Navneet reported a dismal set of Q3FY19 numbers wherein results were below our estimates across all parameters • Revenue for the quarter grew moderately by 4.1% YoY to Rs 181.6 crore (I-direct estimate: Rs 200 crore). On the segmental front, revenues from publishing segment grew by 22% YoY to Rs 103.1 crore, while revenue from the stationery segment declined 12.4% YoY to Rs 78.3 crore • EBITDA margins for the quarter declined by 310 bps YoY to a multi-year low of 8.6% (I-direct estimate: 12.6%) on account of higher raw material expense and negative operating leverage. EBIT margins for publication segment improved 268 bps YoY to 23%, whereas stationery segment reported EBIT loss of Rs 6.9 crore vs. profit of Rs 5.8 crore in Q3FY18. EBITDA de-grew by 23% YoY to Rs 15.7 crore • Lower other income (down 32% YoY to Rs 3 crore) coupled with increase in finance cost (up 15% YoY to Rs 1.1 crore) further impacted the PAT growth negatively. The resultant PAT declined 36.5% YoY to Rs 7.5 crore (I-direct estimate: Rs 15.2 crore).
The company’s foray into the CBSE curriculum through acquisition of Indiannica is expected to boost the revenue growth of the publication segment in Q4FY19. It has introduced 56 new titles for the first to eight standards and entered into tie-ups with schools providing revenue visibility for its CBSE curriculum books segment. We expect overall revenues and EBITDA to grow at a CAGR of 14% and 23%, respectively, in FY18-20E. Navneet’s stock price has witnessed significant correction of ~26% in the last 12 months, making it available at valuation of 11.9x FY20E earnings. We maintain our BUY rating on the stock with a revised target price of Rs 130, valuing at a multiple of 15.0x FY20E EPS.