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Jagran Prakashan (JAGP)
Media
FY2011 annual report analysis. JAGP’s reported robust end-FY2011 balance sheet
with net cash of ~Rs1.3 bn, though below last year levels as robust operating cash
flows were utilized in (1) higher-than-expected capex of ~Rs1.8 bn and (2) sustained
high dividend of ~Rs1.3 bn (Rs3.5/share; ~3.3 yield). The free cash flow generation is
likely to improve significantly from FY2013E with completion of replacement capex plan
(net ~Rs6 bn capex between FY2005-11 post-IPO). Reiterate BUY with FY2013E TP of
Rs160 (unchanged); ~13X FY2013E earnings (trough margins of ~26%).
Weak 1QFY12 performance
JAGP reported weak 8% yoy advertising growth in 1QFY12 versus 18% and 20% for peers HTML
and DBCL; we highlight that weak education advertising was principally responsible, though other
factors may have also contributed to the same. Exhibit 1 presents trends in education sector
advertising volumes in CY2010 and 1HCY11; we highlight that the share of UP market (key for
JAGP) dipped to 13% in 1HCY11 from 17% in CY2010. Given the dominance of education
advertising in 1QFY, we expect the advertising gap versus peers to come down in the remaining
quarters, though HTML/DBCL will likely benefit from large expansions.
FY2011 annual report takeaways: In fine fettle
�� JAGP reported a robust end-FY2011 balance sheet with net cash of Rs1.3 bn (cash of Rs0.35 bn
+ investments of Rs2.0 bn + loans and advances of Rs0.85 bn – gross debt of Rs1.9 bn), though
a decline from FY2010. Operating cash flows at Rs2.3 bn were in line with expectations but
(1) capital expenditure was higher-than-expected (Rs1.85 bn) and (2) JAGP maintained its high
dividend payout (Rs1.3 bn including tax).
�� JAGP highlighted the complete replacement of its legacy/core printing infrastructure as part of
its net ~Rs6 bn capex plan (FY2005-11) post-IPO. Additionally, JAGP has also augmented
capacity for increased circulation investments in core/legacy markets as well as new brands.
However, the capex plan is nearing completion and likely to come down to ~Rs0.5 bn in
FY2013E (maintenance capex) post ~Rs1.2 bn in FY2012E. JAGP will likely sustain >Rs2.0 bn
free cash flow generation beyond FY2013E (<16X EV/FCF).
Retain BUY with FY2013E TP of Rs160 (unchanged)
We reiterate our BUY rating on JAGP with an unchanged TP of Rs160. JAGP stock trades at ~13X
FY2013E earnings despite trough ~26% EBITDA margins (FY2010-11 EBITDA margins of 30-31%).
The margin decline in on account of JAGP’s reinvestments in legacy/core markets to arrest the
decline in market shares, improve penetration levels and thus, monetization potential. Additionally,
JAGP is also investing in new brands (1) Punjabi Jagran, (2) Inquilab, (3) I-Next and (4) Mid-Day.
We have fine-tuned our FY2012E-13E EPS estimates to Rs6.7 (Rs7.0 previously) and Rs8.0 (Rs8.4)
adjusting for sudden Rupee depreciation (Rs47/US$).
FY2011 annual report analysis (contd.)
Exhibit 2 presents the summary of the FY2009-11 annual report.
�� Despite higher-than-expected capital expenditure and resultant low free cash flow
generation at Rs0.5 bn, JAGP maintained its dividend payout (Rs1.3 bn including tax,
Rs3.5/share) reflecting confidence in its ability to complete its capex plan and turn
significantly free cash positive from FY2013E.
�� The importance of replacement capex really derives from (1) increased circulation in
core/legacy markets as well as new brands (improved color capacity and monetization
potential) but also (2) new innovations possible (Exhibit 3). Our recent discussions with
media agencies have highlighted that these have become an important value proposition
for advertising and differentiation for large print brands.
�� JAGP reported a stable working capital profile with 68 debtors days (69 days previously),
61 inventory days (67 days) and 102 creditor days (115 days).
�� JAGP’s debt profile may be of some concern in FY2012E given ~Rs1 bn of un-hedged
foreign currency borrowings and recent sharp depreciation in the Rupee. However,
JAGP’s large investments in a rising interest rate environment (with net unrealized gains
of Rs67 mn at end-FY2011) will likely help negate the impact.
�� We are enthused by renewed investment by the company in core/legacy markets. To
quote: “The Company’s focus is not to loose market share in spite of intensifying
competition and rely on innovation to create differentiator.” The focus of the company
previously was monetizing existing large readership of flagship brand, Dainik Jagran
(Exhibit 4). The large print penetration gap in its core markets (UP, Bihar) and rising
affluence support future monetization potential.
�� Exhibit 5 presents the financial performance of Mid-Day Multimedia; MDM has taken a
Rs103 mn hit on its financials at PBT level to bring accounting policy in line with Jagran
(Rs29 mn in overhead expenses and Rs74 mn in depreciation). MDM has already started
to benefit from revenue and cost synergies of Jagran; however, increased circulation
investments in Mid-Day and Inquilab brands will likely result in flat EBITDA in FY2012E
(PAT will likely improve given reduced depreciation).
�� The emerging businesses witnessed robust growth: 54% in event management, 21% in
outdoor and 169% in digital. Event management was EBITDA positive in FY2011,
outdoor just managed to achieve EBITDA breakeven while digital business reduced in
operating losses; thus, emerging business pulled down the overall EBITDA margin despite
strong revenue growth in FY2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jagran Prakashan (JAGP)
Media
FY2011 annual report analysis. JAGP’s reported robust end-FY2011 balance sheet
with net cash of ~Rs1.3 bn, though below last year levels as robust operating cash
flows were utilized in (1) higher-than-expected capex of ~Rs1.8 bn and (2) sustained
high dividend of ~Rs1.3 bn (Rs3.5/share; ~3.3 yield). The free cash flow generation is
likely to improve significantly from FY2013E with completion of replacement capex plan
(net ~Rs6 bn capex between FY2005-11 post-IPO). Reiterate BUY with FY2013E TP of
Rs160 (unchanged); ~13X FY2013E earnings (trough margins of ~26%).
Weak 1QFY12 performance
JAGP reported weak 8% yoy advertising growth in 1QFY12 versus 18% and 20% for peers HTML
and DBCL; we highlight that weak education advertising was principally responsible, though other
factors may have also contributed to the same. Exhibit 1 presents trends in education sector
advertising volumes in CY2010 and 1HCY11; we highlight that the share of UP market (key for
JAGP) dipped to 13% in 1HCY11 from 17% in CY2010. Given the dominance of education
advertising in 1QFY, we expect the advertising gap versus peers to come down in the remaining
quarters, though HTML/DBCL will likely benefit from large expansions.
FY2011 annual report takeaways: In fine fettle
�� JAGP reported a robust end-FY2011 balance sheet with net cash of Rs1.3 bn (cash of Rs0.35 bn
+ investments of Rs2.0 bn + loans and advances of Rs0.85 bn – gross debt of Rs1.9 bn), though
a decline from FY2010. Operating cash flows at Rs2.3 bn were in line with expectations but
(1) capital expenditure was higher-than-expected (Rs1.85 bn) and (2) JAGP maintained its high
dividend payout (Rs1.3 bn including tax).
�� JAGP highlighted the complete replacement of its legacy/core printing infrastructure as part of
its net ~Rs6 bn capex plan (FY2005-11) post-IPO. Additionally, JAGP has also augmented
capacity for increased circulation investments in core/legacy markets as well as new brands.
However, the capex plan is nearing completion and likely to come down to ~Rs0.5 bn in
FY2013E (maintenance capex) post ~Rs1.2 bn in FY2012E. JAGP will likely sustain >Rs2.0 bn
free cash flow generation beyond FY2013E (<16X EV/FCF).
Retain BUY with FY2013E TP of Rs160 (unchanged)
We reiterate our BUY rating on JAGP with an unchanged TP of Rs160. JAGP stock trades at ~13X
FY2013E earnings despite trough ~26% EBITDA margins (FY2010-11 EBITDA margins of 30-31%).
The margin decline in on account of JAGP’s reinvestments in legacy/core markets to arrest the
decline in market shares, improve penetration levels and thus, monetization potential. Additionally,
JAGP is also investing in new brands (1) Punjabi Jagran, (2) Inquilab, (3) I-Next and (4) Mid-Day.
We have fine-tuned our FY2012E-13E EPS estimates to Rs6.7 (Rs7.0 previously) and Rs8.0 (Rs8.4)
adjusting for sudden Rupee depreciation (Rs47/US$).
FY2011 annual report analysis (contd.)
Exhibit 2 presents the summary of the FY2009-11 annual report.
�� Despite higher-than-expected capital expenditure and resultant low free cash flow
generation at Rs0.5 bn, JAGP maintained its dividend payout (Rs1.3 bn including tax,
Rs3.5/share) reflecting confidence in its ability to complete its capex plan and turn
significantly free cash positive from FY2013E.
�� The importance of replacement capex really derives from (1) increased circulation in
core/legacy markets as well as new brands (improved color capacity and monetization
potential) but also (2) new innovations possible (Exhibit 3). Our recent discussions with
media agencies have highlighted that these have become an important value proposition
for advertising and differentiation for large print brands.
�� JAGP reported a stable working capital profile with 68 debtors days (69 days previously),
61 inventory days (67 days) and 102 creditor days (115 days).
�� JAGP’s debt profile may be of some concern in FY2012E given ~Rs1 bn of un-hedged
foreign currency borrowings and recent sharp depreciation in the Rupee. However,
JAGP’s large investments in a rising interest rate environment (with net unrealized gains
of Rs67 mn at end-FY2011) will likely help negate the impact.
�� We are enthused by renewed investment by the company in core/legacy markets. To
quote: “The Company’s focus is not to loose market share in spite of intensifying
competition and rely on innovation to create differentiator.” The focus of the company
previously was monetizing existing large readership of flagship brand, Dainik Jagran
(Exhibit 4). The large print penetration gap in its core markets (UP, Bihar) and rising
affluence support future monetization potential.
�� Exhibit 5 presents the financial performance of Mid-Day Multimedia; MDM has taken a
Rs103 mn hit on its financials at PBT level to bring accounting policy in line with Jagran
(Rs29 mn in overhead expenses and Rs74 mn in depreciation). MDM has already started
to benefit from revenue and cost synergies of Jagran; however, increased circulation
investments in Mid-Day and Inquilab brands will likely result in flat EBITDA in FY2012E
(PAT will likely improve given reduced depreciation).
�� The emerging businesses witnessed robust growth: 54% in event management, 21% in
outdoor and 169% in digital. Event management was EBITDA positive in FY2011,
outdoor just managed to achieve EBITDA breakeven while digital business reduced in
operating losses; thus, emerging business pulled down the overall EBITDA margin despite
strong revenue growth in FY2011.
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