Jagran Prakashan :Strong ad revenue pick up on yield improvement: JM Financial

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Strong ad revenue pick up on yield improvement
􀂄 Earnings forecast raised for FY11/12, TP increased to `170: Post better
than expected 2QFY11 results and our inference from the 2QFY11 earnings
call, we raise our FY11/12 earnings forecast for Jagran Prakashan (JAGP) by 1%
to 3% and marginally increase our Mar’11 TP to `170 (earlier `168). Our
estimates include financials of Mid-day, which we expect would be EPS
accretive by c.2% in FY12E. We continue to apply target multiple of 20x on
JAGP’s consolidated EPS of `8.5 (multiple based on FY10-12E PEG of 1.0x) to
arrive at our TP of `170. Maintain BUY. The stock has underperformed Sensex
by c.8% over the last 3 months.


􀂄 2QFY11 revenue/EBITDA higher than expected: At `2.77bn (up 12% YoY),
2QFY11 consolidated revenues were better than JMFe of `2.69bn, led by
strong ad revenues growth of c.13% YoY to `1.93bn (JMFe `1.88bn). However,
ad revenue growth was impacted by floods in the UP region and ad
cancellations in the last week of September 2010 due to Ayodhya verdict
uncertainty. Excluding these, ad revenues would have grown by more than
15% YoY. EBITDA margin at 32.8% (down c.90bps YoY, 60bps QoQ) also came
in better than JMFe of 31.5%. The yearly/quarterly fall in EBITDA margin is
attributable to high newsprint costs during the quarter at 29% of total
revenues vs c.28% in 1QFY11/2QFY10. At `555mn (up 10% YoY), net profit
was better than JMFe of `510mn. EPS stood at `1.8 vs `1.7 in 2QFY10 and
`1.8 in 1QFY11.

􀂄 Healthy ad revenue pickup during 2QFY11 despite festive spending in
2QFY10: At `1.94bn (JMFe `1.88bn), 2QFY11 ad revenues grew a strong
c.13% YoY, led by improved yield from prior ad rate hikes. This is despite
festive spending in 2QFY10, which for the current year will fall in 3QFY11
along with the likelihood of increased ad volumes from Bihar elections in
October. We revise upwards our ad revenue growth forecast for FY11/12 by
c.3% to 4% (Exhibit 5) and expect JAGP (excluding Mid-day) to post YoY growth
of c.22%/18% in FY11/12E (earlier 18.5%/17% for FY11/12E).

􀂄 Circulation revenues dip QoQ due to rate cut, OOH/events grew 22% YoY:
2QFY11 circulation revenues grew just 1% YoY (down 1% QoQ) to `548mn,
broadly in-line with JMFe of `544mn. JAGP resorted to cover price reduction in
Jharkhand from `4.0 to `2.0 to combat competition. The OOH/Event verticals
grew a strong 22.4% YoY to `208mn, lower than JMFe of `220mn.