GDP growth may slip below 1-2% if CAD halves: Jefferies

A fall in the current account deficit to $30-$50 billion, or about half of current levels, has the potential to reduce India's GDP growth rate to 1-2 per cent, Jefferies wrote in a note.

Jefferies argued that the CAD compression can have a similar negative economic impact such as monetary or fiscal tightening, by the impact that falling imports, which it estimates account for nearly 16 per cent of India's economy, can have on domestic demand and employment.

"We maintain that India's GDP growth is headed for a far steeper decline than the already muted expectations, as the impact of the currency/CAD-related damage has barely started," analysts at the investment bank wrote.

RBI In Action: Too Radical, Too Risky :: Jefferies

Key Takeaway
RBI's policy is a radical shift with little back-down option for a while. It
eliminates new policy drives with a new governor. The currency line in sand
would likely be tested multiple times; at each point, risks of either unforeseen
monetary activism and/or failure would keep markets nervous. We downgrade
financials to UW and increase weights for defensives (staples) and exporters
(IT), in anticipation of more export-friendly policies.
The RBI says it perfectly:
“India is currently caught in a classic ‘impossible trinity’ trilemma, whereby we are having to
forfeit some monetary policy discretion to address external sector concerns”.
We do not remember a time when explicit RBI policy priority order was currency stability
first, inflation second and growth third. Unlike the desire to see current account (CAD)
stability or balance of payment improvement (BOP), the currency defence, though, is a daily
affair.
Current policy not a short-term affair - We absolutely understand when the central
bank says that:
“The recent liquidity tightening measures by the Reserve Bank are aimed at checking undue
volatility in the foreign exchange market and will be rolled back in a calibrated manner as
stability is restored to the foreign exchange market, enabling monetary policy to revert to
supporting growth with continuing vigil on inflation”.
However, we believe the above statement is a wishful dream as things stand today. We do
not discount the possibility of the INR stabilising for a few weeks once the government
announces some trade or investment measures. But no trade or investment measures could
stabilize the BOP so comprehensively that the INR turns as stable as before in a quick time.
More likely than not, we believe the currency volatility – or the fears of it and associated
policy tightening – will return with every unforeseen events in domestic politics, economy
or global financial markets in the next 12 months to come. As a result, we do not expect
the market to begin expecting pro-growth benign central bank policy for at least until the
elections.
What next?
“It should be emphasised that the time available now should be used with alacrity to institute
structural measures to bring the CAD down to sustainable levels”.
The RBI policy statement calls for the government to implement structural reforms to bring
down CAD. While re-emphasising the point we made last year that the CAD corrections are
extremely painful and happen only over an extended period of time, the time has come to
consider the next policy moves. In coming months, fiscal policy activism should resurface
with the following likely announcements:.
1) Trade reform 1: anti-imports.
2) NRI bond issuance.
3) FDI related announcements.
4) Trade reform 2: pro-exports.
5) Pro domestic investment announcements to cheer the local business confidence.

H.T. Media Ltd (HTML IN) 1QFY14 Results - Strong Recovery in Advertising:: Jefferies

Key Takeaway
HT reported results were in line with expectations as higher promotional
spend offset better than expected advertising growth. Advertising growth
saw a recovery both in Hindi and English print. Given the benefits of the
upcoming elections, we expect the growth momentum to sustain driving
margin improvement. Maintain Buy.
Advertising growth sees sharp recovery - HT reported strong recovery in advertising
growth to 10% in the quarter led by Hindi advertising which grew 14%. English advertising
grew by 8%. The growth was led mostly by volume growth. The sectors that contributed
the most to growth were Government, durables, retail and real estate. Circulation revenues
also showed strong growth of 16% led by price hikes in both English and Hindi editions.
Increased promotional activity limit margin gains - Margins in the quarter improved
c80bps, below our expectation of c100bps. This was the company increased its marketing
spend in Hindi and digital business in the quarter. Newsprint costs were below our
expectation due to better control on pagination and circulation. Higher other income led
to PAT ahead of our expectations.
Conf call highlights - Management indicated that newsprint prices increased c2-3% in
the quarter and they expect a full year increase of c5-7%. The company expects to start
its mid-career education initiative "Bridge School of Management" in the next couple of
months. The total investment in the education business is expected to be around Rs 150mn
over next two years.
Margins to improve but cash usage the key overhang - With the recovery in
advertising growth we expect margins for the company to improve. We expect margin
improvement of c390bps over FY13-15E led by advertising growth of 12% and newsprint
price increases of 5-6% annually. The key concern though remains usage of the Rs6.8bn
cash balance with the company.
Valuation/Risks
We adjust our estimates for better advertising growth and higher newsprint prices. Our
FY14-15 EPS rise by c2%. The stock is trading at 10.2x FY14 PE. Given the 28% EPS CAGR over
FY13-15, we believe the stock offers value at current levels. We retain our Buy rating and PT
of Rs 130. We though remain cautious of the company's large cash balance and expansion
plans into new businesses. Risks: 1) newsprint prices, 2) competition, and 3) investment in
new business

Larsen & Toubro (LT IN) Execution Clear Miss; Track Record Shows Revenue Recovery Potential:: Jefferies

L&T’s 1QFY14 results came in below expectations given weak execution.
Revenues surprisingly rose by only 5% YoY, v/s expected 10% YoY and FY14E
expectation of 15% YoY. Management has maintained guidance and attributed
miss to quarterly EPC revenue fluctuation. This volatility has reflected in past
years like FY11 also. We maintain our earnings and TP as strong order flow (up
28% YoY) lends credibility to revenue recovery.
Order flow rises by 28% YoY in 1Q: L&T’s domestic order flow has risen by 20% YoY
and augurs well for domestic revenue recovery as the year progresses. Sector-wise, strong
growth in infrastructure and hydrocarbon offset the decline in power and capex linked
process sector. Given annual expectation of 15% YoY growth, factoring order flow growth
of 1Q, 11% YoY growth is required over the next 3 quarters.
Execution disappoints: L&T’s revenues surprisingly rose by only 5% YoY during the
quarter to Rs126 bn, v/s expectation of 10% YoY growth. This led to the PAT miss, and also
concerns on potential of meeting full year expectations of 15% YoY growth. Management
highlighted that quarterly fluctuations in booking E&C revenues led to the miss, and
is confident of compensating for the same as the year progresses. Guidance has been
maintained. Interestingly, such volatility has been seen in past years also. For example in
FY11, 1Q revenue growth was just 6% YoY, but L&T went on to report 19% YoY revenue
growth in full year FY11 (Exhibit 2). FY07-08 were also similar such years. This in tandem with
strong order flow growth and 22% YoY order book growth, adjusted for 4Q cancellations
lends credibility to revenue recovery (Exhibit 3).
Margins expected to be maintained in FY14E: L&T’s margins, adjusted for forex (Rs1.1
MTM on loans) has broadly come in-line with expectations. Management has maintained
its full year guidance of maintaining the same. As revenue recovers in the course of year,
margin uptick will lead to the company maintaining margins on full year basis.
Valuation/Risks
Risk:reward favourable: In all the surrounding scepticism, L&T is now trading at 1.8x
P/B FY14E (adjusted for subsidiary valuations). While it may seem distant today, we believe
the company’s ability to manage order flow and earnings through the downturn will see
multiple re-rate over the next 12 months. We maintain Buy with a TP of Rs1,270 valuing the
core business at 18x PE FY14E – 10% discount to 10-yr mean. Key risks include: 1) Extensive
price competition; 2) slowdown in Middle East.

Asian Paints (APNT IN) FY14 challenges remain:: Jefferies

Key Takeaway
APNT 1Q14 was below expectations as EBITDA remained flat despite 15%
growth in gross profits. While volume growth was reasonably strong, the
mixed pattern in input cost inflation (stable raw materials, higher operating
expenses) continues to weigh on margins. Maintain Underperform.
1Q14 results below expectations: Asian Paints’ 1Q14 revenues (+12% YoY) and gross
profits (+15% YoY) grew in line with expectations. However, this failed to offset the inflation
in other operating costs, up 22% YoY adjusting for higher gratuity provision. As a result, adj.
EBITDA came in 4.5% below forecast.
Domestic volume growth strong in 1Q14: Domestic decorative paint volumes grew
in double-digits. Despite the favorable base (volumes in 1Q13 were likely flat), we believe
the growth was reasonably strong considering an otherwise weak economic environment
as well as the negative impact of early monsoons. Sustaining this level of growth for the rest
of FY14, though, could be a challenge if weak demand conditions persist. Nonetheless, we
marginally raise our domestic volume assumptions (c1%) for FY14.
Margins - the mixed pattern continues: The mixed pattern in underlying input cost
inflation continued to weigh on overall margins for the company. While international
commodity prices have turned benign (stable in INR terms), other operating costs have
increased on account of the newly commissioned plant as well as higher freight and power
costs. Therefore, while gross margins expanded 150bps YoY, EBITDA margins declined
110bps YoY. We believe this could continue to be a drag on earnings growth in coming
quarters and marginally lower our FY14E EBITDA forecast (c1%). We also incorporate higherthan-expected depreciation and tax rates, leading to c2-5% cut in earnings estimates.
Valuation/Risks
Our DCF-based PT now stands at Rs4142 up from Rs4107 (11.3% COE, 6% terminal growth
rate), as we factor in these changes and roll over our estimates. The stock trades at 39x
FY14E EPS, at a significant premium relative to peers and its own history. Upside from her is
contingent upon earnings delivery assuming steady multiples, which we believe is at risk.
Maintain Underperform. Risks: a) faster revival in demand, b) higher-than-forecast gross
margin gains

Machinery Balance Sheets of Industrials – Comparable Analysis:: Jefferies

Key Takeaway
The business cycle for industrial companies has been difficult post FY08-09.
Some companies have managed the environment better than the others. On
several occasions, we have discussed that segment leadership is a critical
element. This is reflected in the balance sheets of Cummins, Crompton
Greaves (CRG) and Thermax, with segment leader Cummins seeing far less
deterioration in this cycle. We expect this comparative trend to continue.
Cummins' monetisation focus on debtor days: In the downturn, Cummins'
management has focused on monetising revenue to cash flow, rather than growth, reflected
in Cummins reducing its debtor days by 20% from 76 in FY08 to 61 in FY13 (Exhibit 1).
Thermax has seen a sharp deterioration in debtor days in FY13 to 99 vs 73 in FY12 and 49 in
FY08. Crompton has seen a more gradual deterioration of about 10% during FY08-13. For
debtors more than six months old, Cummins is the least at 2% of overall debtors followed
by Crompton at 12% and Thermax at 14% in FY13 (Exhibit 2).
Thermax's working capital moves to positive from a negative cycle: Working
capital trends are a good indicator of business stress. Thermax has been among the best
in working capital cycle management, which has been negative for the company given
advances. However, as order flow has seen pressure, Thermax’s working capital has seen
some deterioration (Exhibit 3). While it still remains fairly low at +5%, trend-wise it has
worsened from a band of -15%-0% over the past 5-7 years. CRG’s overall working capital
has been broadly stable at 5-10%, while Cummins has seen improvement from 20% levels
to 14%.
CRG’s FY13 ROE falls to 2% from a peak of 38%: Clearly, of the three companies, CRG
has seen the sharpest deterioration in profitability. The company’s ROE has fallen from a high
of 38% in FY10 to 2% in FY13 (Exhibit 4). Despite assuming cost benefits from restructuring,
we anticipate this to be well below 20% levels even over the next 2-3 years. Thermax has seen
its ROEs more than halve from a peak of 43% in FY08 to 19% in FY13. The sharp deterioration
has been YoY as well, from 27% in FY12 to 19% in FY13. Cummins has managed to contain
ROE erosion given its high dividend payout ratio (ROE 30% in FY13 v/s peak of 35% in FY11
and 34% in FY09).
Is the past reflective of the future? Over the past six years, in a difficult backdrop, CRG
and Thermax have lost upwards of 30% from their peak share price levels vs Sensex 10%
off its peak. Cummins, on the contrary, has risen by 50% vs its peak levels. FY13 annual
reports and B/S of these companies clearly spell out the reasons. Cummins' 1HFY14E will be
likely weak given seasonally lower power deficit has impacted genset sales (see report, Power
Deficit: Seasonal Fall, published on 5 July 2013). However, if power deficit recovers during the
year, as supply growth averages lower and demand growth remains steady, genset sales will
recover, in our view. On the other hand, we believe pricing pressure globally will continue
to hurt earnings of Crompton and Thermax.

Equity Strategy DFC: A Welcome Oasis:: Jefferies,

Key Takeaway
The $18b DFC project will be the first major project coming in an environment
of singularly weak investment cycle. Along with other feeder routes and the
industrial corridor, the DFC could pull in investments of $40-45b in the next
five years. The DFC project is similar in cumulative scale of investments to the
highway program of the past 15 years and will likely have as big an impact.

Jain Irrigation Systems (JI IN) Annual Report Analysis: Concerns Remain Despite Some Improvements :: Jefferies

Key Takeaway
Jain's FY12 Annual Report shows some improvement in inventory and
receivables against FY11 but not enough given growth slowdown. Subsidiaries
disappointed again and forex losses have removed Rs5/share of net worth.
Management needs to deliver on promise of reducing capex. Recent fund
raising is incremental positive but does not solve the core business model issue.
As Jain looks for a "new normal" there is significant uncertainty ahead.

India Equity Strategy We Continue to Shout: Growth is the Bigger Problem:: Jefferies,

Key Takeaway
Around the middle of 2011, we were concerned that GDP growth print might
fall below 6% by this quarter. Without falling in the trap of being anchored by
the most recent GDP growth to forecast ahead, we now worry that on existing
trends in capacity creation, growth print could fall to even below 5%, if not 4%,
in one of the quarters in the coming year. And an ever lower growth will still
not solve inflation. The central bank, and the industry, must recognize after
the latest GDP numbers that interest rate cuts are needed even if inflation is
to stay high, as India’s inflation is increasingly borne out of low growth (that
is a result of low supply creation) and even lower revival hopes (through the
impact on balance payment).

Bharat Forge (BHFC IN) Initiating at Buy: Past Investment Phase :Jefferies

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Ashok Leyland: Initiating at Buy: Adverse externalities set to reverse :: Jefferies

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Key Takeaway
We initiate coverage of Ashok Leyland with a Buy rating and PT of Rs37.
We believe FY13E will mark the reversal of factors that have, so far, led to
AL’s underperformance in a resilient CV market. We see AL’s volume growth
reviving as demand in south improves. Production ramp-up at its tax-exempt
plant and operating leverage should aid margins. With the peak in capex/
investments behind us, we expect the strain on balance sheet to ease.

Hindustan Media Venture Limited – in a sweet spot ::Jefferies

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Hindustan Media Venture Limited – in a
sweet spot
Executive Summary
Hindustan Media Venture Limited is the Hindi newspaper segment of HT
Media. It is the leader in Bihar and Jharkhand and No 3 player in UP. HMVL is
currently in a sweet spot, having just completed expansion in UP. It is a pure
play on regional growth. With its leadership in Bihar and Jharkhand, the two
fastest growing states, its revenue and profits will reflect this high growth.
We expect EPS to grow at 29% CAGR over FY11-FY14. HT’s plan to enter new
ventures such as Education and TV content are worrisome. We initiate the
stock with a Buy and target price of Rs 186 implying 47% upside.
Business on uptrend
HT Media’s Hindi business was demerged into its subsidiary HMVL in Dec 2009.
Hindustan is the third most read daily with presence in UP, Bihar, Jharkhand and Delhi. It
has been on an uptrend, gaining readership consistently over the year. It has been
expanding in UP over the past few years. The expansion phase is now near complete, and
Hindustan is now the No. 3 player. With circulation growth completed and readership
growth visible in numbers, Hindustan is now in the monetization phase. Hindustan is a
pure play on the growth in the Hindi belt. With its leadership in Bihar and Jharkhand, the
two fastest growing states, its revenue and profits will reflect this high growth.
High cash generation
Hindustan is in a stage where its expansion is completed and growth in revenues will lead
to stronger profit growth. It will be a cash cow for the firm with increasing profitability.
Given that Bihar and Jharkhand make up a large part of the revenue base and are growing
faster than the rest it will see slightly better revenue growth. The faster growth in FY12
will be offset by low circulation cost. We expect revenue to grow at 15% CAGR over the
next three years. This will lead to a stronger growth in profits which we expect to grow at
29% CAGR.
Capex plans a worry
While Hindustan’s core businesses is in a sweet spot with strong growth and rising cash
flows, future capex plans are a worry. The two main concerns are 1) the education space,
where HT has plans for a large entry and 2) Content generation for TV. Education is the
main focus of the group and will be a high risk, high reward venture, much diverse from
the current business.
Valuation
HMVL has been the worst performing stock in the sector this year and is down 30% YTD.
The stock’s underperformance has been in contrast to its promoter company HT Media
which is down only 5% YTD. The stock is currently trading at 12.7x FY13 PE, one standard
deviation below HT Media’s historical 12m fwd PE. Given the strength of the business and
strong 29% EPS CAGR over the next three years, we believe there is much value in the
stock. We value the firm at an average of 17.3x FY13 PE (10% discount to historical PE of
HT Media) and DCF-based target value. We initiate the firm with a Buy and a target price
of Rs 186 implying an upside of 47%. We use a higher risk factor for the firm as we remain
cautious on the new ventures. Clarity on new ventures and their size will provide us more
comfort on the stock.
Risks
The main risks to our valuation are 1) High capex intensity in new business with long
gestation, 2) slower GDP growth, 3) Increase of competition, 4) Fluctuations in newsprint
prices and 5) Slowdown in literacy rates improvement from current levels.

HT Media – in a sweet spot ::Jefferies

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HT Media – in a sweet spot
Executive Summary
HT Media is a media conglomerate with a presence in both the English and
Hindi newspaper segment. It is the leader in Delhi, Bihar and Jharkhand. HT
Media is currently in a sweet spot with its core businesses exiting expansion
phase. Both English and Hindi are set to see steady revenue growth and
margin expansion. Its other businesses in Radio and Printing are turning
profitable. We expect HT’s consol EPS to grow at 27% over FY11-FY14.
However, HT’s plans to foray into new ventures such as Education and TV
content are a worry. We initiate the stock with a Buy rating and target price
of Rs 176 implying 27% upside.
Core business in a sweet spot
HT Media has a presence in both the English and Hindi segments. In addition, it also has a
presence in radio, Internet and printing. Its core newspaper business is currently in a
sweet spot with the expansions completed and focus on monetization. HT is the leader in
Delhi’s English market and No 2 in Mumbai. Its financial paper Mint is No 2 in its
segment. We expect Mumbai and Mint to slightly increase their market share from the
current low levels. Delhi is seeing a coordinated effort to push yield increase. Its Hindi
business, Hindustan, is under its 76% owned subsidiary HMVL. It is the leader in the Bihar
/ Jharkhand (BJH) market and No 3 in UP. It has increased its readership over the past year
despite rising competition and has maintained its lead in BJH while closing the gap in UP.
Steady growth ahead
Both HT’s English and Hindi businesses are at the turn of the revenue and margin cycle.
This will allow it to grow at a faster pace with more diversity in its portfolio. Costs should
remain in check due to lack of any new expansions and peaking competition. With both
the English and Hindi segment growing, margins will see a sharp improvement and will
rise above historical levels, in our view. We expect HT’s consol EPS to grow at 23% over
FY11-FY14 and standalone to grow at 17% reflecting slower growth in English segment.
Burda will help FY12 profitability as it reduces its losses from a Rs 450mn EBITDA loss in
FY11. Radio will see growth slowing as inventory utilization reaches its peak. The balance
sheet remains strong with high cash and equivalents in anticipation of new business
ventures.
Capex plans a worry
While HT’s core businesses are in a sweet spot with strong growth and rising cash flows,
the new capex plans are worrisome. Our three main concerns are 1) the education space,
where HT has plans for a large entry and 2) Phase III auctions and 3) Content generation
for TV. Education the main focus of the company will be a high risk, high reward venture.
Valuation
HT Media has been the best performing stock in the sector this year and is up 2% YTD.
Despite the current outperformance, the stock is trading at 13.5x FY13 PE, one standard
deviation below its historical 12m fwd PE. Given the strong performance of the core
business and the strong 23% EPS CAGR over the next three years, we believe there is still
value in the stock. We value the firm on an SOTP basis. We value the standalone business
at an average of 15.4x FY13 PE and DCF-based target value. We value HMVL at a 25%
holding company discount to our target value. We initiate the firm with a Buy with a
target price of Rs 176 implying a potential upside of 27%. We use a higher risk factor for
the firm as we remain cautious on the new ventures. Clarity on new ventures and their
size will provide us more comfort on the stock.
Risks
The main risks to our valuation are 1) High capex intensity in new business with long
gestation, 2) Overbidding in radio Phase III auctions, 3) slower GDP growth, 4) Increase of
competition, 5) Fluctuations in newsprint prices and 6) Slowdown in literacy rates
improvement from current levels.

DB Corp – largest print media house::Jefferies

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DB Corp – largest print media house
Executive Summary
DB Corp is India’s largest print media house. It is also the most aggressive
player with leadership in the Hindi belt and in Gujarat. It focuses on Tier ii
and III cities, making it a major beneficiary of regional growth. The company
is expanding in Maharashtra this year and has just finished its Jharkhand
expansion. These expansions, in conjunction with slowing ad markets, will
impact profitability in FY12. But from FY13 onwards, as revenues from these
expansions flow in and the ad market improves, we expect profitability to
clock 30% EPS CAGR over FY13 and FY14. We believe while the market has
priced in the near-term negatives, it has not factored in the acceleration
ahead. We initiate with a Buy on the stock with a target price of Rs 260.
An all-India pursuit
DB Corp is India’s largest print media house. DB is the most aggressive player in the print
segment and is now expanding in the Maharashtra market. DB now has a well-diversified
portfolio with presence in 13 states and four languages. The diversified portfolio also
comes with leadership (Top 3) slot in accelerating Hindi belt states along with Gujarat. It
is the leader in MP/Chhattisgarh, Chandigarh and Haryana, No 2 in Gujarat, Rajasthan and
Punjab. It also has a radio business which runs stations in 17 cities. DB’s strategy of
focussing on Tier II and III cities makes it more linked to the regionalization theme. Even
the recent Maharashtra expansion is focused on tier II and III cities first. With a large
footprint in the non-metros and with accelerating growth here, DB will be a significant
beneficiary of the regionalization theme. The leadership position in these markets will help
it convert the revenue growth into earnings and cash flows.
Expansion mode to impact profits
DB Corp’s diversified leadership will help it attain better-than-industry revenue growth
going forward. However, revenue growth will be subdued in FY12 as the current
slowdown deepens and ad spends are curtailed. From FY13 onwards, strong growth
should return as advertisement spend bounces back from its current lows. In FY12,
however, the recent expansion will impact profitability sharply. We expect margins to fall
sharply in FY12 and recover moderately over the next two years. Margins and RoEs will
remain below the current high level as expansion plans continue till FY13 and possibly
FY14. Earnings growth should return from FY13 and we expect earnings to grow at 30%
CAGR over FY13 and FY14. The balance sheet remains strong and cash flows from mature
markets remain strong to finance future expansions. We expect dividend pay-outs to fall
in FY12 as the firm builds cash in preparation for the Phase III of radio auctions.
Valuation
Growth fears have resulted in underperformance for most print stocks, and DB Corp, with
its aggressive expansion plans, has underperformed the most, trading at 16x 12M forward
PE and 14.8x FY13 PE. While the market has factored in the near-term slowdown it has not
given cognizance to the acceleration ahead, in our view. Given the strong growth
prospects as benefits of expansion flow in and the cost impact ends, we believe the stock
is undervalued. Given the high cash generation and future growth we value the firm at an
average of the FY13 PE and DCF-based target value. We initiate with a Buy and a Target
price of Rs 260, implying 31% potential upside to the current market price.
Risks
The main risks to our valuation are 1) slower GDP growth, 2) slowdown in literacy rate
improvement, 3) increase of competition which will impact the profitability of the players,
4) fluctuations in newsprint prices, 5) execution of recent expansions competitive
intensity in these markets and 6) overbidding risks in Phase III radio auctions.

Jagran Prakashan – pure play on Hindi belt growth ::Jefferies

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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.

Media & Entertainment : In print, we trust ::Jefferies

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Key Takeaway
The seemingly fragmented Indian print industry is a collection of regional
oligopolies. This creates investment opportunities focused on highly profitable
regional leaders in high growth markets. These players tend to have a
disproportionate share of regional markets, sticky market share, high cash
flows and high return ratios. We initiate on Jagran Prakashan, DB Corp, HT
Media and HMVL with Buy. JAGP is our top pick with 46%upside
Media industry to see growth acceleration: India's M&E industry is on the cusp of
accelerated growth with rising consumption-driven advertisement spend. We expect the
industry to grow at 18% CAGR over the medium term.
Regional plays will be outperformers: The growth acceleration in media will be driven
by smaller cities, especially in the Hindi speaking belt. Regional players will be the key
beneficiaries.
Leadership important to benefit: The media industry is a collection of a large number
of oligopoly markets. Market leaders usually have close to 50% share of the regional
advertisement market and hence high earnings and cash flows.
Hindi newspapers the preferred pick: Newspapers are the best option to play the
regional consumer growth theme. They are the most cost-effective medium to reach
consumers in Tier II and III cities. We expect Hindi print to grow much faster than English
due to its larger reach and lower cost of advertisement. In our view competition in the Hindi
newspaper industry has peaked and firms should see margin expansion.
Unique business model: Indian newspapers have some unique features - low cover price,
home delivery and local content - which in our view will support the segment's readership
growth. Indian print firms are asset light compared to their counterparts in developed
countries.
Best defensive plays: Regional print firms provide good defensive plays in the market.
Low leverage, low capex requirement, and high RoEs characterize the industry. EPS growth
CAGR over FY11-14 is expected to be 20%+ for most firms. FY13 PE for the industry is 13.6x.
Jagran our preferred pick: We initiate coverage on Jagran Prakashan, DB Corp, HT Media
and Hindustan Media Venture with Buy. Our preferred pick is Jagran with high cashflows,
22% EPS CAGR, 30%+ RoE and 4% dividend yield. HT Media and HMVL have strong profit
growth but possible significant capex in new businesses makes us cautious. DB Corp is a
growth play with the company expanding aggressively.

India: On longer, higher, cleaner growth: Jefferies

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Key Takeaway
To us, the Indian economy is off the celebrated 8%+ growth path. And now
this should be the number one economic concern. The causes are not all in the
global environment. We present a basket of signs to point that something is
amiss. More importantly, we discuss what we deem as the true drivers of longterm
growth and what policy action is needed as a solution. Until efforts are
being made to address growth, or we see signs of global stability, we maintain
our defensive bias on equities.
Needed first and foremost – an admission that growth is off: We study the past
relationships of 12 high frequency domestic economic indicators with GDP. All of them
suggest that current domestic growth is likely lower than the headline published GDP
growth with more slowdown ahead.


Not a cyclical issue and not a secondary issue: We argue that the ongoing decline in
the growth rate is not just due to cyclical/global reasons that would mend themselves over
time. Growth revival needs active effort and without recovery, many other economic issues
that are currently perceived as more severe – like inflation, fiscal deficit or the currency –
could get worse.
Five points to ponder on the nature of Indian growth to arrive at the right
policy mix: For higher, less cyclical, long-term growth, we discuss in detail the following
five points: 1) Demographics play little role in India’s growth; 2) Growth is fuelled when
consumption is growing slower than GDP; 3) Savings rate has stalled, particularly the
productive savings; 4) Savings’ conversion into investment too has stalled and for reasons
other than high interest rates; and 5) Negative cash flow economy would need global
stability for near-term relief.
With no policy support for growth, we stay defensive: Internal economic circularities
could take a vicious turn for the Indian economy if the world remains unstable and in the
absence of strong policy support for growth. These are only risks as of now, but rising. We
see risks of further downside for the index and maintain OW on consumer sectors, telcos
and stable earnings companies.