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

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Jagran Prakashan: A look at the numbers II

Dec 28, 2007

In the last article , we looked at the earnings of Jagran Prakashan (JPL). Now we take a look at the balance sheet of the company. Working capital: JPL has improved its working capital management over the last couple of years. Its debtor days have reduced from 94 days in FY03 to 70 days in FY07. Also, its inventory days has gone down from 36 days in FY05 to 20 days in FY07 (however, it was higher than 15 days in FY03 mainly due to higher inventory required on account of higher number of editions). This has helped the company reduce its overall cash conversion cycle indicating good working capital management.

Debt: JPL’s debt equity ratio has reduced from 0.9 in FY03 to 0.2 in FY07. Also, with major capex plans not lined up, we expect the debt to remain low. The company has launched 13 new editions over the last four years and hence we expect slow down in the new launches. Also, the new verticals are linked to existing clients and infrastructure and hence capex would be low.

Return ratios: Higher sales, better earnings and operating working capital efficiency would lead to strong cash flows for the company and help it invest in high growth areas. The company’s return on asset (ROA) and return on invested capital (ROIC) has also improved. From 5.5% in FY05, the ROA touched 10.6% in FY07. The ROIC touched 19.2% in FY07 from 6.9% in FY05. Going forward, we expect the ratios to further improve on account of better times ahead.

Complete package: The company’s move to diversify its revenues is paying off. Being the largest player in the Hindi belt, JPL is in a commendable position. Its venture into new growth areas makes JPL a complete solution provider. Further, recently it also announced a 50:50 joint venture initiative in the business print space with Network 18. The primary mandate of this JV will be to launch a Hindi business daily for the Indian market in 2008. Subsequently, this will be followed by other Indian language dailies focused on financial and economic news. TV 18 shall bring forth its expertise in business content to the JV, while the JPL shall bring forth its print competencies including operational expertise, print and related infrastructure and distribution to the venture.

Even on the financial front, the company is placed well. 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). Though we are positive on the sector and the growth of the company, execution and competition risks remain. At the current price of Rs 747, the stock is trading at 22.8 times our estimated FY10 earnings. Thus, we believe the stock is fairly priced at the current levels.

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