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Jagran Prak.: One-off gains lift profits - Views on News from Equitymaster

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Jagran Prak.: One-off gains lift profits

Jun 12, 2014

Jagran Prakashan has announced results for the fourth quarter of financial year 2013-2014 (4QFY14). The company has reported a 14.2% YoY growth in sales and a 51% YoY growth in net profits. For FY14, the profits increased by mere 5.7% YoY. Here is our analysis of the results.

Performance summary
  • Sales grew by 14% YoY during 4QFY14.
  • The operating profit for the company climbed by 47.5% YoY on an absolute basis.
  • Operating (EBITDA) margin increased by 4.6% YoY to 20.4% in 4QFY14.
  • The company reported a whopping growth in other income that grew by 315% YoY.
  • Profit before tax for the company increased by 122.5% YoY in 4QFY14 due to high other income.
  • However, Profit after tax increased at a lower rate of 51.2% YoY in 4QFY14 due to increase in taxes as compared to 4QFY13.

Financial snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 3,428 3,915 14.2% 14,118 15,890 12.6%
Expenditure 2,888 3,118 8.0% 11,129 12,080 8.5%
Operating profit (EBDITA) 540 797 47.5% 2,989 3,810 27.5%
EBDITA margin (%) 15.8% 20.4%   21.2% 24.0%  
Other income 109 450 314.7% 213 465 118.3%
Interest 65 95 44.8% 289 328 13.5%
Depreciation & amortisation 185 205 10.4% 695 729 4.9%
Profit before tax and exceptional items 398 948 138.1% 2,218 3,218 45.1%
Exceptional items 17 101 481.0% 17 101 492.6%
Profit before tax 381 847 122.5% 2,201 3,117 41.6%
Profit before tax margin (%) 11.1% 21.6%   15.6% 19.6%  
Tax -4 265 - -4 787 -
Profit after tax 385 582 51.2% 2,205 2,330 5.7%
Net profit margin (%) 11.2% 14.9%   15.6% 14.7%  
No. of shares (m)         327  
Reported earnings per share (Rs)         7.1  
P/E (x)*         17.0  
*On a trailing 12-months basis, adjusted for extraordinary items

What has driven performance in 4QFY14 and FY14?
  • Jagran’s revenue growth during the quarter was led by 16.3% YoY and 13% YoY growth in Advertising and Circulation revenues respectively. The other operating revenue grew by 4.3% YoY.

  • Operating profit for the company grew on account of decrease in staff cost and other expenses as a proportion of sales. Consequently, margin also improved from 15.8% in 4QFY13 to 20.4% in 4QFY14.

  • Other income for the company increased three-fold. The increase was largely on account of profit (Rs 348 m) arising on sale of office building in Indore during the quarter.

  • Profit before tax and exceptional items have grown by 138% led by increase in other income.

  • There is a substantial YoY increase in exceptional item on account of amortization related to to the title- Dainik Jagran.

  • The profit after tax increased by 51.2% YoY in 4QFY14. Please note that the YoY comparison in case of Profits is not relevant as last year the company had received various tax exemptions/benefits on accumulated losses resulting from acquisition of print business of Nai Dunia.

  • For FY14, the company’s revenues grew by 12.6%; led by 14% YoY revenue growth each in advertising and circulation segments. Other operating revenues went up by 3.28% YoY.

  • For FY14; operating profit grew by 27.5% YoY; while net profit grew by 5.7% YoY. However, the profit after tax figures are not strictly comparable as the company had received tax benefits on account of acquisition of Nai Dunia last year.
What to expect?
In a challenging business environment, Jagran Prakashan has delivered satisfactory performance on the revenue front.

Although there has been a drop in operating margin in its flagship newspaper’ Dainik Jagran’ in 4QFY14, the combined margins have improved. The increase in margin was on account of cost control as well as reduction in operating losses in ‘Other publications’ such as Naidunia, Midday , I-Next etc. Its Outdoor and Event Segment has also turn profitable in this quarter as well as year. The exceptional growth in profits during the quarter; however, has been on account of one time gains.

At the current price of Rs 122, the stock is trading at 18.5 times our estimated FY16 earnings per share. We believe the valuations are stretched at this level given the delay in turnaround of its latest acquisition Nai Dunia. Also, competition has intensified with the entry of Nav Bharat Times and Dainik Bhaskar in its key markets such as Lucknow and Patna respectively. Therefore, we recommend investors to buy the stock at Rs 75 or lower.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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