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Jag. Prak.: Consolidation starting to pay off - Views on News from Equitymaster

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Jag. Prak.: Consolidation starting to pay off
Feb 2, 2013

Jagran Prakashan has announced results for third quarter of financial year 2012-2013. The company has reported a 7.7% YoY growth in sales and a 59.5% growth in net profits. Here is our analysis of the results.

Performance summary
  • The sales grew by 7.7% YoY during the quarter and by 5.8% YoY during the 9 month period ended December 2012.
  • Advertisement revenues displayed performance as compared to previous quarters but were still in single digits (7%). Circulation revenues went up by more than 12% YoY during the quarter. Event and outdoor segment recorded 5% growth in the December quarter as compared to the same quarter last year. Digital revenues increased by 18% YoY.
  • Operating expenditure grew by 7.9% YoY resulting in operating profit growth of 7% YoY. Operating profit margins were stable at 26% levels.
  • Depreciation registered almost flat growth while interest charges were up by a whopping 74% (although on a low base) on account of Nai Dunia acquisition.
  • Jagran did not report any taxes to be paid on account of tax implications of its recent acquisition of Nai Dunia. As such, the net profit was up by 59.5% YoY during the quarter and by 39.7% YoY during the 9 month period.

(Rs m) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
Net sales 3,240 3,489 7.7% 9,341 9,885 5.8%
Expenditure 2,389 2,578 7.9% 6,873 7,384 7.4%
Operating profit (EBDITA) 851 911 7.0% 2,468 2,501 1.3%
EBDITA margin (%) 26.3% 26.1%   26.4% 25.3%  
Other income (42) (9) -77.6% 69 96 38.9%
Interest 44 77 74.3% 100 212 111.3%
Depreciation amortisation 165 166 0.4% 475 475 -0.1%
Profit before tax 600 659 9.8% 1,962 1,910 -2.6%
Profit before tax margin (%) 18.5% 18.9%   21.0% 19.3%  
Tax 187 - -100.0% 594 - -100.0%
Profit after tax 413 659 59.5% 1,368 1,910 39.7%
Net profit margin (%) 12.7% 18.9%   14.6% 19.3%  
No. of shares (m)           316.2679
Diluted earnings per share (Rs)*           7.40
P/E (x)           14.74
* On a trailing 12 months basis

What has driven performance in 3QFY13?
  • The sales grew by 7.7% YoY during the quarter and by 5.8% YoY during the 9 month period ended December 2012. The lower rise in growth is on account of higher base in the same quarter last year.

  • Advertisement revenues displayed better performance as compared to previous quarters but were still in single digits (7%). Particularly, in Nai Dunia, ad growth stood at 21% YoY during the quarter. Circulation revenues went up by more than 12% YoY during the quarter. Jagran's realization per copy increased helping the company earn more circulation revenue. Also, the entire growth has come from existing editions as Jagran has not launched any new edition in the past few years.

  • Event and outdoor segment recorded 5% growth in the December quarter as compared to the same quarter last year. Digital revenues increased by 18% YoY.

  • Operating expenditure grew by 7.9% YoY led by 14% growth in other expenses. These other expenses related to the annual festival related promotions. Raw material costs grew marginally by 4% YoY as Jagran was able to contain newsprint costs despite higher circulation.

  • Thus, operating profit grew by 7% YoY and operating profit margins were stable at 26% levels.

  • Depreciation registered almost flat growth while interest charges were up by a whopping 74% (although on a low base) on account of Nai Dunia acquisition.

  • Jagran did not report any taxes to be paid on account of tax implications of its recent acquisition of Nai Dunia. As such, the net profit was up by 59.5% YoY during the quarter and by 39.7% YoY during the 9 month period.

    Cost break-up
    (% of sales) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
    Raw materials consumed 1,135 1,179 3.9% 3,199 3,422 7.0%
    % sales 35.0% 33.8%   34.3% 34.6%  
    Staff cost 407 432 6.2% 1,175 1,285 9.4%
    % sales 12.5% 12.4%   12.6% 13.0%  
    Other expenses 848 967 14.1% 2,499 2,677 7.1%
    % sales 26.2% 27.7%   26.7% 27.1%  
    Total expenditure 2,389 2,578   6,873 7,384  

What to expect?
Jagran's performance has been consistent over the past few quarters. One noticeable positive feature of the company is its ability to control costs. Despite higher number of circulated copies, newsprint costs were up only marginally by just 4% YoY. Jagran's strategy of growing inorganically through acquisitions is yielding desired results for the print media company. The benefits of synergy are quite evident in the performance of Nai Dunia's advertising which was up by 21% YoY. Going forward, Jagran wants to focus on consolidation of its existing and newly acquired businesses. It does not have any plan of launching newer editions in near future. At Rs 109, the stock is trading at 15 times its trailing twelve month earnings. We maintain our Sell view on the stock.

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