India Equity Research Media Initiating Coverage JAGRAN PRAKASHAN Best play on Hindi print media Dainik Jagran: Strong leader in Hindi print market Jagran Prakashan s (JPL) flagship newspaper, Dainik Jagran, is the largest read daily in India according to the Indian Readership Survey s (IRS) 13 consecutive rounds. With a readership of 55 mn, the daily has 37 editions and 150 plus subeditions, and covering 11 states in India. It has been declared the largest read daily in the world by the World Association of Newspapers (WAN). In addition to Dainik Jagran, JPL operates I-next (Hinglish tabloid), City Plus (English weekly newspaper), outdoor media and events management ventures, giving it the advantage of a cross media presence. Ad revenues set to post 16.9% CAGR over FY09-12E We expect JPL s ad revenues to post 16.9% CAGR over FY09-12E in view of: (1) recent recovery in the ad market (Zenith Optimedia expects the Indian ad industry to grow at 10.5%, 11.4% and 11.8% in 2010, 2011 and 2012, respectively); (2) the company s established regional presence and dominance in key Hindi markets; (3) increasing share of local ads (jumped to 63% in FY09 from 45% in FY07) and color ads (increased to 40% in FY09 from 19% in FY05). Circulation revenues support during slowdown Unlike English newspapers, Hindi newspapers have a higher proportion of circulation revenues and have the ability to go for a cover price hike as demonstrated in the recent slowdown. JPL had hiked its cover price by ~INR 0.5 for ~50% of its editions in December 2008. Incremental contribution from new editions and higher circulation are expected to drive circulation revenues. Outlook and valuations: Decent upside; initiate coverage with BUY JPL offers the best play on Hindi print media. It is likely to be one of the main beneficiaries of revival in ad markets. Newsprint is trading close to its decade low prices, in spite of a mild recovery in newsprint prices. The stock is currently trading at a P/E of 17.5x FY11E and 15.0x FY12E (below its 3 year average of ~22.4x 1 year forward earnings). We expect JPL s earnings to grow strongly at a CAGR of 38.6% over FY09-12E. We find the stock attractive and initiate coverage with BUY and Sector Outperformer recommendation with a target price of INR 150. December 16, 2009 Reuters : JAGP.BO EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector Bloomberg : JAGP IN BUY Outperformer Risk Rating Relative to Sector Medium Sector Relative to Market Overweight Note: Please refer last page of the report for rating explanation MARKET DATA CMP : INR 123 52-week range (INR) : 130 / 43 Share in issue (mn) : 301.2 M cap (INR bn/usd mn) : 37.1 / 795.2 Avg. Daily Vol. BSE ( 000) : 346.4 SHARE HOLDING PATTERN (%) Promoters* : 9.7 MFs, FIs & Banks : 16.8 FIIs : 54.3 Others : 19.2 * Promoters pledged shares : 14.0 (% of share in issue) PRICE PERFORMANCE (%) Stock Nifty EW Media Index 1 month 0.2 0.7 1.3 3 months 14.3 2.9 11.0 12 months 71.8 68.8 101.5 Financials Year to March FY08 FY09 FY10E FY11E Revenues (INR mn) 7,496 8,234 9,377 10,750 Rev. growth (%) 25.3 9.8 13.9 14.6 EBITDA (INR mn) 1,638 1,567 3,022 3,505 Net profit (INR mn) 981 916 1,823 2,119 Share outstanding (mn) 301 301 301 301 Diluted EPS (INR) 3.3 3.0 6.1 7.0 EPS growth (%) 28.7 (6.7) 99.1 16.2 Diluted P/E (x) 37.8 40.5 20.3 17.5 EV/EBITDA (x) 21.8 23.0 11.9 10.2 ROAE (%) 17.1 15.4 27.3 21.4 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Abneesh Roy +91-22-6620 3141 abneesh.roy@edelcap.com Sameer Bahirat +91-22-4040 7419 sameer.bahirat@edelcap.com Edelweiss Securities Limited
Media Investment Rationale A network of 37 editions and 150 plus sub-editions gives Dainik Jagran a massive reach Dainik Jagran: Leader in Hindi print market Dainik Jagran, with a readership of 55 mn, is the largest read daily of India according to the last 13 consecutive rounds of the Indian Readership Survey (IRS). With 37 editions and 150 plus sub-editions (apart from the main editions), Dainik Jagran covers 11 states of India Uttar Pradesh, Uttarakhand, Punjab, Haryana, Bihar, Jharkhand, Himachal Pradesh, Madhya Pradesh, Delhi, West Bengal and Jammu & Kashmir. JPL s footprint includes: 101 million households comprising 500 million people (Source: IRS 2008 R2 and Census). Almost every third Hindi newspaper reader and every ninth any newspaper reader in India reads Dainik Jagran. Apart from being the largest read daily in the country, Dainik Jagran is also the No,1 read daily amongst people who can read English. It has also been declared by the World Association of Newspapers (WAN) as the largest read daily in the world. In addition to Dainik Jagran, JPL operates I-next (a compact Hinglish tabloid), City Plus (an English weekly newspaper) and outdoor and event segments, which give the company a cross media presence. JPL has also launched Rashtriya Sanskaran, the national edition of Dainik Jagran, in June 2009. JPL s market attractive for advertisers More than 44% of all 1 million plus cities and 42% of all 100,000 plus towns in India fall within Jagran markets. 50% of India s SEC A and 45% of India s INR 10,000+ per month group lives in Jagran footprints. 47% of the India s businessmen/industrialists/selfemployed professionals and 51% of all students in India are from Jagran markets. Its markets account for a huge share of most product categories almost every second automobile, 37 million television sets, 13 million refrigerators and 12 million 2-wheeler owners fall in Jagran s footprint (Source: IRS 2008 R2). Dainik Jagran s footprint covers 50% of India s SEC A Table 1: Dainik Jagran leads as per IRS 2009 (round 2) readership survey Rank Publication Total readership (mn) 1 Dainik Jagran 54.8 2 Dainik Bhaskar 33.0 3 Amar Ujala 29.1 4 Hindustan 27.9 5 Lokmat 23.2 6 Daily Thanthi 20.2 7 Dinakaran 16.4 8 Ananda Bazar Patrika 15.3 9 Eenadu 14.7 10 Rajasthan Patrika 14.0 Source: IRS, Edelweiss research 2 Edelweiss Securities Limited
Jagran Prakashan Table 2: Dainik Jagran a clear leader amongst Hindi dailies Hindi Dailies Total readership (mn) Dainik Jagran 54.8 Dainik Bhaskar 33.0 Amar Ujala 29.1 Hindustan 27.9 Rajasthan Patrika 14.0 Punjab Kesari 10.5 Aj 5.7 Navbharat Times 5.4 Prabhat Khabar 4.9 Nava Bharat* 4.6 Source: IRS, Edelweiss research *Published in Maharashtra and Chhattisgarh Dainik Jagran continues to expand lead over the nearest rival - Dainik Bhaskar Table 3: Consistent lead over No. 2 Hindi player for 13 rounds of IRS Gap with Dainik Bhaskar in readership numbers in mn R2 2002 0.6 R1 2003 2.1 R2 2003 3.0 R1 2005 3.7 R2 2005 4.1 R1 2006 4.5 R2 2006 4.7 R1 2007 4.6 R2 2007 23.0 R1 2008 24.6 R2 2008 21.9 R1 2009 21.0 R2 2009 21.8 Source: IRS, Edelweiss research Edelweiss Securities Limited 3
Media Table 4: Total readership (in mn) comparison in JPL's key markets State Publications 2007 R1 2007 R2 2008 R1 2008 R2 2009 R1 2009 R2 UP Dainik Jagran 31.9 31.0 31.8 31.4 30.9 30.8 Amar Ujala 22.7 22.4 23.3 23.4 23.0 23.5 Hindustan 6.9 7.1 7.2 7.3 7.5 8.1 Aj 5.6 5.1 4.7 4.0 3.7 3.4 Rashtriya Sahara 3.2 3.7 3.4 3.3 3.3 3.4 Dainik Bhaskar 0.9 0.7 0.8 0.8 0.7 0.6 Punjab Kesari 0.7 0.6 0.6 0.8 0.9 0.8 Bihar Hindustan 11.2 11.7 12.6 13.3 13.0 13.3 Dainik Jagran 7.7 9.1 10.6 9.8 9.5 9.9 Aj 1.8 2.1 2.3 2.0 1.8 1.9 Prabhat Khabar 1.0 1.4 1.6 1.5 1.3 1.4 Rashtriya Sahara 0.0 0.0 0.0 0.0 0.0 0.6 Uttaranchal Amar Ujala 2.8 2.8 2.9 2.8 2.7 2.6 Dainik Jagran 2.2 2.1 2.2 2.2 2.0 2.0 Hindustan 0.0 0.0 0.0 0.0 0.0 0.3 Punjab Kesari 0.2 0.1 0.2 0.2 0.2 0.1 Rashtriya Sahara 0.0 0.0 0.0 0.0 0.0 0.1 Punjab Punjab Kesari 2.8 2.7 2.6 2.3 2.1 2.2 Dainik Jagran 1.7 1.7 1.6 1.6 1.5 1.7 Dainik Bhaskar 0.2 0.4 0.9 1.1 1.2 1.3 Amar Ujala 0.4 0.4 0.4 0.4 0.4 0.4 Jharkhand Hindustan 3.0 2.9 3.1 3.5 3.8 3.9 Prabhat Khabar 2.7 2.8 3.0 3.0 3.0 3.1 Dainik Jagran 2.6 2.6 2.8 3.1 2.9 3.0 Aj 0.3 0.3 0.4 0.4 0.3 0.3 Ananda Bazar Patrika 0.2 0.2 0.1 0.2 0.1 0.1 Haryana Dainik Bhaskar 4.8 5.0 4.9 4.7 4.5 4.3 Punjab Kesari 3.5 3.2 3.3 3.5 3.4 3.3 Dainik Jagran 2.9 2.8 3.1 3.0 2.9 2.9 Amar Ujala 1.1 1.0 0.9 0.8 0.8 0.8 Hari Bhoomi 0.4 0.6 1.0 0.0 0.7 0.7 Hindustan 0.1 0.1 0.2 0.2 0.2 0.2 Delhi Navbharat Times 2.9 3.0 3.0 2.9 2.9 2.9 Punjab Kesari 2.4 2.4 2.5 2.3 2.3 2.2 Hindustan 1.6 1.5 1.7 2.0 2.1 2.0 Dainik Jagran 1.4 1.4 1.5 1.5 1.6 1.5 Amar Ujala 0.2 0.2 0.3 0.3 0.3 0.3 Source: IRS, Edelweiss research Dainik Jagran dominates the Hindi speaking market in India Table 5: Dainik Jagran #1 in Uttar Pradesh State Leadership position Uttar Pradesh No. 1 Bihar No. 2 Uttaranchal No. 2 Punjab No. 2 Jharkhand No. 3 Haryana No. 3 Delhi No. 4 Source: IRS, Edelweiss research 4 Edelweiss Securities Limited
Jagran Prakashan Fig. 1: Attractive layout I-Next: A bilingual format compact daily, targeting the youth Continuous innovation in Hindi segment JPL has reaped benefits in terms of a loyal readership base due to its focus on innovations. JPL was the first to use color on a regular basis in the main part of newspaper. It was also the first to introduce a daily feature on a different topic for each day of the week in the main part of the newspaper, a dedicated pullout on appointments/career on a weekly basis, a tourism supplement on a monthly basis and a daily commerce page in the main part of the newspaper. JPL launched I-next, the first ever bilingual newspaper in the country in December, 2006. JPL has also tied up with Yahoo! India to create a co-branded Hindi news and current affairs website, which is the most visited website in all Hindi categories. In June 2009 JPL launched Rashtriya Sanskaran, the national edition of its flagship newspaper Dainik Jagran to target decision-makers and policy-makers across major cities. Dainik Jagran has widened its footprint to cover 11 states of India through 37 editions and 150 plus sub-editions (apart from the main editions). I-NEXT: Second brand in existing markets; compact Hinglish tabloid I-Next is India s fastest growing compact daily in bilingual format, targeting the youth and new advertisers and as a flanking strategy to protect its main paper Dainik Jagran. I-Next has differentiated content and a lower cover price as compared to JPL s flagship newspaper Dainik Jagran. By launching I-Next in its existing markets, JPL has been able to use its existing infrastructure to publish and distribute I-Next. Except for, hiring of additional editorial staff, JPL does not need to incur any significant additional staff cost for I-Next. I-Next now covers nine prominent cities in four states of India. IRS 2009 R1 for the first time covered six editions of I-next and as per the survey the total readership was an impressive 1.3 mn. I-next currently generates ~INR 350 mn in revenues. Edelweiss Securities Limited 5
Media Fig 2: Compact Hinglish tabloid to capture a new segment City Plus: A weekly English infotainment newspaper, targeting local and hyper local City Plus: English weekly newspaper City Plus, JPL s weekly English tabloid, provides a vehicle to advertisers (such as local showrooms, malls, jewellery stores, furniture shops, interior designers, institutes, restaurants, BPOs, real estate, gyms, clubs and hospitals) who want to advertise their products to local audience. It targets the age group of 18 to 35 years in SEC-A & B segments. It has English News along with information and entertainment content and has ~20 editions from Delhi, NCR, Bangalore, Pune and Vashi in Navi Mumbai. On November 13 2009, City plus introduced two more editions in Bengaluru and Pune increasing its count of editions to five in Bengaluru and four in Pune respectively. City plus is also set to be launched in Hyderabad in December 2009. City Plus is an aesthetically designed all color newspaper and covers a variety of topics related to food, fashion, lifestyle, etc. Apart from this, it also has reader interactivity through contests, coupons, puzzles, quiz, crossword, games, polls and suggestions. The business model is solely dependent on advertising revenues as City Plus is a free publication. City Plus is expected to start contributing significantly when it has ~50-60 editions. Fig 3: English weekly newspaper 6 Edelweiss Securities Limited
Jagran Prakashan Rashtriya Sanskaran: JPL s national edition, targeting policy-makers across major cities Dainik Jagran launched its national edition, Rashtriya Sanskaran in June National edition focuses primarily on national issues, rather than local or state-level issues. The newspaper is targeted at the decision-makers and policy-makers across major cities. Cross-media presence through OOH and event management ventures Presence in OOH and event management offers cross-media presence In February 2006, Jagran Engage, its out-of-home (OOH) venture to provide its advertisers with a complete OOH advertising solution through its bouquet of offerings of hoardings & billboards, unique street furniture, transit & mobile media. Jagran Engage covers 900 + towns spread across 370 districts in 27 states. Jagran Engage has exclusive marketing rights of some of the key outdoor properties in New Delhi, Mumbai, Bangalore, Kolkata, Hyderabad, Ahmedabad, Surat, Lucknow, Kanpur, Agra, Aligarh, Bareilly, Moradabad and Noida. The media ownership includes unipoles, hoardings, public utilities, ambient media options in railway stations, bus panels and college and school branding in above mentioned towns. Dainik Jagran has set up Jagran Solutions which handles below-the-line (BTL) marketing activities events, promotions, road shows, product launches etc. Jagran Solutions is a national agency with offices in Delhi, Mumbai, Bangalore, Chennai and Kolkata. The event management business is already profitable and the OOH business is expected to break-even this year. Ad revenues to post 16.9% CAGR over FY09-12E We expect JPL s ad revenues to post 16.9% CAGR over FY09-12E in view of: (1) the recent recovery in the ad market; (2) the company s established regional presence with a dominant position in key Hindi markets; and (3) increasing share of local and color ads. Pitch Madison has forecasted that print media will rebound the most in H2FY10, with an 82% sequential growth. JPL s biggest competitive advantage arises from its localized content, with a massive reach (150 sub editions), which no other publication can boast of. Dainik Jagran s color ads, as a percentage of total ad space, increased from 19% in FY05 to 40% in FY09 (at 25-50% premium to black and white rates). JPL is currently focused on increasing the sale of color ad space. JPL s competitive advantages: localized content, massive reach and a growing share of local and color ads Print media to rebound the most with an 82% sequential growth India is among the few markets where print media continues to grow. Zenith Optimedia expects the Indian ad industry to grow at 10.5% in 2010 and at 11.4% and 11.8% in 2011 and 2012. We expect the ad industry to recover in H2FY10 based on our interaction with ad agencies. Most ad agencies have told us that the worst is over and recovery is likely on the back of substantial improvement in liquidity in the system with: (1) better consumer spending; (2) strong government at the Centre; and (3) better economic scenario. Growth in the industry is likely to be driven by improvement in the macro economy, which, in turn, will drive ad spends by sectors such as auto, telecom, white goods, financial services, FMCG and realty sectors. Table 6: Print to rebound the most with an 82% sequential growth Medium H1 CY09A (INR bn) H2 C Y09E (INR bn) %change (sequential) Print 32.1 58.3 81.9 TV 32.2 51.0 58.0 Outdoor 4.8 6.6 37.9 Radio 3.0 4.1 36.8 Internet 2.0 2.5 24.3 Cinema 0.4 0.8 97.4 Total 74.5 123.3 65.4 Source: Pitch Madison Edelweiss Securities Limited 7
Media Consistent growth in ad revenues JPL has consistently delivered a positive ad revenue growth over the past 7 years. JPL s ad revenues grew by 11% in FY09, inspite of the economic slowdown and the consequent decline in ad spends. Chart 1: JPL s ad revenue growth 35.0 33.0 28.0 28.0 28.0 26.0 28.0 (%) 21.0 17.0 18.0 15.0 17.0 14.0 11.0 7.0 0.0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E JPL and Zee News lead industry in ad revenue growth Over the past four quarters, regional media players such as JPL and Zee News have consistently recorded an ad revenue growth rate that is higher than that of other companies (operating across different media platforms). Chart 2: No. 2 amongst media firms in ad growth 43.0 JPL is likely to be one of the major beneficiaries of the ad market revival (%) 26.0 9.0 (8.0) (25.0) (42.0) JPL ZNL HT Media ZEEL TVTN TV18 ENIL DCHL Q3FY09 Q4FY09 Q1FY10 Q2FY10 JPL to continue to target local ads The biggest competitive advantage for JPL (evident in faster ad growth of JPL among its peers in print media) lies in its localized content, with a massive reach of 150 subeditions, which no other publication can boast of. The sub-editions give the company an opportunity to tap local ads. Currently, the share of local ad revenues (as a percentage of total ad revenues) is ~63% against 45% three years back. This is due to the fact that local advertisers have been impacted much lesser than the national advertisers in the 8 Edelweiss Securities Limited
Jagran Prakashan recent slowdown. Also, the ad rates of local advertisers are generally higher than national advertisers (national advertisers, due to their scale, usually drive a hard bargain). JPL s share of local ads has increased to 63% in FY09 from 45% in FY07 Table 7: % share of local ads has increased over the years % share FY07 FY09 Local ads 45.0 63.0 National ads 55.0 37.0 JPL s color ad (as a % of total ad space) has increased to 40% in FY09 from 19% in FY05 Focus on color ads to continue in future JPL s color ads, as a percentage of total ad space, increased from 19% in FY05 to 40% in FY09. Management expects color ads to reach 45% in FY10 and 50% of the total advertising space by FY11E. JPL s color ad rates are at a 25-50% premium to black and white rates. The company is focusing on increasing the sale of color ad space. JPL plans to increase its color printing capacity and encourage customers to buy more color space. This will have a positive impact on revenue and profitability. Table 8: % share of color ad space has grown over the years Year FY05 FY09 FY10E FY11E % of color ad space 19.0 40.0 45.0 50.0 Circulation revenue supports during slowdown JPL s circulation revenues are likely to post moderate growth (at 7.7% CAGR) over FY09-12E. Incremental contribution from new editions and higher circulation are expected to drive circulation revenues. Unlike English newspapers, Hindi newspapers have a higher proportion of circulation revenues and have the ability to go for a cover price hike as demonstrated in the recent slowdown. JPL had hiked its cover price by ~INR 0.5 for ~50% of its editions in December, 2008. Hence, circulation revenues are expected to lend support to the company s topline during a slowdown when ad revenues are declining. Table 9: JPL s circulation revenue growth CAGR (%) Total (INR mn) FY08 FY09 FY10E FY11E FY12E FY09-12E Circulation sales from newspapers, supplement, magazine 1,811 1,954 2,192 2,311 2,443 7.7 Edelweiss Securities Limited 9
Media Chart 3: Y-o-Y circulation revenue growth 20.0 16.0 JPL s circulation revenues expected to post a 7.7% CAGR over FY09-12E (%) 12.0 8.0 Cover price hike undertaken in Dec 08 4.0 0.0 Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Chart 4: Hindi newspapers have a higher proportion of circulation revenues 30.0 24.0 (%) 18.0 12.0 6.0 0.0 DB Jagran HT Media DCHL Subscription % of revenues FY09 YOY % growth Higher potential for growth due to lower literacy rates in Hindi states The states in which JPL operates have lower literacy rates than rest of the country. Hence there is potential for higher growth in circulation numbers. Lower literacy rates in JPL s markets offer high growth potential Table 10: Presence in high potential areas State Literacy rate % Bihar 47.5 Jharkhand 54.1 UP 57.4 Delhi 81.8 Mumbai 77.3 Source: Census 2001, Edelweiss research The number of non-literates in Uttar Pradesh is 58.8 mn, in Bihar is 35 mn, Jharkhand has 10.21 mn, JPL stands to benefits from the improvement in literacy rates. Also, the regions in which JPL operates are primarily Hindi speaking regions and comprise 58% of the country population. There is an untapped potential of 360 mn readers, of which 245 mn can read Hindi and includes SEC-A & B as well. 10 Edelweiss Securities Limited
Jagran Prakashan Valuation JPL offers the best play on Hindi print media. JPL enjoys a strong regional presence with its localized content and massive reach through its 150 plus sub editions. Thus JPL is likely to be one of the main beneficiaries of the revival in ad markets. JPL s ad revenues are expected to grow at a CAGR of 16.9% over FY09-12E. JPL s circulation revenues will lend support to its topline during periods of economic slowdown. The stock is currently trading at a P/E of 17.5x FY11E and 15.0x FY12E (below its 3 year average of ~22.4x 1 year forward earnings). We expect JPL s earnings to grow strongly at a CAGR of 38.6% over FY09-12E. The possibility of positive surprises is high, as its business is on an upswing. It offers the best play on the Print media space. We are bullish on JPL, and initiate coverage on the stock with a BUY recommendation with a target price of INR 150. Chart 5: JPL s P/E band 400 320 240 160 80 50x 40x 34x 28x 22x 16x 10x 0 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Source: Edelweiss research Valuation comparison: P/E comparison with peers JPL looks attractive based on a comparison with other media players. Table 11: Valuation comparison CMP P/E (x) EV/EBITDA (x) ROE (%) Company Ratings (INR) FY10E FY11E FY10E FY11E FY10E FY11E JPL Buy 123 20.3 17.5 11.9 10.2 27.3 27.6 PVR Buy 179 40.0 13.8 10.4 6.4 3.8 10.4 Zee News Buy 56 29.0 23.5 14.5 12.2 18.1 19.5 Zee Entertainment Enterprise Buy 247 25.6 21.7 19.3 14.3 11.7 12.5 Television Eighteen India* Hold 85 NM 101.1 21.7 13.7 NM 4.9 Source: Edelweiss research Note: * FY09 are consolidated and estimates are of news business only Edelweiss Securities Limited 11
Media Triggers Limit on FDI in newspapers may rise to 49% The government may relax the FDI limit in newspapers from the current 26% to 49%. This could be a positive for the companies, which need to raise money. Key Risks Slowdown in ad revenues Growth in ad revenues (which constitute ~67% of JPL s total revenues) depends on overall macro environment. This fiscal, owing to a weak monsoon some sectors (auto, real estate and consumer durables) are likely to cut back on ad spends. A slowdown in the economic activity would lead to a decline in the advertising revenues, thus impacting Jagran s revenues and profitability. Newsprint costs Newsprint costs, which form ~40% of the production costs for JPL, have been subdued for the past few quarters. Any escalation in newsprint prices would impact its profitability severely as print media companies typically do not pass on these hikes to consumers through cover price increase. Outdoor and events businesses yet to build scale Total revenue from out-of-home-advertising, event management and short message service (SMS) for FY09 was 584 mn. These businesses continue to remain a drag and have not been scalable. 12 Edelweiss Securities Limited
Jagran Prakashan Company Description Jagran Prakashan, established in 1942 is a leading media house of India which publishes Dainik Jagran, India's largest read daily with a total readership of 54.8 mn (IRS 2009 R2). It was also voted the most credible and trusted newspaper in India, according to a survey by Globscan, conducted in 10 of the world's leading countries, including the US, UK, Germany and Russia. Dainik Jagran is now published in 37 editions across 11 states from 30 different facilities. The company also launched I-next, the first ever bilingual newspaper in the country in December, 2006 now published in 9 editions and also has an English Infotainment paper called City Plus now published in 20 editions. The group publishes Sakhi, a monthly magazine targeted at women. The group also publishes Jagran Varshiki, an annual general knowledge digest, and various national and state statistical compilations. Jagran Engage provides specialized 'Out of Home' advertising services with a Pan-India footprint. Jagran Solutions provides below the line activities like promotional marketing, event management and on ground activities having pan India presence. The company has Hindi news portal in association with Yahoo India, www.in.jagran.yahoo.com and the company s division J9 provides IVR/AVR/SMS services through its short code service 57272 and besides initiatives in digital businesses. Chart 6: JPL Business mix Other 9% Circulation revenue 24% Ad revenue 67% Edelweiss Securities Limited 13
Media Industry Overview Reasons behind boom in regional media Regional media is growing at a faster pace than the overall ad industry. The growth in regions outside the top seven metro cities is impressive. Confluence of three factors The first is the rapid increase in purchasing power in small towns that almost coincided with the saturation in metros. Secondly, the rising below-the-line spends are going to small-town India. The third is the growth of local SMEs. In several categories such as telecom, financial services, durables, the growth in the metros has been slower than in the rest of urban India, points out the Ernst & Young (E&Y) Report. Advertisers interest up in small towns Sanjay Gupta, editor and CEO, points out that there has been a lot of decentralisation of national budgets over the last few years with dealers and local offices deciding how to spend the money. Many companies do not release ads through national agencies. His flagship daily, Dainik Jagran, taps this trend with 37 editions and 150 plus sub-editions across the country. Rising aspirational levels The Household Premiumness Index (HPI, calculates the affluence levels after studying the demographics, ownership, and consumption of products and services) for many small towns is higher than the national average. Affluence levels in towns such as Kanpur, Indore, and Surat are three-fourths or more than those in Mumbai. Here, consumers not only buy at the same pace as metro buyers, but they also consume media in more or less the same quantity. A report by E&Y has indicated that regional markets are attractive in terms of purchasing power, time spent on media and product consumption. Value in smaller pockets Footfalls in malls in many towns are sometimes more than those in cities. For many marketers, the decision making has now shifted to regional areas. According to industry sources, about 30-50% of the total value of durables, financial services, and FMCG durables comes from small towns in India. Mass media vehicles in small towns Today, 1,700 digital screens, hundreds of multiplexes, over 225 radio stations, the rise of Bhojpuri, Bangla and Marathi cinema, the surge in language television and hundreds of language editions in print offer a wide range of mass media options. UFO Moviez, India s largest digital theatre chain, has about 80% of its screens in tier II and III cities. 14 Edelweiss Securities Limited
Jagran Prakashan Financial Outlook Strong growth expected in revenues and profits JPL is expected to report INR 12,442 mn revenues in FY12E and have a three-year CAGR of 14.8% till FY12E. EBITDA is likely to be INR 4,105 mn in FY12E with a three-year CAGR of 37.9% till FY12E. PAT is expected to be INR 2,436 mn in FY11E with a threeyear CAGR of 38.6% till FY12E. Table 12: Strong growth (INR mn) CAGR (%) FY08 FY09 FY10E FY11E FY12E FY09-12E Revenues 7,496 8,234 9,377 10,750 12,442 14.8 EBITDA 1,638 1,567 3,093 3,578 4,105 37.9 PAT 981 916 1,804 2,102 2,436 38.6 EBITDA expected to post ~ 37.9% CAGR over FY09-12E The current newsprint prices have corrected ~ 35% from peak levels and are, in fact, close to a decade low levels. This is due to favorable demand supply as demand for newsprint continues to decline in mature markets like the US and Europe and sell-off in other commodities. Newsprint prices account for ~ 35% of JPL s revenues (based on FY09) and thus, have a huge impact on profitability. We expect EBITDA to grow strongly at ~ 37.9% CAGR over FY09-12E due to this. Also, JPL has undertaken various cost rationalization measures like pagination and reduction in number of pages per edition, which will further lead to expansion in margins. Domestic print forms a larger percentage of JPL s newsprint mix, the ratio of domestic to international news print being 80:20. We expect newsprint prices to remain benign in FY10. However, due to recovery in global economy, there could be an upward revision in newsprint prices in FY11. International suppliers have already announced a price hike of USD50-60 a tonne from Q3FY10; domestic producers may announce a similar increase. Chart 7: Newsprint prices 800 720 640 560 480 400 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 (USD/Tonne) Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Axis Title Newsprint Source: Bloomberg, Edelweiss research Edelweiss Securities Limited 15
Media Chart 8: Raw material costs dip 260bps Q-o-Q as % of sales 50.0 1000 40.0 800 30.0 20.0 10.0 600 400 200 0.0 0 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 (%) (INR mn) Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Consumption of raw materials as % of revenues Margins likely to improve over FY09-12E The improvement in margins will be due to sharp reduction in newsprint prices and a strong growth in sales. Chart 9: Margins likely to improve 40.0 32.0 (%) 24.0 16.0 8.0 0.0 FY08 FY09 FY10E FY11E FY12E EBITDA margin PAT margin 16 Edelweiss Securities Limited
Jagran Prakashan Increasing RoE and RoCE JPL is likely to see an increase in RoE from 18.2% in FY08 to 27.1% in FY12E. Similarly, RoCE will rise from 15.5% in FY08 to 24.4% in FY11E. Chart 10: RoE and RoCE On an upswing 30.0 24.0 (%) 18.0 12.0 6.0 0.0 FY08 FY09 FY10E FY11E FY12E ROE ROCE Edelweiss Securities Limited 17
Media Financial Statements Income statement (INR mn) Year to March FY08 FY09 FY10E FY11E FY12E Net revenues 7,496 8,234 9,377 10,750 12,442 Direct costs 3,797 4,257 3,783 4,406 5,137 Employee expenses 915 1,065 1,172 1,348 1,557 SG&A expenses 1,146 1,345 1,400 1,491 1,643 Total expenditure 5,858 6,667 6,355 7,245 8,337 EBITDA 1,638 1,567 3,022 3,505 4,105 Depreciation 336 383 456 518 596 EBIT 1,302 1,183 2,566 2,986 3,509 Interest expenditure 60 59 69 67 52 Other income 215 227 291 340 340 Profit before tax 1,457 1,352 2,788 3,260 3,797 Provision for taxation 476 436 965 1,141 1,329 Profit after tax 981 916 1,823 2,119 2,468 Recurring net profit 981 916 1,823 2,119 2,468 Extraordinary items (1) 0 0 0 0 Reported profit 981 916 1,823 2,119 2,468 EPS (INR) fully diluted 3.3 3.0 6.1 7.0 8.2 CEPS (INR) fully diluted 4.4 4.3 7.6 8.8 10.2 Dividend per share (INR) 1.3 2.3 2.5 3.6 3.6 Dividend payout ratio (%) 0.4 0.8 0.4 0.5 0.4 Common size metrics- as % of net revenues Year to March FY08 FY09 FY10E FY11E FY12E Direct costs 50.7 51.7 40.3 41.0 41.3 Employee expenses 12.2 12.9 12.5 12.5 12.5 SG&A expenses 15.3 16.3 14.9 13.9 13.2 Depreciation 4.5 4.7 4.9 4.8 4.8 Interest expenditure 0.8 0.7 0.7 0.6 0.4 EBITDA margin 21.9 19.0 32.2 32.6 33.0 EBIT margin 17.4 14.4 27.4 27.8 28.2 Net profit margin 13.1 11.1 19.4 19.7 19.8 Growth metrics (%) Year to March FY08 FY09 FY10E FY11E FY12E Net revenues 25.3 9.8 13.9 14.6 15.7 EBITDA 36.7 (4.4) 92.9 16.0 17.1 EBIT 35.5 (9.1) 116.9 16.4 17.5 Net profit 28.7 (6.7) 99.1 16.2 16.5 EPS 28.7 (6.7) 99.1 16.2 16.5 18 Edelweiss Securities Limited
Jagran Prakashan Balance sheet (INR mn) As on 31st March FY08 FY09 FY10E FY11E FY12E Share capital 602 602 602 602 602 Reserves 4,785 4,997 6,065 7,085 8,454 Shareholders funds 5,388 5,599 6,667 7,687 9,056 Secured loans 791 1,415 800 700 550 Deferred tax 531 521 521 521 521 Sources of funds 6,709 7,535 7,988 8,908 10,127 Gross assets 3,915 4,795 5,695 6,645 7,645 Less: depreciation 1,347 1,513 1,968 2,487 3,083 Net fixed assets 2,568 3,282 3,727 4,158 4,562 Capital WIP 479 707 707 707 707 Investments 1,833 1,568 1,600 1,700 1,850 Current assets 3,073 3,601 3,492 3,957 4,717 Debtors 1,585 1,586 1,806 2,070 2,396 Cash & bank balance 367 828 418 467 714 Inventory 347 318 303 346 398 Advances 605 655 750 860 995 Other current assets 169 214 214 214 214 Current liabilities 1,244 1,624 1,538 1,615 1,710 Creditors 571 578 551 628 722 Other liabilities 267 309 250 250 250 Provisions 406 737 737 737 737 Working capital 1,829 1,977 1,954 2,342 3,008 Misc expenditure 1 0 0 0 0 Uses of funds 6,709 7,535 7,988 8,908 10,127 BV (INR) 17.9 18.6 22.1 25.5 30.1 Cash flow statement (INR mn) Year to March FY08 FY09 FY10E FY11E FY12E Cash flow from operations 1,301 1,321 2,058 2,364 2,777 Cash for working capital (354) (125) (386) (340) (419) Net operating cash flow (A) 947 1,196 1,671 2,024 2,358 Net purchase of fixed assets (779) (1,466) (900) (950) (1,000) Net purchase of investments (340) 378 (32) (100) (150) Net cash flow from investing (B) (1,119) (1,088) (932) (1,050) (1,150) Proceeds from LTB/STB (121) 580 (615) (100) (150) Proceeds from issue of share capital 0 0 0 0 0 Dividend payments (352) (352) (756) (1,099) (1,099) Net cash flow from financing (473) 228 (1,370) (1,199) (1,249) Free cash flow 168 (270) 771 1,074 1,358 Ratios Year to March FY08 FY09 FY10E FY11E FY12E ROE 18.2 16.4 27.3 27.6 27.3 ROCE 15.5 12.9 23.7 24.5 24.9 Debtor days 76 69 69 69 69 Inventory days 21 17 17 17 17 Fixed assets t/o 2.5 2.1 2.1 2.2 2.4 Debt/Equity 0.1 0.3 0.1 0.1 0.1 Interest coverage 21.8 20.1 37.3 44.9 67.2 Edelweiss Securities Limited 19
Media Valuation parameters Year to March FY08 FY09 FY10E FY11E FY12E EPS (diluted) (INR) 3.3 3.0 6.1 7.0 8.2 Y-o-Y growth (%) 28.7 (6.7) 99.1 16.2 16.5 CEPS 4.4 4.3 7.6 8.8 10.2 Y-o-Y growth (%) 31.8 (1.4) 75.4 15.7 16.2 P/E(x) 37.8 40.5 20.3 17.5 15.0 EV/Sales 4.8 4.4 3.8 3.3 2.8 EV/EBITDA (x) 21.8 23.0 11.9 10.2 8.5 20 Edelweiss Securities Limited
RATING & INTERPRETATION Jagran Prakashan SECTOR RATINGS Company Absolute Relative Relative reco reco risk PVR Buy SO M Zee News Buy SP M Zee Entertainment Enterprises Buy SO M Television Eighteen India Hold SU H Jagran Prakashan Buy SO M ABSOLUTE RATING Ratings Expected absolute returns over 12 months Buy More than 15% Hold Between 15% and - 5% Reduce Less than -5% RELATIVE RETURNS RATING Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector Risk ratings are based on Edelweiss risk model SECTOR RATING Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return Edelweiss Securities Limited 21
Media Edelweiss Securities Limited, 14 th Floor, Express Towers, Nariman Point, Mumbai 400 021, Board: (91-22) 2286 4400, Email: research@edelcap.com Naresh Kothari Co-Head Institutional Equities naresh.kothari@edelcap.com +91 22 2286 4246 Vikas Khemani Co-Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206 Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411 Coverage group(s) of stocks by primary analyst(s): Media Jagran Prakashan, PVR, Television Eighteen India, Zee Entertainment Enterprise, Zee News Jagran Prakashan EW Indices (INR) 210 170 130 90 50 10 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 2,500 2,000 1,500 1,000 500 15-Dec-08 15-Jun-09 15-Dec-09 Jagran Prakashan Ltd. EW Media Index Nifty Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Hold Reduce Total Rating Distribution* 87 51 13 153 * 2 stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) 94 43 16 Recent Research Date Company Title Price (INR) Recos 12-Dec-09 Dainik Good play on Bhaskar regional media; IPO Note 24-Nov-09 Zee On a roll; bolstered 262 Buy Entertainment further by regional GECs; Visit Note 30-Oct-09 PVR Bounce back, as 121 Buy expected; Result Update Access the entire repository of Edelweiss Research on www.edelresearch.com This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. 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All rights reserved 22 Edelweiss Edelweiss Research Securities is also available Limited on www.edelresearch.com,bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited