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Jagran Prakashan (JAGP)
Media
So far so good. JAGP reported 2QFY11 EBITDA at Rs908 mn (+9% yoy; +1% qoq),
marginally ahead of our estimates. The positive variance resulted from advertising
revenues at Rs1.94 bn (our expectation of Rs1.9 bn) despite (1) festival season being
pushed to 3QFY11E and (2) likely loss of DAVP advertising in Bihar. New media
initiatives (outdoor, events and digital) also continued to scale up well in a seasonally
weak quarter. Retain BUY with revised 12-month DCF based target price of Rs150
(Rs145 previously); competition in BJH market is the key risk.
Robust 2QFY11 financials as competitive impact in Jharkhand market is absorbed
JAGP reported robust 2QFY11 EBITDA at Rs908 mn (+9% yoy, +1% qoq), ahead of our Rs850
mn expectation. We note that JAGP had an unfavorable base (2QFY10 was the best quarter of
FY2010) with festival season also being pushed back to 3QFY11E.
2QFY11 advertising revenue at Rs1.94 bn (+13% yoy, +2% qoq) were ahead of our Rs1.9 bn
expectation. The robust growth was driven by markets other than UP due to the uncertainty
surrounding the Ayodhya dispute in the last 2 weeks of 2QFY11.
More important, new media initiatives (outdoor, events, digital) continued to scale up well with
28% yoy growth in a seasonally weak quarter. The downturn provided an opportunity for JAGP
to right size these emerging businesses; they have been scaling up well, in the current
advertising upturn the performance seems sustainable.
2QFY11 circulation revenues at Rs548 mn (+1% yoy, -1% yoy) were largely in line with our
expectation; the cover price impact in Jharkhand (cut to Rs2/copy from Rs4/copy) was negated
by the growth in circulation in select markets (renewed focus on circulation after a long pause is
long-term positive). The competition in Jharkhand market has had a limited impact on JAGP, on
expected lines, given its limited exposure to the market.
JAGP expected media cost inflation during 2QFY11 with 14% yoy growth in operating
expenses but largely in line with expectation. 2QFY11 newsprint costs increased 17% tracking
price inflation as well as higher consumption (pagination levels have started to increase with
advertising recovery along with circulation growth). However, 2QFY11 EBITDA growth of 9%
yoy implies manageable cost inflation challenges.
Attractive valuations given leadership position; fine-tuned estimates
We have fine-tuned our FY2011E and FY2012E EPS estimates of JAGP to Rs6.8 (Rs6.6
previously) and Rs7.8 (Rs7.7 previously) to account for 2QFY11 estimates; we model
moderately higher-than-expected growth given limited competitive impact of DBCL in the
overall BJH market (and largely taken care of by market expansion) in the near term (till such
time as DBCL completed one full year of operation in the BJH market). Our 12-month DCFbased
target price stands increased to Rs150 (Rs145 previously) on stronger-than-expected
performance and DCF roll forward. We leave our medium-to-long-term assumptions and
financials unchanged (and a tad conservative, we concede) due to uncertainty on account of
competitive dynamics in the UPU and BJH market.
We are relatively sanguine on the competitive impact due to HMVL expansion in the UPU
market since (1) JAGP has done well to hold on to its leadership position in the market
(market share loss contained) and (2) has actually witnessed growth at network level in the
city centers with I-Next, its youth-focused tabloid (see Exhibit 3). HMVL will likely complete
its expansion across the key city markets by FY2012E (launch of Gorakhpur in November)
and the scene of action will likely shift to upcountry/rural markets thereafter, the stronghold
of JAGP in the UPU market. JAGP has already started to take pre-emptive steps (stepping up
circulation in the upcountry markets, launching more localized sub-editions and greater
focus on local advertisers in smaller markets) in order to further strengthen its position in the
upcountry markets as well as improved monetization.
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