Jagran Prakashan - Company Update - Radio to augment print :: Centrum

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Rating: Buy; Target Price: Rs180; CMP: Rs137; Upside: 31.4%



Radio to augment print



We maintain Buy on Jagran Prakashan as we expect the acquisition of
Radio City to be EPS neutral from FY17E. Rs8bn investment in the radio
vertical is expected to offer synergies with the print business in the
medium term and help the company reap benefits in non-Jagran
geographies. We believe the acquisition of Radio City is valued at
11.5x FY15E EV/EBIDTA given that Jagran would have paid ~Rs4.5bn in
cash and needs to invest Rs2bn more towards migration of radio
licenses. Further, the company will acquire promoter group owned Radio
Mantra and other stations in Phase-III auctions. We believe Radio City
is a quality asset given its market leadership in Mumbai, Bangalore
and Lucknow and offers further upside in operating performance going
forward.

$ Rs8bn investment in the radio vertical to aid growth: Jagran
Prakashan has acquired 100% of Radio City in an all cash deal valuing
the business at ~Rs4.5bn (Deal value not disclosed) and will need to
invest Rs2bn more towards migration fee for existing radio stations
implying a total investment of ~Rs6.5bn (11.5x FY15E EV/EBIDTA)
against 16x for ENIL. Further, the company is expected to acquire
promoter group owned Radio Mantra (8 radio stations) for Rs0.5bn
(revenue of Rs0.22bn and operating profit of ~Rs60mn) and another
Rs1bn towards expansion to new cities in Phase-III auctions. We
believe the cumulative investment of ~Rs8bn in radio is a significant
over next 1 year given the current networth of Rs10bn for Jagran
Prakashan.

$ Radio City offers attractive synergies: Radio City has strong brand
equity with a presence in 7 states through 20 radio stations. It
operates in 14 of the top 16 ad revenue generating markets in India.
We believe Jagran Prakashan has attractive synergies with Radio City
given its strong dominance in the West and South markets while Radio
Mantra has its presence in North and East India. We believe pan India
presence helps Jagran reap benefits from traditionally non-Jagran
geographies while radio business will complement Jagran’s print,
outdoor, activation and digital businesses and enable deeper inroads
with advertisers both at national and local level.

$ Operating performance offers further upside: Radio City is the
market leader in Mumbai, Bangalore and Lucknow and is overall number 2
in markets where it operates. It pricing is 5-7% higher in markets
where it is the leader compared to ENIL and offers further scope for
upside in remaining markets. It currently has an inventory utilisation
of 85-90% in bigger cities and 60% in smaller cities on 12min/hr basis
and is expected to expand further in next 2 years with local
advertisers accounting for mere 30% ad revenues. Radio City is
expected to have revenues of Rs2643mn in FY17E from Rs1585mn in FY14
while operating profit will expand to Rs803mn, 30.4% margins from 28%
margins in H1FY15.

$ Valuation & Risks: We expect the acquisition to be EPS neutral from
FY17E given the strong operating performance of Radio City. As the
deal is expected to be funded by cash, we believe the company will
need to take debt for migration and to acquire more licenses in
Phase-III and promoter group’s radio stations. Our proforma financials
suggest Jagran will have revenues/Ebidta of Rs25.7bn/Rs7.1bn in FY17
with margin expansion to 27.6%. As the acquisition is subject to
regulatory approvals, including from Ministry of I&B, we have not
incorporated this in our financials. We continue to value the stock at
Rs180 (16x Dec’16E EPS). Key risks to our call are slowdown in ad
environment and increasing losses in Nai Dunia.



Thanks & Regards

--