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UBS Investment Research
Jagran Prakashan
Strong leadership position in Uttar Pradesh
Initiate coverage with a Buy rating
Jagran Prakashan is one of the largest Hindi print media companies in India. Its
flagship Hindi newspaper Dainik Jagran has been the most widely-read newspaper
in India since 2003. Jagran Prakashan benefits from fast-growing advertising
spending in the tier 2 and 3 cities due to strong economic growth and rising
consumption there compared to the metros.
Strong leadership position in the largest Hindi market
Jagran Prakashan has a strong leadership position in Uttar Pradesh’s (UP) print
media sector, which allows it to charge premium ad rates. We estimate it is likely
to generate strong free cash flow yield of 4.9% and a dividend yield of 3.9% in
FY12. It should also report robust FY12 ROCE and ROE of 29.9% and 31.4%,
respectively.
Risks: decline in average readership, intense competition in UP and Bihar
While Dainik Jagran remains the most widely-read newspaper in India, its average
daily readership declined from 17.1m during the IRS R1 2007 survey to 16.1m
during the Q410 survey. If this trend continues, the share price could come under
pressure. We believe competition intensity is likely to increase in both of Dainik
Jagran’s large markets of UP (with Hindustan launching in Gorakhpur) and Bihar
(potential entry of DB Corp in FY12).
Valuation: Rs145.00 price target
We derive our price target from our FY13 EPS estimate of Rs8.77 and 16.5x
FY13E PE (in line with its historical trading average since its listing).
Investment Thesis
Jagran Prakashan is one of the largest Hindi print media companies in India. Its
flagship Hindi newspaper Dainik Jagran has been the most widely-read
newspaper in India since 2003. It also has presence in the following segments:
out-of-home advertising; Internet; and event management. We initiate coverage
of Jagran Prakashan with a Buy rating and a price target of Rs145.00. The key
reasons for our Buy rating are as follows.
Jagran Prakashan benefits from rapidly-growing advertising spending in the
tier 2 and 3 cities due to strong economic growth and increasing
consumption there compared to the metros. The company has a strong
leadership position in print media in Uttar Pradesh—one of the largest Hindi
print media markets in India with an estimated market size of Rs8bn. We
believe Jagran Prakashan is well-positioned to benefit from its strong market
position as it can charge premium advertising rates. We expect revenue
contributions from its out-of-home advertising, event management and
Internet businesses to increase.
We estimate Jagran Prakashan will generate strong free cash flow yield of
4.9% and a dividend yield of 3.9% in FY12. We forecast robust FY12 ROCE
and ROE of 29.9% and 31.4%, respectively.
While Dainik Jagran continues to be India’s most widely-read read newspaper,
average daily readership has declined gradually from 17.1m during the IRS R1
2007 survey to 16.1m during the Q410 survey. Going forward, we believe
Jagran Prakashan’s margins are likely to come under pressure due to:
1) increased competition in Bihar and Jharkhand; and 2) higher newsprint prices
along with a planned increase in circulation.
Key catalysts
IRS readership data. According to IRS readership data (released quarterly),
Dainik Jagran’s average issue readership increased from 15.95m during the
Q310 IRS survey to 16.07m during the Q410 survey. If Dainik Jagran is able
to sustain or expand its average daily readership from its current levels, the
stock could be re-rated.
Increase in circulation. A pick up in circulation copies could act as a
catalyst as this follows readership at a lag.
Stable newsprint prices. Newsprint prices constituted around 37% of Jagran
Prakashan’s total operating expenses in FY10. We believe data points
showing stability in newsprint prices could act as a catalyst for all print
media companies, including Jagran Prakashan.
Risks
Competition in Bihar could intensify after DB Corp’s entry. DB Corp has
announced plans to enter the Bihar market by end-FY12 (after its planned
launch in Maharashtra). Should DB Corp gain meaningful readership share in
a short span, this could impact Jagran Prakashan’s subscription and advertising
revenue to some extent. However, unlike in Jharkhand, we believe print media
operators in Bihar are unlikely to cut cover prices in anticipation of DB Corp’s
launch. In Jharkhand, the cover price cut was initiated by Prabhat Khabar, the
second-largest print operator in Jharkhand in terms of readership. The Bihar
market is dominated by Hindustan and Dainik Jagran—both have expressed
no intention to initiate cover price cuts in Bihar.
Further decline in Dainik Jagran’s readership share. While Dainik
Jagran continues to remain the most widely-read newspaper in India, its
average daily readership has been on a decline, from 17.1m during the IRS
R1 2007 survey to 16.1m during the Q410 survey.
Exchange rate fluctuations. Jagran Prakashan is exposed to currency risks
(primarily US$/Rs) as 11-12% of its total expenses are in foreign currency.
Increase in newsprint prices. Newsprint is a significant cost for most print
media companies, including Jagran Prakashan (31.4% of revenue in FY10).
Higher newsprint prices could significantly impact the print media
companies’ profitability. However, sensitivity to newsprint price increases is
less for Jagran Prakashan than its peers as 8-10% of the company’s revenue
come from non-newsprint based businesses (outdoor and event
management), which are profitable.
A macroeconomic downturn. Advertising revenue constituted 68% of
Jagran Prakashan’s FY10 revenue. This could impact profitability in a
macroeconomic slowdown as advertising rates would be affected. However,
should there be an economic downturn, Jagran Prakashan is likely to be the
least impacted within our print media coverage in India as its ad revenue
makes up a smaller proportion of total revenue than its peers.
Valuation and basis for our price target
We have a Buy rating and a price target of Rs145.00. Our price target is 17.3%
above its current share price. We value Jagran Prakashan at 16.5x FY13E PE, in
line with its average one-year forward PE for the past two years.
Competitive advantage
Figure 1: Jagran Prakashan—SWOT analysis
WEAKNESSES
1. Heavy reliance on advertising revenue
could impact profitability during a
macroeconomic downturn
2. Significant reliance on one state (Uttar
Pradesh) for revenue
THREATS
1. Competition from other newspapers
and media platforms
2. Newsprint prices could increase
3. Increasing penetration of digital media
could affect newspaper readership in the
long term
STRENGTHS
1. Leadership position in Uttar Pradesh
(one of the largest Hindi print markets in
terms of revenue market size)
2. Wide circulation reach
3. Pan India infrastructure
4. Experienced management
OPPORTUNITIES
1. Growth in ad spend, especially in tier
2 and 3 towns, led by strong GDP
growth
2. Increasing print media penetration in
tier 2 and 3 cities
3. Improving literacy levels
Source: UBS
Dainik Jagran has consistently been the most widely-read newspaper in
India since 2003. Jagran Prakashan’s flagship brand, Dainik Jagran, is
India’s most widely-read newspaper, with an average daily readership of
16.1m (Q410 IRS survey). It is also the largest newspaper in Uttar Pradesh
with an around 41% readership share. We believe its strong market position
will enable it to charge premium ad rates in Uttar Pradesh (one of the largest
regional print markets in India) over its peers in the Hindi print media space.
Wide circulation. Jagran Prakashan has set up pan India infrastructure. It
has a wide circulation reach across various socio-economic classes in its key
markets such as Uttar Pradesh. The company plans to increase circulation by
8-10% in FY12.
Experienced management. Senior management has over 25 years of
experience in India’s media industry. Its Chairman and Managing Director
(CMD) has 52 years of experience in print media. Jagran Prakashan has also
been innovative in the past—it launched a bilingual newspaper (Hindi and
English) to target youths in SEC-A and SEC-B.
Management strategy
Focus on growing revenue in its existing markets. Management plans to
focus on growing revenue and improving profitability in its existing markets
without losing market share. The company aims to expand its market size by
increasing print penetration and gaining market share. It also aims to expand
the reach of some of its existing editions.
The company has launched I-next, a bilingual newspaper (in Hindi and English,
which are commonly spoken languages in India). Jagran Prakashan currently
operates nine editions of this newspaper. I-next targets youths in the SEC-A
and SEC-B socio-economic classes. The company plans to expand this by
launching more editions.
Jagran Prakashan launched a weekly edition called City Plus in 2006 to
target the SEC-A and SEC-B population. It currently has 24 editions of this,
most of which are in cities where Dainik Jagran is not present.
Expand in new markets organically and through mergers and
partnerships. Jagran Prakashan plans to expand into new markets
organically and inorganically. The company is open to acquiring minority
stakes in smaller print operators (who are not among the top four print
operators in their markets) to grow its business.
In May 2010, the company announced an acquisition of the print business of
Mid Day Multimedia in a 7:2 share swap (two shares of Jagran Prakashan for
every seven shares held in Mid Day Multimedia). This acquisition is now
complete and was effective in Q4 FY11. Mid Day Multimedia operated the
following print titles—Mid Day, Sunday Mid Day, Gujarati Mid Day and
The Inquilab. Jagran Prakashan was able to enter West India with this
acquisition. It aims to strengthen the market position of the Mid Day brands
in Mumbai and Gujarat.
Focus on tier 2 and 3 cities for its outdoor advertising business. The
company plans to focus on the tier 2 and 3 cities to grow its out-of-home
advertising business (the outdoor and event business together contributed 8%
to FY10 revenue). More than 75% of the industry’s out-of-home revenue
currently comes from the metros and large cities. However, the company
believes future growth in this segment is likely to come from the tier 2 and 3
towns. To expand its outdoor business, Jagran Prakashan is looking to sign
joint venture agreements and could also acquire smaller operators.
Focus on growing its event management business. The company plans to
focus on growing its event management business, which provides services
such as product promotions. Its event management business has also won a
few national and international awards.
Invest in Internet properties. Management plans to continue investing in its
Internet business as it is likely to remain in a high-growth phase in the
medium term.
Jagran Prakashan
Jagran Prakashan is one of the largest Hindi newspaper companies in India. It
also has presence in outdoor advertising, the Internet, magazines, below the line
marketing solutions and mobile value-added services. Its flagship Hindi
newspaper ‘Dainik Jagran' has consistently been the most widely-read
newspaper in India. Dainik Jagran publishes 37 editions and more than 200 subeditions
in 11 states, with an average daily readership of 16.1m. In May 2010,
Jagran Prakashan acquired the print business of Mid Day Multimedia in a 7:2
share swap (two Jagran Prakashan shares for every seven Mid Day Multimedia
shares).
Statement of Risk
We believe the key risks for Jagran Prakashan are intensifying competition,
weakness in the macroeconomic environment, pressure on Dainik Jagran's
average daily readership, and raw material cost increases.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Jagran Prakashan
Strong leadership position in Uttar Pradesh
Initiate coverage with a Buy rating
Jagran Prakashan is one of the largest Hindi print media companies in India. Its
flagship Hindi newspaper Dainik Jagran has been the most widely-read newspaper
in India since 2003. Jagran Prakashan benefits from fast-growing advertising
spending in the tier 2 and 3 cities due to strong economic growth and rising
consumption there compared to the metros.
Strong leadership position in the largest Hindi market
Jagran Prakashan has a strong leadership position in Uttar Pradesh’s (UP) print
media sector, which allows it to charge premium ad rates. We estimate it is likely
to generate strong free cash flow yield of 4.9% and a dividend yield of 3.9% in
FY12. It should also report robust FY12 ROCE and ROE of 29.9% and 31.4%,
respectively.
Risks: decline in average readership, intense competition in UP and Bihar
While Dainik Jagran remains the most widely-read newspaper in India, its average
daily readership declined from 17.1m during the IRS R1 2007 survey to 16.1m
during the Q410 survey. If this trend continues, the share price could come under
pressure. We believe competition intensity is likely to increase in both of Dainik
Jagran’s large markets of UP (with Hindustan launching in Gorakhpur) and Bihar
(potential entry of DB Corp in FY12).
Valuation: Rs145.00 price target
We derive our price target from our FY13 EPS estimate of Rs8.77 and 16.5x
FY13E PE (in line with its historical trading average since its listing).
Investment Thesis
Jagran Prakashan is one of the largest Hindi print media companies in India. Its
flagship Hindi newspaper Dainik Jagran has been the most widely-read
newspaper in India since 2003. It also has presence in the following segments:
out-of-home advertising; Internet; and event management. We initiate coverage
of Jagran Prakashan with a Buy rating and a price target of Rs145.00. The key
reasons for our Buy rating are as follows.
Jagran Prakashan benefits from rapidly-growing advertising spending in the
tier 2 and 3 cities due to strong economic growth and increasing
consumption there compared to the metros. The company has a strong
leadership position in print media in Uttar Pradesh—one of the largest Hindi
print media markets in India with an estimated market size of Rs8bn. We
believe Jagran Prakashan is well-positioned to benefit from its strong market
position as it can charge premium advertising rates. We expect revenue
contributions from its out-of-home advertising, event management and
Internet businesses to increase.
We estimate Jagran Prakashan will generate strong free cash flow yield of
4.9% and a dividend yield of 3.9% in FY12. We forecast robust FY12 ROCE
and ROE of 29.9% and 31.4%, respectively.
While Dainik Jagran continues to be India’s most widely-read read newspaper,
average daily readership has declined gradually from 17.1m during the IRS R1
2007 survey to 16.1m during the Q410 survey. Going forward, we believe
Jagran Prakashan’s margins are likely to come under pressure due to:
1) increased competition in Bihar and Jharkhand; and 2) higher newsprint prices
along with a planned increase in circulation.
Key catalysts
IRS readership data. According to IRS readership data (released quarterly),
Dainik Jagran’s average issue readership increased from 15.95m during the
Q310 IRS survey to 16.07m during the Q410 survey. If Dainik Jagran is able
to sustain or expand its average daily readership from its current levels, the
stock could be re-rated.
Increase in circulation. A pick up in circulation copies could act as a
catalyst as this follows readership at a lag.
Stable newsprint prices. Newsprint prices constituted around 37% of Jagran
Prakashan’s total operating expenses in FY10. We believe data points
showing stability in newsprint prices could act as a catalyst for all print
media companies, including Jagran Prakashan.
Risks
Competition in Bihar could intensify after DB Corp’s entry. DB Corp has
announced plans to enter the Bihar market by end-FY12 (after its planned
launch in Maharashtra). Should DB Corp gain meaningful readership share in
a short span, this could impact Jagran Prakashan’s subscription and advertising
revenue to some extent. However, unlike in Jharkhand, we believe print media
operators in Bihar are unlikely to cut cover prices in anticipation of DB Corp’s
launch. In Jharkhand, the cover price cut was initiated by Prabhat Khabar, the
second-largest print operator in Jharkhand in terms of readership. The Bihar
market is dominated by Hindustan and Dainik Jagran—both have expressed
no intention to initiate cover price cuts in Bihar.
Further decline in Dainik Jagran’s readership share. While Dainik
Jagran continues to remain the most widely-read newspaper in India, its
average daily readership has been on a decline, from 17.1m during the IRS
R1 2007 survey to 16.1m during the Q410 survey.
Exchange rate fluctuations. Jagran Prakashan is exposed to currency risks
(primarily US$/Rs) as 11-12% of its total expenses are in foreign currency.
Increase in newsprint prices. Newsprint is a significant cost for most print
media companies, including Jagran Prakashan (31.4% of revenue in FY10).
Higher newsprint prices could significantly impact the print media
companies’ profitability. However, sensitivity to newsprint price increases is
less for Jagran Prakashan than its peers as 8-10% of the company’s revenue
come from non-newsprint based businesses (outdoor and event
management), which are profitable.
A macroeconomic downturn. Advertising revenue constituted 68% of
Jagran Prakashan’s FY10 revenue. This could impact profitability in a
macroeconomic slowdown as advertising rates would be affected. However,
should there be an economic downturn, Jagran Prakashan is likely to be the
least impacted within our print media coverage in India as its ad revenue
makes up a smaller proportion of total revenue than its peers.
Valuation and basis for our price target
We have a Buy rating and a price target of Rs145.00. Our price target is 17.3%
above its current share price. We value Jagran Prakashan at 16.5x FY13E PE, in
line with its average one-year forward PE for the past two years.
Competitive advantage
Figure 1: Jagran Prakashan—SWOT analysis
WEAKNESSES
1. Heavy reliance on advertising revenue
could impact profitability during a
macroeconomic downturn
2. Significant reliance on one state (Uttar
Pradesh) for revenue
THREATS
1. Competition from other newspapers
and media platforms
2. Newsprint prices could increase
3. Increasing penetration of digital media
could affect newspaper readership in the
long term
STRENGTHS
1. Leadership position in Uttar Pradesh
(one of the largest Hindi print markets in
terms of revenue market size)
2. Wide circulation reach
3. Pan India infrastructure
4. Experienced management
OPPORTUNITIES
1. Growth in ad spend, especially in tier
2 and 3 towns, led by strong GDP
growth
2. Increasing print media penetration in
tier 2 and 3 cities
3. Improving literacy levels
Source: UBS
Dainik Jagran has consistently been the most widely-read newspaper in
India since 2003. Jagran Prakashan’s flagship brand, Dainik Jagran, is
India’s most widely-read newspaper, with an average daily readership of
16.1m (Q410 IRS survey). It is also the largest newspaper in Uttar Pradesh
with an around 41% readership share. We believe its strong market position
will enable it to charge premium ad rates in Uttar Pradesh (one of the largest
regional print markets in India) over its peers in the Hindi print media space.
Wide circulation. Jagran Prakashan has set up pan India infrastructure. It
has a wide circulation reach across various socio-economic classes in its key
markets such as Uttar Pradesh. The company plans to increase circulation by
8-10% in FY12.
Experienced management. Senior management has over 25 years of
experience in India’s media industry. Its Chairman and Managing Director
(CMD) has 52 years of experience in print media. Jagran Prakashan has also
been innovative in the past—it launched a bilingual newspaper (Hindi and
English) to target youths in SEC-A and SEC-B.
Management strategy
Focus on growing revenue in its existing markets. Management plans to
focus on growing revenue and improving profitability in its existing markets
without losing market share. The company aims to expand its market size by
increasing print penetration and gaining market share. It also aims to expand
the reach of some of its existing editions.
The company has launched I-next, a bilingual newspaper (in Hindi and English,
which are commonly spoken languages in India). Jagran Prakashan currently
operates nine editions of this newspaper. I-next targets youths in the SEC-A
and SEC-B socio-economic classes. The company plans to expand this by
launching more editions.
Jagran Prakashan launched a weekly edition called City Plus in 2006 to
target the SEC-A and SEC-B population. It currently has 24 editions of this,
most of which are in cities where Dainik Jagran is not present.
Expand in new markets organically and through mergers and
partnerships. Jagran Prakashan plans to expand into new markets
organically and inorganically. The company is open to acquiring minority
stakes in smaller print operators (who are not among the top four print
operators in their markets) to grow its business.
In May 2010, the company announced an acquisition of the print business of
Mid Day Multimedia in a 7:2 share swap (two shares of Jagran Prakashan for
every seven shares held in Mid Day Multimedia). This acquisition is now
complete and was effective in Q4 FY11. Mid Day Multimedia operated the
following print titles—Mid Day, Sunday Mid Day, Gujarati Mid Day and
The Inquilab. Jagran Prakashan was able to enter West India with this
acquisition. It aims to strengthen the market position of the Mid Day brands
in Mumbai and Gujarat.
Focus on tier 2 and 3 cities for its outdoor advertising business. The
company plans to focus on the tier 2 and 3 cities to grow its out-of-home
advertising business (the outdoor and event business together contributed 8%
to FY10 revenue). More than 75% of the industry’s out-of-home revenue
currently comes from the metros and large cities. However, the company
believes future growth in this segment is likely to come from the tier 2 and 3
towns. To expand its outdoor business, Jagran Prakashan is looking to sign
joint venture agreements and could also acquire smaller operators.
Focus on growing its event management business. The company plans to
focus on growing its event management business, which provides services
such as product promotions. Its event management business has also won a
few national and international awards.
Invest in Internet properties. Management plans to continue investing in its
Internet business as it is likely to remain in a high-growth phase in the
medium term.
Jagran Prakashan
Jagran Prakashan is one of the largest Hindi newspaper companies in India. It
also has presence in outdoor advertising, the Internet, magazines, below the line
marketing solutions and mobile value-added services. Its flagship Hindi
newspaper ‘Dainik Jagran' has consistently been the most widely-read
newspaper in India. Dainik Jagran publishes 37 editions and more than 200 subeditions
in 11 states, with an average daily readership of 16.1m. In May 2010,
Jagran Prakashan acquired the print business of Mid Day Multimedia in a 7:2
share swap (two Jagran Prakashan shares for every seven Mid Day Multimedia
shares).
Statement of Risk
We believe the key risks for Jagran Prakashan are intensifying competition,
weakness in the macroeconomic environment, pressure on Dainik Jagran's
average daily readership, and raw material cost increases.
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