Prabhudas Lillader's recent report on Navneet Education Limited gets a buy call for a target price of Rs 163 apiece. Navneet Education is a small cap printing & stationery company having a market capitalization of Rs 3032 crore. Considering the stock's current market price and the estimated target price, the stocks could surge and deliver gains of 25% in 12 months. The company's revenue to surpass the pre-pandemic base while the standalone EBITDA margin will be maintained at 21-22% in FY23E, according to the brokerage.
Stock Outlook & Returns
The current market price of the stock is Rs 127.95 apiece, opened at Rs 130.50 apiece, trading 2.07% below the previous close. Yesterday, the stocks of the company closed at Rs 130.65 apiece.
The current market price is trading Rs 46.95 above its 52 week low of Rs 276.90 apiece, recorded on 24 February 2022. It is trading Rs 6.75 below the 52 week high recorded yesterday, 04 August, at Rs 134.70 apiece.
Over the week, the shares of the company surged by 18.98%. Whereas, in the past 1 month, the shares surged around 32.41%. In the past 1 year, the shares have gained 28.24% and 32.89% in the past 3 years, respectively. In the past 5 years, the stocks have fallen 18.95%.
ROE is 13.07%. PE ratio is 11.31. TTM EPS is 11.35. PB ratio is 2.90. The dividend yield is 1.13% and the face value is Rs 2.
While Navneet Education's top-line of Rs6,828mn (PLe of Rs6,872 mn) was ~14% lower than the pre-pandemic base, PAT was almost similar due to improvement in publishing margins. Though syllabus change schedule for FY23E is not exciting (see exhibit 6); calibrated price hikes and lower usage of 2nd hand books given last academic cycle was impacted by COVID is likely to aid growth in publishing segment. However, management commentary on stationary exports for FY23E was a bit cautious (~15-17% growth guidance) given inflationary environment prevailing in the US. Nonetheless, beyond FY23E, target is to aim for a growth of ~20-25%.
Standalone sales increase 114.5% YoY
Standalone revenues increased 114.5% YoY to Rs 6,828mn (PLe of Rs6,872mn). Publishing and stationery sales increased 261.5%/48.7% YoY to Rs3,571mn/ Rs3,247mn respectively.
Gross/EBITDA margins at 49.6%/30.3%
Gross profit increased 121.1% YoY to Rs3,388mn with GM of 49.6% (PLe of 48.0%). Standalone EBITDA increased 235% YoY Rs2,069mn (PLe of Rs1,979mn) with a margin of 30.3% (PLe of 28.8%). Publishing and stationery EBIT margin was 41.8% and 19.6%.
1) Publishing revenue to spillover in 2Q due to delayed opening of regional medium schools and ongoing migration of students from government schools.
2) Indiannica is expected to grow 15-20% YoY and is likely to be profitable in FY23E.
3) K12 has targets to open 20 new schools next year, thus taking the total to 80 schools.
4) Navneet Education's share in K-12 profits for FY23E is expected to be Rs120-150mn.
5) Publishing volumes were 10-12% below pre-pandemic levels. Spillover expected in 2Q.
6) Publishing revenues expected to reach FY20 levels with 33-35% EBITDA margins in FY23E.
7) Implementation of NEP can lead to 15% growth on a steady state basis in publishing for 4-5 years.
8) Stationery segment to grow 12% over FY20 in FY23E and then at the rate of ~18-20% from FY24E. Margins to be maintained at 12-13%.
Prabhudas Lilladher Recommends Buy For A Target Price Of Rs 163 apiece
Post COVID, Navneet Education has intensified focus on Ed-Tech. Apart from investing in SFA, separate SBUs have been created and explicit hiring for Navneet Future Tech is in pipeline. Management expects EdTech losses of Rs300-400mn in FY23E.
The brokerage said, "As Navneet Education is migrating from a pure play publishing business to a phygital conglomerate we change our valuation methodology to SOTP as EdTech losses will have to be seeded in the interim. Our revised Target Price stands at Rs163 (earlier Rs121), and we assign 12x P/E multiple (no change) to core business. We arrive at per share value of EdTech/K12 at Rs7/Rs19 respectively. Navneet Education trades at core P/E (ex of EdTech losses) of 11.4x/10.3x over our FY23E/FY24E EPS and valuations appear undemanding for a business with RoE/RoCE of ~21%/27% (pre-pandemic 5-year average). Retain BUY."
The stock has been picked from the brokerage report of Prabhudas Lillader. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.