Saturday, August 18, 2012


Navneet Publications (NPL) reported strong Q1 results in line with our estimates. Revenue was up 18.4% YoY to Rs3.6bn in Q1 driven by strong growth in the publication business. Syllabus change continues to help company maintain its growth momentum. Considering inventory levels at the end of Q1FY13, we expect good growth in Q2FY13 also in its publication segment. Going forward, we believe that both the publication business and stationery segment will
continue to deliver strong growth. We retain Buy rating on attractive valuations, high growth visibility and dividend yield.

Results better than expectation during Q1: NPL reported 18.4% growth in revenue to Rs3.6bn, in line with our expectation. Operating margin remained flat compared to Q4FY12 at 31.8%.

Stationery business revenue growth picks up in Q1: After a weak FY12 performance, the stationery segment picked up in Q4FY12. Revenue grew 20% YoY to Rs1.3bn backed by better order flows from India and abroad. The PBIT margin remained lower by 100bp at 16.9%
YoY. We expect the performance of the stationery segment to improve in FY13E as the company expects strong order flow from international markets. The margin is also likely to improve from Q3FY13 as the company is now concentrating on specific states and increasing penetration there rather than opting for a pan India sales push. This will result in better output and save cost.

Publication segment registers 17.4% growth: The publication business registered 17.4% YoY growth to Rs2.25bn on the back of ongoing syllabus change in Maharashtra and Gujarat states. PBIT margin improved by 110bp to 41.1% YoY on higher sales growth.

Historically, Q1 is a strong quarter for the publication business from a margin perspective as the company gets higher sales in this quarter.  Earnings estimate changed: We have marginally upgraded our estimates for FY13/FY14 considering better visibility of revenue from
both publication and stationery segment.

Attractive valuations; Reiterate Buy: Visibility on revenue growth remains high for the next year due to higher sales growth in the publication segment due to the change of syllabus. Moreover,
government orders and Andhra Pradesh market will also contribute to the revenue. We continue to like the stock due to attractive valuation; better sales mix in favor of the publication segment and improvement in return ratios. We also upgrade our numbers considering better business visibility. We re-iterate our Buy rating on the stock as it gives an upside of  38% with a dividend yield of 2.9% (on Rs1.6 dividend per share).