This Underdog Sector Could Deliver Multibagger Stocks in the Long Term

Earlier this week, we wrote to you about an ignored sector which could potentially produce future multibagger stocks.

We wrote about the paper sector which was shunned by investors during the pandemic and how its prospects looked to be in danger.

Today, we want to highlight another sector which has been going through a tough time.

But things are different now.

It appears, the sector has looked past the existential threat and is doing pretty well, bucking the global trend.

We're talking about India's print media sector.

Overview of India's print media industry

The IBEF report on media and entertainment (M&E) industry describes the sector as a sunrise sector where India has an advantage.

The report states the industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenue. Ad revenues make for about three-fourth to the total revenue of print media companies.

The M&E industry is broadly categorised by various segment including television, print media, digital advertising, cinema, and the OTT and gaming industries.

If we go back to the pandemic days, it was clear the already affected print media industry had suffered a big blow due to lockdowns. Newspapers struggled as readership reduced along with advertisement revenues.

Along with this, the threat of digitisation was accelerating.

Companies in the industry were struggling on the back of slowing revenues and intensifying competition.

So what has changed now?

Well, companies involved in the space have seen a strong recovery. The big players have taken serious cost-cutting measures and hiked cover prices, among other initiatives, to cushion the pandemic's blow.

Then there's ad revenue, which is directly linked to a country's economy.

In 2022, India surpassed Britain to become the world's fifth largest economy. The Indian economy is expected to rebound more in 2023. Thus, ad revenues should also recover.

These are some reasons we believe the print media sector will do well in the near term. But what about the threat of digitisation?

Here we explain why the newspaper business is indispensable.

Legendary Investor's Love Affair with Newspapers

Agreed that the industry has had its fair share of challenges and it still faces some of those problems.

But answer this question...

Will you stop reading newspapers?

Many people read the newspaper every morning. Every day I visit the office, I see my colleagues in the research team reading newspapers. It's an unbreakable habit.

I'm sure the same is true for many of you too.

Legendary investor Warren Buffett is known to read many papers daily. But this isn't the only thing he likes about them. He also loves investing in this business.

In the 2012 Berkshire Hathaway annual report, he explained why:

• News, to put it simply, is what people don't know that they want to know. And people will seek their news - what's important to them - from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness, and low cost. The relative importance of these factors varies with the nature of the news and the person wanting it.
  
  Before television and the internet, newspapers were the primary source for an incredible variety of news, a fact that made them indispensable to a very high percentage of the population. Whether your interests were international, national, local, sports, or financial quotations, your newspaper usually was first to tell you the latest information. Indeed, your paper contained so much you wanted to learn that you received your money's worth, even if only a small number of its pages spoke to your specific interests. Better yet, advertisers typically paid almost all of the product's cost, and readers rode their coattails.

But what about the internet? Won't ad revenues go down?

Again, we'll let Buffett answer the question for us in simple terms:

• Newspapers continue to reign supreme, in the delivery of local news. If you want to know what's going on in your town - whether the news is about the mayor or taxes or high school football - there is no substitute for a local newspaper that is doing its job. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.
  
  Papers delivering comprehensive and reliable information to tightly bound communities and having a sensible Internet strategy will remain viable for a long time.

So here, Buffett says it's the strongest companies who will survive and dominate.

Three things should become very clear after reading these excerpts -

• Newspapers are indispensable to a large number of people.
• People read the paper for varied reasons.
• This is why newspapers are indispensable for advertisers too.

Weaker players in the industry will no doubt struggle but the ones with an economic moat will continue to gain dominance.

Let's take a look at the companies which can be the biggest beneficiaries.

#1 Jagran Prakashan

Jagran Prakashan initially started its business with printing and publishing newspapers and magazines. However, it has expanded its portfolio in the last few years to FM radio, outdoor and digital advertising, event management, and promotional marketing.

A few of the company's popular brands include Dainik Jagran, Mid-day, The Inquilab, and Radio City, among others.

As per the last available readership survey data, Dainik Jagran had total readership of over 69 m, which is the highest amongst all newspapers in India.

After reeling under pressure in pandemic year, Jagran Prakashan's financial performance has significantly improved.

Financial Snapshot of Jagran Prakashan

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenues	23,040	23,627	20,973	12,892	16,160
Growth (%)	1%	3%	-11%	-39%	25%
Operating Profit	6,298	5,745	4,649	2,798	4,264
OPM (%)	27%	24%	22%	22%	26%
Net Profit	3,110	2,742	2,809	783	2,169
NPM (%)	13%	12%	13%	6%	13%
Total debt	1,478	4,064	2,252	2,683	2,770
Debt to Equity (x)	0.07	0.22	0.12	0.13	0.13

Data Source: Ace Equity

While announcing its June quarter results in August, the company's chairman and MD said its print business stays strong and continues to be the growth driver.

#2 Sandesh

Next big beneficiary we could think of is Sandesh.

Promoted by the late Chimanbhai Patel in 1943, Sandesh is one of the leading print media companies in Gujarat, having presence for more than seven decades in the Gujarati print media, through its newspaper 'Sandesh'.

The company has its printing press at Ahmedabad, Vadodara, Surat, Rajkot, Bhavnagar, and Bhuj, covering circulation across the state of Gujarat as well as in Mumbai.

Despite people moving from print media to digital, Sandesh continues to see a steady circulation of its daily newspaper.

Over the years, it has significantly increased its circulation and readership base, and has generated consistent advertisement income.

Financial Snapshot of Sandesh

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenues	3,773	4,191	3,432	2,737	3,088
Growth (%)	6%	11%	-18%	-20%	13%
Operating Profit	1,331	1,079	823	1,231	1,225
OPM (%)	35%	26%	24%	45%	40%
Net Profit	828	648	611	900	898
NPM (%)	22%	15%	18%	33%	29%
Total debt	4	4	1	1	1
Debt to Equity (x)	0	0	0	0	0

Data Source: Ace Equity

#3 D B Corp

Another leading company in the space is D B Corp. The company's newspaper portfolio includes Dainik Bhaskar, Divya Bhaskar, Divya Marathi, Saurashtra Samachar, and DB Star.

Other than newspapers, it also publishes certain periodicals such as Bal Bhaskar, Young Bhaskar, Madhurima, Rasrang, Kalash, Dharma Darshan, and Navrang.

For its digital reach, the company has marked its presence with DB Digital, which has 4 portals and 3 mobile apps. Although at present, this segment contributed little to nothing to its total revenues.

In 2021, the company was in for a rude shock when its offices and residential premises were raided by IT officials on charges of evading taxes on Rs 7 bn.

But the impact on its share price was short lived and evidently, nothing came out of these raids.

What followed? The company reported improved performance as ad revenues increased and circulation also got a boost.

Financial Snapshot of DB Corp

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenues	23,112	24,627	22,238	15,077	17,685
Growth (%)	2%	7%	-10%	-32%	17%
Operating Profit	5,875	5,209	4,940	3,193	3,228
OPM (%)	25%	21%	22%	21%	18%
Net Profit	3,240	2,738	2,750	1,414	1,426
NPM (%)	14%	11%	12%	9%	8%
Total debt	449	508	1,682	563	226
Debt to Equity (x)	0.02	0.03	0.1	0.03	0.01

Data Source: Ace Equity

Comparative Analysis

Take a look at the table below which shows the share price performance of print media companies in 2022.

Company	31-Dec-21	29-Sep-22	Change (%)
Navneet Education Ltd.	88.95	129.60	46%
D B Corp Ltd.	93.10	124.60	34%
Jagran Prakashan Ltd.	61.95	64.10	3%
MPS Ltd.	627.55	640.00	2%
S Chand And Company Ltd.	109.65	173.60	58%
Repro India Ltd.	529.85	442.85	-16%
The Sandesh Ltd.	741.00	736.40	-1%

Source: Equitymaster

At present, a big challenge for all these companies is soaring newsprint prices and high inflation.

Newsprints account for around 30-35% of operational cost for these companies. In some cases, it's 50%!

Comparative Analysis of Top Print Media Companies

Company	Navneet	DB Corp	Jagran	MPS	S Chand	Sandesh
ROE (%)	14.6	7.7	10.5	23.3	1.0	9.8
ROCE (%)	19.9	11.3	13.4	31.9	3.2	12.9
Latest EPS (Rs)	11.4	11.1	10.1	50.5	13.7	116.0
TTM PE (x)	11.4	11.3	6.3	12.7	12.7	6.4
TTM Price to book (x)	2.6	1.2	0.8	2.8	0.7	0.6
Dividend yield (%)	1.7	4.0	0.0	4.7	0.0	0.7
Industry PE (x)	11.3
Industry PB (x)	1.0

Data Source: Equitymaster, Ace Equity

In conclusion

The era of print media will continue for a long time to come. Newspapers are the only medium that people can view in real time, and offline reading habits are still very popular these days.

Despite their paper-based structure and slow formatting, they are one of the most valuable resources in the industry of news.

Take comfort from the fact that at a time when consumers are turning towards digital consumption of news, it has not affected the supply of print because its future is far more secure than most may think.

Stay tuned for more as we highlight such conventional sectors in the coming editorials.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...