FLAME SCHOOL OF BUSINESS 2008-10

Navneet Publication Ltd.

Submitted to : Prof. Ajeet Mathur Nexus

SUBMITTED

ON-15/4/10

Table of Contents
Acknowledgement ........................................................................................................................................ 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 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.

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-cumexpansion 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 stationery products for the domestic market. Products range includes tight bind note books, long books; hard case bound books and drawing books.
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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

NAVNEET

Publication

Stationery

E- Learning

Other Business

Educational Books

Childers's & General

Paper stationery

Non paper stationey

Windmills

Figure 1: Structure of Navneet Publication Ltd.

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

Brand Portfolio

Navneet

FfUuNn

Boss

Navneet Publications India Ltd

Navneet Nxt

Vikas

Gala

Figure 2: Navneets Brand Portfolio

Industry Analysis Publication & Stationery

Bargaining power of customer

High

Threat from new entrants

Competitive rivelary with in the industry

Bargaining Power from supplier

Threat of Subtitute products

Low

High
High

High

Figure 3: Porters Five Forces Model

Snapshot (2005 2009)

2008 2007
Planning to invest 2400 lakhs Rs in Navneet 2005 Edutainm windmills in Gujarat. Acquisiti ent Ltd Expects merged on of 15% Grafalco with growth in NPIL. in Spain. Introduce publishing Adopted segment. d new JIT stationery facility products. for

2009
The internation al stationery business revenue growth of 367%.

2006

Initiated ELearning in Gujarat and Maharasht ra.

stationery segment.

Figure 4: Timeline
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Stakeholders
The stakeholders for Navneet Publication Ltd are as follows:

Employees

Suppliers / Authors

Customers

Creditors

Shareholders

Stakeholders

Government

Figure 5: Stakeholders

Purpose of stakeholders Shareholder: To Create shareholder value and sustain ROE. 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 Task

To provide quality study materials to children of all ages.

Existential Primary Tasks

Maintain long term stakeholder relationships.

Product Portfolio Analysis

Non Paper Stationary E-Learning Business Publication Paper Stationary

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 Broad

Product Differentiation

Narrow

Figure 7: Differentiation Matrix

Value Chain

Publication Centres
Paper Printing Binding

Wholesalers Retailers Distributors Direct Channels

Suppliers

Distribution Channel

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
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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

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 400500 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.

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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. 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

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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.
Navneet Publications India Ltd.

Related Business lines

Unrelated Business Line

Publications

Stationery

E-Learning

Windmills

Paper Stationery

Non - Paper Stationery

Figure 8: Diversified Business Portfolio

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

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

Net Profit
8000 6000 4000 2000 0 2005 2006 2007 2008 2009 3092 3548 4263 5377 5894 60000 40000 20000 0 2005 27454

Revenues
50490 29439 32676 40043

2006

2007

2008

2009

Price Earnings
20 15 10 5 0 2005 2006 2007 2008 2009 15.04 16.22 11.81 8.04 17.11

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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 companys main expense is the raw material cost which is around 50-51%.

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.

Navneets 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, Decentralization is necessary to improve efficiency and facilitate quick decision making.

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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 childrens 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 countrys 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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