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Jagran Prak.: Higher taxes hurt bottomline
Aug 8, 2014

Jagran Prakashan has announced results for the first quarter of financial year 2014-2015 (1QFY15). The company has reported a 6.8% YoY growth in sales and 4.7% YoY fall in net profits respectively. Here is our analysis of the results.

Performance summary
  • The sales grew by 6.8% YoY during 1QFY15.
  • During the quarter, material cost as a percentage of sales increased YoY from 35.2% to 37.8%. This contributed to the company reporting an operating profit growth lower than the sales growth.
  • EBITDA margin decreased YoY from 23% to 22.5% in 1QFY15.
  • The company reported a jump of 106.2% YoY in other income.
  • Profit after tax for the company fell by 4.7% YoY.

Financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 4,028 4,301 6.8%
Expenditure 3,103 3,333 7.4%
Operating profit (EBDITA) 925 969 4.8%
EBDITA margin (%) 23.0% 22.5%  
Other income 83 171 106.2%
Interest 71 84 17.5%
Depreciation & amortisation 181 238 31.5%
Profit before tax and exceptional items 755 818 8.3%
Exceptional items - -  
Profit before tax 755 818 8.3%
Profit before tax margin (%) 18.8% 19.0%  
Tax 177 267 -
Profit after tax  578 551 -4.7%
Net profit margin (%) 14.3% 12.8%  
No. of shares (m)   311  
Reported earnings per share (Rs)*   7.2  
P/E (x)*   15.6  
(*trailing twelve month earnings)

What has driven performance in 1QFY15?
  • Sales growth of the company was driven by advertisement and circulation revenue growth. While the former grew 6.6% YoY, the latter grew 11.92% YoY. These together helped the company post a 6.8% YoY during the quarter.

  • Jagran's operating profit for the quarter increased by only 4.8% YoY, lower than the sales growth. An increase in operating costs, led by an increase in newsprint prices during the quarter. This resulted in the EBITDA margin falling from 23% YoY to 22.5%.

  • Profit after tax fell by 4.7% YoY. This is because interest costs and depreciation both saw a faster pace of increase during 1QFY15. Also, the company saw a higher effective tax rate during this quarter as the tax benefit from the accumulated losses of its Naidunia print business were not available this quarter, but were availed of in 1QFY14.
What to expect?
The company was able to achieve a reduction in the losses of other publications in all cases except 'City Plus', despite increased newsprint costs primarily due to improved per copy realizations and healthy advertisement revenue growth recorded of all the publication brands. The company also saw lower revenues from the Outdoor and Event business. It however deems this as a consequence of the company's decision to focus more on growth profitability rather than growth in revenues in this segment.

The management expects the margins to improve in the second half of the year on the back of a higher expected growth in advertisement revenue. More so, the management has indicated that it is already witnessing an improved business sentiment in the market, and thus expects the second half of FY15 to see a higher uptick in business.

At the current price of Rs 112, the stock is trading at 15.6 times its trailing twelve month earnings. We are in process of factoring in our FY17 estimates for the stock and shall as such come out with our revised target price for the same. Till then, we recommend that investors avoid buying the stock at current levels.

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