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Tuesday, September 29, 2009

Navneet Publications India Ltd:Future growth prospects and outlook,buy/sell?

Scripscan:Navneet Publications India Ltd

Story:Whether you buy your books from a mammoth 10,000 sq. ft bookstore, or a 10-shelf neighbourhood shop, you are sure to spot books by Navneet Publications (India), especially in the kids’ books sections. What works for the company is not only its wide reach, but also a broader factor—it being in the education sector, which is non-cyclical.Other than publications, where it prints educational books (such as model question papers and guides) and general books (such as books for children, health and cookery), the company also deals in paper and non-paper stationery.The company has maintained growth across businesses. It controls about 60 per cent publication business market share in western India. Change in school syllabi in Gujarat and Maharashtra in the last few years was a big opportunity for it and its business grew well during those years. Even in FY09, when there was no major change in syllabus, publication revenue saw an increase.The company has avoided stiff competition in the book publication industry by focusing only on supplementary books. Although there are many branded players in the core textbooks segment, there are hardly any for supplementary books.Stationery products are the company’s growth engine. In FY09, the revenue from this segment grew 69 per cent on a year-on-year (y-o-y) basis. This segment’s revenue share has increased from 38 per cent in FY06 to 45 per cent in FY09.In the stationery market, although there are big players like ITC and Camlin, the company’s brand name and well-spread distribution network helps it steer through the competition.To tap the fast growing e-learning avenue, in FY08, it started providing e-learning modules that can be used in classrooms as well as by students individually. It also has a tie-up with an e-learning content provider for content creation.Financial numbers reflect the company’s growth. In FY09, net sales went up by 25 per cent from the previous year. A near-flat growth in publication (2.60 per cent) was compensated by high growth (69 per cent) in stationery products. The growth in net profit was low at 4 per cent due to high non-operating expenses.The rising cost of paper is a major source of risk to profit margin. However, till now, it has been able to mitigate the effect of rising paper prices by passing the burden on to customers. Its strong brand name helps it increases prices without affecting sales. Moreover, it is able to hike prices in niche segments such as health, cookery and children’s books, where quality is priority.A major factor in favour of Navneet Publications is that it operates in a non-cyclical sector. India’s young population is growing. That would ensure continuous demand for education products. Increased focus on spreading education, both by the government and private entities, is also a boost for it since it is a leading player.Also, other than the conventional modes of learning, demand in the e-learning segment is set to rise, a tide the company seems ready to ride.The company has a long history of sharing its profits with shareholders. Its policy is to distribute at least 25 per cent of its profits to its shareholders as dividend.At the current level, the stock is a long-term buy that should give you price appreciation plus some certain returns in the form of dividends.

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