Financials FY 13 FY 14 FY 15E FY 16E

Sales (in lacs)

82207

90019

99646

110463

EBITDA

19221

20800

19304

24409

EBIT 16876 18220 16473 21270

Net profit 10860 11524 10321 13350

EPS 4.48 4.83 4.33 5.60

DPS

1.80

2.00

1.79

2.32

Prices

Navneet Education Ltd

Even if the world is shifting to the web-world but still paper industry has its own significance. Thus the

outlook is quite strong for market leader companies like Navneet Education Ltd. We had conducted EIC

Analysis to figure out whether Navneet Education Ltd is a best buy or not at current market price.

Economic Analysis

With revival in economy at large the paper consumption is expected to increase as the GDP

Increases.

Domestic demand for paper will increase to 10 million tonnes by 2015 and 30 million tonnes by

2016.

The growth in paper industry has mirrored the growth in GDP and has grown on an average 6-7%

over last few years.

Import rose from 2 thousand to 10 thousand tones

Paper industry is at 35 in the high priority list

Industry Analysis

Presently per capita consumption of paper in India is lowest in the world at 5kg, whereas it’s as high

as 337 in North America 110 in Europe 30 in china.

Indian paper industry accounts for about 1.6% of the world production of paper and paper board

according to IPM (Indian Paper Manufactures Associations)

The CAGR of the paper production is 8.4% and CAGR consumption is 9%

Indian handmade paper industry is vast industry comprising more than 157 handmade paper

producing division all over India, these 157 paper functional together manufactures worth 22 Cr

and provides employment to ten thousand people.

Company Analysis

Navneet CNX Midcap Nifty

1.0

0.8

0.6

0.4

0.2

0.0

11-09-2012 11-03-2013 11-09-2013 11-03-2014 11-09-2014

Date

Key Data

CMP 113

Target price 125 (19% upside)

52 week high/low

120/24.10

Market cap

229997

EV (in crore)

299042

Recommendation BUY

The share prices of Navneet mirrors the benchmark CNX Nifty and CNX midcap. With the present

conducive changes in government policies, the economy is poised to move northwards, so is

Navneet.

During FY10-14, the revenues have grown at a CAGR of 13.50% to 882.1crore

The publication segment has grown on the back of syllabus changes while the stationery segment

continues to grow on the back of healthy exports

The company is also exploring other avenues for growth. It has completed developing content for

Standards 1-7 for the CBSE Board and has also started marketing the same in its key states –

Maharashtra and Gujarat. Thereby, expect revenues to grow at a CAGR of 15.28% to touch 1,08,220

crore by FY16E.

The publication segment has grown at a CAGR of 19.33% during FY10-14.

A series of syllabus changes has aided this growth (Considering that there is visibility for syllabus

changes in both Maharashtra and Gujarat over the next two academic years and that the common

curriculum would aid in boosting revenues, )

Company is expecting the publication segment to grow at a CAGR of 19.33% to 48704 Cr by FY16E

The stationery segment has recorded revenue growth of 19.5%, albeit on a small base, during FY10-

14. The company supplies its stationery products to global retail giants like Walmart, Target, Tesco,

etc. We expect stationery segment revenues to grow at 8.6% (FY14-16E) to 494.7 Cr.

Valuation

In the publication and e-learning business, content is king. Navneet has over five decades of experience in developing content. It has an asset base of over 185 authors that 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 the 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.

We continue to believe in the company and like its strong fundamentals. The company’s efforts to boost sales are bearing fruit and they shall also aid growth, going forward. However, the growth potential of the company has been discounted in the price. We, therefore maintain our target price of ₹ 125.

We maintain a BUY rating on the stock.

VALUATION Summary

FY 13

FY 14

FY 15E

FY 16E

P/E 13.65 19.97 22.28 17.23

EV/Share 67.8 106.0 104.3 107.6 EV to EBITDA 8.41 12.14 12.87 10.50 Price to book 3.47 4.81 4.27 3.72 ROCE 27.3% 25.7% 20.3% 23.1%

Peers comparison

5 yr EV/sales EV/EBITDA PE

Equity Enterprise EPS

Company value value CAGR 2015 2016 2015 2016 2015 2016

PEG

2015

Navneet 377 405

13.6% 2.6 x 2.4 x 13.3x 10.5x

23.1 x 17.8 x

1.7 x

MPS 195 191

Sandesh 58 36

DIC_India 53 52

57.1% 5.1 x 4.2 x 16.6x 13.5x

8.7% 0.7 x 0.6 x 1.0 x 0.9 x

(13.4) 0.5 x 0.5 x 9.1 x 7.9 x

26.2 x 25.1 x

7.0 x 6.4 x

24.1 x 19.0 x

0.5 x

0.8 x

N/A

SWOT Analysis:

Strengths:

• Publishing Segment enjoys over 60% Market share in Western India.

• Strong Brand name & strong network.

• Strong Entry Barriers in Publication segment.

• Enjoys Pricing Power

• Unique & scalable business model of eSense.

Weaknesses:

• Publication business is seasonal in nature with 55% to 60% sales occuring in first quarter.

• Publication growth is driven by changes in syllabus.

Opportunities:

• E-Learning Market at nascent stage - 90% market still untapped.

• Organized Stationery players gaining market share at 12% annually.

• Expansion of K-12 and Pre-school provides humungous opportunities.

• Huge untapped potential in Education Sector.

Threats:

• Competition from Second Hand Book market for guides.

• Stationery segment faces tough competition from cheap Chinese products.

• Fluctuations in Paper Prices which is the major Raw Material.

Conclusion:

Among peers, Navneet is the most mature company with $405 m as Enterprise value & with equity of

$377 m. Barring MPS, Navneet has shown the best EPS growth rate at 13.6% compounded annually.

The high EV/sales & EV/EBITDA shows the positive market perception of Navneet as a growth stock.

The estimated PE ratio also confirms our hypothesis. The combined effect of lower PEG ratio & high

EPS predicts that the company will give better results than its peers in near term horizon.