Prabhudas Lilladher's research report on Navneet Education
While NELI’s top-line of Rs6,828mn (PLe of Rs6,872 mn) was ~14% lower than pre-pandemic base, PAT was almost similar due to improvement in publishing margins. Though syllabus change schedule for FY23E is not exciting (see exhibit 6); calibrated price hikes and lower usage of 2nd hand books given last academic cycle was impacted by COVID is likely to aid growth in publishing segment. However, management commentary on stationary exports for FY23E was a bit cautious (~15-17% growth guidance) given inflationary environment prevailing in the US. Nonetheless, beyond FY23E, target is to aim for a growth of ~20-25%. Post COVID, NELI has intensified focus on Ed-Tech. Apart from investing in SFA, separate SBUs have been created and explicit hiring for Navneet Future Tech is in pipeline. Management expects EdTech losses of Rs300-400mn in FY23E. As NELI is migrating from a pure play publishing business to a phygital conglomerate we change our valuation methodology to SOTP (see exhibit 7)) as EdTech losses will have to be seeded in the interim.
Our revised TP stands at Rs163 (earlier Rs121), and we assign 12x P/E multiple (no change) to core business. We arrive at per share value of EdTech/K12 at Rs7/Rs19 respectively. NELI trades at core P/E (ex of EdTech losses) of 11.4x/10.3x over our FY23E/FY24E EPS and valuations appear undemanding for a business with RoE/RoCE of ~21%/27% (pre-pandemic 5-year average). Retain BUY.
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