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Jagran Prakashan (JAGP)
Media
3QFY11 festivities continue. JAGP reported robust 3QFY11 EBITDA at Rs898 mn
(+38% yoy, -1% qoq) led by (1) robust 31% yoy advertising growth in a seasonally
strong quarter (complete festival season) and (2) traction in new media platforms
(events and outdoor). JAGP accelerated investments in core markets in 3QFY11 with
11% yoy growth in circulation, putting to rest potential fears of being behind the curve
versus competition. Retain BUY with TP of Rs155 (Rs150 previously). Key risks include
rising media inflation even as newsprint prices have stabilized; we expect FY2012E
EBITDA margins at ~30% (32% in 9MFY11).
3QFY11 results analysis: Led by advertising growth and contribution from new media initiatives
JAGP reported strong 3QFY11 EBITDA at Rs898 mn (+31% yoy, -1% qoq), ahead of our Rs800
mn expectation, led by (1) robust advertising growth in a seasonally strong quarter (impact of
complete festival season in 3QFY11) as well as (2) incremental contribution from turnaround of
new media initiatives (largely events and outdoor).
JAGP reported 3QFY11 advertising revenues at Rs1.95 bn (+31% yoy, +1% qoq), ahead of our
Rs1.9 bn expectation. We note that 3QFY11 was exceptionally strong quarter for entire print
media (including peers HTML and DBCL) on account of complete festival season during the
quarter (favorable base as 3QFY10 had only partial festival season).
JAGP reported 3QFY11 other operating revenues at 345 mn (+35% yoy, +21% qoq) on
account of incremental contribution from robust turnaround in new media initiatives in events
and outdoor segments with the recovery in advertising market.
JAGP reported 3QFY11 circulation revenues at Rs570 mn (+7% yoy, +4% qoq), ahead of our
expectations. More important was the constitution of circulation revenue growth, in our view;
circulation volumes grew 11% yoy on account of rising investments in core Jharkhand and
other markets; realizations declined 4% yoy due to competitive dynamics (cover price cuts) in
Jharkhand market supported by normalized competition in Punjab.
3QFY11 operating expenses at Rs1.96 bn (+21% yoy, +6% qoq) were largely in line with
expectations. We highlight the sharp 28% yoy growth in raw material costs; we note the
unfavorable base in 3QFY10 (bottom of the newsprint cycle) and expect cost inflation to remain
moderate in FY2012E on account of stabilizing newsprint prices.
JAGP reported 3QFY11 other income of Rs55 mn (-21% yoy, -14% qoq), below our
expectation on account of FCF-generated being utilized for high-yielding FMPs, which will
mature in FY2012E (6-18 months maturity).
We highlight that JAGP has completed the acquisition of Mid-Day’s print business (largely
Mid-Day tabloid in Mumbai but ancillary print assets such as Mid-Day Delhi, Mid-Day
Gujarati and Inquilab Urdu newspaper). However, the acquisition was completed post-
3QFY11 and thus, would be reflected in JAGP financials in 4QFY11 (full-year FY2011
financials of Mid-Day given effective date of April 01, 2010).
Mid-Day reported 3QFY11 EBIT of Rs50 mn (-19% yoy, +106% yoy) in its print business;
the negative variance on a yoy basis was largely on account of (1) newsprint price
inflation (Mid-Day uses largely imported newsprint) and (2) beginning of consolidation
efforts in Mumbai market (circulation volume growth). Mid-Day would likely remain in
investment mode for 2-3 years but remains a value-accretive acquisition for Jagran given
fair valuation paid (5% equity dilution; Rs1.8 bn at CMP of JAGP stock). The opportunity
for value-accretion at Mid-Day lies in (1) strengthening and expanding brand salience in
Mumbai and Delhi (metro markets), (2) structural shift in advertising and cross-sell
opportunities with JAGP’s print portfolio and (3) cost synergies
Renewed investments in core market puts fears to rest
The competitive intensity in JAGP’s core UPU (expansion of Hindustan, HT Media’s flagship
Hindi daily) and BJH (entry of Dainik Bhaskar, DB Corp’s flagship Hindi daily) markets has
increased over time, rightly prompting concerns regarding Jagran’s position and market
share in these markets. We have been more concerned about (1) the significant untapped
(and rising potential) in these markets (see Exhibit 3) and (2) and relatively subdued response
to rising competition. JAGP has been marginally behind the curve in renewing investments in
its core markets and responding to the strong recovery in advertising revenue market in
India. JAGP has noted that (1) it has been more focused on monetizing its prior investments
across markets (notably in hyper-local editions in semi-urban areas) and (2) its strategy
would always hinge upon a balance of subscription and advertising.
Nonetheless, 3QFY11 largely puts our fears to rest with a robust 11% yoy growth in
circulation volumes; the circulation volume growth is been evenly split between Jharkhand
(response to DB Corp’s entry into the state) and other core markets (proactive attempt to
increase penetration). JAGP has reported some success in improved monetization as regards
their hyper-local editions in semi-urban areas, resulting in the convergence of (1) our views
on increased investments in core markets (response to competition and need to secure
existing market share and position; rising monetization ability even though profitability in
some of these markets may take some more time) and (2) JAGP’s focus on maintaining the
profitability and balance in their overall print operation. We are relatively sanguine about
JAGP’s position in the UPU market; we believe the entry of DBCL in the BJH market remains
the only key risk to JAGP, but is factored into financials/valuations.
Attractive valuations, for the entire regional print segment
Exhibit 4 presents the valuations of JAGP versus peers; JAGP trades at an attractive 9X and
15X FY2012E EBITDA and EPS estimates given (1) strong leadership position across mix of
large Hindi print markets (UPU; one of the leading players in BJH, Delhi-NCR and CPH
markets), (2) robust growth in regional advertising markets led by rising prosperity of
population and changing consumption patterns and (2) relatively stable newsprint costs
expected over the next several months. In effect, changing competitive dynamics are the
only fly-in-the-ointment but we believe they would be partially negated by rising print
penetration (little competition from competing media platforms barring C&S TV, unlike the
case in metro markets, for a long time). Not just JAGP, the entire regional print media
segment is undervalued currently, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jagran Prakashan (JAGP)
Media
3QFY11 festivities continue. JAGP reported robust 3QFY11 EBITDA at Rs898 mn
(+38% yoy, -1% qoq) led by (1) robust 31% yoy advertising growth in a seasonally
strong quarter (complete festival season) and (2) traction in new media platforms
(events and outdoor). JAGP accelerated investments in core markets in 3QFY11 with
11% yoy growth in circulation, putting to rest potential fears of being behind the curve
versus competition. Retain BUY with TP of Rs155 (Rs150 previously). Key risks include
rising media inflation even as newsprint prices have stabilized; we expect FY2012E
EBITDA margins at ~30% (32% in 9MFY11).
3QFY11 results analysis: Led by advertising growth and contribution from new media initiatives
JAGP reported strong 3QFY11 EBITDA at Rs898 mn (+31% yoy, -1% qoq), ahead of our Rs800
mn expectation, led by (1) robust advertising growth in a seasonally strong quarter (impact of
complete festival season in 3QFY11) as well as (2) incremental contribution from turnaround of
new media initiatives (largely events and outdoor).
JAGP reported 3QFY11 advertising revenues at Rs1.95 bn (+31% yoy, +1% qoq), ahead of our
Rs1.9 bn expectation. We note that 3QFY11 was exceptionally strong quarter for entire print
media (including peers HTML and DBCL) on account of complete festival season during the
quarter (favorable base as 3QFY10 had only partial festival season).
JAGP reported 3QFY11 other operating revenues at 345 mn (+35% yoy, +21% qoq) on
account of incremental contribution from robust turnaround in new media initiatives in events
and outdoor segments with the recovery in advertising market.
JAGP reported 3QFY11 circulation revenues at Rs570 mn (+7% yoy, +4% qoq), ahead of our
expectations. More important was the constitution of circulation revenue growth, in our view;
circulation volumes grew 11% yoy on account of rising investments in core Jharkhand and
other markets; realizations declined 4% yoy due to competitive dynamics (cover price cuts) in
Jharkhand market supported by normalized competition in Punjab.
3QFY11 operating expenses at Rs1.96 bn (+21% yoy, +6% qoq) were largely in line with
expectations. We highlight the sharp 28% yoy growth in raw material costs; we note the
unfavorable base in 3QFY10 (bottom of the newsprint cycle) and expect cost inflation to remain
moderate in FY2012E on account of stabilizing newsprint prices.
JAGP reported 3QFY11 other income of Rs55 mn (-21% yoy, -14% qoq), below our
expectation on account of FCF-generated being utilized for high-yielding FMPs, which will
mature in FY2012E (6-18 months maturity).
We highlight that JAGP has completed the acquisition of Mid-Day’s print business (largely
Mid-Day tabloid in Mumbai but ancillary print assets such as Mid-Day Delhi, Mid-Day
Gujarati and Inquilab Urdu newspaper). However, the acquisition was completed post-
3QFY11 and thus, would be reflected in JAGP financials in 4QFY11 (full-year FY2011
financials of Mid-Day given effective date of April 01, 2010).
Mid-Day reported 3QFY11 EBIT of Rs50 mn (-19% yoy, +106% yoy) in its print business;
the negative variance on a yoy basis was largely on account of (1) newsprint price
inflation (Mid-Day uses largely imported newsprint) and (2) beginning of consolidation
efforts in Mumbai market (circulation volume growth). Mid-Day would likely remain in
investment mode for 2-3 years but remains a value-accretive acquisition for Jagran given
fair valuation paid (5% equity dilution; Rs1.8 bn at CMP of JAGP stock). The opportunity
for value-accretion at Mid-Day lies in (1) strengthening and expanding brand salience in
Mumbai and Delhi (metro markets), (2) structural shift in advertising and cross-sell
opportunities with JAGP’s print portfolio and (3) cost synergies
Renewed investments in core market puts fears to rest
The competitive intensity in JAGP’s core UPU (expansion of Hindustan, HT Media’s flagship
Hindi daily) and BJH (entry of Dainik Bhaskar, DB Corp’s flagship Hindi daily) markets has
increased over time, rightly prompting concerns regarding Jagran’s position and market
share in these markets. We have been more concerned about (1) the significant untapped
(and rising potential) in these markets (see Exhibit 3) and (2) and relatively subdued response
to rising competition. JAGP has been marginally behind the curve in renewing investments in
its core markets and responding to the strong recovery in advertising revenue market in
India. JAGP has noted that (1) it has been more focused on monetizing its prior investments
across markets (notably in hyper-local editions in semi-urban areas) and (2) its strategy
would always hinge upon a balance of subscription and advertising.
Nonetheless, 3QFY11 largely puts our fears to rest with a robust 11% yoy growth in
circulation volumes; the circulation volume growth is been evenly split between Jharkhand
(response to DB Corp’s entry into the state) and other core markets (proactive attempt to
increase penetration). JAGP has reported some success in improved monetization as regards
their hyper-local editions in semi-urban areas, resulting in the convergence of (1) our views
on increased investments in core markets (response to competition and need to secure
existing market share and position; rising monetization ability even though profitability in
some of these markets may take some more time) and (2) JAGP’s focus on maintaining the
profitability and balance in their overall print operation. We are relatively sanguine about
JAGP’s position in the UPU market; we believe the entry of DBCL in the BJH market remains
the only key risk to JAGP, but is factored into financials/valuations.
Attractive valuations, for the entire regional print segment
Exhibit 4 presents the valuations of JAGP versus peers; JAGP trades at an attractive 9X and
15X FY2012E EBITDA and EPS estimates given (1) strong leadership position across mix of
large Hindi print markets (UPU; one of the leading players in BJH, Delhi-NCR and CPH
markets), (2) robust growth in regional advertising markets led by rising prosperity of
population and changing consumption patterns and (2) relatively stable newsprint costs
expected over the next several months. In effect, changing competitive dynamics are the
only fly-in-the-ointment but we believe they would be partially negated by rising print
penetration (little competition from competing media platforms barring C&S TV, unlike the
case in metro markets, for a long time). Not just JAGP, the entire regional print media
segment is undervalued currently, in our view.
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