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Newsprint costs press on margins
After Jagran Prakashan’s lower-than-expected 4QFY11 results, we have cut
our earnings estimates by 7-6% over FY12-13. The media group’s 20%YoY
growth in revenue lagged HT Media’s 26% gain and DB Corp’s 23%. Further,
the increase especially in domestic newsprint prices has impacted Jagran
margins more than peers. HT Media and DB reported stable/declining raw
material cost in 4QFY11, while Jagran saw a rise of 6% QoQ. Management
expects newsprint prices could further increase by 10% but has guided for
margins of ~29-30% in FY12. The stock trades at 14x FY13CL and we
maintain Underperform.
Jagran’s slower growth versus peers
Jagran’s 4QFY11 20% YoY growth in revenue was lower than HT Media’s 26%
increase and DB Corp’s 23% gain. Jagran’s advertising growth lags peers at 20%
YoY against 21-31% for HT Media and DB Corp. Circulation revenue growth at 4%
YoY was ahead of DB Corp (1%), but lower than HT Media (9%). While
management has guided for a renewal in circulation growth by consolidating its
position in key territories of Uttar Pradesh, Bihar, Delhi and Punjab, this
contributes to only 20% of revenue compared with the 69% contribution from
advertising. Ad growth for the full year at 20% YoY was also 2-8% lower than
peers. Led by slower ad growth, Jagran’s FY11 profit growth at 17% lagged HT
Media at 27% and DB Corp at 29%.
Risk of higher raw material cost
The increase especially in domestic newsprint prices has adversely impacted
Jagran more than peers. While HT Media and DB Corp reported stable/declining
raw material cost in 4QFY11, Jagran saw an increase of 6% QoQ. Raw material
now accounts for 32.2% (up 2ppts QoQ) of Jagran’s revenue and accelerated the
contraction in Ebitda margin to 25% in 4QFY11. Full-year margin was at 31%.
Management expects that newsprint prices could further increase by 10% but has
guided for Ebitda margins of 29-30% in FY12. However, with a declining gap
between imported and domestic newsprint prices Jagran faces higher risks on raw
material costs.
Strategic shift remains a concern
Furthermore, after Jagran’s merger with Mid-Day Multimedia and plans for further
acquisitions we remain concerned by management’s strategic shift to focus on
newer markets and in particular, English print. These hyper-competitive spaces
make market-share gain difficult. Jagran also faces increased competition also
with Hindustan (from HT group) expansion in Uttar Pradesh and DB Corp’s
expansions in Bihar. Meanwhile, after the lower-than-expected 4QFY11 results and
margin risks, we have revised our Jagran earnings estimates downwards by 7-6%
over FY12-13. The stock currently trades at 14x FY13CL and we maintain our
Underperform rating. In India print our preferred pick remains HT Media, while
Dish TV and Zee Entertainment are our top picks in the media sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Newsprint costs press on margins
After Jagran Prakashan’s lower-than-expected 4QFY11 results, we have cut
our earnings estimates by 7-6% over FY12-13. The media group’s 20%YoY
growth in revenue lagged HT Media’s 26% gain and DB Corp’s 23%. Further,
the increase especially in domestic newsprint prices has impacted Jagran
margins more than peers. HT Media and DB reported stable/declining raw
material cost in 4QFY11, while Jagran saw a rise of 6% QoQ. Management
expects newsprint prices could further increase by 10% but has guided for
margins of ~29-30% in FY12. The stock trades at 14x FY13CL and we
maintain Underperform.
Jagran’s slower growth versus peers
Jagran’s 4QFY11 20% YoY growth in revenue was lower than HT Media’s 26%
increase and DB Corp’s 23% gain. Jagran’s advertising growth lags peers at 20%
YoY against 21-31% for HT Media and DB Corp. Circulation revenue growth at 4%
YoY was ahead of DB Corp (1%), but lower than HT Media (9%). While
management has guided for a renewal in circulation growth by consolidating its
position in key territories of Uttar Pradesh, Bihar, Delhi and Punjab, this
contributes to only 20% of revenue compared with the 69% contribution from
advertising. Ad growth for the full year at 20% YoY was also 2-8% lower than
peers. Led by slower ad growth, Jagran’s FY11 profit growth at 17% lagged HT
Media at 27% and DB Corp at 29%.
Risk of higher raw material cost
The increase especially in domestic newsprint prices has adversely impacted
Jagran more than peers. While HT Media and DB Corp reported stable/declining
raw material cost in 4QFY11, Jagran saw an increase of 6% QoQ. Raw material
now accounts for 32.2% (up 2ppts QoQ) of Jagran’s revenue and accelerated the
contraction in Ebitda margin to 25% in 4QFY11. Full-year margin was at 31%.
Management expects that newsprint prices could further increase by 10% but has
guided for Ebitda margins of 29-30% in FY12. However, with a declining gap
between imported and domestic newsprint prices Jagran faces higher risks on raw
material costs.
Strategic shift remains a concern
Furthermore, after Jagran’s merger with Mid-Day Multimedia and plans for further
acquisitions we remain concerned by management’s strategic shift to focus on
newer markets and in particular, English print. These hyper-competitive spaces
make market-share gain difficult. Jagran also faces increased competition also
with Hindustan (from HT group) expansion in Uttar Pradesh and DB Corp’s
expansions in Bihar. Meanwhile, after the lower-than-expected 4QFY11 results and
margin risks, we have revised our Jagran earnings estimates downwards by 7-6%
over FY12-13. The stock currently trades at 14x FY13CL and we maintain our
Underperform rating. In India print our preferred pick remains HT Media, while
Dish TV and Zee Entertainment are our top picks in the media sector.
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