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Jagran Prakashan Vs Deccan Chronicle - Views on News from Equitymaster

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Jagran Prakashan Vs Deccan Chronicle
Apr 10, 2007

As we have presented an overview on Jagran Prakashan and Deccan Chronicle, it makes sense to compare both companies on various parameters like financial performance and future prospects. In the following write up, we have made an attempt to do the same. Overview:

Deccan Chronicle is the leading English daily in Hyderabad and Chennai with a total circulation of 9.5 m copies (source: Audit Bureau of Circulation for the month July - Dec 2006). The Company also publishes Andhra Bhoomi in Telugu, which has a circulation of 1.1 mn copies. It also owns 90% stake in Asian Age Holdings, the publishers of 'Asian Age' - an English daily. In FY06, the company acquired 'Odyssey' - a retail chain based in the South India for a consideration of Rs 612 m.

JPLís flagship newspaper- Dainik Jagran is the first newspaper in the country to cross the 20 million-readership mark. The company derives most of its income from advertising revenues. However, the company faces competition from other forms of media, such as, television, radio and websites. Jagran Prakashan Ltd (JPL) is the first print media company to have an overseas (European) strategic partner.

Editions:

DCHL circulates newspapers in two major cities in southern India and has a very strong hold over its markets. It also has presence in Tier-2 cities like Visakhapatnam, Vijayawada, Trichy.

Jagran publishes over 25 editions of Dainik Jagran and has dominant position in north and central regions of India.

Readership Position:

In the ĎAll India English Categoryí, Deccan Chronicleís readership has slipped from top 10 positions over the years as per NRS.

Dainik Jagran has retained the No.1 position in readership over the years according to IRS, while the NRS has also rated the newspaper as number one.

Revenue source:

Most of the revenues for a newspaper come from advertisements. Since color advertisement rates command a premium of around 80% over black and white ones, the publishing houses have been focusing on increasing its color print capacity.

Besides advertisements, the only source of revenues for DCHL is from subscription.

As far as revenue sources for JPL are concerned, besides advertisements in newspaper, JPL also earns revenues from magazine circulation, Internet portal, etc.

  Deccan Chronicle Jagran Prakashan
Performance ratios    
Sales growth (FY03-FY06) 147.1% 23.5%
OPM 32.2% 15.3%
NPM 19.3% 7.3%
Return ratios    
ROE 22.6% 11.4%
ROCE 13.3% 13.8%
Leverage ratios    
D/E 1.9 0.2
Interest coverage 6.6 8.2
Valuation multiples    
P/E (TTM) 22.5 30.9
P/Sales (TTM) 0.7 3.8

Financials:

As far as the performance ratio is concerned, as inferred from the table above, DCHL has not only edged out JPL in terms of topline growth but its margins for FY06 have also been much superior to the latterís. This could be attributed to the dominant position of DCHL in its markets whereby it is able to command a premium over its peers. While JPL comes out second best on all the three parameters, it should be worth adding that the company is expanding more rapidly than DCHL and hence, some of the costs incurred towards expansion might be making its margins look a little subdued. It would be interesting to see if DCHL is able to sustain its margins when it expands to other cities.

On the return ratios front, while the two companies are neck and neck on the ROCE front, DCHLís ROE is almost double that of JPLís. However, this has to be viewed in the context of financial leverage and we believe DCHLís debt to equity ration of nearly 2x does render the company vulnerable to risks of business slowdown. JPLís efforts at expanding without incurring too much of debt is commendable indeed.

As far as valuations are concerned, on a trailing twelve-month basis, JPL is trading at a significant premium to DCHL on both the price to sales as well as price to earnings parameters. Investors seem to be gravitating towards superior balance sheet of JPL and its strong expansion plans. It DCHL is able to bring down its high leverage in the medium term, then it might become a better investment candidate, other things remaining constant.

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