FLAME SCHOOL OF BUSINESS 2008-10

Table of ContentsAcknowledgement.......................................................................................................................................3

Company Background..................................................................................................................................4

Brand Portfolio........................................................................................................................................6

Industry Analysis – Publication & Stationery...............................................................................................7

Snapshot (2005 – 2009)...............................................................................................................................7

Stakeholders................................................................................................................................................8

Normative Primary Task..............................................................................................................................9

Existential Primary Tasks.............................................................................................................................9

Product Portfolio Analysis...........................................................................................................................9

Core Competency........................................................................................................................................9

Product Differentiation..............................................................................................................................10

Cost Differentiation...................................................................................................................................10

Product Differentiation..............................................................................................................................10

Broad.........................................................................................................................................................10

Narrow......................................................................................................................................................10

Value Chain................................................................................................................................................10

Management & Leadership.......................................................................................................................11

New Growth Opportunities - E-Learning Initiatives...................................................................................11

Risk............................................................................................................................................................12

Diversification............................................................................................................................................12

Culture.......................................................................................................................................................14

Financial Analysis.......................................................................................................................................14

Ratio Analysis............................................................................................................................................15

Recommendations:....................................................................................................................................17

Key Highlights from the Annual Reports....................................................................................................18

2004-2005.............................................................................................................................................18

2005-2006.............................................................................................................................................18

2006-2007.............................................................................................................................................19

2007-2008.............................................................................................................................................19

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2008-2009.............................................................................................................................................19

Acknowledgement

We would like to thank Prof. Ajeet Mathur for giving us an opportunity to explore in depth the

intricacies involved with the strategy of an organization. Through this report we have been able

to apply the conceptual knowledge taught in class. We would also like to thank Miss Ruchi Shah,

Management Trainee, Marketing at Navneet for giving us valuable insights.

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Company Background

Navneet Publications India Limited, founded by the Gala Family, is in the business of

Educational and children Books Publishing, Scholastic paper stationery and non-paper stationery

products.

Since 1959, Navneet has been a major force in the dissemination of knowledge. Navneet is a

dominant player in the field of publishing, with more than 5000 titles in English, Hindi, Marathi,

Gujarati and foreign languages.

In 1987, to further strengthen and consolidate the business of book publishing, Navneet installed

ultramodern printing press at Dantali, District Gandhinagar, Gujarat. By 1991, sophisticated

printing and binding machineries had been imported to complete the modernization-cum-

expansion plans of the company.

Over the decades, Navneet has emerged as a leading Educational Products and Services

company in India. The company's products are sold under the 'Navneet', 'Vikas', 'Gala',

‘FfUuNn', ‘Boss' and ‘Navneet Nxt' brand names. It's portfolio of syllabus based Books includes

high quality supplementary books like Digests (Guides), Workbooks and 21 Question Sets, most

of which are published in four languages - English, Hindi, Marathi and Gujarati. The company

has a dominant market share in Gujarat and Maharashtra. Also with the new range of

supplementary books targeting the students from CBSE and ICSE boards, Navneet's educational

products are now made available across India

Navneet also produces various titles in the Children and General books category, which are not

based on syllabus, such as activity books for children, board books, story books, health related

books, cookery books, mehendi & embroidery books, etc.

In 1993, Navneet saw opportunity in the exports of Stationery products for which it now has

state-of-art manufacturing facilities in Vasai (near Mumbai) Daman and Silvassa (Union

Territories bordering Maharashtra and Gujarat). In the same year Navneet also launched its paper

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stationery products for the domestic market. Products range includes tight bind note books, long

books; hard case bound books and drawing books.

The company enjoys leading position in premiere stationery markets in India, the Middle East,

parts of Africa, U.S.A. and Europe. With now more than 500 SKU's, Navneet is one of the

largest paper stationery brand in India.

In 2006, taking the success of the Paper Stationery products further, Navneet launched its first

range of non-paper stationery – FfUuNn Pencils. The company has aggressive plans in this

segment.

Leadership Position in Gujarat & Maharashtra: NPL is enjoying 85% market share both in

Gujarat and Maharashtra in its Publishing business. Company is selling its product under strong

brand name ‘Navneet’ in Maharashtra and under ‘Vikas’ and “Gala’ in Gujarat. NPL is also

planning to expand its foothold in Andhra Pradesh and Madhya Pradesh.1

Figure 1: Structure of Navneet Publication Ltd.

1 http://www.navneet.com/corporate/aboutnavneet/corporate.asp

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NAVNEET

Publication

Educational Books

Childers's & General

Stationery

Paper stationery

Non paper stationey

E- Learning Other Business

Windmills

Brand Portfolio

Figure 2: Navneet’s Brand Portfolio

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Navneet Publications India

Ltd

Navneet

Boss

VikasGala

Navneet Nxt

FfUuNn

Industry Analysis – Publication & Stationery

Snapshot (2005 – 2009)

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High

High

High

High

LowCompetitive rivelary with in the

industry

Bargaining power of customer

Threat of Subtitute products

Bargaining Power

from supplier

Threat from new entrants

2005A cquisition o f G rafa lco in Spain . A dopted JIT facility for sta tionery segm ent.

2006N avneet E dutainm ent L td m erged w ith N PIL .In troduced new sta tionery p roducts.

2007P lann ing to invest 2400 lakhs R s in w indm ills in G ujara t.E xpects 15% grow th in publish ing segm ent.

2008In itia ted E -L earn ing in G ujara t and M aharash tra .

2009T he in ternational sta tionery business revenue grow th o f 367% .

Figure 3: Porter’s Five Forces Model

Stakeholders

The stakeholders for Navneet Publication Ltd are as follows:

Figure 5: Stakeholders

Purpose of stakeholders

Shareholder: To Create shareholder value and sustain ROE.

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Stakeholders

Shareholders

Customers

EmployeesSuppliers / Authors

Creditors

Government

Figure 4: Timeline

Employees: To Improve quality of life through work life balance.

Government: Pay taxes. Assist the government in its initiative of increasing literacy and quality

of education.

Customers: Provide value for money products.

Suppliers: Maintain long term and profitable relationships.

Creditors: Do not play a major role since the company is highly unlevered.

Community: Contribute to the positive developments in society at large.

Normative Primary TaskTo provide quality study

materials to children of all ages.

Existential Primary TasksMaintain long term stakeholder

relationships.

Product Portfolio Analysis

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Non Paper Stationary

Paper Stationary

E-LearningBusiness

Publication

Figure 6: BCG Matrix

Core Competency

a. Publication – tie ups with over thousand talented authors.

b. Stationery – consistent product esthetics and quality. Well spanned value chain.

Product Differentiation

Cost Differentiation Product Differentiation

Broad

Narrow

Figure 7: Differentiation Matrix

Value Chain

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Figure 7: Value Chain

It has been observed that their marketing expenditure is minimal (average 1% of sales of the last

5 years). In spite of this, Navneet has a strong hold in Maharashtra & Gujarat due to their

distribution network with over 80,000 retail touch-points. Hence, Navneet has had a very

traditional approach of marketing.

Management & Leadership

Composition of the board of members is largely dominated with family members and this

does not reflect professional approach.

With limited areas of operation that is Maharashtra and Gujarat the decision making

primarily is based out of the head office that is Mumbai.

Hence decentralization of decision making authority could be an option which could be

explored.

With 13 members of the board after 2005 the group cannot function as cohesive unit.

New Growth Opportunities - E-Learning Initiatives

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Paper

Suppliers

E-book is multimedia software focusing on classroom teaching and is an effective tool with

teachers.

E-learning modules have been launched in Gujarat in August 2007 and initial survey has

been done in Maharashtra in December 2007 by NPL.

Company got a very good response from schools.

NPL has covered around 110 schools in Gujarat under Gujarati medium for 1st to 10th

standard and has targeted to cover around 600-700 schools in Maharashtra and around 400-

500 schools in Gujarat over the next two years. Simultaneously in Maharashtra NPL will be

launching this service in Marathi and English medium for 5th to 10th standard.

Average sales realization would be around Rs. 40,000 to 50,000 per school.

Risk

The company faces the following risks:

Fluctuation in raw material cost: The raw material for Navneet is paper. It comprises of

more than 50% of its costs. Thus, variation in paper prices would affect profitability.

Low barriers on entry hence the threat of competition is high.

Market risk due to variation in equity prices.

Diversification

Navneet diversified into related and unrelated business lines.

Related business lines:

It began with Publication, went on to diversify into Stationery (Paper and Non-paper) and now has entered into the E-Learning market.

Reasons for diversifying into Non-paper Stationery: it was an extension of their existing product line.

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a. The paper stationery exports were declining – they were considering to off-set this

segment and focus more on domestic expansion

b. High growth potential and demand

c. Fewer threat of competition from organized market

d. Low risk involved and high brand leverage

Reasons for diversifying into E-Learning business line: Navneet diversified into E-learning in the states of Gujarat and Maharashtra.

a. High growth potential and demand

b. Fewer threat of competition

c. Low risk involved

d. Strong brand leverage

e. Ready availability of Content with minimal R&D and market research costs

Also Navneet did not expand their E-Learning or publication business line to other states as:

a. This would require Navneet to adapt the syllabus and curriculum of the state entering into.

b. Expanding and penetrating into different states for publication was difficult due to the

strong foot-holding of the local publications.

c. Lack of adequate knowledge and network of suppliers and authors was also a constraint.

d. Navneet is a risk averse company and is not inclined to incur the additional costs of R&D

and market research.

Reasons for diversifying into unrelated business lines: Navneet ventured into Windmill in the year 2006 – 2007. Though no strong justification was provided for this move, our group analyses the possible reasons to be as:

a. There is high potential for renewable resources at present and also a sustained demand for

it in the future. Hence Navneet might have thought it to be a good strategic decision to

move into this business line.

b. They also wanted to leverage on the government benefits like subsidies and tax

exemptions availed due to this venture.

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Navneet Publications India Ltd.

Related Business lines

Publications

Stationery

Paper Stationery

Non - Paper Stationery

E-Learning

Unrelated Business Line

Windmills

Figure 8: Diversified Business Portfolio

Culture Culture is a collective programming of the mind. It cannot be sustained and it depends on

internal external factors and needs to be revised overtime or change with factors. It is not

one time pickling.

Navneet’s target audience is that of young school children whereas the work force of

Navneet comprises if an average is 40 years (across all departments).

They need to identify and recruit talent which could to relate to the target group of

Navneet.

Financial Analysis

Financial Highlights Rs. In Lacs

  2005 2006 2007 2008 2009Revenue 27454 29439 32676 40043 50490Gross Profit 5548 5905 7193 8412 9862Depreciation 885 910 831 1022 1171Tax 1571 1426 2098 2013 2797Net Profit 3092 3548 4263 5377 5894Dividend 1429 1620 1905 2287 2477Dividend (%) 75 85 100 120 130Retained Profit 1511 1033 2091 2702 2996Book Value 18 19 21 24 27Equity Capital 1906 1906 1906 1906 1906Reserves & Surplus 15447 16481 18577 21148 24188Borrowings-Short Term 3966 5036 4913 6671 5000Long Term 0 0 0 1685 1509Capital Employed 17353 18386 20483 24739 27603Gross Block 12877 13632 14219 17408 18506Net Block 7052 6792 6595 8821 8813Net Current Assets 10091 11729 13259 15879 17593

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Ratio Analysis

Ratios Rs. In Lacs

  2005 2006 2007 2008 2009EVA on Capital Employed (%) 8.36 5.4 8.36 7.59 10.11Cost of Capital Employed 2497 2375 2497 3204 3434ROCE (%) 18.63 19.86 21.94 23.78 22.52ROFA (%) 43.84 52.21 64.22 60.39 66.34Debt-Equity Ratio 0 0 0 0.07 0.06Current Ratio 2.64 2.7 3.07 2.66 2.59Dividend Payout (%) 46.23 45.65 44.7 42.35 40.03P/E Ratio 15.04 16.22 11.81 17.11 8.04Employee Cost-Sales (%) 7.12 8.01 7.99 7.44 7.13Advertisement Cost-Sales (%) 0.82 0.82 0.65 1.46 1.1Avg. Collection Days 63 57 45 49 44Avg. Payment Days 32 23 15 25 28

The first thing we see that the company is

that net profit is not growing at the same

rate as the revenues. The retained

earnings in the company are also very

low. The company’s main expense is the raw material cost which is around 50-51%.

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2005 2006 2007 2008 20090

5

10

15

20

15.04 16.22

11.81

17.11

8.04

Price Earnings

2005 2006 2007 2008 20090

1000200030004000500060007000

3092 35484263

5377 5894

Net Profit

2005 2006 2007 2008 20090

100002000030000400005000060000

27454 29439 3267640043

50490

Revenues

Most of the retained earnings are given out as dividend. The average dividend payout

ratio is 44% over past 5 years. In a span of 5 years, the company declared dividend 9

times and a bonus once. Also, the family owns 61% of the capital shareholding.

Navneet’s stock price has declined from a high of Rs.350 in 2005 to Rs. 60 in 2009 on

the BSE. Accordingly the price earnings have also gone down.

The average collection period has come down while the average payment has increased

over the past 5 years. This increases the working capital requirement.

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Recommendations:

Navneet should concentrate on related businesses and its core competency which is

publication and stationary business. They should take initiatives into different state

markets and overcome their risk averse attitude.

E- Learning business is the future in education industry. Navneet should invest heavily on

this business from the revenue generated from their cash cow businesses. Also Navneet

should promote and market E- Learning through advertisements, events, sponsorships

and campaigns. This model should be expanded to other states also.

In order to expand their market base, Navneet must invest in marketing activities. They

can increase their advertising cost from 1% to 8%-10%.

The average age in the organization is 40 years. They must have more youthful employee

base so that they can identify with the product. They should inculcate professionalism in

the culture and attitude of the organization.

Navneet at present is a highly family oriented business. Its decision making and

operational authority is centralized and concentrated at the top management. Hence, De-

centralization is necessary to improve efficiency and facilitate quick decision making.

~~x~~

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Key Highlights from the Annual Reports

2004-2005

Acquisition of Grafalco, a publication company, in Spain for entering European market

for publishing business of business book.

Exports of Navneet Stationery to USA has reduced due to overseas competition, however

domestic stationery business has improved

Anticipating change in curriculum in Gujarat and Maharashtra

Publication segment grew by 15% (change in syllabus in Gujarat of Std. 8 and 9) and

stationery segment down by 2%. (Domestic market grew by 7% but overall market had a

negative growth due to export market).

Company had adopted JIT facility for stationery segment, thus lower inventory level.

2005-2006

Percentage of disposable income holders has increased and Navneet considers it as a

positive sign.

Acquisition in Spain has shown positive sign. Thus their decision to explore Europe

market has been successful. They are into publishing children’s book and paper

stationery. However, the progress is slower than expected.

Navneet Edutainment Ltd has been merged to NPIL. Thus all the losses will be

transferred to NPIL.

The company has leveraged its strong brand image to introduce new stationery products

to the market. For this they are planning to outsource manufacturing of stationery.

There have capital expenditure as a constraint, thus they will modernize few printing

facilities.

Inclusion of 1 more board member thus increasing the strength to 13 members.

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2006-2007

Maharashtra & Gujarat changed their syllabus. Therefore Publishing division grew by

18%

Organized competition is increasing for paper stationery.

Planning to invest 2400 lakhs Rs in windmills (Gujarat) tied up with ENERCON.

Operated in august 2007.

E-Learning is a new GROWTH PLATFORM. It can be successful only with the

involvement of teaching community. Started marketing in Gujarat and will market in

Maharashtra next year.

Exports of paper stationery have been declining. Now, attempt to explore different

products and explore different geographic areas in the domestic market.

Long Term.

a. Grafalco to yield results over a long term.

b. Looking at organic growth in paper stationery.

2007-2008

Navneet has achieved projected growth in publication segment. But as there is no major

syllabus change the company expects moderate growth in this segment.

Domestic Stationery is expected to grow at 30% with aggressive marketing initiatives but

margins would remain under pressure sue to additional marketing overheads.

E-learning business has led to a steep increase in the share price.

The company is looking for effective delivery model and would consider investing with

suitable opportunities with e-learning.

All the windmills were made operational from this year.

2008-2009

Even in the Global recession period the company, Navneet Publications Ltd., is not

affected by the recession as education is a non recessionary sector. However, The

Spanish subsidiary has been adversely affected due to the recessionary trend.

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The government allocates 3% of country’s GDP towards education sector. This gives the

company ample opportunity as its primary business is of supplementary books with

quality content and stationary items.

Stationary segment has been the growth driver during the year.

o The domestic stationary business is growing at a fast rate due to aggressive marketing

efforts and introduction of new products in its paper and non paper stationery

business vertical.

o The domestic stationery business achieved 36% growth for the year and is expected

to grow by 25% in the current year.

The company has received a favorable response for its E-learning modules with more

than 6000 students benefiting from it.

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