Prabhudas Lilladher is bullish on Navneet Education has recommended buy rating on the stock with a target price of Rs 157 in its research report dated February 05, 2019.
Prabhudas Lilladher's research report on Navneet Education
Navneet's (NELI) 3QFY19 results were muted in a seasonally lean quarter with revenues of Rs1,816mn (up 4.1% YoY), EBITDA of Rs157mn (down 23.3% YoY; margins declined 310 bps to 8.6%) and PAT of Rs75mn (margin declined 270 bps YoY). Publishing division's revenues were up 22.0% YoY due to 1) good volume growth from sale of 21 sets (sale typically happens in Dec; bolstered by syllabus change of 10th in Maharashtra) 2) volume cushion from sale of term 2 supplementary books for Gujarat State Board 3) minor price hike taken to cover raw material cost inflation. However, stationery division's revenues declined 12.4% YoY due to fall in volumes in domestic markets and decline in export sales. EBITDA margin succumbed 310 bps YoY to 8.6% due to losses in stationery business and increase in paper prices. We expect sales to grow at a CAGR of 13.9% over FY18-21E backed by steady double digit growth in publishing aided by syllabus changes in the states of Gujarat & Maharashtra and strong visibility for stationery export orders (exports contributed 50-52% of stationary revenues in 3QFY19). Valuations at 14x FY19E and 12x FY20E appear attractive given 21.1% bottom line CAGR over FY18-21E, superior return ratios, average ~50% pay out over the last 5 years, additional revenue delta & diversification advantage coming in from ILL acquisition, and narrowing losses in e-sense.
We value the stock at 18x FY20E EPS and arrive at a TP of Rs157 (earlier Rs150). Maintain BUY.
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