| Navneet Education Limited | ||||
| Rating Reaffirmed | ||||
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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 of the company improved in fiscal 2022 as the impact of the pandemic weakened. The high-margin publishing segment grew by 39% in the nine months through December 2021 compared with the corresponding period previous fiscal, supported by gradual reopening of schools. The stationery segment, cushioned by exports, grew by 22%. Given the established market position in educational books, the performance is expected to be supported by demand recovery, with the schools remaining open for the entire academic year. Any further resurgence of the pandemic and its impact on the operations shall be key monitorables.
The rating continues to reflect the established market position of Navneet in the educational books segment in Gujarat and Maharashtra, healthy presence in the stationery segment in the global market, and comfortable financial risk profile because of strong gearing and debt protection metrics. These strengths are partially offset by limited geographical diversity in the publishing business, and exposure to intense competition. |
Analytical Approach For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of Navneet and its subsidiaries: 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 The company has a 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 market position. Changes in the school curriculum and initiatives to expand into new geographies will also support scale of operations in the educational books segment over the medium term.
* Healthy presence of the global stationary market Barring the impact of the pandemic in fiscal 2021, revenue growth had been strong 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 supported the stationery segment, which grew by 22% in the nine months through December 2021 compared with the corresponding period previous fiscal. With pre-pandemic levels expected to be achieved in 2022, growth should be strong over the medium term.
* Healthy financial risk profile Gearing is expected to be strong at 0.15 time as on March 31, 2022, while interest coverage ratio is likely to be robust at 21.2 times in fiscal 2022. These will remain stable over the medium term. Financial risk profile is likely to remain comfortable, supported by healthy accrual, nil long-term debt, and strong liquidity (including unutilised bank limit).
The company has incurred investments of around Rs 30 crore in fiscal 2022 and plans to incur Rs 40-60 crore over the next fiscal to enhance capabilities in the digital education space. It is looking at both organic and inorganic avenues. These investments are primarily to be funded through internal cash accrual with minimal reliance on external debt. Any significant increase in debt to fund investments will be a monitorable.
Weaknesses * Limited geographical diversity in the publishing business The mainstay publishing business (contributed 40% to the revenue in fiscal 2021) is concentrated in Gujarat and Maharashtra, which constrains business risk profile.
* 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. |
Liquidity: Strong Cash accrual is likely to be over Rs 120 crore each in fiscals 2023 and 2024. Average utilisation of working capital facilities of Rs 602 crore was just 1% during the 12 months through February 2022. The company has no long-term debt obligation and has been funding capex through internal resources. It has sufficient accrual and cash and equivalent to fund capex and investment in subsidiaries. With gearing estimated at 0.15 time as on March 31, 2022, there is headroom to raise debt for capex, if required. |
Rating Sensitivity Factors Downward factors
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About the Company Incorporated as Bookwing Publication (India) Ltd in 1959 by 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. 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.
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 also focusing on business-to-business products such as top class, which primarily target educational institutions. Navneet has minority stake in K12 Techno Services Pvt Ltd, which manages around 42 schools under the Orchid Schools brand.
On a standalone basis, for the nine months ended December 31, 2021, profit after tax (PAT) was Rs 122 crore and revenue Rs 783 crore, against Rs 45 crore and Rs 612 crore, respectively, for the corresponding period previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | ||||||
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Criteria Details
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