Jagran Prakashan: K. R. Choksey Research Report

K. R. Choksey are bullish on Jagran Prakashan Ltd and have recommended a BUY with the following investment rationale:

Jagran Prakashan Ltd is primarily engaged in printing and publishing newspaper and magazines in India, apart from managing Outdoor, Internet, Magazines, Below the line marketing solutions and Mobile value added services. Dainik Jagran which was founded in 1942 is the flagship edition of Jagran Prakashan Ltd today having 37 editions read across eleven states of India.

Double digit top-line growth led by advertising segment:
Net sales increased by 15.8% y-o-y to Rs 265 primarily due to robust 18% y-o-y growth in advertising segment to Rs 189.8 crore. Robust volumes combined with higher yields led the growth in advertising revenues. Circulation revenues registered flat growth with 2.6% growth in circulation volumes, on account of drop in cover prices in Jharkhand due to competition. Traditional sectors such as education and real estate were the major contributors to the advertising space. Jagran Prakashan Ltd’s digital, outdoor and event business. (Outdoor events, internet properties etc) reported ~50% of growth to generate ~Rs 20.3 crore in Q1FY11. Operating margin improved by 322bps y-o-y in the quarter due to of increase ad realizations coupled with cost cutting initiatives and effective inventory management. Jagran Prakashan Ltd got the benefit of lower price newsprint inventory carried forward from the previous year.

Rising ad rates and volume to drive revenues growth: In terms of total revenue in FY10, majority revenue was driven from advertising and circulation segment which contributed 67.8% and 22.7% respectively. Advertising revenue clocked a 2 year CAGR of ~14% and 16% y-o-y to Rs 638 crore. Jagran Prakashan Ltd reported 11% y-o-y growth in ad revenues in FY09 despite economic slowdown in the year and thereafter maintained its double digit y-o-y growth on account of economy revival. Circulation revenue registered 20% growth in FY10 due to Jagran Prakashan Ltd’s initiatives to increase cover prices. Jagran Prakashan Ltd outperformed its listed peers during FY09 as the companyJagran Prakashan Ltd reported a revenue growth of ~10% y-o-y mainly driven by volume growth. Ad revenues grew 18% y-o-y in 1QFY11 led by both volume and yield improvement.

Our View – Growing advertising spends in tier 2 and tier 3 cities by corporate on back of higher growth in consumption than urban areas provides regional player a better bet in print space. Jagran Prakashan Ltd being a leading Hindi publisher in the country having dominant position in largest Hindi advertising market (UP), its entry into English segment by acquiring profitable venture (Mid-day) is commendable. We believe synergies at cost and advertising rates would offset competition in markets like UP from HMVL and Bihar & Jharkhand from DBCORP, in turn will drive its long term profitability. Holding company with net cash of Rs 275 crore and Rs 175 crore in Jagran Prakashan Ltd itself would invite them to explore newer markets through inorganic or organic growth and further penetrate their current markets. So, we maintain our “Buy” rating on the stock of Jagran Prakashan Ltd with 18-months target price to Rs 153, representing upside potential of 25%. At the CMP of Rs 138, stock of Jagran Prakashan Ltd is trading at FY11E and FY12E EV/EBITDA of 13.9x and 12.3x for EBITDA of Rs303.3 crore and Rs343.4 crore respectively. Taking into account the current EV/EBITDA of 15.0x, we assign a multiple of 15.5x to Jagran Prakashan Ltd which provides a target price of Rs 177 with 27% upside potential.