Navneet Education Limited — Q3 FY25 earnings call

Call held 6 Feb 2025

Management summary

Navneet Education reported a mixed performance for Q3 FY25, characterized by a stark divergence between its business segments. The Export Stationery division continued its robust growth trajectory, expanding 17% YoY. In contrast, the Domestic Stationery business faced significant headwinds, with revenues falling 24% due to channel destocking as raw material prices declined. The Publication segment saw growth, primarily bolstered by one-off institutional orders. Management has guided for a recovery in domestic stationery from Q4 and provided a positive outlook for FY26, expecting margin normalization and continued export strength.

Highlights

  • Export Stationery revenue showed strong momentum, growing 17% YoY to ₹115 crores.

  • Domestic Stationery revenue declined sharply by 24% YoY to ₹51 crores due to dealer destocking amid falling raw material prices.

  • Publication business growth was driven by a few institutional orders worth ₹15 crores.

  • A fair value gain of ₹25 crores was recognized on the K-12 investment following a secondary transaction.

  • FY25 guidance for the Indiannica subsidiary is for revenue of ₹65-70 crores and a PAT of ₹2-3 crores, marking a turnaround.

  • Full-year FY25 PBT margin guidance for the Stationery business is 10-11%, expected to recover to 13-14% in FY26.

  • Full-year FY25 margin guidance for the Publication business is 27-28%, expected to improve to 30-32% in FY26.

  • The company launched 'Navneet AI' for the teacher community to drive content adoption.

Concerns

  • Sharp decline in Domestic Stationery revenue

Key financials

  1. Fair Value Gain on K-12 Investment ₹25 Cr

What they filed

Q1 FY27: revenue down 0.9%, net profit down 8.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue271 280 389 792 246 −9%251 −10%394 +1%785 −1%
EBITDA9 29 56 230 8 −11%4 −86%40 −29%204 −11%
Net profit3 26 30 161 -6 −300%117 +350%25 −17%148 −8%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Domestic Stationery
    ₹51 Cr Revenue-15% Volume Decline (Q3)-3% Volume Decline (9M)
  • Export Stationery
    ₹115 Cr Revenue
  • Publication
    ₹15 Cr Institutional Order Value
  • Indiannica (Subsidiary)
    ₹6 Cr Revenue (9M FY25)₹-27 Cr PAT (9M FY25)

Guidance & targets

Revenue

  • Indiannica Revenue Revenue · FY25 · High confidence ₹65-70 crores
    So this year, the revenue projection that we have for Indiannica is between Rs.65 crores to Rs.70 crores business.

    — Gnanesh (Sunil) Gala, Managing Director

  • Publication Business Growth Revenue · FY26 · High confidence 10-12%
    In publication business, we are very sure of at least growing by 12% year-on-year... But overall, 10% to 12%, we are very confident of.

    — Gnanesh (Sunil) Gala, Managing Director

Profitability

  • Indiannica PAT Profitability · FY25 · High confidence ₹2-3 crores
    And guidance is about, I think, Rs.2 crores to Rs.3 crores we will make in PAT.

    — Kalpesh Dedhia, Chief Financial Officer

Volume

  • Export Stationery Growth Volume · FY25 · High confidence 15%
    As mentioned in my earlier quarter speeches also in exports front, on a year-on-year, we are still expecting growth of 15%.

    — Gnanesh (Sunil) Gala, Managing Director

Margin

  • Publication Business Margin Margin · FY25 · High confidence 27-28%
    So as far as publication business is concerned, our margins will end at around 27% to 28% for the full year.

    — Gnanesh (Sunil) Gala, Managing Director

  • Publication Business Margin Margin · FY26 · Medium confidence 30-32%
    And next year, because we are expecting better revenue growth, that margin should be around 30-odd percentages... the margins that we would love to go back is between 30% to 32%.

    — Gnanesh (Sunil) Gala, Managing Director

  • Stationery Business PBT Margin Margin · FY25 · High confidence 10-11%
    As far as the stationery business overall is concerned, our margin this year may come to around between 10% and 11%.

    — Gnanesh (Sunil) Gala, Managing Director

  • Stationery Business Margin Margin · FY26 · Medium confidence 13-14%
    But next year, when we see domestic also doing quite well in terms of revenue, that time we should come back to our original margins of stationery between 13% and 14%.

    — Gnanesh (Sunil) Gala, Managing Director

Capex

  • Total Capex Capex · next 3 years · High confidence ₹150 crores
    Of this year, I would have guided that in next 3 years, we shall be spending around Rs.150 crores in the business.

    — Gnanesh (Sunil) Gala, Managing Director

Risks & concerns

  • Sharp decline in Domestic Stationery revenue

    high

    Revenue fell 24% YoY due to dealer destocking caused by falling raw material (paper) prices. Management expects a recovery in Q4 as prices stabilize.

    Management acknowledged

  • Raw material price volatility

    medium

    Falling paper prices negatively impact the stationery business via repricing and destocking, while benefiting the publication business. Management prefers stable prices.

    Both acknowledged

  • Competition in core markets

    medium

    Analysts questioned competition from peers like DOMS and Chetana. Management acknowledged them as long-standing competitors but expressed confidence in their own market position (50-55% in Maharashtra).

    Analyst acknowledged

  • Shift from physical to digital content

    low

    An analyst questioned the risk of a structural decline in physical book pages. Management sees low risk in state board schools and is addressing it with initiatives like Navneet AI.

    Analyst downplayed

Areas of evasion (1)

  • Declined to provide a detailed breakdown of the Rs. 200 crore capex plan on the call, asking the analyst to connect offline.

Q&A highlights

3 direct
Details on the institutional order in the publication business and the fair value gain on K-12 investment. Direct
So the total value in value terms, the amount was -- I wouldn't say it is big, but it was Rs.15 crores... Yes, Jinesh. So the other shareholder being Sofina, which has been holding for a while, they also sold around 5% equity to a new investor based out of Singapore. So there has been a price discovery in the third quarter.

Quantified the one-off driver for publication growth and explained the source of the significant fair value gain, providing clarity on non-operating income.

Asked by Jinesh Joshi

Performance and guidance for the Indiannica subsidiary. Direct
So this year, the revenue projection that we have for Indiannica is between Rs.65 crores to Rs.70 crores business... So PAT is about negative Rs.27 crores. And guidance is about, I think, Rs.2 crores to Rs.3 crores we will make in PAT.

Provided specific financial targets for the subsidiary, signaling a major turnaround from a significant loss-making position to profitability in FY25.

Asked by Arihant

Rationale for continued investment in the historically loss-making Indiannica business. Direct
Indiannica would not have survived without a strong promoter that you are very right. Now why did we continue making losses or we accepted the losses because we are seeing a very, very long-term benefit of the opportunity, which is CBSE... But long term, please be assured that we will be able to generate good IRR on this investment as well.

Addressed a challenging question on capital allocation, forcing management to defend its long-term strategic vision for the CBSE market against poor historical returns.

Asked by Megh Shah

3 min read 6 chapters

Detailed narrative

Segment Performance: A Tale of Two Stationeries

The company's performance in Q3 FY25 was marked by a significant divergence in its stationery business. The export segment continued its strong growth, with revenue increasing by an impressive 17% YoY to ₹115 crores, driven by new product introductions and expansion into Central America. Conversely, the domestic stationery business faced severe challenges, with revenue declining 24% YoY to ₹51 crores. Management attributed this to a cautious approach from distributors who delayed inventory procurement due to continuously falling raw material prices. The volume decline was less severe at 15% for the quarter, indicating that the revenue drop was exacerbated by price reductions.

Publication Business Buoyed by Institutional Orders

The publication business maintained a stable growth trajectory, with Q3 performance significantly boosted by a few institutional orders amounting to ₹15 crores. These orders came from various corporates and government departments looking to provide supplemental educational products. Management believes this business is sustainable as the benefits to students in government and tribal schools become evident, likely leading to recurring orders in the future. For the full year FY25, the publication business margin is expected to be around 27-28%.

Indiannica Subsidiary on a Clear Path to Profitability

After years of investment and losses, the Indiannica subsidiary is set for a turnaround in FY25. For the first nine months, the subsidiary recorded a loss of ₹27 crores on sales of just ₹6 crores. However, management has guided for full-year FY25 revenue to be between ₹65-70 crores with a net profit (PAT) of ₹2-3 crores, indicating a very strong Q4. Management defended the long-term strategic investment in Indiannica, citing the growing shift of students to the CBSE board as a key opportunity.

Margin Outlook and Raw Material Impact

Management provided a clear outlook on margins, which are heavily influenced by paper prices. For FY25, the overall stationery business PBT margin is guided to be between 10-11%, impacted by low margins in the domestic segment. This is expected to recover to the original level of 13-14% in FY26. The publication business margin is projected at 27-28% for FY25, with an expected improvement to 30-32% in FY26 on the back of better revenue growth and operating leverage.

Capital Allocation and Digital Initiatives

Navneet plans to invest ₹150 crores in capex over the next three years, primarily to strengthen the stationery business for exports and new product categories. In a notable non-operating event, the company recognized a fair value gain of ₹25 crores on its K-12 investment, triggered by a secondary sale of a 5% stake by co-investor Sofina. On the digital front, the company has launched 'Navneet AI', a tool for the teacher community, which is expected to indirectly enhance demand for its physical books and digital content.

Competitive Landscape and Market Position

In the Q&A session, management addressed its competitive position, particularly in the Maharashtra publication market. They identified Chetana as a 30-40 year old competitor with an estimated market share of around 15%. In contrast, Navneet claims a dominant market share of 50% to 55% in the state. This highlights the company's strong foothold in its core market despite the presence of established competitors.

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