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Navneet Publications: 3QFY08 results - Views on News from Equitymaster
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Navneet Publications: 3QFY08 results
Mar 17, 2008

Introduction to results
  • Topline grows by 29% YoY and 21% YoY in 3QFY08 and 9mFY08 respectively, led by growth across its offerings, publications and stationery.

  • Operating expenses grew in line with the topline, infact a tad higher that led to contraction in operating margins. During 3QFY08, EBITDA margins contracted by merely 0.4%, while in 9mFY08 the same have contracted by 1.7%.

  • In 3QFY08, five-fold growth in interest cost and 50% jump in depreciation expenses is the result of efforts towards moving the e-learning business a step further. The result being 1.2% contraction in net margins.

  • However, during 9MFY08 net margins have witnessed marginal expansion of 0.2% mainly on account of four-fold growth in other income.

Financial performance snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 457 591 29.2% 2,799 3,397 21.4%
Expenditure 395 512 29.8% 2,123 2,633 24.0%
Operating profit (EBITDA) 63 79 25.5% 676 764 13.1%
EBITDA margin (%) 13.7% 13.3% 24.2% 22.5%
Other income 9 11 23.9% 10 40 308.1%
Interest 1 5 550.0% 12 20 68.1%
Depreciation 20 30 49.5% 58 72 23.3%
Profit before tax/(loss) 51 55 7.5% 616 713 15.8%
Tax 17 18 7.1% 194 195 0.3%
Net profit 34 36 7.7% 422 519 22.9%
Net margin (%) 7.4% 6.2% 15.1% 15.3%
No of shares (m) 95.3
Diluted EPS (Rs)* 5.6
P/E (times) 17.8
*trailing twelve month earnings

Topline as guided: The company aimed to grow in the range of 20% to 22% and the same was achieved led by growth in publications and stationery business. The publications business reported 22% YoY growth, while stationery segment clocked 21% YoY growth during 9mFY08. On must also note that the syllabus for most of the standards was revised in both the states, Maharashtra and Gujarat. In the publication business, especially curriculum, the company faces competition in terms of second hand books apart from its competitors. Thus, the revised syllabus has been the reason behind the robust growth in the topline.

Segmental information
EBIT (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Publication 65 77 17.2% 585 760 29.9%
PBIT margin (%) 22.8% 21.4% 29.8% 31.6%
Stationery products (6) 1 -117.2% 85 38 -55.9%
PBIT margin (%) -3.9% 0.5% 10.6% 3.8%
Others 1 (3) -400.0% 5 (2) -149.0%
PBIT margin (%) 13.2% -42.9% 17.8% -17.3%

Seasonal business: This being a seasonal business, lot of expenditure gets rolled over or maybe gets passed on to other quarters. Typically during the 2Q and 3Q of a financial year the company builds up inventory, in 4Q the production takes place and the efforts are rewarded in terms of sales and earnings in 1Q, when the school starts. This is particularly true in case of publication business, whose contribution to the total revenues exceeds 60% and enjoys higher margins.

The operating profits grew by almost 26% in 3QFY08 and by almost 13% YoY in 9mFY08. Operating profits of the company grew at a slower pace compared to topline as growth in operating costs was tad higher compared to topline. The company has built up inventory during the quarter as the raw material prices are on the upswing especially paper, which has to some extent, impacted margins, however, its a short term impact and once the production starts and the products are sold, the costs will be realised. Further, the company has been writing off export debtors. Exports of stationery has been feeling the heat of increased competition overseas and has also been impacted to some extent by rupee appreciation. To offset the decline in exports of stationery, the company is expanding its reach across India and the same has led to increase in sales promotion expenses. Owing to these reasons, there has been increase in expenditure to the tune of Rs 83 m, which includes one time expenditure and additional expenditure. Increased operating expenses led to contraction in operating margins. During 3QFY08, EBITDA margins contracted by merely 0.4%, while in 9mFY08, the same have contracted by 1.7%.

Boils down to bottomline: With the company is testing its new initiatives and sitting on huge inventory, interest cost have jumped five-fold during the 3QFY08. Depreciation cost has also been on a higher side witnessing almost 50% YoY jump. This has led to 1.2% contraction in net margins apart from subdued performance at the operating level.

In 9mFY08, the net margins have expanded marginally by 0.2% mainly on account of four-fold growth in other income. However, if one excludes the other income the same have contracted by 0.6%.

What to expect?
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.

The company has planned to expand and penetrate more in the domestic stationery 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. 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 teacherís job but also fascinates children leading to high interest levels towards learning. The move is in line with the increasing acceptance of technology and changing needs of the society with the teacher student ratio dropping to 1:50 when idle is 1: 20/25.

Retail boom, rising income levels, changing and expanding corporate base and governmentís increased focus on education will continue to give a further fillip. At the current price of Rs 99, the stock is trading at 17.8 times its trailing twelve-month earnings.

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