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Ladies and gentlemen, good day, and welcome to Navneet Education Q1 FY '24 Earnings Conference Call hosted by Prabhudas Lilladher. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jinesh Joshi from Prabhudas Lilladher. Thank you, and over to you, sir.
Yes. Good morning, everyone. On behalf of Prabhudas Lilladher, I welcome you all to the 1Q FY '24 Earnings Call of Navneet Education Limited. We have with us the management represented by Mr. Sunil Gala, who is the MD; Mr. Kalpesh Dedhia, CFO; Mr. Rumi Mistry, Head IR team; and Mr. Sanjeev Shah, Joint MD of Navneet FutureTech. I would now like to hand over the call to the management for opening remarks. Over to you, Sunil.
Thank you, Jinesh. Good morning and very, very warm welcome to everyone today. Apart from the names Jinesh mentioned, we also have our Investor Relations advisers together on the call. Hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchanges and the company website.
So let me start today the call by giving you all a brief overview on the National Education Policy, NEP as it is called and how it will bring a host of opportunities to Navneet's business. The policy brings numerous advantages to Navneet's publishing business as it emphasizes on play-based learning and an integrated curriculum framework. Education policy will bring in significant demand for updated teaching materials of which Navneet can seize opportunities by providing innovative up-to-date syllabus books and aligned with the NEP guidelines.
NEP also offers a favorable environment for Navneet to grow and develop in the publishing industry, contributing to the nation's education goals, while enhancing its brand reputation as a trusted education publisher. Government in Maharashtra and Gujarat have started working on the implementation of NEP for the next academic year. And the list of titles and/or the standards is anticipated in the coming months. So we'll be able to give clarity on the curriculum change for next year once we receive clarity from the state government of Maharashtra and Gujarat.
Now let me go segment-wise performance. So first, I'll start with publication business. The first quarter has consistently been a robust period for our stand-alone publication business, primarily due to the reopening of SSC school boards in June and in the states of Maharashtra, Gujarat where Navneet currently dominates and has a big market share. As you all would have read, publication business revenue grew by 20% to INR 427 crores, while EBITDA showed positive year-on-year growth driven by price increase and an increase in sales volumes compared to the same period last year.
During the quarter, the revenue from Indiannica, our subsidiary, offering CBSE textbook stood at INR 3.3 crores as compared to INR 7.6 crores in Q1 '23. Let me clarify here that usually for Indiannica business, Q4 is the strongest quarter on account of back-to-school for CBSE students. But in FY '23, we had witnessed follow-on pent-up demand even in Q1 FY '23 as many schools reopened later during that time on account of COVID-19. You all may recall that last year, FY '23 was the first post-pandemic period. We firmly believe in our capacity to grow CBSE business as there is huge potential to cater to more number of schools and existing schools with more number of titles. As I have been telling earlier, more and more CBSE schools are opening in the country and many SSC schools are also getting converted to CBSE.
So overall, for FY '24, we believe the publication business could grow in mid-teens, which is marginally lower than what we had anticipated at the start of financial year. This is because we have increased prices on some of the publications due to paper price rise, which has resulted in slower offtake in end markets. We expect more clarity to emerge in current quarter, and we will accordingly come back to you with a more firm guidance on our next call.
Now I come to the stationery business. First, I'll speak about domestic. So our domestic business revenue also, as you might have read, grew by 22%. Due to inherent nature of the business, there is always a 2-quarter lag in procurement of raw materials and sales realization. Hence, the margins in this business were affected due to the escalation in raw material prices, which was procured in the previous quarters. However, to gain market share, we made a strategic decision to absorb some of the cost increases and not immediately pass it on to the customers.
Fortunately, in the current quarter, raw material prices have started to decline. And coupled with an improved demand scenario, we are confident that the company will be able to achieve a revenue growth more than 15% in FY '24 compared to FY '23 with an enhanced margin profile.
Now I will speak on exports. Our export stationery business revenue grew only by 3%. One of our product category has been evaluated for application of anti-dumping [indiscernible] the U.S. and as a result, orders from this category were not received during Q1. This product contributes 8% to 10% of our export revenue. We have been taking appropriate steps, ensuring a proactive approach to address the situation. However, this loss was offset by the growth in other existing products. As an Indian player in the export market, our brand equity is exceptionally strong, primarily attributed to our commitment to providing quality products and services. To further expand in export markets, we have devised a strategic plan to introduce new offerings beyond paper-based products and focus on value-added products. So that complete on our stand-alone businesses.
Now let me talk -- give you some guidance on our Ed-tech business, business which is under Navneet FutureTech. The business is moving gradually, and our efforts are steered towards growing this business more meaningfully and rationally than today. Therefore, the Board of Directors have guided to review our Ed-tech portfolio and strategy considering the current Ed-tech scenario. We will present a comprehensive strategy to the Board very soon. So that is it from my side.
Now I will hand over to Mr. Kalpesh Dedhia, our CFO, to give you an update on the financial performance. Hand over to Kalpesh, please.
Thank you, Mr. Gala, and good morning to everyone. Hope you all are fine and safe and in good health. Now let me take you through the financial highlights. First, I talk about the stand-alone performance. Our revenue for Q1 FY '24 grew by 15% to INR 785 crores as compared to INR 683 crores in the same period last year. EBITDA for the quarter grew by 8% to INR 223 crores as compared to INR 207 crores in the same period last year. EBITDA margin for Q1 over at 28.4%. PAT for Q1 '24 grew by 6% to INR 158 crores as compared to INR 150 crores in the same period last year. PAT margins were at 20.1% for the current quarter.
Now I come back to consolidated performance. Our consolidated revenue for Q1 FY '24 grew by 14% to INR 791 crores as compared to INR 694 crores for the same quarter last year. EBITDA for Q1 '24 grew by 7% to INR 209 crores as compared to INR 195 crores for the same period last year. EBITDA margins were at -- for Q1 were at INR 26.4 crores. Our consolidated PAT for Q1 grew by 5% to INR 145 crores as compared to INR 152 crores in the same period last year. Consolidated debt margins for Q1 were at 18.3%.
Thank you. That's from my side, and now I open the floor for Q&A session. Thank you.
[Operator Instructions] First question is from the line of Sonaal from Bowhead.
I have a couple of questions. And also, I wanted to let you know that during the call for a few minutes, we couldn't hear you when you were talking about the [indiscernible], education policy. So maybe at some stage during the call, it will be very helpful to all if most of my questions, you could repeat the same.
Sir, first question is, what kind of growth rate would you expect because of new education policy? And is it fair that it will unfold between 2024 to 2027 or '28? And what kind of CAGR in publication business in your stand-alone entity could happen because of that in revenues?
Should I answer, or you will -- you want to ask more questions together? Let me answer this. Let me answer this, Sonaal. Yes. So with respect to FY '24 and thereafter, the growth in publishing business normally will depend which grades our curriculums are changing. As you would know, that contribution of each grade is different in other revenue. But net-net, I should say that on a CAGR basis for the curriculum change cycle around 4 years, we are very confident that we will grow by 15%.
Per annum?
Per annum. Yes, CAGR I said.
Sir, secondly, because of this antidumping duty, what we kind of revenue loss did you have in Q1? As I understand that you've relocated some of these capacities to some other geographies. So sir would you still continue to suffer the losses on account of this product in the next 9 months, or no? And would you be able to recoup the sales lost in Q1 in the next financial year because of relocation of capacities?
Yes. As I mentioned in my speech, the revenue from that category was around 8% to 10% of our total exports revenue. And we are very confident that we'll be able to recoup these lost sales in next year for sure because as you also said, because of relocation of facilities.
But sir, would we continue to lose the revenues on account of this for the remaining 3 quarters as well?
No. This was back-to-school season, and this category normally, we get order in Q4 and Q1. So now we do not have that order for that category normally.
What would have been the loss? Would it be like INR 40 crores, INR 50 crores? Or how much would have been the loss?
Yes, around INR 40-odd crores.
In Q1? Okay. Sir, as the paper prices, you said, have fallen sir. So when would we see the benefit of that in the inventory for stationery and when would we see the benefit of that in publication? And is it fair to say that institutionally, we'll retain part of these benefits, both in export and domestic? And in publication, would we be able to retain the entire benefits? Some light on that would be very helpful.
Yes. So of course, we have to finish the inventory that we already have, which we built over the last 4 months. Suppose that the blended cost of paper would, of course, will start going down from this month itself. But we -- first, we will have to consume the inventory that we have. So maybe from Q3 onwards, we'll start seeing benefits in all the businesses.
And sir, would we be able to retain part of the benefit institutionally in the entire benefit and publication next year?
So entire benefit, I wouldn't say. What we have also seen that...
In publication?
Yes, yes. In publication, we may have to relook at the incremental prices, because last year was unforeseen where we saw paper prices going upward of 40%, 50% in some categories. So if prices really go down drastically, we may relook at reducing the price of our product without affecting our margins.
So you will likely to pass on everything back to the customer? Is that what you're saying?
No, no, no. Not everything, not everything, but whichever particularly lower-grade category of books in this lower standard publications, we may have to revisit if prices go down and remain constant for next one quarter, then we may relook at the revisiting the prices of the product for lower grades.
But is it fair to say that you'll gain some margins because of this net-net at the net level, if not the entire benefit?
Yes. Normally, it has happened in our past history also. So margins will definitely improve because of this. But we have to finally -- Sonaal, have to see the longetivity of the business. And from that point of view, if customers really feel pinch in paying higher prices and if competition also reduces the prices, we may have to reduce some of the prices for some of the products.
And sir, as far as the tech losses are concerned, is there any guidance for 2024 and '25?
So with technology, as I mentioned, Board has guided us to relook at the whole strategy. So Board has guided us to review the entire business and strategy. Hence, it will be difficult to guide on the CapEx spend trajectory for FY '24 as of now. Post our discussion with the Board, we'll come back with a detailed communication on this very soon.
Next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
My first question is on the India Indiannica business. So I think the first participant mentioned that we missed your comments -- initial comments. So if you can highlight what could be the reason for doubling of losses at Indiannica? And is it fair to say that the business will be profitable in FY '24 as was the case in FY '23?
Yes. So first, let me just repeat what I said on NEP, which I believe most of you have not been able to hear properly. So what I was saying is that it will bring a host of opportunities to Navneet business. The policy brings numerous advantages to Navneet's publishing business. Particularly, it will bring significant demand for updated teaching materials for which Navneet can seize opportunities by providing innovative up-to-date syllabus books that align with NEP guidelines. So we have been already doing this for many years, rather since inception. So -- but this year, we believe the type of publications that would be required to implement NEP, Navneet is capable and that we will always have an advantage over it.
It also offers favorable environment for Navneet to grow and develop in publishing industry contributing to the nation's education goals. So overall, I'm saying the NEP, once it starts getting implemented, it will bring in a host of opportunities to Navneet. Now coming back to Indiannica. So Indiannica, as you know, losses, of course, have widened. But usually, Indiannica business, Q4 is the strongest quarter that we have seen over the last several years. In FY '23, particularly post-pandemic, few schools opened very late. And therefore, we saw some pent-up demand in Q1 FY '23. Therefore, you are seeing lesser revenue in the current quarter. But if we see the history, normally, first quarter is in line with FY '24 quarter.
So last year was a little exception. And lastly, to your question, we are very, very confident that Indiannica will definitely be profitable in the current year and going forward and going forward also.
Sir, the second question on the stationery business. You mentioned Q1 and Q4 are the quarters where you were receiving business for the product on which the U.S. is proposing an antidumping duty. So now that Q1 revenue has been lost, what about Q4? Can we get that revenue, or there also will be revenue loss in Q4?
No, we will be able to cater, because we have planned in a way that the impact of antidumping duty is not there on us. So accordingly, we will plan manufacturing of such products at a different location. So we will not lose on these orders.
Sure. And lastly, sir, any update on your investments made in K12, SFA? How is the business panning out, especially on the SFA front, given that you are extremely excited with the fortunes of that particular investment?
So SFA, of course, as I had mentioned in the last call, they performed much better than even their projections last year. And this year also, they are growing very fast. And they have very, very strong plans to enter in various segments with governments and nongovernments. So we are very confident of this investment going forward. I may not be able to share exactly what has happened in Q1, but definitely by -- every year, I would like to give detailed explanation on these two investments. With respect to K12, of course, the growth in number of schools as planned, have happened, received good admissions also. So everything is happening as per plan, and we are clearly seeing lots of opportunities in K12 also.
And sir, what is the last valuation, which we've known in K12?
So last valuation was post money INR 3,000 crores or INR 2,950 crores. One of that number. So that was the valuation of that [ company ] last year.
And we have 22%.
That's right.
[Operator Instructions] Next question is from the line of Amit Khetan from Laburnum Capital.
Sir, if you could just explain a bit better on the export part, right? Is this -- are these products being substituted by U.S. manufacturing? And what is the case for ADD here? And also, how do you see the risk of other products being brought under this ambit?
So Amit, time and again, the U.S. manufacturers when they see lots of imports are taking place across the globe, they try, and they file an application with the U.S. customs. So that has been happening over so many years, and it's not the first time that we have had this issue. Earlier also on notebook category or composition book category, we had the same issues. So having said that, this is just one of the category. And for that category, we have taken care that we manufacture at a different location and export to the same customers. So overall, this year in Q1, we did lost that business. But going forward, we are going to recoup that business for sure.
Got it. But when you say manufactured in a different location, is this like within India, or it has to be in the U.S. or somewhere?
No, no, it has to be outside India.
But not in the U.S.?
No, no, no.
Okay. Okay. Understood. And secondly, if I look at your publication revenues, we roughly did the same revenues as the peak COVID quarter of June '19, right? Just wanted to understand how much down are we in volume terms, and how do you see volume growth in the business?
So compared to FY '19, we are still down by around 10% in volume terms. And what was your next question?
How do you see volume growth from here on?
So this year, in particular we had some challenges and because prices of raw material went up so high that we had to revisit the prices. And the target community or the buyers did face some resistance initially. But now that we all know that finally to learn during the year, they will need this assistance. So this year, we may grow by just mid-teens, as I mentioned in my speech. But going forward, once new curriculum comes, all these concerns will go away.
And the new curriculum, you expect for both, Gujarat and Maharashtra, to be implemented from FY '25 onwards, right? Or do you expect [indiscernible]?
Yes. No, no. In both the states, it will get implemented. Only grades, we do not know, which grades have they decided to implement, which we'll come to know in 1 or 2 months.
Okay, okay. So this will be reflected in [ FY '24 ] revenue onwards?
Yes, yes.
We have our next question from the line of Himanshu Upadhyay from O3PMS.
So my first question was on the publications business, okay? I think it's -- we were expecting kids moving back to private school from government schools. And hence, higher demand would have been there on the publication side, especially for Navneet. Did this fructify in the demand? Or what really happened because we were expecting this thing that these kids moving back should lead to high volume growth?
It has definitely happened, Himanshu, and therefore, we could achieve 20% growth in the current year. That is the main reason. But it is not as expected by us otherwise. We felt more number of students will buy. But overall, volumes have increased compared to last year because of the reason that I had mentioned in earlier calls. And therefore, we could achieve 20% growth.
Okay. Okay. And let's say, Y-o-Y, how much has the volumes increased and price increase has been? You stated from June '19, it is still 10% lower. But in comparison to last year, how has the...
Yes. So we have grown by around 11% in volume compared to last year.
Okay. Okay. And one more thing. Any of the workbooks and guides would be selling even in Q2, Q3. So do you expect the growth should continue? Or we can go at higher to FY '20 numbers in Q2, Q3? Or do you think that business will remain challenging only for the -- in terms of volume growth, not in the value IMC -- for the financial year.
As I mentioned also in my speech, we will get more clarity on how the market is reacting to the price hike in this quarter. So as we speak, we are not much worried on the same, but we will have more clarity during these next 2 months. So -- but overall Q3 -- Q2 and Q3, we do not have more sales of guides and workbooks.
Okay. And one thing on the education tech portfolio. We had reorganized and restructured that business very recently, okay? And we had stated that our focus would be to B2B sales, not B2C sales, okay? Can you elaborate on what has changed so soon that we are revisiting our strategy? Is there any change in the scope of the business or size of the business what we were assessing earlier or to now? Some thoughts on that.
Yes, what we are assessing is the -- first of all, we are doing B2B only. And what we are reassessing today is the adoption in these schools. Once we have good clarity on the adoption levels and the inclination for -- of schools to implement digital technology, that we are reassessing and that will be -- we'll have clarity very soon and -- which, of course, we'll present to the Board as well as to the -- all of you.
Next question is from the line of Mr. Prakash Kapadia from Anived Portfolio Managers Private Limited.
Yes. Sir, on Indiannica, Q4 generally is the best quarter. So on an annual basis, we should achieve the profitability and sales growth target, right? Is that fair understanding?
Yes. That's right. Yes.
Okay. And on the paper prices. So is it fair to say high-cost inventory affected gross margins in the current quarter? Because I don't see any adverse sales mix in terms of contribution, so the gross margin should improve for the balance of the year.
Yes. As I said earlier, by the time we consume the high-cost material, we may see that a little pressure on margin, but we will start getting benefit from Q3 and Q4.
Okay. Second half, we should see that benefit coming.
Yes, yes.
Okay. And lastly, on domestic statutory, do we expect the growth momentum to continue, because we've grown fairly well over the last couple of quarters?
Yes. So I had also mentioned in my earlier call that we will not grow as last year. FY '23, we grew very well. So this year, we were expecting to grow 20%. But on a little conservative basis, we are seeing we are very confident of growing domestic business 15% plus.
Next question is from the line of Riya Mehta from Aequitas Investments.
Congratulations on good set of results. My first question is in regard to Indiannica. Have we increased the prices there? And what kind of adoption with the [ K2 ] kind of category are we seeing for the new syllabus?
Yes. So Indiannica, in this quarter, we have not revised the prices. We had revised last year itself. And as far as the implementation of new curriculum usage, right?
Yes.
Yes. So implementation of new curriculum was just in grade 1 and 2 in CBSE, for which we already had come out with new publications. And we'll see the benefit of this in the Q4 of this year.
Okay. But [indiscernible] the schools adopting is like what kind of inquiries are you getting for the new syllabus in [ K2 ] category?
So as a practice, we go to each and every school of our contact, more than 8,500 schools. So we distribute central copies and try to convince the benefits of our books over others. So overall, the response has been good, but the real result, we'll come to know when we start marketing in Q3, where we start getting -- receiving the orders, and Q4, we get confirmed orders. So that will be the real time when we will know the benefit of the new products that we have come out with. But we are very confident that acceptance level will definitely be good, because products have really come out well.
Okay. And in terms of raw material for basically publication division, what kind of reduction are we seeing in terms of value?
So from 15 June, it has started reducing the major raw material that we use, which is called writing and printing paper that has already come down by around 12%, and we may see further reduction in paper prices. So going forward, we feel that once the next downward cycle also will come in next 1 month or so, and that should stabilize for this year. That's our belief. No doubt paper industry, they may say that they are likely to increase post December also, but we are not hopeful that they will increase. Therefore, we believe this year now onwards, we will have raw material purchased at a much better price than last year.
Got it. And how much price impact have we taken last year in terms of publications, like how much [indiscernible] increase?
So around 15% we had taken price rise last year itself, not this year. So this year, we have not revisited the prices, in particular in Q4. So whatever price revisions we had to make. We had done that in Q3 and Q4. So around 15%, we had revised our prices upwards.
And what kind of inventory of paper do we keep for raw material? And what is our import on [indiscernible]?
So we hardly import 5%, 7% of our total requirement. And raw material inventory levels normally, we keep for 2 months. And we have always seen that shortening that period always becomes very challenging at times when production is at its peak. So normally, we keep 2 months inventory.
But again, you have to understand this is a seasonal business. So our production cycle starts from October and ends in April. So in those months, we have to carry that inventory.
Right, right. And my last question was with regard to the stationery segment. So where do you see the growth coming from in the domestic and standard international, maybe it might remain at similar level or even lower because of inquiries going on? With domestic, where do you see the demand coming from?
Across India. It's not from a particular geography. It comes across India. And we have clearly seen the aspiration to buy a branded product, even in this type of product category is increasing. And so we are seeing it across India.
Okay. So what was your sustainable goal for -- what would be the growth level in the -- for stationery business, domestic and exports, what will be your guidance?
So as I mentioned, 15-plus percent growth in domestic and around 10% growth in exports.
Next question is from the line of Rikesh Parikh from Rockstud Capital LLP.
Sir, just wanted to understand how has been the rollout of [indiscernible]? And [indiscernible], how are you seeing it shaping up?
So we just introduced our product from 1st of April this year. Initial response has been good. Overall, we are reassessing debt portfolio also. And as I mentioned, once we review it properly, then very soon, we'll come back after showing it to the Board.
But any [indiscernible] metrics or something means you can share?
Metrics in terms of the acceptance of product?
Means how many clients onboarded or enrolled or something of those kinds?
I think that will be too specific to ask for -- by you. So I will avoid that and would suggest that when I come back on the overall strategy at that time, we will reveal all the numbers please.
Okay. And in terms of our ERP for the school, so how many number of schools have we enrolled for the current year?
So as far as ERP is concerned, it's not ERP, it is a full package that we sell it to the school. So this year means last in Q4, we had received orders from around 150 CBSE schools. And of course, as usual, more than thousands SSC Board schools had already bought in the current year. It's not ERP alone, it's a full package.
Next question is from the line of Sonaal from Bowhead.
With your permission, can I ask 4 questions, please?
Yes, please.
Sir, firstly, is my understanding correct that the reason why your volumes were low were from June 2019 was because of three reasons? And please help me understand if I'm missing something. Firstly, because the prices increased and there was no change in curriculum, so the competition from second-hand books would have increased, because the gap has increased, and the curriculum has remained same for last few years. So there's no need to change the books right now. Secondly, the schools start late typically in Maharashtra and Gujarat in July and August, and therefore, there was no rush to buy them considering the increase in prices. Is my understanding correct?
No. Second point, you said July and August.
When do the school start in Maharashtra and Gujarat -- reopens?
Yes. So Maharashtra schools in most of the parts, it starts in the month of June. And the Vidarbha as it is called, which is Nagpur and other adjacent 7, 8 districts, it starts from first July. And in Gujarat, everything starts in the month of June only.
Okay. Secondly, sir, so therefore, we are confident that once the course changes, people have no option but to buy the books, right?
Yes, yes, 100%. There's no doubt on that.
And therefore, at least in those courses, you wouldn't have any need to cut the prices, right? At least in those curriculums where the classes would change.
Perfect. Perfect.
Okay. Sir, next question, if I add your export loss of INR 40 crores to the first quarter numbers of exports, I'm seeing a growth of 23%. For your export guidance of 10% to happen, your growth rate in export business for the next 9 months should be only 13%, while you said that you may not lose any further business, because you have been able to address the anti-dumping. So is it that you're expecting a major decline, or you just being conservative of having seen a weak Q1 quarter?
Yes, yes. No, let me tell you, do we receive orders in Q4 and -- but normally, as a business cycle, what happens, we receive orders in Q4, not necessarily the buyers would buy in Q4 only. The supplies happens in Q1 also of the next year. And therefore, this year, though we have lost some orders in the current quarter, but various category that we have introduced in the exports business, so with that, we have been able to at least maintain our revenue in first quarter. And going forward, 9 months, we, therefore, believe that we'll be able to grow at least 10% in the current year.
So sir, for your -- so that's what I was trying to understand, sir, that in first quarter, if I add back this INR 40 crores you have lost because this is not a permanent loss, this is 1 year loss, right -- 1 quarter loss. Your growth rate in exports should have been 23%. Now if you have to meet your full guidance of 10% for the full year, it means then your next 9 months growth should be 13%. So as compared to a normalized 23% growth in Q1, your growth rate is falling to 13%, 9 months. So I'm trying to understand, you are being conservative, or you would actually expect the growth rate to be 10% for the full year?
From where did you arrive this 23% growth Sonaal?
Sir, if I add INR 40 crores to Q1 numbers for your export business, then your export sales would have grown by 23% is my understanding, what you're doing on this.
Yes, yes. That's right.
So -- but for 10% guidance, it means next 9 months should grow only at 13% compared to this 23% normal growth.
I agree, but the loss of this business of INR 40 crores may not come back in the current year. The sale will happen in Q1 next year.
Not in Q4? Okay.
No, no. We may receive -- we will receive orders in Q4. But finally, sales will happen in Q1 next year.
So total loss for the year would be what, INR 50 crores, INR 60 crores?
Mix, INR 50 crores.
Okay. And sir, structurally, what kind of growth rates would you expect in the export business? And let's say, FY '23, '24 was abnormal for paper prices being at lifetime peak. In a normal state, what is the range of margins would you expect at EBIT level in your stationery business, let's say, in FY '25 or in any normal [ area? ]
So like earlier years, in export business, EBIT margin, around 70-odd percent, we are very confident of, which got reduced in the current year because of the paper prices. So we are very, very confident once paper prices comes down and stabilizes, we'll be able to achieve back that margin. Only in this year because of the inventory that we are carrying, we may see a little lower margin compared to normal earlier years. So net-net, going forward, FY '24 onwards, we'll come back to the same margin profile.
So whatever you're making in 2020 kind of margins you should be able to make in '25 also, assuming '25 is a normal year?
Yes, please. Yes, please.
And sir, structurally, what kind of growth rates do we see in our export business, not from 1-year perspective, but let's say, from a 3-, 4-year perspective?
The type of orders that we are -- orders, no. Inquiries that we are receiving not only for paper stationery, but various other stationery products. We are very confident that we will achieve a minimum 15% growth year-on-year.
Next question is from the line of Niraj Mansingka from White Pine Investment Managers Private Limited.
Just wanted to ask a question on the LMS. Can you -- obviously, sorry to have been repeating this. Can you tell us how the scale-up will happen for the next 2 years? And how is your market share, do you expect to evolve in that business?
You are asking about LMS?
Yes. The stock price business that you have.
So my friend, I request Niraj that just wait for some time. Overall, we are studying the, as I said, market acceptance, market adoption, usage in the classroom, whether it really benefits or the [ debt ] study is going on full swing. I just wait for 1 or 2 months, we'll come back with full clarity in the next call or maybe a little earlier.
Okay. So the reason I'm asking is, this is the only business which is not for the investments. If you see from a business perspective of your company, you have publishing and stationery doing obviously, the old business, sir. The growth that may come in longer term will be from Indiannica and FutureTech, am I right, the larger growth?
Yes, yes, yes. So be it, I would -- I should rather say that CBSE business or SSC business. Finally, the core business of paper that will continue to grow for sure, and the digital or the technology will aid further to the publishing business. So overall, everything will go hand in hand.
Okay. Sir, and on the -- can you give also some clarity how the Indiannica business will evolve over the next 2 years like from here? I understand that syllabus change is happening and CBSE business will come to you. But any thought process of how large can the revenues become for the [indiscernible]?
So overall CBSE market -- textbook market for private publisher is an upward of INR 4,000 crores. So we want to have maximum pie from that. So accordingly, we are planning more and more geographical growth. We already have all the publications that are required. So more and more geography, year-on-year, we will try and increase. So that way, we see a good opportunity going forward. So again, there also 15%, 20% growth looks quite possible with the geographical expansion. We should -- rather, I should also mention that curriculum change, frankly, does not benefit Indiannica business, because we are in textbook business. So whatever textbook that schools are buying, they will buy new type of textbooks when we come out with. But it does not really benefit the CBSE publishing business.
Okay. And sir, the INR 4,000 crores you're saying, that's the Indian market revenue market or only Maharashtra and Gujarat regions?
No, no, no. This is -- CBSE in any case, we are selling across India and INR 4,000 crores is India and Gulf, both put together is the total market size for textbook market.
But how much would be the Maharashtra, Gujarat because that is where you are quite strongly present?
No, no, no. As far as Indiannica is concerned, otherwise also that company since inception is in north and major market for them is Northern India and Eastern India. So Maharashtra, Gujarat, it really does not matter to the Indiannica.
And the reason for North and East is because of the origin of [indiscernible], am I right?
No. CBSE type of schools were maximum in those areas.
Next question is from the line of Jinesh Joshi from Prabhudas Lilladher.
Just one small clarification required. Sir, you mentioned that in the stationery pool business from 4Q onwards, there will be no revenue loss as you have shifted the manufacturing to a different location outside of India. So can you share where have we shifted this production to? And secondly, given the fact that you will require a new setup as such to within a 3 to 5 months, will we be ready with the set up to ensure that there is no revenue loss? And secondly, if you can also highlight which products are you referring to over here?
So to specific product category, because it is a little sensitive from various angles that I will not speak about. But we have shifted -- rather we have -- we are almost on the verge of finalizing with an existing manufacturing setup in the neighboring country. And there also has been discussed at length including commercial. So I would like to avoid giving the location right now, but it is in neighboring country.
Any incremental CapEx required for it? Would you like to share?
No, it is an existing manufacturing plant. So I don't think so it will require incremental. Small couple of INR 2 crores, INR 4 crores, INR 5 crores, worth of machinery you may have to invest in, that's it.
Got it. And sir, secondly, with respect to Ed-tech, I mean, this time around, you have refrained from giving any future outlook to [indiscernible] with respect to quantification of losses and all. But how should one think through? Because I mean in FY '22, the losses had magnified, and we had a strategy to kind of go deep in [indiscernible] and now there has been a change of tone. So direction wise, how should we think about losses? I mean, can we expect the losses to come off meaningfully in, say, '24 and '25?
Again, I'm repeating, Jinesh. Just wait for some time. Let us -- lots of research and market survey is being happening. And so let me come up with an exact answer very shortly.
Next question is from the line of Rajin, an individual shareholder.
Yes. Sunil, may I have the liberty of asking a very straight question actually because I missed a substantial part in the beginning. Sunil, we ended '23 with the INR 1,700 crores of revenue and a profit of about INR 204 crores on the consolidated basis. So this year, I had seen the last interview of you also on CNBC, where you had mentioned that we'll touch a revenue of INR 1,900 crores for FY '24 and INR 2,100 crores for FY '25. So is that achievable now, the currency value?
So I do not recall having said INR 2,100 crores for FY '25, frankly, but INR 1,900 crores I did had mentioned. And at consol level, we are confident of achieving that number.
No, you had mentioned 15% growth on the top of that. So I assume INR 2,100 crores.
Yes. Okay. Okay. Okay. No, we are definitely helpful. And fortunately, all businesses have lots of opportunities. So we are very confident of growing at 15%. Okay.
So basically, INR 1,900 crores is what I can assume for the current year. And then at 15% for the next 3, 4 years, which you mentioned earlier in the conversation.
That's right.
What about -- sir, last question, what about the consolidated net profit? Can we expect it to be more than the last year? INR 204 crores is what we achieved last year. So will it be higher than the current year? And going forward also with 15% top line growth, for next 3, 4 years, can we expect a similar growth in consolidated profit?
I'm sure, yes. We already have right plans to grow by 15% at least. And with that, each business is though contribute different margins, but accordingly, it should grow in the same line. I'm very confident of that.
Next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited.
I'm new to this company, so I had a very basic question. I wanted to understand the policies of the organization towards capital allocation as to what is the key metrics that the organization works towards while deciding their capital allocation decisions.
So on capital allocation for publishing business, we hardly require any additional capital in terms of fixed investments. More and more with the increase in businesses, we'll require more and more working capital. And therefore, we normally opt for bank borrowings only on a temporary basis. Stationery business where we will have to invest more money now going forward because of huge opportunities, both in domestic and in exports. So as a policy, you wanted to understand how much do we allocate for each business, if that's right?
Yes. And what are the criteria, see, meaning what kind of return expectations that you have, payback period expectation, what kind of -- see, an organization like yours, which is like fairly well spread out in terms of its business heads and business areas, we always have like -- and businesses always demand money. So which business to get what allocation, which business to get what kind of money. So what are the criteria that you have? [Foreign Language]
On those lines. And if there are any other like qualitative aspects that you consider.
So each of the businesses would differ as far as payback period is concerned. But we should understand one more thing that we never invest keeping in mind short-term benefits, because each business is for it to stabilize really takes long. And yes. Yes. So normally hurdle rate point of view, we always see that minimum 15% return we should get over a period of time, minimum that I'm saying.
Okay. So I suppose if you're investing INR 100 crores, then your expectation is that at a PAT level that sales, whatever happens from there should give you 15% PAT? Is that what I understand?
Yes, whatever investments that we have, yes, that's right. But as I said, it may not happen in the initial year of investment every time, yes. But over a period of time, minimum debt return we should start generating.
So this over a period, like could we say about 3 years?
3 years minimum, yes. Post 3 years.
Yes. Okay. Okay. So it cannot be that 7 years is being taken in terms of [indiscernible], because our business is requiring that kind of -- you're seeing something new...
Yes. Fortunately, all our businesses really do not require huge CapEx. And therefore, that worry is never with us.
Next question is from the line of Kartik Gada from Multipl Wealth Management.
So you mentioned there was resistance from clients, from customers because of the high [indiscernible] in the price of our books. But shouldn't be -- shouldn't the demand be somewhat inelastic. So how much has been the impact of the second-hand books?
Percentage-wise, of course, this such data is never available, but because we were expecting better growth over last year, but we could achieve hardly 10%, 11% growth. And therefore, we believe the usage of second-hand books would have increased compared to earlier years.
Okay. But it was not the first time, right, that secondhand books were in [indiscernible]. So the behavior of holding back on the purchases of new books, was that surprising because you would have taken price hike earlier also, right? So what went different this time?
No price hike in last year would be the maximum in the life of Navneet because -- in the history of Navneet, because we had never seen such price raise in paper industry in a short period of 6 to 8 months. And that could be one of the major reasons. Otherwise, I agree that this phenomenon of buying second-hand books has always been there. But because of extreme price rise in various products, this would have happened, let's say, is our belief. And here also, we are doing proper survey as to understand what made people not buy new books.
Okay. Okay. Sir, any insights on that, or is it still on going, the survey?
What is ongoing, you're asking?
The survey, which you are undertaking.
Yes, it is ongoing. It is ongoing, and it is by our own teams. So it's on every retailer and the users we are trying to go, mainly retailers and rather a whole trade we are going, and trying to understand the real reasons, which we can. If at all required, we can improve upon in subsequent years.
Okay. And can you quantify what was the price hike it was taken?
So last year, as I said, in Q3, Q4, when we started printing, we took price hike of around -- between -- it's not a generalized percentage that we decide depending on the book to book, but between 12% to 15% we would have taken.
Next question is from the line of Amit Doshi from Care PMS.
Sir, this -- the CBSE business, the Indiannica part, what is the rate of conversion of SSC schools to CBSE schools? Is there is some numbers available on what is the rate? Because I believe that the growth that Indiannica would see from primarily from SSC to CBSE conversion of school. That is the kind of rate of growth that I believe would be easier for us. So just wanted to understand that part.
So out of 70-odd thousands SSC English medium schools, we are clearly seeing between 2,000 to 4,000, not -- it is not constant every year. That number of schools are trying to change to CBSE. So that is one, the existing SSCs converting to CBSE. Simultaneously, there are huge number of new schools that have come up purely CBSE with CBSE affiliation. So both put together, we are clearly seeing between 4,000 to 5,000 new schools coming up in CBSE segment.
Okay. Okay. Okay. And second, sir, regarding the sale of immovable property. So we have good balance sheet. So as such, nothing to -- any particular reason we are liquidating this asset, and of course, it is to promote our growth.
Unfortunately, that location where this property is situated is declared as an affordable housing sector by the local authorities. So even if we -- for expansion, even if we have to do major repairs or construct a little more, it's -- we are not getting approvals. With that limitation, we had no option, but to -- we'll have to [ ship ] from here.
Okay. Okay. So we don't have any plan to sell any assets as such just generally to generate cash or something?
No, no, no, no. Generally, we don't want to. Only idle assets we were selling, but in this particular case, because of the local authorities' restrictions, we had no other option.
Ladies and gentlemen, we will take our next question from the line of Himanshu Upadhyay from O3PMS.
This was related to Navneet publishing business only. So we have three segments: workbooks, textbooks and guides, okay? And every year, our [ prescribe edition ] of books and schools would be increasing in Maharashtra and Gujarat, okay? Any targets we have in terms of increasing of our prescriptions or schools prescribing our books. And the slowdown, what we are seeing on the volume, it means 10% lower than the peak. What would be the -- in these three, let's say, workbook, textbook and guides, where would be the maximum lower volume, and where the volume would be least impacted?
So first of all, we don't sell textbooks in the state of Maharashtra, Gujarat. We just sell workbooks and guides. And of course, third category is probable questions set series. So the impact that we are seeing are still the lower percentage that we are seeing over the peak level is in rights.
Ladies and gentlemen, due to time constraint, this was the last question for the day. I would now like to hand over the conference to the management for the closing comments.
Yes. So I take this opportunity to thank everyone for joining the call. I hope I have been able to address all your queries. For any further information, kindly get in touch with me or Strategic Growth Advisors, our Investor Relations advisers. So thank you, Jinesh, in particular, Prabhudas Lilladher as well for arranging this call.
Thank you. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you.