Accumulate Navneet Education; target of Rs 94: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Navneet Education

We cut our sales/PAT estimates by 7.7%/6.0% for FY21E as 1) in a truncated academic year, recouping the entire lost sales of 1Q (strongest quarter) can be a challenge 2) domestic stationary business is expected to suffer due to delay in opening of schools 3) exports stationary business has witnessed some order cancellations and revenue is expected to be flat and 4) ILL business can face growth headwinds as penetrating newer schools can get difficult in such an environment. However, our FY22E estimates are more or less unchanged as we expect normalcy to resume by next academic cycle. While there are near term growth challenges, NELI has taken steps to rationalize fixed cost and is envisaging a reduction of ~10-15% in FY21E. Further, formal induction of New Education Policy (NEP) provides long term visibility as it shall pave way for syllabus changes in a staggered manner over the next 2-3 years.

Outlook

We thus maintain our ACCUMULATE rating with a TP of Rs94 (earlier Rs89) by raising our target P/E multiple to 10.5x (earlier 10x) driven by NEP sweetener. Strong BS (D/E of 0.3x as of FY20) and return ratios with healthy dividend pay-outs give us additional comfort.

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