Education Sector Update : GST transition to weigh down growth by Jinesh Joshi, Research Analyst at PL Capital
Education companies under our coverage are expected to report 10.5% YoY growth in top-line in 2QFY26E. DOMS IN is likely to report 15.0% growth in stationary business as distributor off-take has seen deferment following recent reduction in GST rates. Nonetheless, rise in syndication revenue is likely to bolster SCHAND IN’s top-line while NELI IN’s struggle for growth would stem from rising usage of second-hand books and levy of tariffs by the US on stationery exports. On the operating performance front, DOMS IN is likely to witness 147bps compression in EBITDA margin amid consolidation of lowmargin diapers business. On the other hand, SCHAND IN and NELI IN are likely to report a loss at operating level.
DOMS IN’s top-line to increase by 20.1% YoY: DOMS IN is likely to report a 20.1% YoY growth in top-line to Rs5,500mn in 2QFY26E aided by consolidation of Uniclan (diaper business). Nonetheless, the core stationery business is expected to grow by 15.0% as distributor offtake has been deferred following recent reduction in GST rates. EBITDA margin is expected to contract by 147bps YoY to 17.3% as diapers business is margin dilutive in nature. We retain ‘BUY’ on the stock with a TP of Rs3,085 (60x FY27E EPS; no change in target multiple).
NELI IN’s top-line to decline by 7.8% YoY: We expect NELI IN’s publishing topline to increase 5.0% YoY to Rs864mn in 2QFY26E while the stationery top-line is likely to decline by 13.5% YoY to Rs1,626mn on account of fall in stationary exports amid levy of tariff by the US. Publishing business is expected to report an EBIT loss while stationery segment is expected to report an EBIT margin of 4.1%. Overall, we anticipate revenues to decline by 7.8% YoY to Rs2,507mn with an EBITDA loss of Rs95mn. We cut our FY26E/FY27E EPS estimates by 16% as we re-align our topline assumptions for stationary exports given the ongoing tariff issue and downgrade the stock to “REDUCE” (earlier “HOLD”) with a TP of Rs124 (earlier Rs136). We have rolled forward our valuation to Sep-27E and we value the core business at 11x (no change in target multiple) and K-12 at Rs28 per share.
SCHAND IN to report loss at EBITDA level: SCHAND IN is likely to report a 25.5% YoY growth in top-line to Rs470mn following spillover of syndication revenue from previous quarter. We expect EBITDA loss of Rs591mn in 2QFY26E. Amid anticipation of higher volumes from announcement of new competency-based textbooks for grades 4, 5, 7 and 8, we expect top-line growth to be in early doubledigits for FY26E with an EBITDA margin of 19.3%. We retain ‘BUY’ on the stock with a TP of Rs291 (11x on FY27E EPS; no change in target multiple).
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