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Jagran Prakashan (JPL) reported robust set of numbers for 3QFY2011. Key
highlights of the results include –1) circulation revenue growth both yoy and qoq
on the back of increase in circulation volumes, 2) gross margin contraction of
76bp yoy/ 203bp qoq (in line with expectation) on account of higher newsprint
price, and 3) Mid-Day numbers did not reflect in the quarter, however,
management indicated Mid-Day numbers will be consolidated in 4QFY2011. We
re-iterate a Buy on the stock and maintain it as our top pick in the print sector.
Uptick in circulation volume aids top-line growth: JPL reported top-line growth of
25% yoy/~1% qoq, aided by 32% yoy/~1% qoq growth in advertising revenue
and 7% yoy/4% qoq increase in circulation revenue. The advertising revenue
came in flat sequentially, which was disappointing, considering consolidation of
festivals in 3QFY2011 and 2QFY2011 being a low base impacted by floods in
UP and Ayodhya verdict. However, yoy as well as qoq growth in circulation
revenue on account of uptick in circulation volumes (~10-11% yoy growth) is
heartening indicating renewed focus in the company’s core markets (UP and
Bihar-Jharkhand; volume growth was equally split between these two markets).
Earnings growth was robust at 32.5% yoy, aided by margin expansion and higher
other income (up 17.5% yoy).
Outlook and Valuation: We have tweaked our FY2011 estimates to factor in
sequentially consistent low ad-revenue growth and various cost rationalisation
methods adopted (staff costs and other expenses are under check). We believe
underperformance of the stock provides good entry point and maintain a Buy,
with a Target Price of `185, based on 20x FY2013E earnings.
Margins expand yoy as JPL keeps strict check on other expenses
At the operating level, Jagran delivered expansion of 208bp yoy/contraction of
323bp qoq in OPM, resulting in robust growth of 34.5% yoy/ decline of 9% qoq in
EBITDA to `82cr (`61cr/`91cr) largely on account of gross margin contraction
(however, in-line with expectation) as 3QFY2011 was the first full quarter to get
impacted by increase in newsprint cost (3QFY2010 saw bottoming out of the
newsprint prices) and higher circulation volumes. While on a yoy basis, other
expenses including staff cost (down 60bp) and other expenses (down 224bp)
declined (though they were marginally lower than our estimates), while sequentially
these costs increased by 26bp and 94bp respectively.
Jagran reported robust earnings growth of 32.5% yoy, aided by margin expansion
and higher other income (up 17.5% yoy to `13cr), though sequentially impacted by
margin contraction.
Going ahead, we expect gross margins to contract by ~30-40bp from current levels
as we model in: 1) cover price cuts in Jharkhand from `4 to `2 due to entry of DB
Corp leading to higher circulation, and 2) ~10% blended rise in newsprint costs for
JPL over FY2010-12 (newsprint prices are currently trading at ~US $700/tonne) as
JPL has already booked substantial inventory for imported newsprint.
Investment Rationale
Strong ad-revenue growth on account of higher colour inventory, peg 16%
CAGR: We expect JPL to record a strong ad-revenue growth of ~20% yoy in
FY2011 on account of increase in colour space inventory to ~50% (in line with
management’s guidance) and higher volumes (absorption of ad-rate hike of
8-9%). For FY2010-13, we expect JPL’s ad-revenue to post a CAGR of 16% (on
higher proportion of colour ads, rate hikes and pickup in ad spend) aiding
top-line CAGR of ~14% over the period.
Margins to remain stable owing to significant cost efficiencies: For FY2011, we
expect OPM to sustain at ~30% despite the ~10–11% rise in newsprint costs (JPL
has substantial inventory booked for imported newsprint) aided by higher
top-line growth on the back of increase in advertising spend across sectors,
various cost curtailment measures and improving profitability in the nascent
businesses of i-Next/City Plus and OOH/event management.
Underperformance a good entry point, JPL attractive at 13.2x FY2013E EPS: JPL
acquired the print business from Mid-Day Multimedia whose presence in
markets like Mumbai, Delhi, Bangalore and Pune (recently launched) is likely to
fill the gap in JPL’s portfolio v/s its peers HT Media (HT and Hindustan) and DB
Corp (Dainik Bhaskar and DNA), which offer both English and Hindi publications
to its advertisers. Hence, we believe that JPL’s combined offerings are likely to
boost its advertising revenues due to the bundling effect. While we have not
factored the deal in JPL’s numbers, we believe the deal is likely to be earnings
accretive by ~2–3% in FY2011 (Mid-Day numbers for the full year will be
consolidated in JPL’s numbers in 4QFY2011). Moreover, with Blackstone’s
recent investment of `225cr and a wider portfolio (including Mid-Day
publications), we believe that JPL is well poised to benefit from steady growth in
print media. Underperformance of the stock and attractive valuations (at the
CMP, the stock trades at 13.2x FY2013E EPS) provides a good entry point for
investors.
Outlook and Valuation
Post the 3QFY2011 results, we have tweaked our FY2011 estimates to factor in
sequentially consistent low ad-revenue growth and various cost rationalisation
methods adopted (keeping staff costs and other expenses under check).
We expect JPL to post 14% CAGR in top-line over FY2010-13 driven by the 16%
CAGR in advertising revenues and 4% CAGR in circulation revenues. The other
businesses (OOH, event management and SMS services) are estimated to record
CAGR of 17% during the mentioned period on better traction. In terms of earnings,
we expect JPL to report modest CAGR of 17% over FY2010-13e driven largely by
top-line growth and sustained margins. However, adjusting for the `8cr foreign
exchange gains in FY2010, we expect JPL to report a CAGR of 19% in earnings over
FY2010–13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jagran Prakashan – 3QFY2011 Result Update
Angel Broking re-iterates a Buy on Jagran Prakashan with a Target Price of Rs. 185.
Jagran Prakashan (JPL) reported robust set of numbers for 3QFY2011. Key
highlights of the results include –1) circulation revenue growth both yoy and qoq
on the back of increase in circulation volumes, 2) gross margin contraction of
76bp yoy/ 203bp qoq (in line with expectation) on account of higher newsprint
price, and 3) Mid-Day numbers did not reflect in the quarter, however,
management indicated Mid-Day numbers will be consolidated in 4QFY2011. We
re-iterate a Buy on the stock and maintain it as our top pick in the print sector.
Uptick in circulation volume aids top-line growth: JPL reported top-line growth of
25% yoy/~1% qoq, aided by 32% yoy/~1% qoq growth in advertising revenue
and 7% yoy/4% qoq increase in circulation revenue. The advertising revenue
came in flat sequentially, which was disappointing, considering consolidation of
festivals in 3QFY2011 and 2QFY2011 being a low base impacted by floods in
UP and Ayodhya verdict. However, yoy as well as qoq growth in circulation
revenue on account of uptick in circulation volumes (~10-11% yoy growth) is
heartening indicating renewed focus in the company’s core markets (UP and
Bihar-Jharkhand; volume growth was equally split between these two markets).
Earnings growth was robust at 32.5% yoy, aided by margin expansion and higher
other income (up 17.5% yoy).
Outlook and Valuation: We have tweaked our FY2011 estimates to factor in
sequentially consistent low ad-revenue growth and various cost rationalisation
methods adopted (staff costs and other expenses are under check). We believe
underperformance of the stock provides good entry point and maintain a Buy,
with a Target Price of `185, based on 20x FY2013E earnings.
Sequentially circulation rev. growth heartening, ad-rev. came in flat
JPL reported top-line growth of 25% yoy/~1% qoq to `279cr (`223cr/`277cr), aided
by 32% yoy/~1% qoq growth in advertising revenue to `195cr (`148cr/`193cr) and
7% yoy/4% qoq increase in circulation revenue. The advertising revenue came in flat
sequentially, partially impacted by lower ad-spend by the government during the
Bihar elections. However, considering consolidation of festivals in 3QFY2011, and
2QFY2011 being a low base impacted by floods in UP and Ayodhya verdict, the
sequential growth was still disappointing. However, the yoy as well as qoq growth in
circulation revenue to `57cr (`53cr/`55cr) on account of uptick in circulation
volumes (~10-11% yoy growth) is heartening indicating renewed focus in company’s
core markets (UP and Bihar-Jharkhand; volume growth equally split between these
two markets). Management has guided for increase in circulation volumes by 8-10%
for FY2011-12. The company’s other businesses (event, outdoor and digital
businesses) continue to show strong traction with revenues growing 30% yoy/23%
qoq to `27cr (`21cr/`22cr).
Management expects ad revenue growth of ~20% in FY2011 aided by – 1) increase
in national advertisement, and 2) uptick in advertisement volumes.
Margins expand yoy as JPL keeps strict check on other expenses
At the operating level, Jagran delivered expansion of 208bp yoy/contraction of
323bp qoq in OPM, resulting in robust growth of 34.5% yoy/ decline of 9% qoq in
EBITDA to `82cr (`61cr/`91cr) largely on account of gross margin contraction
(however, in-line with expectation) as 3QFY2011 was the first full quarter to get
impacted by increase in newsprint cost (3QFY2010 saw bottoming out of the
newsprint prices) and higher circulation volumes. While on a yoy basis, other
expenses including staff cost (down 60bp) and other expenses (down 224bp)
declined (though they were marginally lower than our estimates), while sequentially
these costs increased by 26bp and 94bp respectively.
Jagran reported robust earnings growth of 32.5% yoy, aided by margin expansion
and higher other income (up 17.5% yoy to `13cr), though sequentially impacted by
margin contraction.
Going ahead, we expect gross margins to contract by ~30-40bp from current levels
as we model in: 1) cover price cuts in Jharkhand from `4 to `2 due to entry of DB
Corp leading to higher circulation, and 2) ~10% blended rise in newsprint costs for
JPL over FY2010-12 (newsprint prices are currently trading at ~US $700/tonne) as
JPL has already booked substantial inventory for imported newsprint.
Investment Rationale
Strong ad-revenue growth on account of higher colour inventory, peg 16%
CAGR: We expect JPL to record a strong ad-revenue growth of ~20% yoy in
FY2011 on account of increase in colour space inventory to ~50% (in line with
management’s guidance) and higher volumes (absorption of ad-rate hike of
8-9%). For FY2010-13, we expect JPL’s ad-revenue to post a CAGR of 16% (on
higher proportion of colour ads, rate hikes and pickup in ad spend) aiding
top-line CAGR of ~14% over the period.
Margins to remain stable owing to significant cost efficiencies: For FY2011, we
expect OPM to sustain at ~30% despite the ~10–11% rise in newsprint costs (JPL
has substantial inventory booked for imported newsprint) aided by higher
top-line growth on the back of increase in advertising spend across sectors,
various cost curtailment measures and improving profitability in the nascent
businesses of i-Next/City Plus and OOH/event management.
Underperformance a good entry point, JPL attractive at 13.2x FY2013E EPS: JPL
acquired the print business from Mid-Day Multimedia whose presence in
markets like Mumbai, Delhi, Bangalore and Pune (recently launched) is likely to
fill the gap in JPL’s portfolio v/s its peers HT Media (HT and Hindustan) and DB
Corp (Dainik Bhaskar and DNA), which offer both English and Hindi publications
to its advertisers. Hence, we believe that JPL’s combined offerings are likely to
boost its advertising revenues due to the bundling effect. While we have not
factored the deal in JPL’s numbers, we believe the deal is likely to be earnings
accretive by ~2–3% in FY2011 (Mid-Day numbers for the full year will be
consolidated in JPL’s numbers in 4QFY2011). Moreover, with Blackstone’s
recent investment of `225cr and a wider portfolio (including Mid-Day
publications), we believe that JPL is well poised to benefit from steady growth in
print media. Underperformance of the stock and attractive valuations (at the
CMP, the stock trades at 13.2x FY2013E EPS) provides a good entry point for
investors.
Outlook and Valuation
Post the 3QFY2011 results, we have tweaked our FY2011 estimates to factor in
sequentially consistent low ad-revenue growth and various cost rationalisation
methods adopted (keeping staff costs and other expenses under check).
We expect JPL to post 14% CAGR in top-line over FY2010-13 driven by the 16%
CAGR in advertising revenues and 4% CAGR in circulation revenues. The other
businesses (OOH, event management and SMS services) are estimated to record
CAGR of 17% during the mentioned period on better traction. In terms of earnings,
we expect JPL to report modest CAGR of 17% over FY2010-13e driven largely by
top-line growth and sustained margins. However, adjusting for the `8cr foreign
exchange gains in FY2010, we expect JPL to report a CAGR of 19% in earnings over
FY2010–13.
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