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Jagran Prakashan: A look at the numbers - Views on News from Equitymaster

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Jagran Prakashan: A look at the numbers

Dec 26, 2007

Jagran Prakashan (JPL) has been quick in seizing the opportunities presented by the turnaround in the print media space. The company has done well to increase its presence from only two states post 2000, to publish 31 editions across 11 states. This has helped the company report better financials. In this article, we shall highlight the company’s financials over the last four years. Topline view: The company’s topline has witnessed a CAGR growth of 23.9% in the period from FY03 to FY07. In FY07, JPL earned 65% of its revenues through advertisements. Circulation formed 28% of the total revenues, while outdoor and event management segments formed 5% of total revenues.

Ad revenue: JPL’s ad revenues grew at a CAGR of 26% between FY03 and FY07 driven by growth in volumes and ad rates. JPL’s ability to leverage advertising relationships across geographies has led to the strong growth. The company has been able to capitalise on its multi-city presence to attract a larger number of advertisers. With its 250 sub editions, the company has the advantage of localisation of its content and is able to tap local ads. Local ads formed nearly 55% of its ad revenues in FY07 and are able to command a premium. Also, ad revenues for Hindi newspapers have increased at a higher rate than English newspapers in recent times.

The company is focusing on increasing the sale of colour ads as they command higher rates than B & W (black and white) ads and is accordingly looking at increasing its colour printing capacity. We expect the company’s ad revenues to grow at a CAGR of 26% in the next three years driven by hike in ad rates and increase in volume growth.

Circulation revenue: The company’s circulation revenues have grown at a CAGR of 14% over the last 4 years. However, the share of the same has fallen from 36% of total sales to 28% in FY07. This is mainly due to the competitive pressures in the industry that have compelled newspaper publishers to maintain or reduce cover prices. Therefore, the growth in circulation revenues has stagnated, while advertising revenues has been forming a growing portion of overall revenues. Literacy levels are expected to move further northward, and while we believe that newspaper circulation will keep increasing in the near term, its share to the JPL’s overall revenues will reduce going forward.

Other segments: The company has diversified into new verticals like outdoor advertising, even management and the like. The management is very bullish on these fronts. Though currently forming 6% of the total revenues, the management hopes to increase the share of these segments to 15% going forward.

Expenses: The major expense for the company is newsprint costs, representing 45% of total sales. 70% of its newsprint requirement is procured from the domestic market. JPL faced pressure in FY04 and FY05 when the share of imported newsprint to the total newsprint requirement rose to more than 50%. However, the company has resorted to better inventory management and has curtailed imported newsprint consumption to 30% of the total newsprint consumption. We expect the newsprint cost to be in control going forward.

Expansion in margins: The company’s margins have expanded from 13% in FY04 to 20% in FY07. We expect them to touch 28% by FY10 led by higher sales and stable newsprint costs. Also, its loss making editions would turn profitable going forward and its new verticals, which command higher margins will help the company’s growth.

On the net profit front: JPL’s net profits have grown at a CAGR of 43% between FY03 and FY07. We expect better operating margins to drive earnings going forward and consequently the net margins to improve from 13% in FY07 to 17% in FY10.

Going forward…
The outlook for the print media sector is expected to remain robust going forward on the back of strong GDP growth and rising income levels. Also, with increasing literacy, the circulation is expected to grow. Recently, the management revised its revenue guidance and thus expects revenues to grow at a CAGR of 25% over the next 3 years (as against 20% reported earlier). The new verticals are also expected to contribute higher. At the current price of Rs 734, the stock is trading at 22.4 times its FY10 estimated earnings. Though the prospects for the sector and company look good, valuations at the current levels remain a cause for concern.

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Mar 22, 2019 (Close)