Navneet Education Limited (NAVNETEDUL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Navneet Education Limited Q1 FY '27 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Sunil Gala, Managing Director of Navneet Education Limited. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone. Thank you for joining us today. I am pleased to present our financial and operational performance for the first quarter of the financial year 2027. We are navigating a dynamic market environment. Our Q1 FY '27 results highlight both temporary transitions and the incredible resilience of our core domestic businesses. First, I'll talk about basic numbers. And of course, then I will talk about in detail for each of the business. So the total revenue of the company remained at INR 785 crores, of course, a little lower than what we did in first quarter FY '26. Within that, our publication division recorded a minor dip 3%, moving from INR 419 crores down to INR 405 crores. As well as Stationery segment is concerned, it registered just a small 2% growing to INR 380 crores from INR 372 crores. And within stationery, domestic stationery vertical, it grew by 26% versus export stationery contracted by around 9%. So now I'll talk about the businesses. First, let me analyze the publication division and curriculum impact. The structural encap our publishing division is currently undergoing a favorable shift, promising curriculum changes are actively unfolding across 2 of our primary markets, Maharashtra and Gujarat. While this transition bodes well for our market leadership, it also caused a notable spillover of business from first quarter into the second quarter. Because of this timing difference, our real growth is not fully reflected in the first quarter numbers. The reason also, I should tell you that we will -- we normally publish our publications post release of textbooks from the respective state governments. Now those textbooks were released quite late and not as per the academic year. And therefore, we also could not deliver the same products -- our curriculum products in the market, which happened in Q2, particularly in July. So to gain a truly holistic and accurate picture of how these curriculum changes are positively impacting our business, we must look at our performance across the entire first half of the year FY '27. Of course, this has always talking about not looking at the numbers on a quarterly basis for a seasonal business. The management team remains exceptionally confident about delivering reasonable growth in this segment as the year progresses. Now I'll talk about stationery segment. First, about domestic. So our stationery business delivered a resilient performance this quarter. Of course, again, repeating, the quarter performance does not reflect the full year's performance. But in this quarter, strong domestic expansion successfully neutralized severe international headwinds to keep our total segment revenues net positive. The standout start of the quarter was domestic stationery experience in 26% search. It is, of course, for the current year, fastest growing engine for us. And this growth highlights robust local demand, deeper market penetration and increasingly stronger connection with Indian consumer. To sustain this momentum, we have initiated a long-term strategic plan, and this includes aggressive investments in branding and the key appointment of additional senior talent specifically for our nonpaper stationery vertical. While these upfront investments have placed temporary pressure on the segment's short-term profitability, the management team is formally convinced on this -- on the events, long-term benefits that the branding and the diversification into nonpaper portfolio will unlock for our shareholders. A little bit on our exports. The stationery business faced a tough environment this quarter. The tough environment is mainly on account of supply chain disruptions, escalating geopolitical challenges and overall weakening of demand in the -- in our market majorly to the U.S., of course, we can talk in detail about it in Q&A. Beyond these challenges, as you know, we had put up a new polymer plant, which was primarily set up to feed our exports market. We could not utilize to its optimum capacity due to this global slowdown. And this lower capacity utilization created under-absorbed overheads, which further compressed the overall profitability of our statement -- stationery segment. We view these international challenges as temporary obstacles rather than permanent road blocks. We are actively refining our global supply chain strategies and adjusting factory outputs to better align with fluid global landscape. So in summary, our business is undergoing a vital structural mix shift, while we are temporarily losing traction abroad temporarily, our publishing division and domestic stationery business are -- will emerge as our critical growth drivers, particularly for the current year. Moving forward, we will continue to double down on our high-margin domestic operations, that is the publication business. And we are deploying targeted product innovations and aggressive marketing strategies across our domestic stationery portfolio to capture even more market share. Led by a favorable domestic tailwinds and sharp execution, we are confident that our strategic pillars will drive sustainable long-term value for all our stakeholders. Thank you very much. Instead of me talking more on the business, I would prefer now questions from you all, which I will try giving and satisfying your questions. Thank you.

[Operator Instructions] The first question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, can you give me a bifurcation about how much of publication revenue construct tools versus global [indiscernible] we sell through [indiscernible]?

As such, these bifurcations are never available. Finally, we end up marketing our workbook category to the schools. It does -- it is not compulsory that schools always buy, at times they recommend, which finally students end up buying from the stores. So overall, I can tell you that of the total publication revenues, around 45% comes from the workbook category. And you can say nature of debt is due to recommendation by the respective schools. So 45% of our total revenue is from workbooks.

So I wanted to understand, we were expecting a 15% publication business revenue growth during this year and one of the reasons you mentioned was because of the spillover something should come in Q2. But just these coaching centers, all your platform or the tech platform, so the guys have started supplying their own in-house material workbook kind of material. Sir, so do we see a threat from that segment and for us to grow because this is a very big chunk of our revenue?

During my speech, we did not mention about one of the reason, it is the only reason of we not able to show performance in Q1, whatever curriculum change that has happened in the current year, all the publications that we could sell only in the month of July because of some lead time that we have to give post release of textbook from the state government. So that is the only reason of shift to Q2. Coming to your point on various other new competitions, [indiscernible] this could happen in higher grades, maybe 9, 10, 11, 12 grade, this could happen. I believe though it is not a comparable category at all because our products are quite price sensitive, quite low priced versus what you're talking is quite high price. But having said that, in the current year, in any case, primary level curriculum have changed where there are no coaching classes as well, and it is already proven that digital intervention or rather only depending on digital intervention in the school is not a tactical solution particularly in India, and therefore, books is the only solution.

Sir, so considering whatever volume offtake that you have seen in July month, sir, what kind of growth can you expect in this publication division conservatively for this year?

Around 10%.

I'm sure digital because -- because a lot of schools have already subscribed their books. And because of that, the actual volumes offtake might not be similar -- like what you were expecting for 15% or something else for this lower guidance?

Madhur, let me explain you again that each and every student in the state, they buy government published textbook. Now it all depends on the school's decision, whether should they prescribe workbook also to the students or not. So that process is already on and whatever orders that we would have taken, we have started supplying them in the month of July. And because Q1 is little nervous, I'm giving guidance of 10%. But overall, if you ask me the -- we are quite positive about growing more than 10%.

Got it. Sir, final question from my end. Sir, seeing the very good growth that we delivered in our domestic stationery segment. Sir, overall what kind of growth can we expect in a stationery division? And on the margin front as well because margins for Q1 publication divisions have been a little lower than last year. So what kind of margins can we expect for this year?

So this year, part of the quarter where, particularly in exports revenues were at a discounted rate because of the tariffs were there. Once tariffs are withdrawn and it takes a couple of weeks to get settled, then we started realizing the normal pricing. And that was one of the reason of lower margin in stationery. So particularly of our -- in our exports, in the current year, we are still looking at 5% degrowth versus in domestic stationery, we are looking growth of around 15% to 17%.

And sir, on the margin for the overall business, what kind of margins can you expect?

On the stationery front, I'm expecting around 12% margin.

Okay. And on the publication?

Publication, the margins would be around 26%, 27%.

The next question is from the line of Gunit Singh from Counter Cyclical Investments.

I want to understand because of this deferment or delay in offtake, I mean, how much revenue have we lost in this quarter? So we did about INR 780 CR. So how much of this -- how much revenue have been launched because of this delay in this quarter?

So normally, the rates for which it is change -- the curriculum has changed in the current year, if there was no curriculum change, we would have done between INR 30 crores to INR 35 crores revenue in the publication segment without changed scenario. So I wouldn't say we have lost. All these revenue will come in the month of July. So apart from no curriculum change of INR 30-odd crore plus the growth normally when it -- whenever curriculum changes that we get, so all this growth will come in the quarter 2. Yes, normal publication sales that we would have otherwise done if no curriculum change plus the growth because of curriculum change.

Got it. So you are saying that we should see -- because of the curriculum change. So basically, 85% of our EBITDA comes in quarter 1. And if we look at historically, quarter 2 has been concluding less than 1.5% of our EBITDA? Sir, I want to understand now because of the deferment, how much additional revenue will we have in Q2 because of this deplement? Because we did around INR 247 crores revenues in Q2 last year. So because of this deferment, are we saying INR 247 crores plus INR 30 crores because of the new policy gets?

Yes, plus 30, plus something. So overall, INR 247 crores should reach INR 300-odd crores.

Okay. And even at INR 240 crores -- INR 250 crores, INR 270 crores in Q2, we don't make any profits. So for example, in Q2 FY '25, we did around INR 270 crores, but EBITDA was INR 2 crores. So what kind of an EBITDA -- I mean, can we expect in Q2 because of this deferment?

Gunit, my suggestion would be, if you look at businesses a little separately would be better because the margins in publication business is quite high, which is 26%, 27% versus in stationery, it is hardly single digit, 8% to 10%. So what I'm talking is the total growth that we are expecting for in Q2 would be publishing segment. And therefore, the EBITDA number will be much better in Q2.

Got it. So how much of revenues from publishing was there in Q2 last year. If we get -- I mean, I want to get compared apple-to-apple, so we get an idea of how much revenues in Q2 last year were from the Publishing division?

I'll need help from my CFO, Kalpesh, to open that number, please?

Yes, sir.

And also if you can help how much revenues are you expecting in Q2 from publication this year?

So for publication, Q2 '26 was INR 91 crores.

Okay.

Yes. So INR 91 crores will definitely go above INR 130-odd crores.

Got it, sir. My last question would just be regarding our year guidance that you made for the revenue as well as EBITDA margin, if we look at the entire FY '27? The kind of revenue growth and the EBITDA margins we are looking at?

So again, publishing, I just mentioned to the previous speaker, which is at present, we are talking about 10% margin. And in stationery, it would be on an average, it will be also again between 8% to 10% because domestic business, we are seeing little degrowth in the current year because of the reasons known to all of us versus that will be compensated by higher growth in domestic market. So export market is a little bit in a weak scenario right now.

The next question is from the line of Dhaval Shah from [indiscernible] Capital.

Sir, many of the exporters have received some [indiscernible] refund. Sir, [indiscernible] because we are supplying to retailers of U.S.?

So first of all, all these tariffs till date were paid by our customers. We had not paid any tariffs directly. Now we have put up our request to our customers that if they receive the tariffs back, they should pass on at least the additional reduction in prices that we had given that they should pass back to us. That requests are there, but there are no positive response from -- from them until now.

And how is the outlook for export for stationery?

This year, as I just mentioned, overall, we are seeing de-growth of around 5% compared to last year, and there are major of our back-to-school season, which already went by wherein because of these challenges, we could not supply as usual. And that business cannot just get spilled over. And therefore, that we have lost that business. And therefore, I'm saying overall in the current year, the degrowth by around 5%.

The next question is from the line of Himanshu Upadhyay from Steadfort.

My first question was in the notes, we have stated that we have sold some stay [indiscernible] well, okay -- subsequent to the quarter, okay? And for a consideration of INR 330 crores, okay? Post this transaction, what is our stake in the company? And how much have we sold in this tranche?

So overall, as a percentage, we are selling around 3.7 percentage of [indiscernible] Kalpesh, if you can recollect me how much percentage are we selling?

It is around 4.5%.

4.5% we are selling and how much will be left with?

It will be around 8.8% will be having with us.

Yes, 8.8%.

Okay. And in the last few years, we have been pretty significant CapEx, one on stationery and domestic and also for exports, though exports have not done much. What would be your thought process for this INR 330 crores? Means -- how do you plan to use? And what type of opportunities would you be looking for? And one more thing. Historically, we had done some small, let's say, investment in a private equity form with various companies, okay, and I know you have done pretty well. And a lot many have not done that well, okay. But are we going to continue with that strategy? Or do you think -- some thoughts on that will be helpful.

So there are no thoughts of investments right now. Of course, we will talk internally with the directors. Only area that -- in education, because of the technology, there's so many changes are happening and which we may not be able to look to do ourselves. And there would be some kind of strategic involvement, if at all, we do investments for. But otherwise, there are no long term -- and are there any investment type of -- we don't want to become financial investors in any company now. As far as the utilization of these funds are concerned, of course, we are very clear that going forward, we want to grow Indian market to its full potential in stationery segment. And therefore, apart from organic, there could be some inorganic opportunities also may come, nothing on the table right now, but we want to have this balance with us so that we can take a quick decision on.

Okay. And one thing on the exports side, now the clarity is there on the tariff -- not clarity, but it seems better than what was last year the situation, okay? In terms of our vendors, what type of discussions are happening? And what I understood was in FY '25 before the tariff, U.S. was nearly 75% of our exports of stationery, okay? Post last year's decline in this quarter, so a further decline what percentage of our exports would remain in U.S. And we had thought of expanding beyond U.S. also which was around 20%, 25%. What is happening on that side? And how are you seeing the potential on those markets from here on?

So even though we have grown in other markets a little bit, but compared to U.S. as a percentage that remains negligible. Now with respect to your question on what are the discussions with our customers, not the vendors, but customers. Of course, everyone wants to buy majorly from India. I should say here and which you may hear from most of the industries, FMC, the industries or the consumer delivering industries that the -- because of the inflation at U.S. overall consumption of such product categories have muted or have degrown. And therefore, even though tariff concern is more or less gone, but because of the low upliftment of the products, the demand is not coming through to the suppliers like us.

Okay. And how is the inventory situation means, because see, why this question is because once the last year because of tariff almost everybody would have got affected in terms of suppliers like us. Do you still find the channel inventories pretty filled up and hence, muted outlook for you? Or do you think now the channel inventory has marginalized and it can get better or some thoughts there?

You are right, channel inventory majorly the inventory with our purchases because there is no one in the channel. It is us and directly the major retailers of the U.S. So they are still left out with the inventory. It is -- the uplipment is not like as usual, as I just said, because of the inflationary pressure. And therefore, the reorder numbers quantities are not encouraging as it uses to be earlier.

Okay. Okay. And one more thing on the publishing business, okay? And one of the trends we had been calling out for quite some time was that many state board schools move into CBSE schools. How is that trend going even in this year? And what are you -- and after the merger of Indiannica with Navneet, how are we preparing or planning or working out on those things? And how many schools would have transitioned in this year to CBSE or...

I may not have the exact number because these numbers are officially not available anywhere when I'm talking about converting from the state level to CBSE. Even though they have not got affiliation from CBSE, they start using private publisher textbook and therefore, they call themselves CBSE patent schools. These numbers are not really available anywhere officially. But generally, trend-wise, I'm saying that the growth in such schools is more than 15% year-on-year. So that way more and more English medium schools, which are state affiliated are transitioning to CBSE type of curriculum. That trend is continuous. And as far as we are concerned, now that in Navneet as well as in Indiannica, we have most of the product portfolio with us that we are -- we have already started catering to these schools. And moreover, we have already started publishing supplementary books, the one which we are publishing for a state government of Maharashtra and Gujarat, similar type of publications also we have recently started, not in full -- full for all the standards because even their curriculum changes continues. And with new curriculum, we are going to publish the supplementary books, which will be sold directly in deep trade, just not to the schools. So a full portfolio of textbook as well as curriculum -- supplementary books will be available from Navneet going forward for CBSE schools.

And at one point of time or let's say, 2, 3 years back, we were restricted or we were restricting ourselves to get the standard of CBSE, okay, majority of the books were. Have we reached it 11, 12 majority of the...

So 2, 3 years ago, when I said we were just publishing textbooks. Now technically textbooks in CBSE schools or CBSE patent schools, in 9th and 10th grade, they use government published textbooks only because students have to appear for the board exams. And in their government base books only are preferable. But now what I'm talking about supplementary books. These will be available for all the grades up to 10th grade in particular because these books are -- supplementary books are based on state and central government textbooks. Therefore, that will be available for all the grades.

And one last question. On the domestic stationery side, we have been making efforts for the non-paper based stationery, okay? Where have we reached on that? And do you think it can be a sizable 10%, 15% of our overall domestic stationary? Or we think it is -- we had a lot of time to reach that position?

No, no, no, in 3 years' time, it will be of that percentage. We are very confident of. Recently, what we just did was whatever products that we already had in nonpaper, we -- which was not paid attention, whereas that we changed overall look, feel packaging everything of that, introduced several other product range in the same category. But the new categories will be made available at the end of this year. So several new categories also will be introduced by us.

The next question is from the line of Arihant from Bowhead.

Sir, I wanted to know for Gujarat, like which grades or which subject curriculum changes expected to happen in next financial year?

Roomy, do you have a clarity on that? I do not have in front of me right now.

No, we have not received any clarity yet.

Okay. It means, sir, there is no clarity from the state government itself till now for the next year.

And in this year, there has been change for 3 subjects from grade 2, 3, 4 and 6. Am I right on this one?

Correct. That's right.