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Jagran Prak.: Sales uptick drives performance - Views on News from Equitymaster

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Jagran Prak.: Sales uptick drives performance
Aug 1, 2013

Jagran Prakashan has announced results for the first quarter of financial year 2013-2014. The company has reported a 21.2% YoY growth in sales (including Nai Dunia) and 6.5% YoY growth in net profits respectively. Here is our analysis of the results

Performance summary
  • The sales grew by 21.2% YoY during 1QFY14.
  • During the quarter, material cost as a percentage of sales decreased YoY from 35.7% to 34.4%. This helped the company report better operating performance. However, decline in raw material cost was offset by increase in employee cost to a certain extent.
  • EBITDA margin increased YoY from 24.8% to 26.3% in 1QFY14.
  • The company reported loss of Rs 9m in other income mainly due to exchange rate fluctuation.
  • Profit after tax grew by only 6.5% YoY.

Financial performance snapshot
(Rs m) 1QFY13 1QFY14 Change
Net sales 3,175 3,847 21.2%
Expenditure 2,387 2,834 18.7%
Operating profit (EBDITA) 788 1,013 28.5%
EBDITA margin (%) 24.8% 26.3%  
Other income (7) (9) -
Interest 76 68 -10.2%
Depreciation & amortisation 148 166 12.1%
Profit before tax and exceptional items 557 771 38.3%
Exceptional items - -  
Profit before tax 557 771 38.3%
Profit before tax margin (%) 17.6% 20.0%  
Tax - 177 -
Profit after tax  557 593 6.5%
Net profit margin (%) 17.6% 15.4%  
No. of shares (m)   332  
Reported earnings per share (Rs)   1.8  
P/E (x)*   13.5  
(*trailing twelve month earnings)

What has driven performance in 1QFY14?
  • Sales growth of the company was driven by advertisement and circulation growth. Also, sales for 1QFY14 include Nai dunia revenue and therefore are not exactly comparable with the corresponding quarter of last year. On a comparable basis, standalone advertising growth was 12.8% YoY. Jagran Prakashan has increased its advertisement rates this quarter and most of the growth in advertisement was on account of improvement in yield and not volumes. The company however, will not be going for any further rate hike in the near future.

  • Circulation revenue grew 14.7% YoY owing to improved realization per copy.

  • Jagran's operating profit for the quarter increased by 28.5% YoY due to cost control initiatives taken by the company. This resulted in EBITDA margin improvement of 1.5% YoY to 26.3%.

  • Profit after tax grew by only 6.5% YoY. This is because in 1QFY13, the company had accounted for the benefit of accumulated losses from the acquired 'Nai Dunia' business and hence did not have any tax liability. This quarter the effective tax rate was 23%.

Cost break-up (Rs m)
(% of sales) 1QFY13 1QFY14 Change
Raw materials consumed 1,135 1,324 16.7%
% sales 35.7% 34.4%  
Staff cost 410 519 26.5%
% sales 12.9% 13.5%  
Other expenses 842 992 17.8%
% sales 26.5% 25.8%  
Total expenditure 2,387 2,834  

What to expect?

Jagran Prakashan is one of the leading Hindi newspapers in India boasting a large readership since years. However, its consolidation drive (Acquisition of mid-day, Nai Dunia) has impacted the company's profitability since past couple of years. Although these additions have aided company's sales growth, profitability is still being impacted by losses in Nai Dunia. The company expects profit for Nai Dunia only after FY15. Also, competition may increase going forward given the plan of Nav Bharat Times and other companies to tap the regional markets. However, strong position of the company in its target markets shall help it to survive the competition. Also, the recent hike in ad yield shall boost its advertisement revenue growth.

At the current price of Rs 90, the stock is trading at 11 times our estimated FY15 estimated earnings. We need to revisit our estimates and valuation as there has been a sharp decline in stock price since our Sell recommendation. We shall soon update investors with the FY16 estimates and change in view, if any.

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