Prabhudas Lilladher recommended Hold rating on Navneet Education with a target price of Rs 89 in its research report dated June 18, 2020.
Prabhudas Lilladher's research report on Navneet Education
We expect FY21E to be a challenging year for NELI and have cut our PAT estimates by ~22% as 1) in a truncated academic year, demand for workbooks (~45% of sales) is expected to be low 2) domestic stationary business is expected to suffer due to delay in opening of schools 3) outlook for the K-12 business is under cloud (payment of fees can get delayed/completely forfeited during closure) and 4) ILL business can face growth headwinds as penetrating newer schools can get difficult in such an environment. Overall, the publishing/domestic stationary business is expected to register a decline of ~20-25%/~25% in revenues during FY21 due to delay in the start of academic year. Further, our confidence for sharp recovery in FY22 is also low as syllabus change schedule for the fiscal is not out, as yet.
Despite evident growth challenges we recommend ACCUMULATE (earlier an BUY) with a TP of Rs89 (earlier Rs82)) as 1) NELI has valuation comfort (despite cutting FY21/FY22 EPS by 22%/8% respectively the stock trades at P/E multiple of 11.9x/9.0; LPA is 15x – hence we marginally raise our target multiple to 10x) 2) improvement in cash conversion cycle to 167 days in a tough environment seems commendable 3) there is comfort over BS; return ratios are strong with healthy dividend pay-outs and 4) outlook on stationary exports is bright (~20% top-line growth expected in FY21).
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