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The company has a strong presence in the stationary and educational areas

Navneet Publications, an Rs 917 crore company dealing in stationary, educational and children's books has been in business since 1959 and  in recent years has forayed into the e-learning business.

The company has been in the eye of investors due to its consistency in maintaining a strong balance-sheet. The publications business, bread and butter of the company, saw strong growth. It makes up some 55 per cent of the FY09 revenue, which is expected to post a CAGR of 10-12 per cent through FY11E. Capital expenditure to achieve that growth is pegged at Rs 70-80 million.

This kind of superior growth prospects depend on a few uncertainties. Closely linked to its fortunes is the Gujarat state board. The board changes to a new syllabus every 4-5 years and assumption is that it will do so near 2011 — the last time was in 2007. When that happens revenue boost may be up to 15 per cent (FY11).

The company's stationary business too is a vibrant one, with exports coming big-time into the picture. The business has grown 68 per cent in FY09 and export revenues are slated to cross the Rs 1 billion mark in FY10. 

The company has also voiced its intent to launch an office stationery brand. The segment has the potential to be a big-money spinner as it expects sales to cross Rs 50 crore in next 3 years.

Its e-learning initiative inv-olves launch of India's first digitally-enabled classroom. The project started in 2008 with an initial capex of Rs 30 million, has successfully carried out 100 pilot projects in Maharashtra and Gujarat schools. This module yields Rs 500 per student per annum. While this is low, the company is looking to go mass-scale and thereby improve yield. The business can yield  a revenue stream of over Rs 500 million in the next 5-7 years at a high profitability, ~50 per cent PBT.

The company's performances have been superlative as can be seen from its net profit rising 344.23 per cent in the March 2009 quarter to Rs 9.24 crore, as against Rs 2.08 crore during the previous fiscal's same quarter.  Sales showed an exemplary rise of 68.69 per cent to Rs 102.41 crore in the quarter ended March 2009 versus Rs 60.71 crore during the previous fiscal's quarter.

For the full fiscal (2008-09) net profit jumped 9.62 per cent to Rs 58.94 crore versus Rs 53.77 crore during the previous fiscal. Sales too increased by 26.09 per cent to Rs 504.90 crore, against Rs 400.43 crore during the previous fiscal.

What makes valuations attractive is that in two of India's most-populous, business-wise outperforming and attitude-wise cosmopolitan states the company has a virtual strangle-hold on the publications sector. As such, revenue and earnings CAGR of the company are expected to improve by 17 per cent and 18 per cent respectively over FY09-11. Its RoE is in excess of 25 per cent.

The current market price of the stock is Rs 73 and it is trading at a PE of 8.9x FY11E.

Also See: Navneet Publications
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