Jagran Prakashan Acquisition of Nai Dunia ::Centrum

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Jagran Prakashan

Acquisition of Nai Dunia

Jagran Prakashan (JPL) has acquired Suvi Info Management (Indore) Pvt Ltd which is the holding company of Nai Dunia Media engaged in publishing Nai Dunia daily in MP and Chhattisgarh markets. The acquisition is at an EV valuation of Rs2.25bn (Rs1.5bn net of tax). We believe this acquisition will help JPL enter the second biggest Hindi market and position itself to be #2 player in that market. We expect JPL to turn around the business and make it EBIDTA positive within the first year of operation. Maintain BUY.

m  Entry into MP and Chhattisgarh market: With this acquisition, JPL will get access to the lucrative Madhya Pradesh (Rs4.5bn ad market) & Chhattisgarh (Rs1bn ad market) markets where readership penetration is less than 15% even though the literacy rate is above 70%.

m  Aiming to be a strong #2 player: Nai Dunia has recently become #3 player in the MP market behind Dainik Bhaskar and Patrika. It has an AIR of 1.52mn compared to 1.6mn for Patrika and 3.8mn for Dainik Bhaskar. The company currently has a circulation of 5lac copies. In the state of MP it has 5 editions in Indore, Bhopal, Jabalpur, Gwalior and Ujjain. In Chhattisgarh it has 2 editions in Raipur and Bilaspur. Nai Dunia has a share of 22% in readership and 15% in ad revenue in these two markets. Company plans to steadily increase its circulation and become a strong #2 player in these states.

m  Strong synergies to emerge: We believe there are strong synergies between the existing operations of JPL and these two states. MP is the second biggest Hindi ad market and shares the border with UP. With this JPL would have a strong presence in all Hindi speaking states.  JPL plans to reduce costs to the tune of Rs90mn immediately with saving of Rs40mn in newsprint procurement, Rs20mn by sharing office space, Rs30mn by employee rationalization. 

m  Nai Duniya to be operating positive in 1^st year: Nai Dunia currently has revenues of ~Rs1.05bn while it is making an operating loss of ~Rs0.25bn with PAT loss of ~Rs0.32bn. Currently, advertisement revenue for the company is Rs0.75bn, circulation revenue Rs0.25bn while remaining is from job works. JPL plans to make the company operating positive within 1^st year by reducing cost to the tune of Rs100mn while increasing national advertisement pie from current 20-25% to 40% similar to Dainik Bhaskar.

m  Deal valued at EV of Rs2.25bn: JPL has acquired the company at an EV of Rs2.25bn and will be fully funded from internal accruals. The company has debt of Rs200mn and will have tax benefit of ~Rs0.75bn. JPL plans to merge this company with itself in FY13 for utilizing the tax benefits.

m  Valuations: JPL is currently valued at 12.6x FY13E EPS of Rs7.95. We currently have a BUY rating on the stock with a target price of Rs135. We will change our estimates once we get the financials and data of the acquired company from the management. 

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