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Navneet Publications: Research meet extracts

Mar 12, 2008

In our previous article we had a look at the company’s business. We recently met the management of Navneet Publications to understand the prospects of publishing and stationery businesses going forward and the strategies adopted by the company to maintain its dominant position. The education system in India: The chart below highlights the fact that the education system in India is in the hands of the Government and there are three different boards:

  1. State council for educational research and training (SCERT), which caters to schools falling within respective states.

  2. Central board of secondary education (CBSE), which guides schools across India and outside India (India schools).

  3. Indian council for secondary education (ICSE), which is administered by Cambridge university.

Out of these three, 95% of the schools within a state irrespective of the medium of instruction follow the State level curriculum, while the remaining 5% of the schools follow the Central Board curriculum. This is the reason why Navneet is present in the supplementary curriculum business catering to State level curriculum.

A glance at the table below explains that, except at the pre-school and college level, there is no role for private publishers. Further, in India the education system is exam centric. Owing to these factors Navneet’s area of focus has always remained supplementary curriculum books that include digest, 21 question sets, workbooks, general books. Further, the company has recently entered the field of electronic learning.

Level Mangaed by Curriculum developed by Text books prepared by
Pre-school Private organisations Respective organisation Private publishres
School Government / Private organisation CBSE / SCERT / International / ICSE NCERT / SCERT / International publishers / ICSE
School / College Government / Private organisation CBSE / SCERT / International / ICSE NCERT / SCERT / International publishers / ICSE
College Various Universities Respective Universities Private publishres

The scope to grow: The market size of the segments (i.e. pre-primary, primary, secondary and higher secondary) where Navneet has a presence put together is approximately US$ 410 m. Navneet enjoys approximately 13% to 14% of the market share. Unorganised players account for 90% of the publishing market and organised players like Navneet are growing by eating up the share of unorganised sector. Though there are many small players in publication business, Navneet commands leadership position owing to its brand positioning and the fact that it is one of the oldest in this line of business.

In the stationery segment too, the unorganized players account for 95% of the market. Having said that, in the stationery business there do exist few big players like ITC and Sundaram. But considering the low penetration of the organised sector, there is scope for every company to grow and expand its business. The well established organised players are competing with the unorganised sector to scale up their business and increase market share.

Cyclical business: The company’s core business i.e. publishing is of cyclical nature. The sales zoom up with the opening of schools and with the change in syllabus. In India and in the states where the company is present syllabus is typically changed over a period of 7 to 8 years for all the standards. As the process is done over a period of years, not all standards syllabus is changed simultaneously. Thus, after every two to three years the company’s sales are boosted owing to change in syllabus, which is highlighted in the table below.

Syllabus change for the academic year
State FY05 FY06 FY07 FY08 FY09E FY10E
Maharashtra - - 1, 5, 9, 11 2, 6, 10, 12 3 & 7 4 & 8
Gujarat 8 & 11 9 & 12 10 5 & 6 3 & 4 -

As the syllabus of higher standards, where reference material is more in demand, has been changed in FY07 and FY08, the impact of the same is reflected by the topline growth of almost 12% and 20% achieved by the company during the respective periods. Thus, going forward, the growth in the topline would be a factor of normal sales and with increased penetration of stationery business in the domestic markets.

The way forward: As regards the publication business, Navneet focuses on maintaining quality of content and revises it as per suggestions and change in syllabus. Further, the company has launched a new product called e-learning, where textbook material is presented in an audio visual form, which not only eases the teacher’s job but also fascinates children leading to high interest levels towards learning. Further, the teacher student ratio has degraded over the years to 1:50, when 1: 20/25 is considered ideal. These factors and the growing importance of technology has marked the company’s foray in the electronic business. The e-learning product has been launched in 110 schools in Gujarat on a pilot basis and the company is targeting 1,000 schools in Maharashtra. The company has not yet fixed its pricing and would take further decisions with respective to this product depending upon the response.

With respect to the stationery business, the company intends to expand and penetrate more in the domestic market to offset the impact of slowdown in exports. The stationery industry has a flourishing future in the coming years and over a period is estimated to grow at 10% to 15% per annum. Retail boom, rising income levels, changing and expanding corporate base and government’s increased focus on education will continue to give a further fillip.

The company adds 200 titles every year and has a huge network of 60,000 retail outlets for its various products. Under direct marketing it covers almost 150,000 schools and 20 m students. The company’s manufacturing facilities are located at Vasai, Silvasa, Daman, Santej and Dantali.

Capex plans: The company has already spent Rs 8 m on development and marketing of the e-learning software. Apart from the maintenance capex and marketing of the e-learning product, which is in the range of Rs 80 m to 100 m, there is no other capital outlay as there is no need to expand capacity.

Margin expansion: The company’s EBITDA margins, which hovered at around 20% levels, have improved by almost 2% in FY07 to 21.8% owing to increased contribution of the publication segment, which enjoys higher margins. There is no bargaining power as such owing to competition. Though margin expansion is brought about by increased share of publication business, the same might get offset with increased expenses, preliminary costs of launching the new product – e-learning. Thus, margins are expected to stabilise at this level.

What to expect?
The low penetration of education in India and the government’s thrust to improve the education system and extend this right to every Indian only highlights the scope for companies like Navneet Publications to grow and expand their business. At the current price of Rs 104, the stock is trading at 18.7 times its trailing twelve-month earnings. We shall soon come out with a report on the company.

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