Result Update

November 2, 2018
Rating matrix
Rating : Buy Navneet Education (NAVEDU) | 113
Target : | 150
Target Period : 12 months
Potential Upside : 32% Syllabus change drives revenue growth…
What’s changed?  Navneet reported a healthy set of Q2FY19 numbers mainly driven by
Target Changed from | 160 to | 150 a robust performance in the publication segment
EPS FY19E Changed from | 7.4 to | 8.2  Revenues grew 44.5% YoY to | 263.5 crore (I-direct estimate: | 231.1
EPS FY20E Changed from | 8.9 to | 9.4 crore). Publication segment grew 52.5% YoY to | 179.5 crore.
Rating Unchanged Growth acceleration was mainly on account of a spillover of
revenues in Q2FY19. Stationery segment also reported a strong
Quarterly performance
topline growth of 31% YoY to | 83.6 crore
Q2FY19 Q2FY18 YoY (%) Q1FY19 QoQ (%)
 Gross margins for the quarter improved 40 bps YoY to 54.2% as we
Revenue 263.5 182.4 44.5 670.0 -60.7
expect the management to have passed on the paper price hike.
EBITDA 46.3 28.1 65.0 197.4 -76.5
EBITDA margins improved significantly by 218 bps YoY to 17.6% (I-
EBITDA (%) 17.6 15.4 218 bps 29.5 -1188 bps
direct estimate: 16.9%) on account of a decline in employee
PAT 28.9 16.6 73.9 126.3 -77.1
expenses as a percentage to sales by 344 bps YoY. However, higher
Key financials other expenses (up 55% YoY to | 62 crore) stemmed the EBITDA
margin expansion, to a certain extent
(| crore) FY17 FY18 FY19E FY20E
 A robust operational performance coupled with higher other income
Net Sales 1,172 1,204 1,440 1,585 (up 52% YoY to | 7.2 crore) led to PAT growth of 73.9% YoY to |
EBITDA 281 222 307 346 28.9 crore
Net Profit 171 127 188 215
Spillover of revenues in Q2FY19 perks up publication segment
EPS (|) 7.3 5.5 8.2 9.4
Despite syllabus change for I/VIII/X standards in Maharashtra, Navneet’s
Valuation summary publication segment (excluding Indiannica) reported a weak Q1FY19
FY17 FY18 FY19E FY20E
performance (revenues down 1.5% YoY). The quarter was disrupted
mainly by uncertainty over the new mandate issued by the Maharashtra
P/E 15.5 20.7 14.1 12.0
State Bureau of Textbook Production (Balbharati) to private publishers to
Target P/E 20.6 27.6 18.7 16.0
obtain a licence to use content from state board textbooks. This led to a
EV to EBITDA 9.9 12.8 9.2 7.9
delay in release of Navneet’s supplementary book, which was available in
Price to book 3.8 3.8 3.5 3.0
the market only after June 20, 2018. The spillover of revenues in Q2FY19
RONW (%) 26.7 17.6 23.2 23.1
accelerated growth of the publication segment. Subsequently, revenues
ROCE (%) 34.9 23.9 29.2 30.3 grew robustly by 52.5% YoY to | 179.5 crore. For H1FY19, the revenue
growth was 11% YoY to | 545.5 crore. Going forward, we expect Navneet
Stock data
to register 12% revenue growth for FY19E driven by higher sales of ’21
Particular Amount
most likely questions’ in H2FY19. For FY20, we expect revenues to
Market Capitalisation (| Crore) 2,641.5 increase 9% on syllabus change in Gujarat (across all standards).
Debt (FY18) (| Crore) 225.3
Stationery segment sustains healthy revenue trajectory
Cash (FY18) (| Crore) 6.8
EV (| Crore) 2,860.1
The stationery segment reported yet another stellar quarter with revenues
increasing 31% YoY to | 83.6 crore. Exports grew 25% YoY to | 55 crore
52 week H/L 178 / 98
while domestic segment grew 47% YoY to | 28 crore. The management
Equity Capital (| Crore) 46.7
indicated that stationery is now exported all round the year compared to
Face Value (|) 2 exporting only in Q1 & Q4 previously. With higher focus on sales and
branding efforts, the management expects the strong revenue
Price performance
momentum to sustain for domestic and export markets. We factor in 19%
1M 3M 6M 12M
revenue CAGR for the stationery segment in FY18-20E.
Navneet Education -2.2 -6.2 -22.7 -32.1
Kokuyo Camlin -8.6 -0.2 -8.2 4.4 Strong overall performance, reasonable valuations; maintain BUY!
The company’s foray into the CBSE curriculum through acquisition of
Research Analyst
Indiannica is expected to boost the revenue growth of the publication
Bharat Chhoda
segment. It has introduced 56 new titles for first to eighth standard, which
bharat.chhoda@icicisecurities.com
is expected to result in strong revenue growth for Indiannica in Q4FY19.
Cheragh Sidhwa Also, the management is planning to foray into ICSE curriculum through
cheragh.sidhwa@icicisecurities.com launch of new titles. We expect overall revenues and EBITDA to grow at a
CAGR of 15% and 25%, respectively, in FY18-20E. The recent stock price
correction gives a good entry point. We maintain our BUY rating on the
stock with a revised target price of | 150, valuing at a multiple of 16.0x
FY20E EPS.

ICICI Securities Ltd | Retail Equity Research

Variance analysis
Q2FY19 Q2FY19E Q2FY18 YoY (%) Q1FY19 QoQ (%) Comments
Stationery segment grew 31% YoY to | 84 crore while publication
Revenue 263.5 231.1 182.4 44.5 670.0 -60.7 revenues grew 52% YoY to | 179.5 crore
Other Income 7.2 4.8 4.7 52.1 7.1 0.8

Employee Expense 34.4 33.7 30.1 14.4 33.0 4.4

Raw Material Expense 120.7 112.1 84.3 43.2 352.5 -65.8
Other Expenses 62.0 46.2 39.9 55.3 87.1 -28.8

EBITDA 46.3 39.1 28.1 65.0 197.4 -76.5

EBITDA Margin (%) 17.6 16.9 15.4 218 bps 29.5 -1188 bps EBITDA margins for the quarter improved 218 bps YoY
Depreciation 6.0 5.8 5.6 7.5 5.7 5.2
Interest 2.3 1.7 1.6 43.2 4.2 -44.8

PBT 45.1 36.4 25.6 76.6 194.6 -76.8

Tax Outgo 16.2 12.4 8.9 81.6 68.3 -76.2
PAT 28.9 23.9 16.6 73.9 126.3 -77.1 Higher other income further boosted PAT growth

Key Metrics
Revenues

Publication Segment 179.5 149.9 117.8 52.5 366.0 -50.9

Stationery Segment 83.6 76.2 63.8 31.0 303.4 -72.5
EBIT Margin
Publication Segment 32.4 NA 32.3 6 bps 42.3 -993 bps
Stationery Segment -5.8 NA -8.7 281 bps 18.2 -2406 bps

Source: Company, ICICI Direct Research

Change in estimates
FY19E FY20E
(| Crore) Old New % Change Old New % Change
Revenue 1,355.4 1,439.6 6.2 1,527.1 1,585.0 3.8
EBITDA 273.8 306.6 12.0 323.7 345.5 6.7
EBITDA Margin (%) 20.2 21.3 110 bps 21.2 21.8 60 bps
PAT 175.6 189.7 8.0 210.8 217.5 3.2
EPS (|) 7.4 8.2 10.8 8.9 9.4 5.8
Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 2

 Company Analysis
Exhibit 1: Revenue trend
1800
1585
1600 1440
1400
1172 1204
1200
| crore

979 953
1000 882
806
800 619 670
515 532 548 516 560 563
600 494
411 395
400 263
144 133 188 148 134 183 188 172 154 204 182 174 213
200 117 113

FY18
FY14

FY17
FY08
FY09
FY10
FY11
FY12
FY13

FY15

FY16
Q1FY14
Q2FY14
Q3FY14

Q1FY15
Q2FY15
Q3FY15

Q1FY16
Q2FY16
Q3FY16
Q4FY16

Q1FY17
Q2FY17
Q3FY17
Q4FY17

Q2FY18
Q3FY18
Q4FY18

Q1FY19
Q2FY19
Q1FY18
Q4FY14

Q4FY15

FY19E
FY20E
Source: Company, ICICI Direct Research

Exhibit 2: Syllabus change to drive revenue growth

Academic Year Maharashtra Standard Subjects Gujarat Standard Subjects

2018-19 I All subjects(All medium) IX Maths, Science, English as per NCERT
Maths, Physics, Chemistry, Biology, English as
VIII All subjects(All medium) XI per NCERT
X All subjects(All medium)

2019-2020 II All subjects(All medium) I - VIII Maths

III All subjects(All medium) VI - VIII Science
XI All subjects(All medium) X Maths & Science
XII Maths, Physics, Chemistry & Biology
Source: Company, ICICI Direct Research

Exhibit 3: Segmental revenue trend

900
763
712
704
641

750
628
594
552

535

486

501

600
| crore

422

410

372

366
338

450
317

303
218
196

190

300
180
151

158
128

118
110

94

89
60

85

84
72

150
69

64
59
58

54
53
47

40

-
Q1FY16

Q4FY16

Q1FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19
Q2FY17
Q2FY16

Q3FY16

FY19E

FY20E
FY15

FY16

FY17

FY18

Publication (excluding Indiannica) Stationery

Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 3

 %
| crore

50
100
150
200
250

0
14
20
26
32
38
44
50

43
FY07 Q2FY17 30.6
FY08
Q3FY17 27.6

54 56
FY09

Exhibit 7: Net profit trend

FY10 Q4FY17 25.0

64 67
FY11 FY17 34.8

Source: Company, ICICI Direct Research

Source: Company, ICICI Direct Research

78
FY12
Q1FY18 40.2
FY13

107
Q1FY14 Q2FY18 32.3

Exhibit 5: Publication segment EBIT margin

71.0
Q2FY14 Q3FY18 20.3

Publication
Q3FY14
Q4FY18 15.5
Q4FY14

13.5 12.4 16.3

ICICI Securities Ltd | Retail Equity Research

FY18 27.7
FY14

115
Q1FY15 Q1FY19 42.3
-

89.9
5.0
10.0
20.0
30.0

15.0
25.0
35.0

Q2FY15 Q2FY19 32.4

Q3FY15 Q1FY16 30.6
Q4FY15 Q2FY16

12.0 11.8 15.7

10.0
FY15

130
Q3FY16 10.7
Q1FY16

98.3
Q4FY16 13.3
Q2FY16 %
FY16
Q3FY16
Exhibit 4: Operating margin trend

-
21.7
Source: Company, ICICI Direct Research

Q1FY17

5
10
15
20

Q4FY16

10.5 7.5 9.4

(15)
(10)
(5)
31.2
FY16 Q2FY17
(2.3) Q2FY17 16.4
Q1FY17 Q3FY17

107 113.6
Q2FY17 (4.2) Q3FY17 14.312.4
Q4FY17
Q3FY17 Q4FY17 10.3
FY17 24.0
Q4FY17 11.4

18.6 12.6 16.9

FY17 Q1FY18 28.9

Source: Company, ICICI Direct Research

FY17E

171
Q1FY18 15.4 Q2FY18 15.4
Q1FY18
EBITDA Margin (%)

109.7
Q3FY18 11.7
Exhibit 6: Stationery segment EBIT margin

Q2FY18 (8.7) Q2FY18

Q3FY18 6.5 Q4FY18 11.2
Q3FY18
Q4FY18 FY18 18.5

16.6 11.9 15.1

Q4FY18 13.4
Stationery

FY18 Q1FY19 29.5

Q1FY19 FY18 10.1
17.6

127 126.3
Q2FY19
Q2FY19 Q1FY19 18.2

28.9
FY19E 21.3
FY19E

Page 4
188
(5.8) Q2FY19 FY20E 21.8
FY20E
215
 Valuation
In the publication and e-learning business, content is king. Navneet has
over five decades of experience in content development. It has an asset
base of over 185 authors who create content and update the same timely.
Even as an established player in this business, it takes almost two years
for Navneet to enter newer markets and even longer for it to set up,
create content and build distribution channels.

Navneet has a long standing relationship with state boards and also
schools. This is very important in this business as state boards
recommend, which workbooks, guides, etc. should be used. Navneet also
has a strong distribution channel, which enables easy distribution and
supply of its products.

Navneet has recently undertaken several initiatives like entry into the
CBSE books business and enhancing its presence in the digital content.
Through its enhanced content, it is looking to enter new states in India
and gradually establish itself in new states. These steps should enable it
to improve its revenue growth over the next few years. We believe
acquisition of Indiannica would enable a transition of Navneet, from a
regional to a pan-India player. We continue to remain structurally positive
on the publication segment.

The company’s foray into the CBSE curriculum through acquisition of

Indiannica is expected to boost the revenue growth of the publication
segment. It has introduced 56 new titles for the first to eighth standards,
which is expected to result in strong revenue growth for Indiannica in
Q4FY19. Also, the management is planning to foray into ICSE curriculum
through launch of new titles. We expect overall revenues and EBITDA to
grow at a CAGR of 15% and 25%, respectively, in FY18-20E. The recent
stock price correction provides a good entry point. We maintain our BUY
rating on the stock with a revised target price of | 150, valuing at a
multiple of 16.0x FY20E EPS.

Exhibit 8: Valuations
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY17 1172.2 23.1 7.3 61.9 15.5 9.9 26.7 34.9
FY18 1204.0 2.7 5.5 -25.4 20.7 12.8 17.6 23.9
FY19E 1439.6 19.6 8.2 50.4 14.1 9.2 23.2 29.2
FY20E 1585.0 10.1 9.4 14.8 12.0 7.9 23.1 30.3
Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 5

Recommendation history vs. consensus estimate
220 100.0
200 90.0
180 80.0
160 70.0
140 60.0
120 50.0
(|)

(%)
100 40.0
80 30.0
60 20.0
40 10.0
20 0.0
Apr-16

Aug-16

Apr-17

Apr-18
Dec-15

Feb-16

Jul-16

Jan-17

Feb-17

Jun-17

Jul-17
Nov-15

May-16

Oct-16

Nov-16

Sep-17

Oct-17

Dec-17

Jan-18

Jun-18

Jul-18
Mar-18

Sep-18

Nov-18
Price Idirect target Consensus Target Mean % Consensus with Buy
Source: Bloomberg, Company, ICICI Direct Research

Key events
Date Event
May-09 Operating margin bounces back to 20% range (after slipping marginally below 20% in FY09). Despite a flattish topline growth, PAT increases 13.4% YoY
Jul-09 Announces bonus issue (3:2)
Oct-10 After two consecutive years of flattish topline growth, the company returns to early teen topline growth in FY12
Sep-11 Continues its growth trajectory, led by well rounded growth in both segments - publication & stationery
Dec-12 Reports 30%+ topline and bottomline growth in FY13
Jun-14 The stock rallies in anticipation of strong Q1FY15 results
Oct-15 Company reports disappointing set of results in Q2FY16 with revenue, EBITDA & PAT declining 20.5%, 55% & 12%, respectively
Oct-16 Acquires Britannica's Indian curriculum business for a consideration of ~ | 90 crore
Jan-17 Buys back 46.6 lakh shares at | 125/ share
Source: Company, ICICI Direct Research

Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position (m) Change (m) (in %) Sep-17 Dec-17 Mar-18 Jun-18 Sep-18
1 Navneet Trust 30-Jun-18 39.63% 92.57 0.00 Promoter 61.8 61.8 61.8 61.8 61.8
2 HDFC Asset Management Co., Ltd. 30-Jun-18 9.81% 22.91 2.99 FII 6.2 6.1 6.5 6.8 5.3
3 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-18 3.42% 7.98 0.00 DII 16.8 17.0 17.0 16.6 16.7
4 Somerset Capital Management, L.L.P. 30-Jun-18 2.39% 5.58 0.00 Others 15.3 15.1 14.8 14.8 16.3
5 UTI Asset Management Co. Ltd. 30-Jun-18 1.99% 4.65 -0.39
6 Gala (Gnanesh D) 30-Jun-18 1.84% 4.29 0.00
7 Gala (Kalpesh H) 30-Jun-18 1.83% 4.27 0.00
8 Kotak Mahindra Asset Management Company Ltd. 31-Mar-18 1.58% 3.69 0.33
9 Gala (Ranjanaben B) 30-Jun-18 1.54% 3.60 0.00
10 Gala (Anil Dungarshi) 30-Jun-18 1.45% 3.38 0.00
Source: Reuters, ICICI Direct Research

Recent Activity
BUY SELL
Investor name Value (Mn)Shares (Mn) Investor name Value (Mn)Shares (Mn)
Gala (Madhuriben H) 1.27 0.87 Gala (Jitendra L) -5.65 -2.93
Franklin Templeton Asset Management (India) Pvt. Ltd. 0.46 0.30 Navneet Trust -2.94 -2.01
Nuveen LLC 0.01 0.01 Invesco Asset Management (India) Private Limited -0.49 -0.27
J.P. Morgan Asset Management (Hong Kong) Ltd. -0.39 -0.24
Gala (Gnanesh D) -0.12 -0.08
Source: Reuters, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 6

Financial summary
Profit and loss statement | Crore Cash flow statement | Crore
(Year-end March) FY17 FY18 FY19E FY20E (Year-end March) FY17 FY18 FY19E FY20E
Total operating Income 1,172.2 1,204.0 1,439.6 1,585.0 Profit after Tax 170.6 127.4 187.7 215.5
Growth (%) 23.1 2.7 19.6 10.1 Add: Depreciation 28.4 30.7 33.8 36.2
Raw Material Expenses 544.7 584.9 688.1 754.5 (Inc)/dec in Current Assets -182.5 -108.3 -127.6 -73.8
Employee Expenses 118.7 146.8 165.6 180.7 Inc/(dec) in CL and Provisions 88.8 8.5 24.2 17.3
Manufacturing Expenses & Other 227.7 249.9 279.3 304.3 Others 0.0 0.0 0.0 0.0
Total Operating Expenditure 891.0 981.6 1,133.0 1,239.5 CF from operating activities 105.3 58.3 118.1 195.3
EBITDA 281.2 222.5 306.6 345.5 (Inc)/dec in Investments 4.8 -20.0 4.7 0.0
Growth (%) 36.3 -20.9 37.8 12.7 (Inc)/dec in Fixed Assets -96.8 -34.4 -50.0 -35.0
Depreciation 28.4 30.7 33.8 36.2 (Inc)/dec in CWIP -1.9 -1.4 0.4 0.4
EBIT 252.9 191.8 272.8 309.3 Others 0.7 0.7 -10.0 -10.0
Interest 4.3 7.7 8.9 5.4 CF from investing activities -93.3 -55.0 -54.9 -44.6
Other Income 15.2 26.0 28.8 31.7 Issue/(Buy back) of Equity -0.9 0.0 -0.9 0.0
PBT 263.8 210.0 292.7 335.6 Inc/(dec) in loan funds 55.9 65.9 7.9 -74.7
Total Tax 82.7 82.5 103.0 118.1 Others -63.2 -72.2 -73.7 -74.9
PAT 181.1 127.5 189.7 217.5 CF from financing activities -8.1 -6.2 -66.7 -149.6
Share of associates -10.5 -0.1 -2.0 -2.0 Net Cash flow 3.8 -2.9 -3.5 1.1
PAT after Share of Associates 170.6 127.4 187.7 215.5 Opening Cash 5.8 9.7 6.8 3.2
Growth (%) 50.7 -25.4 47.4 14.8 Closing Cash 9.7 6.8 3.2 4.3
EPS (|) 7.3 5.5 8.2 9.4 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Balance sheet | Crore Key ratios

Liabilities (Year-end March) FY17 FY18 FY19E FY20E
Equity Capital 46.7 46.7 45.8 45.8 Per share data (|)
Reserve and Surplus 647.1 705.2 818.6 958.6 EPS 7.3 5.5 8.2 9.4
Total Shareholders funds 693.8 751.9 864.4 1,004.4 Cash EPS 9.0 9.0 6.8 9.8
Total Debt 159.4 225.3 233.2 158.5 BV 29.7 29.7 32.2 37.8
Deferred Tax Liability (0.1) (3.2) (2.6) (1.9) Cash Per Share 0.4 0.3 0.1 0.2
Minority Interest / Others 0.1 0.2 0.2 0.2 Operating Ratios
Total Liabilities 853.1 974.2 1,095.2 1,161.1 EBITDA Margin (%) 24.0 18.5 21.3 21.8
PBT Margin (%) 22.5 17.4 20.3 21.2
Assets PAT Margin (%) 15.4 10.6 13.2 13.7
Gross Block 426.1 447.5 497.5 532.5 Inventory days 119.7 129.8 126.0 124.0
Less: Accu Depreciation 239.7 257.4 291.3 327.5 Debtor days 86.6 96.4 94.0 92.0
Net Block 186.4 190.1 206.3 205.1 Creditor days 50.9 47.0 48.0 49.0
Capital WIP 2.8 4.1 3.7 3.4 Return Ratios (%)
Total Fixed Assets 189.2 194.2 210.0 208.4 RoE 26.7 17.6 23.2 23.1
Goodwill on Consolidation 45.7 45.7 45.7 45.7 RoCE 34.9 23.9 29.2 30.3
Investments 44.7 64.7 60.0 60.0 Valuation Ratios (x)
Other Non-Current Assets 11.5 10.8 20.8 30.8 P/E 15.5 20.7 14.1 12.0
Inventory 384.3 428.2 497.0 538.5 EV / EBITDA 9.9 12.8 9.2 7.9
Debtors 278.1 318.1 370.7 399.5 EV / Net Sales 2.4 2.4 2.0 1.7
Loans and Advances 27.6 28.4 34.6 38.0 Market Cap / Sales 2.3 2.2 1.8 1.6
Other Current Assets 30.0 53.6 53.6 53.6 Price to Book Value 3.8 3.8 3.5 3.0
Cash 9.7 6.8 3.2 4.3 Solvency Ratios
Total Current Assets 729.6 835.0 959.0 1,033.9 Debt/EBITDA 0.6 1.0 0.8 0.5
Creditors 76.0 75.3 90.5 101.3 Debt / Equity 0.2 0.3 0.3 0.2
Provisions 27.7 42.9 45.0 45.0 Current Ratio 4.4 4.7 4.8 4.8
Other Current Liabilities 63.9 58.0 64.8 71.3 Quick Ratio 4.9 6.1 6.3 6.2
Total Current Liabilities 167.6 176.1 200.3 217.6
Application of Funds 853.1 974.2 1,095.2 1,161.1 Source: Company, ICICI Direct Research

Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 7

RATING RATIONALE
ICICI Direct Research endeavours to provide objective opinions and recommendations. ICICI Direct Research
assigns ratings to its stocks according to their notional target price vs. current market price and then
categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and
the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research Page 8

ANALYST CERTIFICATION
We /I, Bharat Chhoda, MBA and Cheragh Sidhwa, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this
report.

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