Why Navneet Education Expects Steady Margins Despite Rising Costs

Navneet Education Ltd. expects to maintain its Ebitda margin this fiscal despite soaring input costs and stagnant product prices.

The publisher of school textbooks saw a robust June quarter on the operational front and was able to pass on costs. That's in contrast with an SBI Capital survey of 3,000 companies indicating that most of them had Ebitda margins below pre-pandemic levels in the first quarter of the ongoing fiscal.

The crucial factor behind the positive quarterly numbers was schools reopening after two years of pandemic-led closure, Sunil Gala, managing director and chief executive officer at Navneet Education, told BQ Prime’s Niraj Shah in an interview.

“As I mentioned two-three quarters before, once schools reopen we were to come back to normal, and which we did,” Gala said.

According to him, the company could not reclaim pre-pandemic levels by June-end this year, as expected, due to the delayed reopening of schools as some were unable to resume operations by February-March, he said. “With Q1 and Q2 put together, we should be able to match or grow a little bit over pre-pandemic levels.”

Gala is confident of maintaining an Ebitda margin of 21-22% and achieving revenue of Rs 1,600 crore in FY23, despite rising input costs and unchanged prices over the last six months.

The company’s solution to higher raw material prices has been to tap into its existing inventory of low-cost materials, Gala said.

“We benefited in the first quarter and maybe for the year that we had good inventory already with us. We did not increase the prices of end products to the extent of rising paper prices in the last six months because we already had low-value raw material available with us.”

He doesn't expect customers to be burdened with steep prices going ahead, even as paper costs continue to surge.

“Every year, rather every month now, we are hearing paper prices going up. For the next academic year, when we start preparing ourselves, we will take a view. We are very confident that the products—which cost between Rs 60 and Rs 100—even if it increases by 20-30%, it won't matter much to the end consumer,” he said.

Gala said the consolidated Ebitda margin on an annual level is in the range of 21-22%. Of this, the domestic stationery segment has an Ebitda margin of around 10%, stationery exports of around 17%, and the book publishing business of 30-33%, he said.

Watch the full conversation here: