Jagran Prakashan - Weak quarter, priced in „Cut earnings to factor muted 1Q ad growth ::BofA Merrill Lynch,

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Jagran Prakashan Ltd.
   
Weak quarter, priced in
„Cut earnings to factor muted 1Q ad growth
Post disappointing 1Q we cut FY12E/ FY13E earnings by ~7% each to factor cut
in ad growth assumptions and impact from higher news print cost. Cut PO to
Rs145. While we roll forward earnings to FY13E, reduce valuation multiple to 10x
EV/EBITDA to factor challenging ad environment.  Stock trades at 9x EV/EBITDA
at lower end of valuation band of 8-12x, with FCF yield of 6% which is attractive.
Muted ad growth
Jagran reported muted 8% yoy growth in ad revs for standalone business vs. 13%
BofAMLe. This compares with 15% yoy growth reported by Hindustan Media and
20% yoy growth reported by DB Corp. Management attributed muted growth to
slowdown in national ad revs, slower growth in education sector and delay in deal
closures given sharp pricing cuts demanded by advertisers.
2H revival likely
While 1Q revenue was soft, management expects to achieve 14%-15% yoy
growth in ad revs vs. 18% guided earlier driven by spillover of education ad revs
to 2Q, successful closure of deals delayed in 1Q and likely higher revenue from
UP elections due in 4th  quarter. Also 2H likely to be better given onset of festive
season. Our assumptions bake in 13% yoy growth in ad for standalone entity.
Reduce margin assumption for FY12
1Q EBITDA margins stood at 27% vs. 28% BofAMLe and was impacted by muted
ad growth and higher newsprint cost. Post 1Q we cut FY12E/FY13E margin
assumption by ~100bps each.