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Jagran Prakashan: Margin pressure - Views on News from Equitymaster

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Jagran Prakashan: Margin pressure
Jul 30, 2008

Performance summary
  • Net sales grow by 13% YoY during 1QFY09, led by 10.5% YoY jump in the advertisement revenues.
  • Operating margins decline by 4% YoY on the back of higher raw material and employee costs (both as percent of sales).
  • Net profits decline 9% YoY during the quarter on account of lower operating margins and reduction in other income.


(Rs m) 1QFY08 1QFY09 Change
Net Sales 1,834 2,065 12.6%
Expenditure 1,319 1,568 18.9%
Operating profit 515 497 -3.6%
Operating profit margin (%) 28.1% 24.0%  
Other income 88 63 -28.8%
Depreciation 70 84 18.9%
Interest 20 10 -50.3%
Profit before tax 514 466 -9.3%
Prior period adjustment 0.4 -  
Tax 166 150 -9.8%
Profit after tax 347 317 -8.9%
Net profit margin (%) 18.9% 15.3%  
No of shares (m) 301.0 301.0  
Diluted earnings per share (Rs)*   3.16  
Price to earnings ratio (x)*   20.9  
* 12 month trailing earnings

What has driven performance in 1QFY09?
  • Jagran Prakashan (JPL) reported a topline growth of 13% YoY during 1QFY09. The company’s advertisement revenues (68% of total revenues) grew by 11% YoY. The circulation revenues grew by 8% YoY, while the new ventures (outdoor advertising, event management activity and short code service) jumped 36% YoY. Newspaper sales of Dainik Jagran in terms of number of copies sold per day were higher by 7% YoY. The company launched 2 new editions of ‘I-next’ in the current quarter, taking the number to nine. In terms of ad revenues growth, this was the lowest growth reported in recent times as national advertisers are holding back their ad spends. However the company has outperformed the industry, which has grown by a meager 5% YoY during the quarter.

    Cost break-up
    As a % of net sales 1QFY08 1QFY09
    Consumption of raw materials 34.8% 35.4%
    Employees Cost 11.1% 12.3%
    Other expenditure 26.0% 28.2%

  • JPL’s operating margins declined by 4% during 1QFY09. This was largely on the back of increase in material and staff costs (both as percentage of sales). The newspaper companies are currently witnessing higher raw material prices on account of lower supply of newsprint due to strong demand from China (Olympics-related demand). The international newsprint prices are currently hovering around US$ 850 per metric tonnes (MT) to US$ 900 per MT. However, the management expects prices to cool off by 3QFY09.

  • JPL’s net profits declined by 9% YoY during 1QFY09. This was on account of lower margins and reduction in other income. New ventures reported losses of around Rs 1.5 m in the current quarter. The company now has 7 loss making editions as compared to 9 last year. It expects performance to get better in the new ventures going forward.

What to expect?
At Rs 66, the stock is trading at a multiple of 10.2 times our estimated FY10 earnings. The management expects ad revenues to grow by 20% YoY during the current fiscal, which is in line with our expectations. JPL is also looking at increasing its Out-Of-Home (OOH) properties from 1,000 currently and expects to reduce the losses in the coming quarters. It is also planning for a capex of Rs 1.25 bn during the current fiscal. As per the management, while some pressure would be seen in the near time, over the long term, the growth would remain intact.

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