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“The Internet is an extraordinary distribution channel and we want to leverage on our content.” - Views on News from Equitymaster
 
 
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  • Aug 1, 2000

    “The Internet is an extraordinary distribution channel and we want to leverage on our content.”

    Navneet Publications is one of the few listed publishers in the country. The company is engaged in study guides, workbooks and question sets for students upto class XII. An increasing portion of the company’s revenues also accrues from children’s books. A regional monopoly, nearly 70% of Navneet’s sales are from the states of Maharashtra and Gujarat where the company holds a dominant 55%. It’s brands ‘Navneet’ in Maharashtra and ‘Gala’ in Gujarat have been in existence for over three decades and are well known.

    Mr. Gnanesh Gala is part of the Gala Family that has founded and managed the company over four decades ago. A commerce graduate by training Mr. Gala has been the Director (Finance) of the company for over the last 12 years.

    In an interview with equitymaster, Mr. Gala spoke of the revenue drivers of the company, the Internet initiative of the company and the deployment of cash generation in the near future.

    EQM: Change in syllabi has been a major driver of growth in revenues for your company. (This negates the sale of second hand guidebooks and question sets, which account for 30% of the book sales.) When is the next change due?

    Mr. Gala: This was off course the case in 1995 when the syllabus for Std X and XII in Maharashtra was changed. Thereafter every year there has been a change in syllabus of one or the other standard in either of the states i.e. Maharashtra or Gujarat. Even this gives us incremental revenues. However, a major impact is seen only when the syllabus for the standard X and XII changes.

    EQM: How much would be the jump in revenues if the syllabus for X and XII change?

    Mr. Gala: It would give the company an additional 5–7% in volume terms. This would be in addition to the normal growth of 15%–20%.

    EQM: Within the educational books, what would be the break up of guidebooks, workbooks and 21 question sets?

    Mr. Gala: Educational books themselves contribute around 64% of the company’s turnover and within educational books 43% is contributed by workbooks, 40% by guide books and 17% by 21 question sets.

    EQM: What in your view had led to the impressive growth in children’s books? (These amount to 9% of the company’s turnover.)

    Mr. Gala: First is the awareness that was built up over the last three years. Earlier the communities, with whom we deal with, were not aware of these publications. Each school has extra curricular activity subjects and they also have time periods for such activities. So now they have realized that they have a good tool to teach in the classrooms. That is one reason for their acceptance.

    Second our geographical growth throughout the country has also helped. We now have a presence in 13 states as far as children’s books are concerned.

    EQM: Any plans for geographical expansion of educational books….

    Mr. Gala: No plans for that. We plan to stick to Gujarat and Maharashtra. We have however started to develop content for CBSE primary level books. These are based on NCERT syllabus. It will however take another two to three years before we have the full range of products in that category.

    EQM: You are venturing into multimedia products. Around three years ago the view was that ‘when mofussil areas cannot even afford books how will they go in for CDs’. What has changed now?

    Mr. Gala: The increase in PC penetration in homes has increased manifold over the last one and a half years and this is expected to continue in the near future too. Those who can afford to buy educational CDs are going in for that. Navneet will have to come out with educational multimedia products but we plan to come out with these only in select subjects such as science and mathematics.

    EQM: Is pricing a problem?

    Mr. Gala: I don’t think so. Initially we might feel that reaching a break even is difficult but we will have to make investment in this. Secondly, after developing multimedia products for these subjects, finally we’ll use the software developed on the Internet.

    The cost of developing the CD, which would cost us around Rs 500,000 would be recovered over a period of time. However we would have to price the CD anywhere between Rs 200 to Rs 250 for the market.

    As I see it this is basically a question of initial investment, which Navneet will have to do and if we don’t do it somebody else will.

    EQM: You have set up a 100% subsidiary for your e–com venture. What are the plans? There have been reports that you plan to offer your shareholders, a share in that company…

    Mr. Gala: We are not floating a new dot com company or trying to do a new business. The Internet opens up a new channel for us which we are taking advantage of. The Internet is an extraordinary channel which if accepted within the education system as a whole can be a real boon for everyone.

    It’s like putting up a new machine. You might invest an amount (say) Rs 100 m upfront. But it may not give you returns in the very first year itself. Similar, is the case with the investment in a new channel (as the Internet). But to set up the channel we would have to take the initiative, being a publisher already. What we are leveraging here are our two strengths: content and distribution strength, which the company has developed over the years.

    If we are able to leverage our strengths it will be a real boon for the company. If Navneet does not do that I’m sure some else will do that. If this channel of distribution succeeds, which we feel will happen over a few year’s and if Navneet does not start investing right now we will have a very very tough time in the future.

    We are investing in a business, which we are familiar and successful already. Our URL for the educational site is Connectchool.com. Our aim is to build communities who are already our customers. When I say communities I mean schools, teachers, parents and students. The type of content that we are developing, I’m sure will be very difficult for anyone to replicate on their own.

    Though the investment that we are committing and the returns accruing from that investment may not match initially since the acceptance from these communities may take time. Besides, connectivity to the schools and investments in technology by them is a problem. At present, there are no plans of raising money through the present shareholders. All required money will be invested by Navneet through an equity route and ICD route.

    EQM: What do you see driving revenues in the near term apart from the changing syllabi?

    Mr. Gala: In the short term I see paper stationery driving revenues both domestically and internationally. Navneet’s quality has been accepted by the top quality buyers both in the USA and Europe. Till now we were supplying their tailor made needs at very competitive rates. Now that we have convinced them of our quality we expect to get orders for value added products which give us relatively higher margins. We have already got orders from buyers in the USA and Europe and we expect that process to further accelerate in the future.

    As far as the domestic market is concerned, we are aiming at becoming the preferred supplier for qualitative stationery meeting the needs of the four communities viz. students, parents, teachers and schools. Besides, the growth in our paper stationery business helps us in meeting our raw material requirement at competitive rates.

    We however are not investing in paper stationery machinery but have begun to outsource our needs for the same.

    EQM: How do you source your raw material viz. paper? With paper prices rising almost 25% in the first three months of the current year what is your take on the paper prices in the current year?

    Mr. Gala: We normally enter into long term contracts with paper suppliers. So over a certain period of time we are saved from the rise in the paper costs. Over the balance period a certain percentage of the rise in paper prices is levied to us. Almost 90% of our paper needs are tied up in this manner. We also ensure that we don’t have to increase the prices of our books during one academic year.

    Yes, paper prices have been quite strong in the current year but we’ve not been hit to the extent that paper prices have gone up due to our sourcing system. However, I expect paper prices to remain strong in the current year.

    EQM: You have been generating cash of about Rs 270m – 280 m every year. How do you plan to use your cash in the future?

    Mr. Gala: We will pay rich dividends. We paid 101% dividend last year. A part of the cash would be required for our e–com initiative and some part of it would help us meet our seasonal working capital requirements.

    We also have maintenance capex such as creation of storage capacity for our raw material requirements and some amount of modernization of our printing capacity.

     

     

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