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Published on 25/05/2019 9:33:59 AM | Source: Religare Securities Ltd

Buy Navneet Education Ltd For The Target Rs.138 - Religare Securities

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Growth remains healthy; margins tad lower

Navneet Education Ltd. (NEL) reported its Q4FY19 numbers which was marginally lower than our estimates. Its revenue grew by 15.5% YoY (higher than our estimates) led by healthy growth witnessed in both its key businesses wherein stationery/ publication segment registered a growth of 16%/14.4% in Q4FY19. However, margins came in lower than our estimates at 11.5% (+31bps YoY). Despite better operational performance and lower tax rate, net profit de-grew by 2.3% YoY due to lower other income and higher interest expense during the quarter. For FY19, the company has delivered strong performance with revenue and PAT growth of 20% each driven by robust growth in the stationery segment. Going forward, we continue to remain constructive on NEL’s growth prospects which would be driven by syllabus changes in its key markets (Maharashtra and Gujarat) and sustenance of robust growth in stationery segment. Hence, we maintain a Buy on the stock with a revised target price of Rs. 138.

 

Q4FY19 Result Update:

* NEL reported a decent revenue growth of 15.5% in Q4FY19 to Rs. 245.5 cr led by healthy growth witnessed in both its key businesses. In Q4FY19, the publication segment grew by 14.4% and stationery registered a growth of 16% YoY.

* The operating profit grew by 18.7% YoY to Rs. 28.2 cr, while margins expanded 31bps YoY to 11.5%. The expansion in margins was mainly due to lower material cost during the quarter. On the segment front, EBIT margins in the publication segment expanded 67bps whereas stationery business margins contracted 212bps during the quarter.

* Despite better operational performance and lower tax rate, net profit de-grew by 2.3% YoY due to lower other income and higher interest expense during the quarter. For FY19, the company has delivered strong performance with revenue and PAT growth of 20% each driven by robust growth in the stationery segment. 

 

Outlook & Valuation:

We continue to remain positive on NEL’s growth prospects given its strong leadership position in western India with a market share of 65%. In the long run, we believe NEL is well placed to benefit from syllabus changes in Gujarat and Maharashtra. Moreover with acquisition of EBI and common curriculum for Maths and Science across India provides a huge opportunity for NEL to gain market share in the fast growing CBSE segment. Further, the robust stationery growth is expected to continue due to benefits of GST for organized players and strong growth momentum witnessed in the exports segment. However, given the lower than expected margins in Q4FY19, we have marginally tweaked our estimates for FY20 & FY21E earnings. Nonetheless, we maintain a Buy on the stock with a revised target price of Rs. 138. 

 

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