Jagran prakashan

It has been around 3 years of holding Jagran Prakashan for me. Jagran has been one of the most interesting and controversial (among my investor friends) picks for me. I thought of sharing my experience and learnings of making a contra investment. I first bought the stock at ~37 and kept buying till ~66-67.

Jagran was a case of classic value investing. This was as contrarian as it gets. There was (and still is) extreme pessimism around the stock. Everyone told me this was a sunset industry, this kind of value buying doesn’t work anymore, no FII/DIIs would ever touch this stock, who reads newspapers anymore and in this era of technology why do you want to touch an old school stock?

I always list down 3 reasons before I buy a stock. These were my reasons for Jagran –

Strong balance sheet strength and cash flows

Jagran had 600 cr of cash & investments on a Market cap of 800 cr. The company had also generated ~300 crores of free cash flow every year. There was no long-term debt and Dainik Jagran was the #1 newspaper in India, with a strong foothold in the Hindi heartlands. In fact, within the 600 crores is freehold land whose fair value is much higher than stated in the balance sheet.

Consistent history of promoters sharing wealth with minority shareholders

Whenever you are buying a company based on balance sheet strength or cash & investments, it is important that the promoters have a history of sharing wealth with shareholders. The promoters of Jagran have been excellent in this regard. Instead of making any unrelated acquisition, they have been buying back stock and paying regular dividends. When I bought the stock, the dividends and the buyback amount for the last three years was greater than the market cap of the stock at that point.

The predications about the death of print were a tad bit exaggerated

What happened in the west does not necessarily replicate back here in India. The growth of print had stagnated, and I was under no assumptions that this would be a 10x or a multibagger stock, but it was also clear that newspapers weren’t dying, at least not anytime soon. The company was still generating healthy revenues and cash flows. My scuttlebutt also showed that Dainik Jagran had a strong brand recall in its target market and was still favoured by the reader. An acquaintance also owns a small local newspaper in UP and she confirmed that newspaper readership was not declining the way people thought. The cost of a newspaper in India is incredibly cheap and hence people continue to buy it just out of habit.

This is where owner’s mindset is particularly important. If I were offered to acquire Jagran at 800 cr, a company that has cash & investments worth 600 crore and makes around 300 cr of free cash flow every year, would I buy it? Absolutely. It does not matter whether FIIs buy it or what the charts say. The market is a weighing machine in the long run, and it will weigh it correctly, sooner or later.

It has almost been a 3x since my first buy and I continue to hold it. Even today, excluding the cash and investments, the stock is available at roughly 4-5x free cash flow, with digital being an added optionality. The outlook for print is quite bullish for the next couple of years. DB Corp has posted excellent numbers and I expect Jagran’s numbers to be somewhat similar.

This was an important lesson that whenever extreme pessimism is priced in, the probability of market being wrong doesn’t need to be very high to generate a favourable return.