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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