Navneet Education - Q4FY22 Result Update - Growth levers in place - BUY

Mr. Jinesh Joshi - Research Analyst at Prabhudas Lilladher Pvt. Ltd.

Quick Pointers:

- Publication and stationary revenue to breach pre-COVID base in FY23E.

- Stationary exports to grow at 25% CAGR over 3-4 years.

While NELI's top-line was ahead of our estimates due to swift recovery in stationary exports; GM at 53.8% was broadly in-line with our expectation. Though syllabus change schedule for FY23E is not exciting (see exhibit 6); given last academic cycle was impacted by COVID usage of 2nd hand books can be lower aiding growth in publishing segment. On the other hand, management commentary on stationary exports continues to remain bullish and top-line CAGR of 25% is envisaged over next 3-4 years. Apart from strong tailwinds in publishing & stationary exports, NELI has intensified focus on Ed-Tech. Besides ear-marking Rs600mn towards spends in Navneet Future Tech, additional investment of Rs375mn will be made in SFA, a sports tech company in FY23E. While we cut our EPS estimates by 15%/6% for FY23E/FY24E to account for increased spends in Ed-Tech we maintain our BUY rating on the stock with a TP of Rs121 (12x FY24E EPS; no change) amid 1) expected normalcy in publishing business as schools have re-opened 2) strong growth momentum in exports and 3) increasing focus on Ed-Tech.

Standalone sales increase 45.7% YoY: Standalone revenues increased 45.7% YoY to Rs2,779mn (PLe of Rs2,384mn). Publishing sales declined marginally by 1.5% YoY to Rs893mn while stationery sales increased 88.5% YoY to Rs1,878mn. Within the stationery division, exports contributed 49% of sales.

Gross/EBITDA margins at 53.8%/14.6%: Gross profit increased 34.5% YoY to Rs1,494mn with a margin of 53.8% (PLe of 53.0%). Standalone EBITDA increased 36.3% YoY to Rs406mn (PLe of Rs360mn) with a margin of 14.6% (PLe of 15.1%) as compared to margin of 15.6%/15.3% in 4QFY21/3QFY22 respectively. Publishing and stationery EBIT margin was 18.7% and 14.4%.

Con-call highlights: 1) Stationery exports to grow at 25% CAGR over 3-4 years. 2) Stationery export margins to be maintained at pre-pandemic levels of ~16% in FY23E. Since export orders are taken in advance it is difficult to pass on the paper price hike but Rupee depreciation will act as a cushion.4) Stationery and publishing revenue expected to breach pre-pandemic levels in FY23E. 5) Capex of Rs1bn is planned for stationery business over 5 years. ~Rs400mn to be spent in FY23E & FY24E. 6) Indiannica to grow at ~15% CAGR over few years. 7) Indiannica reported highest ever EBITDA of Rs20mn and is expected to be PAT positive in FY23E. 8) Navneet Future Tech has invested ~Rs300mn in 3 companies in FY22. 9) Investment of Rs600mn/Rs375mn planned towards Navneet Future Tech/SFA in FY23E. 10) As per latest valuation round Navneet's share (27% stake) in K12 is valued at Rs6bn. 11) K12 reported revenue/EBITDA loss of Rs1650mn/Rs20mn respectively in FY22. 12) No plans to monetize investment in K12 as of now.

Shares of Navneet Education Limited was last trading in BSE at Rs. 86.95 as compared to the previous close of Rs. 87.55. The total number of shares traded during the day was 9983 in over 281 trades.

The stock hit an intraday high of Rs. 88.85 and intraday low of 82.00. The net turnover during the day was Rs. 857957.00.