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Jagran Prakashan: Mixed signals - Views on News from Equitymaster
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Jagran Prakashan: Mixed signals
Jun 30, 2008

Performance summary
  • Operating revenues increase by 16% YoY and 25% YoY for 4QFY08 and FY08 respectively.
  • Operating margins improve by 1.8% in FY08 on account of lower raw material costs.

  • Bottomline grows by 33.5% YoY (excluding the extraordinary item) aided by lower interest and tax costs.

  • The board has declared a dividend of Re 1 per share (dividend yield of 1.5%).

(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net Sales 1,637 1,900 16.1% 5,982 7,496 25.3%
Expenditure 1,363 1,599 17.4% 4,783 5,858 22.5%
Operating profit 274 301 9.8% 1,199 1,639 36.7%
Operating profit margin (%) 16.7% 15.8%   20.0% 21.9%  
Other income 66 33 -50.5% 248 215 -13.4%
Depreciation 75 94 25.3% 237 336 41.6%
Interest 32 11 -64.4% 85 60 -29.6%
Profit before tax 233 228 -2.1% 1,124 1,457 29.6%
Prior period adjustment (47) 0 -101.0% (27) 1 -101.9%
Tax 99 74 -25.8% 389 476 22.3%
Profit after tax 181 154 -14.8% 762 981 28.7%
Net profit margin (%) 11.1% 8.1%   12.7% 13.1%  
No of shares (m) 60.2 301.0   60.2 301.0  
Diluted earnings per share (Rs)*         3.26  
Price to earnings ratio (x)*         19.6  
* 12 month trailing earnings

What has driven performance in FY08?
  • The topline grew by 25% YoY for FY08. While the advertisement revenues grew by 28% YoY as against the industry growth rate of 21% YoY, circulation revenues were higher by 7.1%. The advertisement revenues were driven by the increase in card rate, increased focus on the local market and higher space sales. The company also reported a significant revenue growth from new initiatives, which saw an increase of 82% YoY over last year. The company’s topline performance is in line with our estimates.

  • In terms of new launches, six new editions of Dainik Jagran (Ayodhya, Raibareilly and Mathura in Uttar Pradesh, Haridwar in Uttarakhand, Patiala and Bhatinda in Punjab) were launched. The I-next editions have increased to 9 from 2 editions last year. The company has also increased the City Plus editions from 2 to 10 including 2 editions at Bangalore.

    Cost break-up
    As a % of net sales 4QFY07 4QFY08 FY07 FY08
    Consumption of raw materials 37.4% 36.6% 39.2% 36.2%
    Employees Cost 11.9% 13.4% 11.8% 12.2%
    Other expenditure 33.9% 34.2% 29.0% 29.7%

  • Operating margins for 4QFY08 were lower by 0.9% on account of higher staff and other expenses. Amendment in the payment of Bonus Act, 1965, has raised the salary eligibility from Rs 3,500 pm to Rs 10,000 pm Further, the adjustment for lease escalation on operating lease as per new accounting norms has led to higher other expenses. For FY08, the margins were higher by 1.8%. Raw material costs (as percentage of sales) reduced from 39% in FY07 to 36% in the current fiscal. Higher sales of colour space (which command higher prices) and higher ad rates aided the margin growth.

  • The profits for 4QFY08 fell by 14.8% YoY on account of lower margins and reduction in other income. Further, net losses of Rs 84.8 m from new newspaper brands and non-publication businesses also contributed to the decline in bottomline. Excluding the prior period adjustments, the profits were higher by 15% YoY. For FY08, the net profits were up 28.7% YoY. The tax rate reduced from 34.6% in FY07 to 32.7% in FY08. Excluding the prior period adjustments, the bottomline jumped 33.5% YoY. The profits are lower than our estimates by 13% on account of lower margins.

What to expect?
At Rs 64, the stock is trading at a price to earnings multiple of 9.8 times our estimated FY10 earnings. Dainik Jagran, as per the Indian Readership Survey 2008, has for the tenth time in a row maintained its No.1 status in the country across all languages with a total readership of 56.6 m. It continues to be aggressive on its launches. The company has also entered into a joint venture with Television Eighteen India Limited to launch a business paper in Hindi and other Indian languages across the country. Further, the new ventures have also done well during the year. Though these ventures are in losses currently, the company expects them to breakeven by the coming year. However, the company is sourcing newsprint at US$ 900 per tonne in recent times, which could delay its new launches. Along with margin pressure, execution risk and fears of economic slowdown thereby affecting the ad revenues may affect its performance in the near term.

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