Expect 50% upside in Navneet Publications: Rajen Shah

Expect 50% upside in Navneet Publications, says Rajen Shah, Angel Broking.

Shah told CNBC-TV18, "Navneet Publications is looking interesting at the current price of about Rs 64. Based on the developments, which are happening in the education industry and in Navneet in particular, I think 50 percent upside in this stock over the next 24 months is possible. We have a target of around Rs 100 for Navneet in about 24 months from now."
He further added, "Navneet is a very dominant player in the education content publishing business in Maharashtra and Gujarat. The recent changes in syllabus in both these states augurs well for this company. In fact, because of the changes, the management is expecting at least 15-18 percent kind of growth in its publishing business. Since, this business contributes about 60 percent of the total top-line, it will have a material impact on the overall performance of the company both on the top-line and bottom-line. We are already seeing that."
"The second business is a stationary business where the company is picking up very well and in fact has got very good export orders from US. So both these businesses are doing very well. Recently, about a year or so back the company got into education business in a direct way. It took up a stake in Hyderabad based company called K12 by pumping about Rs 30 crore."
"This K12 basically is into the school management business and manages about 67 state board schools in Hyderabad, in Andhra Pradesh and about 8 junior colleges. That business is picking up very well. The management of K12 is talking about taking this to about 200 schools over the next three-four years in the remaining four southern states. It is a huge opportunity Navneet is getting into."
"Besides, this school management business, which it will be doing via this stake in K12, we believe that this tie-up will help it grow its publishing business that has been so far very dominant in Maharashtra and Gujarat. Now, it will be entering into this publishing business in Andhra Pradesh, Tamil Nadu, Karnataka and Kerala. This is a long-term story. It is going to take three-four years to play out. Based on all this, we are expecting at least 18-20 percent kind of topline growth in Navneet for the next three-five years."
"One more interesting thing happened in Navneet is that the director of primary education in Maharashtra, he is talking about digitalizing about 60,000 schools over the next three-four years. This will entail an investment of almost about Rs 900-1,000 crore over the next three-four years. So this is also a very big opportunity and Navneet feels that it has got a edge over competitor because of its content."
"So net-net, a lot of positive things are happening in the industry and in Navneet in particular. That is why we believe that this stock at Rs 64 has got a very low downside and the upside is very high almost 50 percent that too tax free."
"If you see the financials, yesterday the company declared numbers. Topline went up 40 percent, bottomline went up from Rs 4 crore to Rs 11 crore in a 175 percent kind of jump in the bottomline. Based on this number and the first half number, we believe that Rs 4.5 kind of earnings is very much possible for Navneet for the current year. However, next year we are expecting about 20 percent jump in bottomline. So around Rs 5.5 is what we are expecting for next year."
"If you give a company like Navneet, which is a recession proof industry, about Rs 17-18 kind of price to earnings (P/E) multiple, the stock can easily go to about Rs 100 levels. It is a clear-cut case of about 50 percent upside with about 10 percent downside risk." Disclosure: We own Mahindra Ugine in our PMS.