JAGRAN PRAKASHAN Robust performance::Edelweiss

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JAGRAN PRAKASHAN
Robust performance; ad revenue likely to catapult in Q3FY11



􀂃 Impressive ad revenue growth
Jagran Prakashan’s (JPL) Q2FY11 revenue, at INR 2,769 mn, rose 12.2% Y-o-Y
against our estimate of INR 2,700 mn. Advertisement revenue jumped 12.7%
Y-o-Y (on high base as festive season overlapped Q2 last year) and 2.0% Q-o-Q
to INR 1,935 mn; the growth was driven largely by improved yield. However, it
was also hampered by floods and cancellation of advertisements in the last week
of September 2010 owing to the uncertainty surrounding the Ayodhya verdict.
Circulation revenues grew a mere 1.0% Y-o-Y to INR 548 mn as the company
took cover price cut in the Jharkhand market. Outdoor event management and
digital revenues stood at INR 208 mn, a strong 22.4% Y-o-Y growth. We expect
JPL to deliver 25% plus Y-o-Y ad revenue growth in Q3FY10 driven by festive
season and Bihar elections.



􀂃 EBITDA margin dips 97bps
The company’s Q2FY11 EBITDA margin dipped 97bps over Q2FY10. Raw material
consumption jumped 17.3% Y-o-Y due to increase in circulation and newsprint
prices. The cost of raw material (as percentage of sales) increased to 28.9% in
Q2FY11 from 27.7% in Q2FY10. Other expenditure (as percentage of sales)
declined 97bps. Staff cost rose 18.0% Y-o-Y.

􀂃 Net profit at INR 555 mn against our estimate of INR 520 mn
JPL’s net profit grew 10.3% Y-o-Y to INR 555 mn, ahead of our expectation of
INR 520 mn. Net profit margin stood at 20.0% against 20.4% in Q2FY10.

􀂃 Outlook and valuations: Decent upsides; maintain ‘BUY’
JPL offers an exciting play on the hindi regional print media and will be a key
beneficiary of increase in advertisement spends. Uptrend in newsprint prices
continues and needs to be monitored. The company’s outdoor and event
management segments are expected to contribute more significantly going
ahead. The stock is currently trading at P/E of 18.6x FY11E and 16.1x FY12E. We
expect JPL’s earnings to post a strong 16.9% CAGR over FY10-12E. We maintain
our ‘BUY’ recommendation on the stock and rate it ‘Sector Performer’ on
relative return basis.



􀂃 Q2FY11 concall: Key takeaways
• Ad revenues: JPL maintained earlier guidance of 17-18% growth in ad revenues in
FY11. Ad revenues account for 78% of total revenues and will continue to be the
main growth driver. Q2FY11 growth was entirely from growth in ad rates as volumes
dipped marginally due to a high base, negative impact from floods and the Ayodhya
uncertainty on ad volumes. In Q1FY11, 50% growth came from increase in ad
volumes (90% increase is in color ads) while 50% from yield increase. JPL is
expected to achieve 25% Y-o-Y ad revenue growth in Q3FY11.
• Mid Day: The company has already received Mumbai High Court approval. Approval
from Allahabad High Court is awaited in Q3FY11. JPL will look to launch Inquilab in its
current markets post approval from the Allahabad High Court. Also, the company is
looking to hire a senior editorial team to head this business. In Mid Day, the company
will look to strengthen its afternoon slot of the english edition and expand readership
of its Gujarati paper in Mumbai. Both companies have started working together in
sourcing of raw materials like newsprint, ink, aluminum plates. Also, some synergy in
selling of ads has begun.
• Company not unduly worried over Dainik Bhaskar’s entry in Bihar and
Jharkhand: Post cut in cover prices, the silver lining is that Jagran’s circulation has
picked up in Jharkhand and now it is the No. 2 player after Hindustan. The company
has many strategic initiatives to counter new players (bundle I Next and Dainik
Jagran, bouquet of ads etc). Also, most advertisers look at Jharkhand and Bihar as a
package. In Bihar and Jharkhand, government ads account for more than 50% by
value and they do not go to new entrants in the first two years.
• Blackstone deal: This is pending at RBI and some clarification at FIPB and the
company expects approval to come in due course.
• Internet: Sales have grown 154% Y-o-Y to INR 15 mn in Q2FY11 on a small base
and the company already has presence in classifieds (Khojle.com and Jeetle.com). In
Q1FY11, JPL had said that it expects INR 90-100 mn in sales in FY11 compared to
INR 20 mn in FY10. It continues to invest in this. Now both Yahoo and Jagran sell ads
separately to their client lists.
• Newsprint consumption: ~7% increase in circulation (7.9% growth in Dainik
Jagran; 3-4% growth in I-next; and 20-25% growth in City Plus). There will not be
any overlap in readership of I Next and Mid Day.
• Overall EBITDA margins: 30% margins likely in FY11E (earlier expectation was 28-
29%). This is due to higher growth in ad revenues.
• Newsprint prices: Full impact of higher prices should start reflecting in Q4FY11 and
the Company expects 10% higher cost for FY11 compared to FY10.
• Events and outdoor: Events and outdoor segments together contributed INR 208
mn in sales in Q2FY11, out of which events has grown sharply while outdoor was flat
Y-o-Y. The company expects outdoor revenues to grow in double digits in Q3FY11
based on a good October month. The outdoor segment has been profitable at the
EBITDA level for the past 4 quarters.
• National edition: This is more of a branding initiative to showcase editorial content
and largely distributed at airports, railway stations and political circles. This is in test
phase in Delhi and Bhopal for the next 6 months and may be expanded to more state
capitals later.
• No plans for a business daily: JPL has still not evaluated its decision not to expand
in the business daily segment.