Navneet Educat.

Navneet Education's Q1 FY26 was a mixed bag, with overall revenue remaining flat compared to the previous year. The core Publication business also saw flat revenues, as the anticipated benefit from a Grade 1 curriculum change in Maharashtra was deferred to Q2 due to late textbook arrivals. In stark contrast, the Domestic Stationery business witnessed a sharp 14% YoY decline. Management attributed this to a 9% drop in realization from lower paper prices and a 5% volume loss to unorganized competitors. The Export business provided a slight cushion, growing by approximately 7%.

After six years of revenue stagnation since FY19, management is optimistic about a turnaround in the publication business. They have guided for a robust 15% revenue growth for the full fiscal year FY26, driven by curriculum changes for more than two grades in the key states of Maharashtra and Gujarat. This top-line growth is also expected to drive operating leverage, with a guided margin improvement of at least 2% from the current 25% EBIT level. The historical stagnation was blamed on post-pandemic stress on their middle-class customer base and a structural shift of students to CBSE schools.

While the export segment grew by a reasonable 7% in Q1, a significant cloud of uncertainty hangs over its future. The United States, which accounts for approximately 75% of the company's exports, has proposed a new tariff. Management stated they are 'totally clueless' about the potential outcome and are in a 'wait and watch' mode until a final decision is made by the end of August 2025. This risk has put future investment plans on hold, with the planned FY27 CAPEX of ₹150 crores being entirely conditional on a favorable outcome.

Analysts highlighted the significant drop in standalone publication EBIT margins from a historical 35% to the current 25%. Management clarified that this is primarily due to a structural change: the costs and losses of the digital business, previously housed in a subsidiary, are now consolidated into the standalone entity. These digital components are now considered a mandatory expense, costing ₹15-17 crores annually, to support the core print book business. The company aims to gradually recover margins to the 30-31% level over the next 2-3 years as revenues scale up.

Progress on the company's diversification into the CBSE market and non-paper stationery remains slow. After several years of effort, management has set a conservative 12-15% growth target for the CBSE business in FY26. In the non-paper stationery segment, the company is still in the product development phase, building out a complete range before committing to aggressive marketing spend. This deliberate strategy means these new ventures are unlikely to be significant revenue contributors in the near term.