Navneet Publications Ltd
, the flagship Company of the Gala family controlled Navneet Group was incorporated in 1984 as Bookwing Publication and Trading Company. The family has over 4 decades of experience and has played a pioneering role in the field of educational book publication. Navneet is the dominant player in the organized sector, with a 55% market share in the states of Maharashtra and Gujarat. Popular among students for its Guides and Workbooks, the company has also ventured into children's books, general health books and paper stationery.
Mr Gnanesh Gala (better known as Sunil Gala) has been Director, Finance of Navneet Publications for the last 12 years. Shri Gala has forged the strength of the Group to a financially healthy and powerful corporate entity. Under his competent skills, the company has year after year adopted strategies to ensure synergy of operations. Recently, the promoters transfered their three brands Navneet, Gala and Vikas from a privately owned company to the listed company at a nominal cost of Rs1, re-iterating the management's commitment toincreasing shareholder value. In an interview with Toral Modi and Atul Rastogi of India Infoline, Mr Gala discusses the educational system in India and the future plans of Navneet.
Your company is one of the leading players in the educational books segment and has been in operation for 40 years? Do you feel there has been a significant change in the educational system in India during these years?
There is a complete lack of focus in our educational system. Syllabus in every state is with the purview of the specific state Government. There is no continity in the system. Successive new Governments make whatever changes they deem fit, which is not a healthy sign for imparting education. No doubt, all state Governments, particularly Maharashtra & Gujarat have successfully increased the number of secondary schools year after year, by which education at the secondary level will also increase. The main critical area for the state Governments is availability of resources (finance) to increase the number of schools.
The expected change in SSC syllabus has not materialized. Is it likely to be announced next year?
Change in SSC curriculum of course is vital to the company as volume growth in educational segment is higher when there is a curriculum change. Usually every year there is a change in the syllabi of one or another standard, which helps the company in competition against second hand book sales. SSC syllabus is typically changed after every five years and is due. However a definite programme of the state government is not yet known.
Your comments on the company's performance for the year ended F9/99?
The performance of the Company is as projected by the management in its major business. In SBU II (children and non education books), the growth was only 17% against expectation of 30%, mainly because geographical expansion was slower than expected. We have been expanding our reach through direct sales representatives and canvassers in schools and expect higher sales due to increased reach. The benefits of these initiatives will be reaped in the current year.
There has been no improvement in operating margin. In the last quarter of F9/99, operating profit margin was only 20% as against 24% in corresponding previous quarter. What portion of the margin decline can be attributed to rising paper prices?
Ours is a seasonal business. Real comparison year to year cannot be done between two quarters. The main reason for decline in the last quarter on a qoq basis was due to higher expenses (like advertisement) in 4th quarter, which is usually spent in the 3rd quarter and not due to rise in paper prices. Our suggestion and recommendation is to view the 3rd & 4th quarter together always.
What is your outlook on paper prices? What will be the impact on the current year's (F9/2000) margins?
Paper prices have already risen by 6% over the last six months. Another 6% hike is expected gradually upto June 2000. Overall impact on Navneet could be between 8% to 10% on its total consumption. In the educational segment, which accounts for a large part of our sales, the price sensitivity is very low. These raw material price increases are passed on to the final consumers by revising the prices upward. So there would be no reduction in operating margins of the company.
ROCE has fluctuated between 27% and 32% in the last five years. What are your target ROCE and RONW? How do you propose to improve ROCE in future?
RONW as calculated by us has been around 25%. Company shall maintain the same level. Improvement would be possible through bringing about economies of scale in production units by BPR exercise. We have initiated BPR in our production units, which has led to a 20% improvement in productivity. We expect a saving of Rs5-7mn in F9/2000 due to the BPR exercise.
What are the future plans and internal growth targets for each SBU?
Future growth plans & targets :
| |
1999-2000 |
2000-2001 |
2001-2002 |
|
SBU ? I |
15% |
15% |
15% |
|
SBU ? II |
25% - 30% |
30% |
40% |
|
SBU ? III A |
20% |
20% |
20% |
|
SBU ? III B |
40% |
30% |
20% |
|
SBU ? IV |
Few CD ROMs, as well as continuous upgradation of our Website, which will help increase the awareness about the Company and its products.
Started e-com for our products. |
Do you see SBU II (Children's and non-educational segment) growing at a uch faster pace due to the expansion of exclusive retail outlets? What would be the likely turnover contribution breakup 2-3 years down the line?
Retail outlets mainly helps in creating an awareness of our Children?s publications. The rise in children?s books will be seen from the current year not due to the franchise outlets, but as the effect of geographical expansion will start coming now. Also, there is a steep rise in the % of Domestic Stationery sales, which we expect will grow at a fast pace on the low base.
What has been the experience and level of response with the franchise retail stores, especially in the smaller cities? How many new outlets are being planned in the current year (F9/2000)?
The experience of 16 franchise stores has been average. In fact most of the stores were opened just 4 months back. This is too short a period to judge performance. During the current year additional 15 stores are planned.
Do you plan to use your retail outlets to sell other related products also (eg Toys, School bags etc)?
Yes, we shall be selling other related products in the store. The process has already started. But we will mainly restrict ourselves to products that are related to Child education. We are marketing Faber Castel stationery products through the franchise stores and other edutainment products such as imported story books, etc.
How has been the response to non-educational as well as educational cassettes and CD's? What other new products are likely to be launched in the next year?
The launch of new CDs was delayed as we were trying to build it in-house. We have just launched our second CD and a third CD will be launched by the end of this month. We plan to launch 6 new CDs in the next 2 months. Sales of CDs particularly in our showrooms has been increasing. We have also tied up with an American Publisher for 1 CD, where we will change the voiceover to match the Indian accent.
The branded stationery market in India is very small. Do you see a major growth opportunity in this area. What are Navneet's plans for the stationery division.
The awareness of branded stationery is very low in India. There can be a huge market for good quality stationery. With proper strategies Navneet hopes to do well in this segment.
Your company has been among the initiators who have started offering their products for sale through the Internet. How has been the response so far? How do you estimate the potential of e-tailing in India?
Yes, all our products are available on the net. The response is very low. The concept of e-retailing will take few years to catch-up, as everywhere in the country, particularly for consumer items that are available very easily. People may not wait for few days to receive the items purchased. Language also is going to be a major hurdle in implementing such business.
The Navneet, Gala and Vikas brands have been transferred to your company for a nominal charge of Re1/-. What has been the rationale in transferring the brands without any consideration?
Transfer of brands was mainly to gain the confidence of our valued shareholders in the management, as well as to show the dedication of the Gala Family towards the business.
There was an income tax enquiry on the promoters recently? Could you elaborate on the same?
The tax department was seeking clarifications on some aspects like the rise in share price. Also, the family has rebuilt a house in Chowpatty and some enquiries were made in that context. The authorities were unaware of the past history of the ownership of the land. However we expect the matter to be settled amicably.
Navneet has moved from being perceived as a publisher of guides and workbooks to a strong name in publishing, children's books and stationery products. What is your long term vision for Navneet?
Our Vision is to be a pioneer in Publication of Educational & General books for Children and to be a provider of Student & Office Stationery of international quality. The company's mission is to work tirelessly for the enrichment of the Children?s World of Edutainment, and helping the Child in Character-building and Career-building. For the last 40 years, we have always borne in mind the profile of children. We strive to help the tender minds to cope with the exacting pressures of modern education system. We continue to strive to blend the traditional with the modern - in our products, in our systems and in our thinking.