Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the short-term bank facility and commercial paper programme of Navneet Education Ltd (Navneet).

 

The rating continues to reflect the company’s established market position in the educational books segment in Gujarat and Maharashtra, healthy presence in the stationery segment in the domestic and global markets, and comfortable financial risk profile. These strengths are partially offset by limited geographical diversity in the publishing business, seasonality of business operations and susceptibility to intense competition.

 

Consolidated revenue for NEL grew ~3% in fiscal 2024 to reach Rs 1,748 crore from Rs 1,695 crore previous fiscal on the back of a 7% growth in its stationery business (which contributed 57% to the fiscal 2024 revenue). The publishing business (43% of fiscal 2024 revenues) reported a flat performance due to a surge in the resale of secondhand books following no major curriculum change in Gujarat and Maharashtra. The operating margin, meanwhile, was lower at 17.4% in fiscal 2024 against ~18% in fiscal 2023, led by increased employee cost and operational expenses. For the first half of fiscal 2025, NEL reported revenue of Rs 1,070 crore against Rs 1,057 crore for the same period last fiscal. Margin, meanwhile, stood higher at 20.8% against 19.4% in the first half of this fiscal on account of low raw material prices. Crisil Ratings expects steady growth in the stationery segment to drive the increase in topline for NEL going forward.

 

In the first quarter of fiscal 2025, Navneet Learning LLP (NEL holds 93.0%) divested ~5.1% stake in K12 Techno Services Pvt Ltd (K12) for a consideration of Rs 225.18 crore. After this transaction, NEL holds ~14.9% stake in K12. A part of these proceeds was utilised to fund the Rs 100 crore share buyback programme in the second quarter of this fiscal. Part proceeds will be used to further strengthen its core businesses by funding capital expansion exercise over the medium term.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Navneet and its subsidiaries: Navneet Futuretech Ltd (formerly, eSense Learning Pvt Ltd), Indiannica Learning Pvt Ltd, Navneet (HK) Ltd, Navneet Learning LLP and Navneet Tech Venture Pvt Ltd. 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: Navneet has a leading market position in the supplementary books segment in western India, primarily Maharashtra and Gujarat. Strong brand equity, an extensive distribution network, and superior content creation capability backed by a team of experienced authors and established tie-ups with schools support the market position. Changes in the school curriculum and initiatives to expand into new geographies will support scale of operations in the educational books segment over the medium term.

 

• Healthy presence in the global stationery market: Barring the impact of the pandemic in fiscal 2021, Navneet clocked strong revenue growth of 14% and 29% in fiscals 2020 and 2019, respectively, in the stationery segment, largely driven by exports. A preferred partner status from retailing giant, Walmart, supported the stationery segment, which grew 8.9% in the six months through September 2024 over the corresponding period previous fiscal. The company is a dominant Indian player in the US market with clients such as Walmart, Target and Staples, and continues to diversify its presence in Europe and Africa to minimise dependence on any one key customer.

 

• Healthy financial risk profile: The balance sheet is healthy, driven by Crisil Ratings adjusted networth of Rs 1,238 crore as on March 31, 2024, versus Rs 1,090 crore previous fiscal, and working capital debt (Rs 245 crore) resulting in strong debt protection metrics with gearing at 0.2 time in fiscal 2024 against 0.25 times in the previous fiscal. Healthy cash-generating ability and prudent working capital management have led to no dependence on external borrowings. The total outside liabilities to tangible networth ratio was comfortable at 0.36 time as on March 31, 2024, (0.46 times as on March 31, 2023), while the interest coverage ratio remained healthy at 14.4 times in fiscal 2024 (22.81 times previous fiscal). The overall financial risk profile is likely to remain comfortable, supported by healthy accrual, nil long-term debt, and strong liquidity (including unutilised bank limit).

 

Weaknesses:

• Limited geographical diversity in the publishing business: The mainstay publishing business (contributed 41% to the revenue in fiscal 2024) provides study materials for the state boards of Gujarat and Maharashtra, leading to revenue concentration and limitation of geographical diversity, which constrains the business risk profile. That said, the stationery segment for Navneet has shown steady growth in the domestic and international markets following pandemic-related disruptions.

 

• Exposure to intense competition: 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 stationery. In the publishing business, second-hand books have a prominent market share, which constrain sales when there is no change in syllabus or when there is a rise in paper prices.

 

• Susceptibility of operating margin to fluctuations in raw material prices: In the publication and stationery industry, cost of production and profit margin depend heavily on raw material prices, which account for a major portion of the production cost. Prices of key materials (primarily paper) have been volatile in the past few years. Moreover, the company may not be able to fully pass on increase in raw material prices to customers owing to intense competition.

Liquidity: Strong

Liquidity is healthy with expected accrual of Rs 200-230 crore (from the usual business, excluding the extraordinary gain from divestment of its stake in K12 in fiscal 2025), which is sufficient to meet expected capex of Rs 50-70 crore annually over the medium term amid nil term debt obligation. The company had liquid surplus of over Rs 275 crore as on September 30, 2024. The liquidity is supported by access to working capital limit of Rs 537 crore, which was utilised 11% on average in the 12 months through November 2024, providing a liquidity cushion to meet any exigencies. With gearing of 0.2 time as on March 31, 2024, there is sufficient headroom to raise debt for capex or liquidity, if required.

 

Environment, social, and governance (ESG) profile

Crisil Ratings believes the ESG profile of Navneet supports its adequate credit risk profile.

 

Key ESG highlights

• In its efforts to reduce reliance on fossil fuels, the company has installed 724-kilowatt peak of solar panels at two of its manufacturing facilities, directly substituting 7% of non-renewable energy consumption for renewable sources of electricity. The company also installed wind power capacity of 4.8 megawatt, generating 68,68,689 units of power annually. In total, about 70% of total electricity requirements are offset by renewable sources of energy.
• Initiatives to reduce the carbon footprint have led to a significant reduction in carbon dioxide emissions, resulting in an overall carbon offset rate of 55%. Total Scope 1 and Scope 2 emissions (tonne of carbon dioxide) per rupee of turnover has been reduced by ~5% in fiscal 2024.
• In fiscal 2024, of the total paper procured as raw material, 16% was recycled while 35% was agro-based, making up a total of 51% of total material used in products.
• To decrease plastic waste, water-based ink carboys are lined with polybags for reuse by the manufacturer, significantly reducing plastic consumption. Moving away from lower-micron plastics (BOPP, PP bags, and shrink film) to higher-micron alternatives minimises environmental risks associated with plastic usage.
• Hazardous materials generated are disposed through government-authorised vendors, ensuring strict compliance with regulatory requirements and guaranteeing the safe and responsible handling of hazardous waste, including e-waste.
• Zero liquid discharge mechanism is implemented at all the manufacturing sites, mandated by the State Pollution Control Board. Also, water treated at the sewage treatment plants and the effluent treatment plants is reused for gardening.
• Navneet has implemented the Occupational Health and Safety (OHS) system across all its plants and offices, with its head office and two major sites holding ISO 45001 certification for their adherence to industry-leading safety standards.
• Navneet has an adequate governance structure, with 50% of its board comprising independent directors, the presence of an investor grievance redressal mechanism, and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. Navneet’s continued commitment to ESG principles will play a key role in enhancing stakeholder confidence.

Rating sensitivity factors

Downward factors:

• Sluggish business performance along with moderation in operating margin on a sustained basis
• Substantial increase in working capital requirement or any large, debt-funded investments leading to gearing remaining above 1.50 times
• Higher-than-expected investment in group or associate entities impacting Navneet’s financial risk profile

About the Company

Navneet was incorporated as Bookwing Publication (India) Ltd in 1959 by Gala family and was renamed Navneet Publications (India) Ltd in 1992 and got its present name in August 2013. Publications are sold under the Navneet, Vikas and Gala brands. The product portfolio additionally includes paper-based and non-paper-based stationery. The company also provides e-learning services in Gujarat and Maharashtra through its wholly owned subsidiary, Navneet Futuretech Ltd.

 

Navneet 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 focusing on business-to-business products such as top class, which target educational institutions. Navneet recently divested its 20.25% stake in K12, reducing it to 14.92%. Thereby, the latter has ceased to be an associate company of Navneet.

 

Excluding the extraordinary gain from the said divestment, for the six months ended September 30, 2024, profit after tax (PAT) was Rs 200 crore and revenue Rs 1,069.6 crore, against Rs 182.6 crore and Rs 1,287.8 crore, respectively, for the corresponding period previous fiscal.

Any other information: Not Applicable