Scalability To Drive Margin Higher
§ Economic advancement in low tier regions to boost revenues: Literacy and income levels in rural part of India are set to rise given the relatively higher economic advancement in these regions. Jagran Prakashan Ltd.’s (Jagran) target market mainly encompasses Tier II and Tier III cities and towns. Going forward, growth in the Print Media sector will be driven by an increased focus on the increasing potential in tier II and tier III cities and towns. We expect Jagran to report a revenue growth of 14.1% CAGR for next two years.
§ Yield ought to improve: The growth in advertisement revenue is expected to be driven by identical uptick in both the yields and volume. We expect the share of colour advertising for Jagran expanding in the total print advertising volume driven by higher incremental demand for colour Ads. Although print media Ad yield is currently skewed toward English newspapers, expanding potential in rural areas lately has seen improvement in the Ad yields for regional newspapers. Ad revenue is expected to grow at a CAGR of ~16.1% over next two years.
§ Scalability to drive margin higher: Average newsprint price between 05 June 2001 and 10 August 2010 is derived at US$562/ton. However with relatively higher yield and volume growth compared to increase in copies sold (scalability), Jagran’s EBITDA margin increased to 30% in FY10 from 15% in FY06. Jagran’s revenue grew 18% CAGR over FY06-10 while the newsprint consumption increased 5% CAGR during the same period. With further improvement in operational parameters, we estimate EBITDA margin to improve to 33.2% in FY12 from 30% in FY10.
Valuation & Recommendation: At CMP of Rs 127, Jagran trades at 18x FY11E and 15x FY12E EPS. We initiate coverage with an “Overweight” rating on the stock with a target price of Rs 145
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