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Jagran Prakashan: Will acquisitions help?
Feb 22, 2012

The Print Media industry is ailing, and so undergoing a consolidation phase which will result in a few large players.

In this context, Print Media companies have been trying to establish a stronger hold in their existing markets as well as venture into newer geographies and newer markets in existing states.

The organic way to expand is to build from one's existing base. DB Corp, Jagran's main competitor, did this by launching new editions using internal branding and resources. Alternatively, a company can grow inorganically by acquiring other businesses.

We believe that Jagran Prakashan is moving towards a pan India presence. This seems likely since its primary competitor DB Corp. has expanded to different parts of the country (e.g. Maharashtra). Our analysis indicates that Jagran's strategy is to grow inorganically by acquiring companies. This approach was evident from its acquisition of Mid-Day Infomedia Ltd. (Mid-Day Multimedia Ltd.'s Print Media business) in 2010. Continuing with this same strategy, Jagran is now planning to acquire Nai Dunia. It is interesting to understand the implications that this acquisition would have on Jagran Prakashan.

Nai Dunia Acquisition - Increasing Market Share in Madhya Pradesh (MP) - Nai Dunia was founded by Babu Lalchand Chhajlani and Shri Basant Lal Sethia in 1974 in Indore. It is a Hindi newspaper that is published in 14 cities including Delhi, Indore, Bhopal, Gwalior, Jabalpur, Raipur and Bilaspur. In terms of readership numbers (Source: Indian Readership Survey), after Dainik Bhaskar, Nai Dunia is the second most widely read newspaper in MP. With the acquisition of Nai Dunia, Jagran is after a larger share of this market, and wants to compete more aggressively with the current leader - Dainik Bhaskar. The acquisition of Nai Dunia seems well thought out and is consistent with Jagran's inorganic growth strategy.

Jagran's Pan Expansion Strategy - As mentioned earlier, Jagran's seems to be moving towards a pan India presence for its Print Media business. As per the latest FICCI KPMG report, regional print will witness higher growth than Hindi/English print over next couple of years. Also, the acquisition of Mid-Day paved Jagran's entry into another new market area, the afternoon newspaper segment.

So beyond its strength in the UP market, and expansion in Madhya Pradesh, Jagran recently launched "Jagran Punjabi", a newspaper in Punjabi that caters to the Punjab market..

To further capitalize on this regional growth opportunity, Jagran recently launched "Inquilab" its Urdu daily from Lucknow. Inquilab was earlier a part of Mid-Day. The Urdu newspaper is expected to enter other markets of Uttar Pradesh, Bihar and Delhi soon.

Acquisition Valuation and Assessment - When Jagran bought Mid-Day Infomedia, the print business of Mid-Day Multimedia in 2010, it was valued at Rs. 1.75 bn, implying a price-earnings multiple of around 18.5. The acquisition was done via a share swap deal. For every 7 shares held in Mid-Day, Mid-Day shareholders got 2 shares of Jagran Prakashan. Our assessment is that the premium Jagran paid for Mid-Day Infomedia was nullified to the extent that shares of Jagran were themselves quoting at a premium to its intrinsic value at the time of deal. The acquisition entailed dilution in Jagran Prakashan's outstanding shares to the tune of 5%. For buying out Nai Dunia, we anticipate similar valuation and dilution.

We believe that inorganic growth via acquiring businesses is a better strategy than to grow organically from within only. Organic (internal) growth takes longer and it requires the company to spend heavily on the acquisition of assets, as well as initial start-up expenses. It is easier to turnaround an existing loss making entity into a profitable one than to launch newer editions.

Overall, the ailing Print Media industry is in a consolidation phase. Consolidation is good for the overall industry as it reduces the number of players in the market and eventually allows consumers to get better and more cost effective service. Consolidation will augment the profits of the existing players and consequently increase their pricing power. The newspaper companies that had to resort to lowering of cover prices will be able to hike their prices in the future, thus stabilizing their business models.

In this industry with heightened competition, we believe that Jagran intends to gain a pan India presence and its strategy to grow inorganically via acquisition seems to be the right approach.

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