Buy Navneet Education; target of Rs 95: ICICI Direct

ICICI Direct's research report on Navneet Education

Navneet reported mixed Q4FY20 results wherein revenues were impacted by Covid-19 disruptions while better gross margins supported PAT growth. Revenue for the quarter declined 15.6% YoY to Rs 207.2 crore (publication: -10% to Rs 55.9 crore, stationery: -17.5% to Rs 151.0 crore). According to the management, due to lockdown company, lost revenues worth Rs 54 crore (publication: Rs 10 crore, stationery: Rs 44 crore). Gross margins improved substantially by 950 bps YoY to 61.6% owing to benefits of a decline in paper prices (~600 bps) and favourable product mix for stationery exports. EBITDA grew 16% YoY to Rs 32.7 crore with margin expansion of 430 bps YoY. PAT for the quarter grew 10% YoY to Rs 62.0 crore. On the balance sheet front, efficient working capital policy led to a decline in NWC days by ~14 to 155 days. Subsequently, higher generation of CFO led to a decline in borrowings by ~Rs 100.0 crore (D/E: 0.3x) in FY20.

Outlook

We cut our revenue, earnings estimates for FY21E by ~26%, 37%, respectively, factoring in Covid-19 disruptions. We introduce FY22E estimates, with revenue, earnings growth of 20%, 46% YoY, respectively. Navneet over the years has maintained b/s prudence having virtually debt free status and generating healthy RoCE of 24%. The stock is available at reasonable valuations trading at 8.4x FY22E EPS. We reiterate BUY rating on the stock with revised TP of Rs95 (10.0x FY22E EPS) (previous TP: Rs 115).

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