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Jagran Prak.:Forex loss and taxes mar growth - Views on News from Equitymaster
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Jagran Prak.:Forex loss and taxes mar growth
Nov 8, 2013

Jagran Prakashan has announced results for the second quarter of financial year 2013-2014 (2QFY14). The company has reported a 19.6% YoY growth in sales but a 32.4% YoY de-growth in net profits. However, 2QFY13 numbers are not inclusive of 'Nai Dunia's performance; therefore an apple-to-apple comparison is not very relevant. Here is our analysis of the results.

Performance summary
  • The sales grew by 19.6% YoY during 2QFY14.
  • During the quarter, material cost as a percentage of sales increased from 34.4% in 2QFY13 to 35.9% in 2QFY14. However, other expenses as a proportion of sales decreased from 27.5% in 2QFY13 to 26.9% in 2QFY14. This helped the company increase its operating profit by 16.5% YoY on an absolute basis.
  • Operating (EBITDA) margin declined by 0.6% YoY to 23.6% in 2QFY14.
  • The company reported a loss of approximately Rs 96m (accounted in other income) mainly due to exchange rate fluctuation.
  • Profit before tax for the company decreased by 12.1% YoY in 2QFY14 due to rise in interest cost and fall in other income.
  • Profit after tax also declined by 32% YoY.

(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 3,221 3,854 19.6% 6,396 7,701 20.4%
Expenditure 2,439 2,943 20.6% 4,826 5,777 19.7%
Operating profit (EBDITA) 782 911 16.5% 1,570 1,924 22.5%
EBDITA margin (%) 24.3% 23.6%   24.5% 25.0%  
Other income 133 (51) - 126 (60) -
Interest 59 75 26.9% 135 143 6.0%
Depreciation & amortisation 161 175 8.5% 309 340 10.2%
Profit before tax and exceptional items 694 610 -12.1% 1,252 1,381 10.3%
Exceptional items - -   - -  
Profit before tax 694 610 -12.1% 1,252 1,381 10.3%
Profit before tax margin (%) 21.6% 15.8%   19.6% 17.9%  
Tax - 140 - - 318 -
Profit after tax 694 470 -32.4% 1,252 1,063 -15.1%
Net profit margin (%) 21.6% 12.2%   19.6% 13.8%  
No. of shares (m)         332  
Reported earnings per share (Rs)         3.2  
P/E (x)*         14.4  
* On a trailing 12-months basis

What has driven performance in 2QFY14 and 1HFY14?
  • The company reported a good growth in advertisement and circulation revenues; which helped it grow its sales by 19.6% YoY.

  • Including revenues for 'Nai Dunia; in 2QFY13 (given by the management in a separate statement), sales have actually increased by 11% YoY during the quarter. Of this, advertisement revenue has grown by 10.7% YoY; while a growth of 14.5% YoY has been registered in Circulation revenue.

  • Following the industry trend, Jagran Prakashan has also increased its advertisement rates. Therefore the sales growth is largely driven by improvement in yields.

  • Jagran's operating profit for the quarter increased by 16.5% YoY which is at pace slower than the growth in the sales. This was due to increase in raw material costs by 25% YoY. Rise in material cost was a result of increase in imported printing cost. Operating margin stood at 23.6% for 2QFY14. However, including the numbers for Nai Dunia in 2QFY13, operating profit has increased by 21.5% YoY on an absolute basis.

  • Profit after tax has declined by 32.4% YoY in 2QFY14. Decline in net profit was a result of foreign exchange loss booked under the head 'other income'. Also, in the corresponding quarter of last year, there were no tax expenses due to accumulated losses of 'Nai Dunia' business.

  • As far as half yearly performance is concerned, revenues grew by 20.4% YoY; while net profits declined by 15% YoY in 1HFY14.

    (% of sales) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw materials consumed 1,109 1,384 24.8% 2,243 2,707 20.7%
    % sales 34.4% 35.9%   35.1% 35.2%  
    Staff cost 443 522 17.7% 853 1,041 21.9%
    % sales 13.8% 13.5%   13.3% 13.5%  
    Other expenses 887 1,038 16.9% 1,729 2,029 17.3%
    % sales 27.5% 26.9%   27.0% 26.4%  
    Total expenditure 2,439 2,943   4,826 5,777  
Buyback offer
Jagran Prakashan has announced a buyback of worth Rs 475 m (5m shares at Rs 95 per share) through the tender offer process. This is equivalent to over 5% of the total paid up capital. The company has fixed November 15, 2013 as a record date for the buyback. The buyback would result in the promoter stake going up marginally, as they will not be offering their shares under the buyback. The purpose of the buyback is to optimize returns to shareholders and increase overall shareholders value.

What to expect?
Jagran Prakashan has delivered satisfactory performance during 1HFY14. Going forward, however, there could be a negative impact of competition as DB Corp plans to tap into Jagran's flagship markets (particularly Patna) in the near future. In addition to this, the breakeven in 'Nai Dunia' could also take few more quarters. At the current price of Rs 87, the stock is trading at 12.8 times our estimated FY16 earnings. However, there has been a considerable decline in stock price since our Sell recommendation. We believe at the current valuations, the negative factors are priced in.

Therefore, we recommend investors not to tender their shares in the buyback process and rather hold on to the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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Feb 19, 2018 03:37 PM


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