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* Export stationary revenue declines 22% YoY to Rs1,550mn.      

We cut our EPS estimates by ~5% for FY27E/FY28E as we fine-tune our top-line growth assumptions for the stationary segment amid ongoing challenges in both domestic & export markets.  NELI IN reported a subdued performance in 2QFY26 with revenues declining 9.1% YoY to Rs2,470mn (PLe Rs2,507mn) primarily due to weak export stationery demand given challenging external environment following levy of tariffs by the US. Additionally, lower realizations in the domestic stationery business driven by correction in paper prices, further weighed on revenue. While gross margin improved to 59.1% (PLe 52.0%) aided by softer raw material costs, NELI IN reported a loss of Rs150mn (PLe loss of Rs194) led by weakness in the stationary business. On positive note, the publication segment grew 10.6% YoY, supported by the initial curriculum change in lower grades. We foresee near-term growth challenges and expect sales CAGR of 5% over FY25-28E with EBITDA margin of 16.5%/16.2%/16.9% in FY26E/FY27E/FY28E. Retain REDUCE with a SoTP-based TP of Rs119 (refer Exhibit 5 for more details).

Revenue decreased by 9.1% YoY: Consolidated revenue declined 9.1% YoY to Rs2,470mn (PLe of Rs2,507mn). Publishing sales improved 10.6% YoY to Rs910mn (PLe Rs864mn) driven by initial curriculum change in lower grades (start of a new NEP-based cycle) while stationery sales declined by 17.5% YoY to Rs1,550mn (PLe Rs1,626mn) due to challenging export environment and drop in paper prices resulting in lower realizations.

GM stood at 59.1%: Gross profit increased 3.2% YoY to Rs1,460mn (PLe Rs1,303mn) with a GM of 59.1% (PLe of 52.0%). GM was better than expected, owing to lower RM costs. Consolidated EBITDA declined 60.8% YoY to Rs10mn (PLe EBITDA loss of Rs95mn). EBITDA was better than our estimates on account of better GM and lower employee cost at Rs700mn (PLe Rs742mn).

Net loss at Rs150mn: Consolidated net loss came in at Rs150mn (PLe loss of Rs194mn) as compared to a net loss of Rs49mn in 2QFY25.

Con-call highlights: 1) NELI IN is actively working to expand presence in Middle East and European markets, which currently account for ~13% of total exports. 2) YOUVA reported revenue of Rs380mn/Rs1,540mn in 2QFY26/1HFY26 respectively (domestic stationery), with non-paper products contributing 8–9%/~6% of revenue in 2QFY26/1HFY26, respectively. 3) Publication revenue is expected to grow by ~14–15% in FY27E. 4) Paper prices stood at ~Rs65,000/ton as of Sep-end and have been stable for the past 6-7 months. Publication paper cost is expected to rise 6% due to GST changes, while stationery paper may see a 3–4% cost reduction. 5) Publication EBIT margin is expected to be at 25–26% in FY26E and improve by ~200 bps in FY27E. 6) ILL reported revenue/loss of Rs35mn/Rs160mn in 1HFY26 respectively. 7) CBSE currently contributes ~5% of NELI IN’s total publication revenue and is expected to increase to 10–11% over the next 2 years. 8) ILL's revenue stood at Rs550mn in FY25 and is expected to be at Rs650mn in FY26E. 9) The possible merger of ILL with NELI IN is expected to provide a financial benefit of around Rs200mn, representing ~25% of ILL’s loss of Rs800mn. 10) K–12 Techno Services, in which NELI IN holds 14.3% stake, is exploring a potential IPO next year at an estimated valuation of around Rs55bn. NELI IN plans to dilute its holding gradually in multiple tranches rather than through a single transaction. 11) NELI IN has invested Rs750mn in Sports For All (SFA), which is currently facing financial difficulties. 12) Domestic stationery volumes declined by ~4% on YoY basis in 1HFY26. 13) For FY26, domestic stationery volumes for paper products are expected to grow 12–15%, while non-paper stationery volumes are projected to double annually over the next 3 years.?

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