Jagran Prakashan - Buy

Strength in local advertising, increased circulation in key geographies and renewed thrust on rural areas are positives for the company.



Although there are concerns of a slowing trend in domestic consumption, there are pockets where companies derive impetus from robust growth in Tier-2 and Tier-3 cities.

Jagran Prakashan, the publisher of the leading Hindi Daily Dainik Jagran, is one such player which has been able to ride on the expansion in spending in smaller towns and cities in many states of North India.

Strength in the resilient regional or local advertising, increased circulation in key geographies and renewed thrust on rural areas by companies in the banking, auto, telecom and education spaces are positives for the company.

At Rs 94, the stock trades at 12 times its likely per share earnings for FY13. This is at a discount to peers such as DB Corp and Hindustan Media Ventures, presenting an attractive entry point for investors with a two-year horizon.

Near-term triggers for Jagran include the state elections in UP, Uttarakhand and Punjab, where political parties are expected to ramp up spends on advertising.

From a macro perspective, Hindi Newpapers are narrowing the premium accorded to their English counterparts in advertisement rates This is an important factor that could drive up realisations for regional language newspapers such as Dainik Jagran.

In FY11, the company's revenues rose 17.5 per cent over the previous fiscal to Rs 1090.1 crore, while net profits increased 17 per cent to Rs 205.3 crore.

In the first half of this fiscal, Jagran witnessed a 11.2 per cent increase in revenues to Rs 595.7 crore, while net profits fell 14 per cent over the same period in FY11 to Rs 95.5 crore. The fall in profits has been a phenomenon across the industry as newsprint costs increased substantially over the past three-four quarters.

Strong local presence

Dainik Jagran generally tops the charts in terms of readership among the Hindi language newspapers. According to the recent IRS Q3 survey, the newspaper has a readership of around 16.5 million, the highest in its genre.

In key Hindi speaking states, it is among the top three players in circulation and readership.

Though advertising growth has been slower in the recent September quarter, it may not be a cause for worry as the company hopes to deliver a 12 per cent growth in advertising revenues in FY12.

Advertising accounts for around 64 per cent of Jagran's revenues, while circulation provides around 16 per cent of the overall kitty.

With 60 per cent of its advertising coming from local advertisers, the company is less affected by fluctuations in advertising by large national companies.

If interest rates indeed come down over the next few quarters, segments such as automobiles, consumer durables and even construction may pick up considerably, thus paving way for higher advertising revenues for players such as Jagran.

This is especially so as it has presence in 11 states in which there are several fast growing cities where consumption story has just started and hence are actively targeted by companies. In the near term, the other key trigger for the company is the elections to be held in several states of North India such as UP, Uttarakand and Punjab.

In UP, which is among the largest advertising markets, the elections are expected to give a strong thrust to advertising.

With as many as four large political parties in the fray making it a high-stakes battle, the market leader in that State, Dainik Jagran, should be able to derive substantial advertising revenues.

Circulation expanding

Raw material costs have increased substantially for the company over the past one year.

But only a part of it is due to rising newsprint costs. The company has indicated that increased circulation with more copies printed in several states, where new editions were launched, has contributed to increased costs.

For Jagran, advertising revenues in the recent September quarter grew by over 13 per cent, giving a blended growth for the company. From hereon, the costs may not go up substantially for the company and with a revival in advertising margins are likely to remain steady.

From an industry perspective, the premium that English language newspapers used to command in advertising vis-à-vis regional ones is shrinking.

From 12 times higher rates that English Newspapers commanded in 2003, the number has come down to 4.8 times in 2010, according to a recent FICCI KPMG report.

This means that regional newspapers can protect realisations.

Any serious undercutting of cover prices due to competition from players such as Dainik Bhaskar, Hindustan and Amar Ujala could dent revenues on the circulation front.

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