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Navneet Publications (India)
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs59
Current market price: Rs44
Stationery business: The growth engine Key points -
With the growth in publication business moderating, Navneet Publications India (Navneet) has been banking on stationery business to drive its top line growth. As a result, the revenues from the stationery business are expected to grow by 57% in FY2009 to Rs214 crore. This is also reflected in the revenue contribution from the stationery business that has increased from ~34% in FY2007 to ~44% now. -
To expand its non-paper stationery portfolio further, Navneet plans to launch office stationery products under a new brand in four to five months in the domestic market. We believe, considering the small size of its existing non-paper stationery business (Rs18 crore), the new launch would help Navneet to post a robust growth of ~60% in the non-paper stationery business in FY2010. -
For Q4FY2009, we expect Navneet's top line to grow by a robust 33.8% year on year (yoy) driven by a strong performance of its stationery business. The stationery business is expected to achieve a robust growth of 57.8% yoy primarily led by export sales. We expect the operating margin to improve by 46 basis points primarily on account of a 347-basis-point decline in other expenses as percentage to sales, though higher raw material cost will arrest a higher expansion in the operating margin. -
Driven by a robust top line growth, we expect the operating profit to grow by 40.6% to Rs7.7 crore during the quarter. However, a higher incidence of tax and a lower other income will result into a 21.6% year-on-year (y-o-y) increase in the adjusted net profit (pre-foreign exchange [forex] loss) to Rs2.5 crore in Q4FY2009. -
In the near term, Navneet's revenue growth will be driven by stationery business, as publication business growth will be subdued till further syllabi changes are announced. Further, the increase in the scale of stationery business will also help the company in improving the margins, as economies of scale come to the fore. A distant growth driver that the company is building on is the e-learning venture, which still continues to be in market development stage (student modules not launched). -
We believe, with these growth drivers, Navneet continues to be at attractive valuations of 7.1x its FY2009 expected earnings and 6.1x its FY2010 expected earnings. The dividend yield of 5.5% also aids our view on the stock. We maintain our Buy recommendation on the stock with a price target of Rs59.
MUTUAL FUNDS: WHAT'S IN—WHAT'S OUT Fund Analysis: March 2009 An analysis has been undertaken on equity and mid-cap funds' portfolios, indicating the favourite picks of fund managers for the month of February 2009. Equity funds comprise of all diversified, index, sector and tax planning funds, whereas mid-cap funds include a universe of 24 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc.
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