| Navneet Education Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the short-term bank facility and commercial paper programme of Navneet Education Limited (Navneet).
The performance in fiscal 2021 was unfavourably impacted by the Covid-19 pandemic. The high-margin publishing segment declined by 69% in the nine months through December 2020 compared with the corresponding period of the previous fiscal as schools remained closed during most of this period. The stationery segment, cushioned by exports, declined by 31% during this period. Given the established market position in educational books, the performance should improve once schools re-open while revenue from the stationery segment should continue to support operations in the meantime.
The financial risk profile remains healthy, despite moderation in cash accrual, due to a conservative capital structure. Any significant capital expenditure (capex) or investments in the backdrop of moderate cash accrual, leading to weakening of capital structure will remain a key monitorable.
The rating continues to reflect an established market position in the educational books segment in Gujarat and Maharashtra, and a healthy presence in the stationery segment in the global market. The rating also factors in a healthy financial risk profile, driven by low gearing and comfortable debt protection metrics. These strengths are partially offset by limited geographical diversity in the publishing business, and exposure to intense competition in the stationery segment and to availability of second-hand books. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of Navneet and its four subsidiaries: eSense Learning Pvt Ltd, Indiannica Learning Pvt Ltd, Navneet (HK) Ltd, and Navneet Learning LLP. The subsidiaries are strategically important to, and have high operational integration with, Navneet.
Please refer Annexure - List of entities consolidated , which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths * Established market position and healthy growth prospects for the publishing business The company has a large market share of 65% in the supplementary books segment in western India, mainly Maharashtra and Gujarat. Strong brand equity, an extensive distribution network, and superior content creation capability backed by a team of experienced authors, support the market position. Changes in the school curriculum and initiatives to expand into new geographies will also support the scale of operations in the educational books segment over the medium term.
* Healthy presence of the stationary business in the global market Revenue growth has been healthy at 14% and 29% in fiscals 2020 and 2019, respectively, in the stationery segment, largely driven by exports. A preferred partner status by retailing giant Walmart helped to partially cushion the impact of the Covid-19 pandemic, as stationery exports declined by 16% in the nine months through December 2020 compared with the corresponding period of the previous fiscal. While sales may remain rather flat in fiscal 2022 due to the pandemic, growth should be strong over the medium term.
* Healthy financial risk profile A healthy capital structure due to the absence of any debt as on March 31, 2021, supports the financial risk profile. While cash accrual was impacted in fiscal 2021, debt protection metrics are estimated to have remained comfortable, with the interest coverage ratio at 13.85 times against 17.77 times in the previous fiscal.
The company plans investments of Rs 150-200 crore over fiscals 2022 and 2023 to enhance capabilities in the digital education space. It is looking at both organic as well as inorganic avenues. These investments are primarily to be funded from internal cash accrual with minimal reliance on external debt.
The financial risk profile should remain healthy over the medium term, supported by adequate cash accrual, nil long-term debt, and strong liquidity (including unutilised bank lines). Any significant increase in debt to fund investments will be a monitorable.
Weaknesses * Limited geographical diversity in the publishing business The mainstay publishing business, which contributed 51% to revenue and 61% to profit in fiscal 2020, is concentrated in Gujarat and Maharashtra. The geographical concentration in the publishing business constrains the business risk profile.
* Intense competition in the stationery segment and availability of second-hand books Intense competition from large companies such as ITC Ltd ('CRISIL AAA/Stable/CRISIL A1+') as well as from unorganised players limits pricing flexibility in the domestic market for the stationery business.
In the publishing business, second-hand books have a prominent market share, and constrain sales when there is no change in syllabus. |
Liquidity: Strong Though cash accruals were impacted in fiscal 2021, liquidity remains supported by large unutilised bank lines. Average utilisation of the working capital facilities of Rs 650 crore was just 5% during the 12 months through March 2021. The company has no long-term debt obligation and has been funding capex through internal resources. Over the medium term, cash accrual should improve thus supporting liquidity. |
Rating Sensitivity factors Downward factors
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About the Company Incorporated as Bookwing Publication (India) Ltd in 1959 by members of the Gala family, the company was renamed Navneet Publications (India) Ltd in 1992 and Navneet Education Ltd in August 2013. Publications are sold under the Navneet, Vikas and Gala brands. The product portfolio also includes paper-based and non-paper-based stationery. The company also provides e-learning services in Gujarat and Maharashtra, through its wholly owned subsidiary, eSense Learning Pvt Ltd.
The company has collaborated with around 1,900 schools to provide digital teaching solutions in classrooms. Products such as e-Learning tablets, cloud-based interactive exams, and application-based audio visuals have been identified as key growth areas. The company is also focusing on business-to-business products such as top class, which are primarily targeted at educational institutions. The company has a minority stake in K12 Techno Services Pvt Ltd, which manages around 25 schools, under the Orchid Schools brand.
On a standalone basis, for the nine months ended December 31, 2020, profit after tax (PAT) was Rs 45 crore and revenue of Rs 612 crore, against Rs 203 crore and Rs 1,235 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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Criteria Details
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