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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (5014)	7/8/1999 8:00:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 12475

Investment Ideas July 1, 1999 Navneet Publications Ltd (Navneet) navneet.com (Last traded on BSE: 08/07/99, % change over previous close:-1.13%) B=Bombay Stock Exchange, N=National Stock Exchange,Currency=Rs Exg. Code Open High Low Close Vol. (nos) Value B 8989 385.3 385.3 380.0 380.9 11,400.0 4,333,925.0 N 461 380.0 383.0 380.0 383.0 200.0 76,300.0 Investment rationale Leading player in the educational publishing industry : Navneet publishes educational books like Guides, Workbooks, 21 Question Sets, etc under the brand names Navneet, Vikas and Gala. Navneet has over 55% market share in the organized market of educational publications in Maharashtra and Gujarat. Defensive earnings : Educational publications, which account for 65% of Navneet's turnover, have an assured demand from the student community. Demand growth remains unaffected by political or economic cycles, and can only move northwards, with rising population and literacy levels in the country. Besides, an expected change in the SSC syllabus during the academic year beginning in June ‘2000, will accelerate sales growth. Sales typically increase by 25-30% when there is a syllabus change, represented by demand, which is otherwise met by the second hand market. Franchise stores and expansion of titles to drive future growth : Navneet also publishes books for children and other general publications in English, Marathi, Hindi and Gujarati. The company is attempting to expand its presence by introducing a number of titles under the children and general categories, publications in more regional languages and marketing of these in various states all over the country. Exclusive franchise outlets are being set up to market these books. Currently there are 8 such outlets and the company targets to setup 100 exclusive franchise outlets in the next three years throughout the country. No significant competition : Main competitors are Nagpur based Bal Vidya Prakashan and Mumbai based Chetna Prakashan. Besides, there are a large number of unorganized players in the segment. But these players cannot match the wide product range offered by Navneet (2510 titles in four languages), nor can they match the quality offered by Navneet's team of highly qualified and experienced authors. There is no threat of competition from publishers in other states or foreign players, as a large part of turnover comes from books in regional languages like Marathi and Gujarati. Transfer of brands : The brands Vikas, Navneet and Gala are currently owned by unlisted group companies of the promoters - Navneet Prakashan, Vikas Prakashan and Gala Publications. These brands will soon to be transferred to the listed company, the exact modalities of which are being worked out. Valuation at a P/E of 13x F9/2000 estimated earnings is extremely attractive given the company's strong brand equity, an established presence of over 40 years in a defensive business with steady earnings growth and aggressive plans that will capitalize on and enhance its brand value. The transfer of its leading brands from promoter owned companies to the listed company will lead to a re-rating of the stock. Financial highlights . (Rs mn) 09/96 09/97 09/98 09/99P 09/2000P Net sales 1062.5 1112.6 1157.2 1382.0 1708.8 Other income 2.7 5.1 4.0 5.0 5.0 PBIDT 253.9 257.5 281.5 339.0 421.2 Interest (49.9) (41.2) (6.9) 0.0 0.0 Depreciation (33.8) (35.9) (37.2) (40.0) (42.0) Provision for tax (53.6) (51.5) (60.0) (70.0) (85.0) Extra ordinary /P.Y.A. 0.0 (1.0) (1.9) 0.0 0.0 Adjusted PAT 116.7 127.9 175.5 229.0 294.2 EPS (Rs) 12.2 13.5 18.6 24.0 30.9 P/E (x) 32.0 28.9 21.0 16.3 12.6 RONW (%) 24.6 22.4 25.2 26.5 27.1 ROCO (%) 32.3 30.5 32.6 34.0 34.9 Background Navneet was originally incorporated in 1984 under the name Bookwing Publications & Trading Company Ltd. The name was changed to Navneet Publications India Ltd in November, 1991. The company is owned and managed by the Gala family who have over 40 years of experience in the educational book publishing business. The first book under the Navneet brand was published in 1959, by a bookstore owner in Mumbai. The company set up a modern printing press at Gandhinagar in Gujarat in 1987, which was modernized in 1991 by importing state-of-the-art printing and binding machinery. 75% of the requirement is printed at Gandhinagar press and the balance 25% is outsourced. In 1994, the company set up a plant at Daman for manufacture of books and stationery items. The Daman plant has been shifted to Silvassa in 1998. An export oriented unit for manufacture of 5000 tpa of paper stationery products such as writing pads, exercise books, envelopes, etc has been set up at Vasai, in Thane. (Courtesy:Toral Modi,Probity Research)