Jagran Prakashan- Continues to impress : Alchemy

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Continues to impress

2QFY11 Result snapshot
Jagran Prakashan’s (JPL’s) 2QFY11 results were in line with our expectations. For Q2FY11, it
reported 12% YoY growth in its revenues - from `2.47bn to `2.77bn. Publishing revenues
include `1.94bn of advertisement revenues, which grew by 13% YoY. The growth in
advertisement revenues has been lower as compared to 2QFY10, as the September month
got impacted by a) spill over of festive season to 3QFY10, b) floods in selected markets of
Western UP, Haryana and Bihar and c) tension in key markets due to uncertainty caused by
verdict on Ayodhya. The circulation revenues saw a full quarter impact of decline in cover
price for the Jharkhand market though this to some extent was offset by increase in number
of copies circulated. Accordingly, circulation revenues during the quarter stood at `548mn,
declining 1% QoQ.


The non-publishing business grew 22% with revenues at `208mn. This includes out-of-home
(OOH) and event management business, which contributed by ~`125mn and and ~`85mn,
respectively. The company saw an increase in newsprint cost which accounted for 29% of net
sales as against 28% in 2QFY10 and 1QFY11. As staff and other expenses remained flat on a
sequential basis, the increase in newsprint costs was primarily responsible for a 61bps QoQ
decline in margins to 32.8%. Accordingly, net profit remained flat sequentially, but grew by
10% YoY to `555mn.

Most likely to beat ad revenue growth guidance of 18% for FY11
Considering, JPL’s current quarterly ad revenue run-rate and the fact that the benefit of
festive season is yet to come in the subsequent quarter, we expect JPL to deliver an annual
advertisement revenue growth of 22% beating the management’s ad revenue growth
guidance of 18% for FY11. The company had already seen a successful pass through of ad
rate hikes (effective from 01 April 2010) in 1QFY10, while incremental yield growth is seen
from rising contribution of colour to black and white ads.

Newsprint prices not a concern in FY11
Newsprint cost for JPL has seen a sequential increase on the back of marginal increase in
newsprint prices and higher consumption of newsprint. Daily copies circulated during the
quarter increased by ~0.25 mn, of this Bihar and Jharkhand together saw an increase of ~0.1
mn copies per day. The company has maintained a higher level of newsprint inventory
enough to sustain in 3QFY11. Thus for JPL, the impact of recent increase in industry
newsprint prices will be reflective from 4QFY11. For FY11, we have modelled for an average
newsprint price of `27/kg with a newsprint consumption of 110,000 MT.

Valuations and view
 We expect the advertisement revenue growth momentum to improve in the coming
quarters led by improved ad market sentiment and steady rise in readership of Dainik
Jagran. Further, the acquisition of print business from Mid-Day has been EPS neutral for
FY10. However, we expect revenue and cost synergies to result in possible EPS upgrades
for FY11E and FY12E.
 Since our Buy recommendation dated 31 July 2010, the stock has appreciated by 10%.
This leaves an upside of 5.4% as we maintain our target price of `140 per share. We
therefore, downgrade our rating from Buy to Accumulate. At CMP of `133 per share
the scrip trades at 18.7x and 17.1x FY11E and FY12E.