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Jagran Prakashan: Growth everywhere
Nov 8, 2007

Performance summary
  • Operating revenues grow by 23% YoY in 2QFY08 on the back of robust growth in advertisement revenues.
  • Operating profits increase 30% YoY led by lower raw material costs.

  • Bottomline grows by 27% YoY aided by higher operating margins and lower interest costs.

  • Board recommends subdivision of face value of equity share from Rs 10 per share to Rs 2 per share and declares interim dividend of Rs 5 per share (dividend yield of 0.7%).

(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Net Sales 1,436 1,772 23.4% 2,800 3,606 28.8%
Expenditure 1,136 1,382 21.6% 2,162 2,701 24.9%
Operating profit 299 390 30.3% 637 905 42.0%
Operating profit margin (%) 20.9% 22.0%   22.8% 25.1%  
Other income 60 37 -37.7% 123 126 1.9%
Depreciation 56 83 47.5% 104 153 47.1%
Interest 20 14 -26.7% 37 34 -7.2%
Profit before tax 283 330 16.5% 619 843 36.1%
Prior period adjustment 17 (2) -112.2% 17 0 -98.7%
Tax 91 110 21.0% 198 276 39.1%
Profit after tax 175 222 26.5% 404 567 40.3%
Net profit margin (%) 12.2% 12.5%   14.4% 15.7%  
No of shares (m) 50.2 60.2   50.2 60.2  
Diluted earnings per share (Rs)*         15.3  
Price to earnings ratio (x)*         41.9  
* 12 month trailing earnings

What is the company’s business?
Jagran Prakashan (JPL), publishes Dainik Jagran, which is the largest read Hindi daily in India. It has 31 editions and 259 sub editions with a circulation of 2.38 m copies and a readership of 53.6 m (IRS 2007 R2). It is circulated in Northern and Central India. JPL launched its internal portal (www. Jagran.com) in 1997. It has also tied up with Yahoo! India to launch a new co branded Hindi news and current affairs internet portal. It also provides IVR/AVR/SMS services through its short code service. Independent News and Media PLC ( through its wholly owned subsidiary Independent News & Media Investments Limited ((INMIL)) has a 20.8% stake in JPL. INMIL is a leading international newspaper and communications group, with interests in Australia, India, Ireland, New Zealand, South Africa and the United Kingdom. It owns or has investment in companies, with market leading newspaper positions in various countries. JPL has two divisions apart from its print business- Jagran Engage (outdoor advertising) and Jagran Solutions (event management).

What has driven performance in 2QFY08?
Robust advertisement revenues: Advertising revenues from the publishing business overall have registered a robust growth of 24.8% YoY for 2QFY08. Increase in advertisement revenue was driven by higher rates and increase in total space sold. The company has grown faster than the industry, which is currently facing a slowdown due to the slowdown in the growth of the auto, and the real estate sectors, which are the major advertisers. Besides, the results are not completely comparable with last year’s results as in the previous fiscal the festive season was in the second quarter; whereas the festive season is in the third quarter this fiscal.

Increase in circulation: The circulation revenues were up 8.4% YoY for 2QFY08 with 53.6 m readers (IRS 2007 R2). I-Next a, newspaper brand launched in 3QFY07 in Kanpur and Lucknow, made a rapid stride in the current quarter both in terms of newspaper sale as well as advertisement revenue. I- Next is currently the number two newspaper in Kanpur and is also doing very well in Lucknow. City Plus, another newspaper brand launched in NCR in 2QFY07, has been expanded to New Delhi and Banglore and has continued to progress well. Even the flagship newspaper Dainik Jagran has witnessed increase in circulation. With new editions being launched, the figure is expected to go up.

OOH segment: The revenues from the out of home advertising (OOH) segment were Rs 110 m in this quarter. Though on a QoQ basis, the segment has not performed well due to the ineffective use of inventory (60% occupancy), the company expects to achieve revenues of Rs 450 m from the OOH segment this year. Event management activity continued to scale up the operations. J9, a newly created and dedicated arm of JPL (to pursue its initiatives in mobile and web space), has got stabilised and started generating good revenues, with plans to add few more services such as classified vertical in web space, to its basket in the near future.

Standalone cost break-up
As a % of net sales 2QFY07 2QFY08 1HFY07 1HFY08
Consumption of raw materials 39.8% 37.6% 39.1% 36.1%
Employees Cost 11.5% 12.2% 11.8% 11.6%
Other expenditure 27.8% 28.3% 26.3% 27.1%

Margins expand:In 2QFY08, the margins were up by 1.2% YoY. Raw material cost (newsprint cost) constitutes the major cost of a newspaper company. Decline in newsprint prices led to a decline in raw material cost (as percentage of sales) from 39.8% in 2QFY07 to 37.6% in 2QFY08. However, higher employee and other expenses on account of new editions capped further improvement in margins to that extent. The margins are higher than our assumptions.

Bottomline view: The company reported a 27% YoY growth in the bottomline led by strong growth in operating profits. Further, lower interest also played a role in aiding the growth.

What to expect?
At Rs 643, the stock is trading at a price to earnings multiple of 22.1 times our estimated FY10 earnings. The company expects to post a growth of 25% YoY in advertisement revenues in the coming quarters. It has also planned a capex of Rs 100 m this fiscal for its expansion plans. However, it could witness pressure on the input side and also increasing competition with the entry of the Hindi daily ‘Hindustan’ in Uttar Pradesh and Uttaranchal. Given that the risk-reward ratio is skewed towards the former, we advise investors to exercise caution while investing in the stock.

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