragingly, there are early signs of raw material price stabilization.

Export stationary:
The exports of the stationery business demonstrated growth, increasing to ₹241 crores from ₹214 crores quarter on quarter.This expansion was driven by a broader product range and tapping into diverse market segments. The company remains committed to quality, design, and customer engagement in this segment.

Market Opportunities

The textbook market, currently estimated at ₹4,000 crores, is projected to grow to ₹8,000-₹9,000 crores in the next 5-6 years due to increasing school affiliations. With the number of affiliated schools expected to rise from 26,000 to nearly 40,000, the company sees significant opportunities.

Digital Product Development
There is an emphasis on blended offerings combining physical books with digital tools. Recognizing the increasing digital usage in K12 education, especially in CBSE and ICSE schools, the company plans to develop future digital products that enhance physical book sales through integrated digital features.

Challenges and Market Dynamics
The Indiannica acquisition underperformed, and management turnover impacted growth. The company has shifted its strategy to develop Navneet-branded textbooks in Maharashtra and Gujarat, leading to a better understanding of the CBSE market. Future plans include publishing supplementary books for the CBSE curriculum.
Anticipated curriculum changes in Maharashtra and Gujarat, expected to commence next academic year, pose a challenge.However, management remains optimistic about future growth despite these headwinds.

Concall notes

During the Q1 FY25 earnings call, Navneet Education Limited reported a modest increase in overall revenue and a moderate rise in EBITDA compared to the same period last year. The company’s profit witnessed a significant surge, primarily driven by exceptional gains from the sale of its stake in K12 Techno Services. Despite these positive financial indicators, the publication segment faced a decline in revenue, attributed to the reduction of curriculum content by state boards, which impacted product redesigns. The domestic stationery segment also saw a marginal de-growth due to price adjustments following a decrease in raw material costs. However, the export stationery business showed resilience, recording healthy growth due to an expanding product portfolio and increased demand in international markets.

Navneet is strategically focusing on developing new educational content formats and digital learning tools, aiming to align its products with the evolving needs of students in a rapidly changing educational landscape. These efforts are part of the company’s broader strategy to adapt to market demands and maintain its leadership in the education sector.
However, the company is facing some challenges, notably the underperformance of its Indiannica acquisition, which has not met expectations. Additionally, anticipated curriculum changes pose a potential risk to the publication segment’s revenue. Despite these hurdles, the management remains optimistic about the future, citing the high growth potential in the textbook market and the positive impact of ongoing strategic initiatives. The leadership expressed confidence in navigating these challenges and achieving sustainable growth in the upcoming quarters.

 

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Paper Price Surge Hits Q2 Profits: Navneet Education Adapts with Price Adjustments

Paper Price Surge Hits Q2 Profits: Navneet Education Adapts with Price Adjustments

Company Name: Navneet Education Ltd | NSE Code: NAVNETEDUL | BSE Code: 508989 | 52 Week high/low: 176/88.1 | CMP: INR 143 | Mcap: INR 3,231 Cr | PE: 26.5

Company Overview:

Navneet Education is a key player in the manufacturing and trading of educational books, reference materials, and stationery, with a significant market presence in both paper and non-paper categories. The company commands a dominant market share of 65% in western India and exports its stationary products to over 30 countries, with a focus on the US. Navneet Education operates three manufacturing sites in Dadra & Nagar Haveli, Palghar, and Gandhinagar.

Paper Price Surge Causes 20% Quarterly Revenue Drop:

In Q2FY24, the company experienced a 20% quarter-on-quarter (QoQ) revenue decline, primarily attributed to a surge in paper prices. The quarterly revenue plummeted by 66.42% year-on-year (YoY) and 19.41% QoQ due to increased paper costs. To counteract this rise, the company raised prices on some publication products, leading to decreased demand. Furthermore, changes in the paper pattern for certain standards resulted in the postponement of related examination book releases to the third quarter.

Resilient Stationary Business in Q2:

Despite challenges in the publication segment, the stationary business demonstrated resilience with a marginal decline of 0.79% QoQ and a substantial 46.65% YoY decrease. The domestic stationary market usually performs well in Q4 and Q1, and the company anticipates achieving a growth of 12%-15% in this segment for FY24. In H1FY24, the overall stationary business recorded revenue of Rs. 547 crores and EBIT of Rs. 71 crores, reflecting a margin of approximately 12.9%.

Segment-Wise Performance in Q2:

For Q2, consolidated revenue contracted by 66.42% YoY, reaching 266 Crores, primarily due to the slowdown in the publication business. The publication segment was significantly impacted, with an 83.08% YoY decrease in revenue to 73 Crores, while the stationary business remained resilient, declining by 0.79% QoQ and 46.65% YoY to 190 Crores.

Valuation and key ratio

As of now, the stock trades at a multiple of 26.5x earnings per share (EPS) (TTM) of 10.4 Rs, with a market price of 143 Rs. The industry price-to-earnings (PE) ratio is at 28.7x. The company’s stock is valued at 2.54 times its book value of 56.3 Rs per share. In terms of enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), the company ranks 6th with a multiple of 11.39x, compared to the industry median of 18.11x. The trailing twelve-month return on equity (ROE) and return on capital employed (ROCE) stand at 15% and 19.4%, respectively, with a healthy interest coverage ratio of 12x.

Q2FY24 Result Update – Consolidated

➡️In Q2FY24, consolidated revenue declined by 66.42% (-19.41% QoQ) to 266 Crores, primarily attributed to challenges in the publication business stemming from the rise in paper prices.

➡️Gross profit decreased by 63.56% YoY, reaching 134 Crores, while gross margin improved by 400 basis points YoY to 50.56%, driven by a decline in raw material costs by 68.91% YoY.

➡️EBITDA experienced a significant downturn, decreasing by 102.06% YoY to -4.30 Crores, mainly due to challenges in the publication business. EBITDA margin stood at -1.62% in Q2FY24 compared to 26.39% in Q2FY23.

➡️Operating profit (EBIT) decreased by 109.65% YoY to -18.9 Crores in Q2FY24, with an EBIT margin of -7.11%, contrasting with 24.74% in Q2FY23.

➡️Profit after tax (PAT) decreased by 75.44% YoY to 35.6 Crores, supported by a one-time gain from the sale of a plant worth 68 Crores. PAT margin dropped by 500 basis points YoY to 13.39%.

➡️Earnings per share (EPS) for the quarter stood at 1.58 Rs, a significant improvement compared to -0.10 Rs in the previous quarter.

Conclusion:

Navneet Education faced significant challenges in Q2FY24, marked by a substantial decline in consolidated revenue, primarily attributed to the impact of rising paper prices on the publication business. While the stationary segment exhibited resilience, the company navigated the downturn by adjusting prices and strategizing for a rebound. The focus on cost management, evident in improved gross margins, showcases the company’s adaptability. With a strong market presence and strategic manufacturing capabilities, Navneet Education aims to overcome challenges, emphasizing growth prospects in the stationary business for the remainder of FY24. Investors should monitor the company’s efforts to mitigate the impact of external factors on its financial performance.

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