Jagran Prakashan

Investors may retain their shares of Jagran Prakashan, the top newspaper in the ‘Hindi-heartland’, considering its ability to monetise its leadership status in garnering greater advertisement revenues along with reasonable growth on subscription.

At Rs 83, the stock trades at 28 times its likely 2008-09 per share earnings. This is at a significant premium to the broader market and papers such as Deccan Chronicle, but at a discount to HT Media.

Given the expensive nature of the stock and average growth rates in advertising expected over the next one year, investors may have to hold on with a two-three-year perspective for capital appreciation.

But decline in newsprint prices, expectation of higher spends from the relatively insulated education and telecom sectors, and increase in cover price may expand revenues and realisations for the company.

Even in the turbulent December 2008 quarter, advertisements (which contribute 67 per cent to overall revenues) as well as subscription revenues have each grown by 4 per cent over the previous year.
Circulation leadership

Jagran runs 37 editions of its newspaper across 11 States under the ‘Dainik Jagran’ brand. It is the most read (with maximum circulation) regional language newspaper in the country, catering largely to the Hindi speaking States. There is very strong presence in towns and rural areas.

Rural demand is expected to be fairly robust as evidenced by sales figures of FMCG companies and the increasing presence of mobile operators in these areas. As with broadcasting, delivering increasingly regional (and localised) flavour has been a prov

Hindustan Times, for example, has looked to expand in the Hindi language genre under the Hindustan brand and is now the third largest read in this category according to recent IRS surveys (IRS 2008 R2).

Against this background, Jagran derives 60 per cent of its advertising revenues from regional advertisers and the balance from national ones. Regional advertising has grown by 14 per cent over the past one year for the company. With leadership in most of these 11 States, Jagran appears well placed to monetise its leadership status.

Near-term triggers for advertising revenues include the education sector, with admissions around the corner as well as the election-related ads (expected to show up in the 2009-10 numbers).

Over the long-term however, telecom, with more operators looking to expand and new operators coming in, automobiles, with the sector looking at a revival and others such as FMCG and financial services may be key advertisers.

A recent FICCI-KPMG report estimates advertising in print to grow at a compounded annual rate of 10 per cent to Rs 17,430 crore over the next four-five years led by education, services and banking sectors.
Cost triggers

Jagran managed to increase its cover price late in December, which the company has indicated would help increase circulation revenues by about 10 per cent.

This apart, newsprint prices, which were hovering around $900 per tonne levels in mid 2008, have now declined to $600 levels, and this should help rein in raw material cost substantially.

Raw material cost accounts for over 40 per cent of revenues currently for Jagran. But given that companies maintain close to a three-month inventory of newsprint, the cost savings may trickle in only from the first quarter of FY10 onwards.

The rupee has also appreciated nearly 8 per cent from its peak to Rs 47 levels.

A cap on employee costs (through curtailed increments) is also in place. Taken together, all these factors point to strong cost-optimisation, which could help margins for Jagran.
Financials

For the nine months of FY09, the company’s revenues grew by 11 per cent to Rs 622.1 crore over the same period of FY08, while net profits declined by 15.5 per cent to Rs 69.8 crore. Raw material cost had shot up by 22 per cent during this period.

This, clubbed with a 21 per cent increase in staff cost, may have played a key role in bringing down margins.

The company also has an out-of-home (OOH) advertising division (Jagran Engage) that has started to contribute to revenues. I-Next, its bilingual daily, has also started to contribute to advertising revenues. Both these are at a nascent stage and may have to be watched closely for their contribution to overall revenues.

Competition from papers such as Hindustan and Amar Ujala requiring a rejig of the pricing strategy is a key risk to earnings.

via BL