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Jagran Prakashan – pure play on Hindi
belt growth
Executive Summary
Jagran Prakashan is the publisher of Dainik Jagran, the most read newspaper
in India. In addition, it has interests in complementary businesses like Out of
Home and Event Management. It is a pure play on the the Hindi belt with its
leadership position in UP, the largest Hindi market. It has been expanding its
circulation, which will keep its profitability subdued in FY12 but will fuel
higher growth from FY13. Jagran has a Return on Equity of 30% and is net
cash positive with dividend yield of 4%+. We expect the firm to see a steady
rise in its operating and free cash flows. We factor in a sharper drop in GDP
growth than the consensus estimates and expect EPS CAGR to be 22% in FY11-
FY14. We initiate with a Buy and a target price of Rs 153, implying a 46%
upside to current price.
Leadership advantage at play
Jagran Prakashan is the publisher of Dainik Jagran (DJ), the largest read newspaper in India
for the past nine years running. Its main footprint is in the fast growing Hindi states of UP,
Bihar, Jharkhand, Delhi, Punjab and Haryana. In addition to the main paper, Jagran has
other titles catering to niche groups which leverage its leadership status. It has diversified
into complementary businesses of Internet, Out of Home and Event management. Most
of the businesses are EPS-accretive. With most businesses aimed at the Hindi belt and Tier
II and III cities, Jagran will be a significant beneficiary of the accelerating growth, in our
view. The leadership position with its proven ability to monetize its leadership allows
Jagran to convert this into exponential cash and profit growth.
Much higher growth in the long term
The bulk of Jagran’s profits are from the print business, specifically Dainik Jagran. While
accelerating growth will benefit the revenues and profitability, FY12 will be muted due to
on-going circulation expansion, slower economic growth and higher raw material cost
impact. Our estimates factor in a sub 7% GDP growth and consequently a much higher
impact on profits. But beyond this near-term fall in profits, we believe growth will
leapfrog sharply as the price impact moderates and the expansion drive is completed. In
addition as GDP growth picks up pace in FY13, national and local advertising will see
strong recovery and return to above-trend growth. We expect FY11-14 EPS CAGR to be
22%. RoAE for the firm is among the highest at 30%. The firm’s capex plans are limited.
The company’s strategy is to expand footprint through M&A, which limits its expansion
plans. The company’s dividend pay-out, in our view, will remain high at close to 70%,
implying a dividend yield of 4%+ at current prices.
Valuation
The firm is currently trading at valuation levels similar to those seen in 2008-09. Its 12-m
forward P/E is at levels close to MSCI India despite much higher EPS growth; consensus
Index EPS growth CAGR is 14% vs. our expectation of JAGP at 22% between FY11-FY14.
Given the high EPS growth, dividend yield, and above-average RoE, we believe the firm’s
valuation should be much higher. While we expect that the current consensus estimate
will see downward revision, current prices already factor in the revisions and provide an
attractive entry point. We initiate with a Buy on Jagran Prakashan. We value the firm at an
average of DCF valuation and FY13 P/E multiple of 18.7. Our target price for the firm is Rs
153, implying 46% potential upside.
Risks
The main risks to our valuation are 1) slower GDP growth especially in the Hindi belt, 2)
slowdown in literacy rate improvement from current levels, 3) increase of competition
which will impact the profitability of the players, 4) fluctuations in newsprint prices and 5)
new acquisitions if done at expensive valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jagran Prakashan – pure play on Hindi
belt growth
Executive Summary
Jagran Prakashan is the publisher of Dainik Jagran, the most read newspaper
in India. In addition, it has interests in complementary businesses like Out of
Home and Event Management. It is a pure play on the the Hindi belt with its
leadership position in UP, the largest Hindi market. It has been expanding its
circulation, which will keep its profitability subdued in FY12 but will fuel
higher growth from FY13. Jagran has a Return on Equity of 30% and is net
cash positive with dividend yield of 4%+. We expect the firm to see a steady
rise in its operating and free cash flows. We factor in a sharper drop in GDP
growth than the consensus estimates and expect EPS CAGR to be 22% in FY11-
FY14. We initiate with a Buy and a target price of Rs 153, implying a 46%
upside to current price.
Leadership advantage at play
Jagran Prakashan is the publisher of Dainik Jagran (DJ), the largest read newspaper in India
for the past nine years running. Its main footprint is in the fast growing Hindi states of UP,
Bihar, Jharkhand, Delhi, Punjab and Haryana. In addition to the main paper, Jagran has
other titles catering to niche groups which leverage its leadership status. It has diversified
into complementary businesses of Internet, Out of Home and Event management. Most
of the businesses are EPS-accretive. With most businesses aimed at the Hindi belt and Tier
II and III cities, Jagran will be a significant beneficiary of the accelerating growth, in our
view. The leadership position with its proven ability to monetize its leadership allows
Jagran to convert this into exponential cash and profit growth.
Much higher growth in the long term
The bulk of Jagran’s profits are from the print business, specifically Dainik Jagran. While
accelerating growth will benefit the revenues and profitability, FY12 will be muted due to
on-going circulation expansion, slower economic growth and higher raw material cost
impact. Our estimates factor in a sub 7% GDP growth and consequently a much higher
impact on profits. But beyond this near-term fall in profits, we believe growth will
leapfrog sharply as the price impact moderates and the expansion drive is completed. In
addition as GDP growth picks up pace in FY13, national and local advertising will see
strong recovery and return to above-trend growth. We expect FY11-14 EPS CAGR to be
22%. RoAE for the firm is among the highest at 30%. The firm’s capex plans are limited.
The company’s strategy is to expand footprint through M&A, which limits its expansion
plans. The company’s dividend pay-out, in our view, will remain high at close to 70%,
implying a dividend yield of 4%+ at current prices.
Valuation
The firm is currently trading at valuation levels similar to those seen in 2008-09. Its 12-m
forward P/E is at levels close to MSCI India despite much higher EPS growth; consensus
Index EPS growth CAGR is 14% vs. our expectation of JAGP at 22% between FY11-FY14.
Given the high EPS growth, dividend yield, and above-average RoE, we believe the firm’s
valuation should be much higher. While we expect that the current consensus estimate
will see downward revision, current prices already factor in the revisions and provide an
attractive entry point. We initiate with a Buy on Jagran Prakashan. We value the firm at an
average of DCF valuation and FY13 P/E multiple of 18.7. Our target price for the firm is Rs
153, implying 46% potential upside.
Risks
The main risks to our valuation are 1) slower GDP growth especially in the Hindi belt, 2)
slowdown in literacy rate improvement from current levels, 3) increase of competition
which will impact the profitability of the players, 4) fluctuations in newsprint prices and 5)
new acquisitions if done at expensive valuations.
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