Jagran prakashan

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JAGRAN PRAKASHAN

BACKGROUND

Started in 1942, as a newspaper company, the company is now focussed on print, digital and radio business. It also has a presence in the out of home advertisement segment.

Dainik Jagran is its flagship brand which is India’s largest read daily newspaper by circulation. Other newspapers include Mid-day, Nai Duniya, Inquilab etc.

Company recently acquired Radio city radio stations across India.

Company has leading well visited 11 portals which cover a wide range of genres like news, education, blogging, gaming, classifieds and music.

The company launched its IPO in 2005 and made its debut on the bourses in Feb 2006.

PRODUCTS/SEGMENTS

PRINT

Company is a dominant player in the Hindi newspaper segment. Dainik Jagran established in 1942 is its flagship newspaper which is the largest read daily newspaper in India.

Advertisement constitutes 70% of company’s revenues, while circulation revenues account for 20% while other segments including out of home advertising and radio account for the rest of 10% revenues.

Jagran has presence across 19 states and has 11 print publications across five languages. Daily circulation is 5 million plus and it has over 350 editions and sub editions.

RADIO

The company recently acquired the radio business of Radio City and currently has 39 radio stations. 31 stations are under Radio City brand name. 8 stations are under Radio Mantra and 21 stations under Planet radiocity.com

Focus of the company remains on print, radio and digital.

DIGITAL

Company’s portals include jagran.com which is no 1 Hindi news portal and jagranjosh.com which company claims to be no 1 education portal.

OUT OF HOME
This division provides out of home advertisement options including billboards, signages etc.

BULLISH VIEWPOINTS

Dominant player in a sticky business and has been the most read national newspaper since 2003.

Having attained a dominant position in the newspaper segment, company now has set its sights on the radio and digital business as the next growth drivers.

Topline has grown from 1221 crores in 2011 to 1770 crores in 2015 with net profit growth from 208 to 308 crores in the same period. Sales and operating profits have been consistently growing year on year during this period.

Hindi print market has been showing consistent growth since 2011 of around 9% CAGR and is slated to keep growing consistently.

Company is improving its presence in the sunrise sectors of radio and digital.

BEARISH VIEWPOINTS

Newspaper business is being viewed as a business which could undergo disruptive changes due to internet penetration and the English newspaper segment is already a prey to this phenomenon.

Hindi newspaper segment has shown resilience among such disruptive chanes.

Sudden spike in newsprint prices might impact the company’s profitability.

Radio and digital are competitive sectors with other aggressive players in the fray.

The advertisement revenues of the newspaper business are linked to the state of the economy and hence any drop in the economic activity might impact advertisement revenues.

BARRIERS TO ENTRY

With Jagran being a dominant player in the Hindi newspaper segment, its very difficult for new entrants to make significant headway. The existing players like Dainik Bhaskar could gradually erode company’s competitve advantage. However going by the growth shown by the company and proactive measures taken by the management, company is likely to maintain its leadership position.

INTERESTING VIEWPOINTS

Majority of revenues and profits come from the newspaper segment and from Dainik Jagran. The other publications like Nai Duniya and Mid Day etc which were bleeding have turned profitable since past two quarters.

Management comes across as very competent and transparent after going through the Annual Reports, quarterly presentations, concall transcripts and history of dividends.

Company has been generating consistent cash flows and has been liberal in its dividend payouts.
Its dividend payout has been close to 50% in the recent history.

High promoter holding. No pledging.

Company has a healthy balance sheet and has robust return ratios.

VALUATIONS

Company posted EPS of 7.3 per share and paid a dividend of Rs 3.5 in FY 15. For the half year ended, company has posted EPS of 4.8 (not annualised) and slated to post EPS in excess of 9 per share. There is a high probability of dividend of close to Rs 4.5 per share which amounts to a dividend yield of 3% plus based on current price of Rs 140.

For those interested in studying the company in details, the company provides almost all information in its AR, quarterly presentations and concalls which are all available on the company website.

Disc: Invested and occupies more than 10% of my portfolio.

This is not a recommendation and anyone investing should do their own due diligence and then take any investment decision.

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Hiteshbhai,

PRINT - Value is migrating from Print based news to app based news over smartphones.
If you know, Gujarat has only 2 major newspapers, Gujarat Samchar and Sandesh. Some market share is with Loksatta. Few years back both these papers had to start giving freebies to the customers to keep monthly subscription going. Freebies included household items.

Even Buffett sold Washington Post to Amazon.

So will PRINT be around for next 25 years ?? Maybe Yes.

Will it be profitable and high ROC generator ?? No

RADIO - Radio business is good ad revenue generaring, but it is not scalable. Most people listen to radio for music. Music consumption is migrating to smartphones via apps like Saavn or many consumers download pirated versions.

So will RADIO be around for next 25 years ?? Maybe Yes.

Will it be profitable and high ROC generator ?? No

This is my opinion and I reserve the right to be wrong

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@hitesh2710

On a relative valuation and opportunity basis: how is it better off as compared to HMVL or ENIL? both seems to have huge moats from a standalone point of view.

Regards
Sreekanth

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Couldn’t find out shareholding pattern as on Sep 30, 2015. was it gone thru?

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simplest way to find out shareholding pattern is thru bse website.

it showns shareholding as 60.76%

even in the link to the article u posted it is clearly mentioned that promoter gp shareholding would not be affected.

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I dont track HMVL but had a look at ENIL. It seems interesting.

ENIL is slightly expensive mainly bcos it is perceived to be in a business which is supposed to grow at much better rates than newspapers. I think its at close to 30 PE.

Jagran could be quoting at 14-15 PE based on fy 16 estimated eps figures of 9.5 or thereabouts.

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The impact of disruptions are always over or under emphasised.

One has to judge which applies here. :grinning:

If u look at the presentation post q2 fy 16, management has given a bar chart depicting growth in hindi newspaper revenues including circulation and ad revenues. From 2010 till 2019, it is shown as 9 % cagr growth.

About the 25 years logic and impact of disruptions due to internet penetration, I dont look that far ahead. At current juncture I find jagran attractive in the medium term.

If one looks at figures of growth in hindi and english newspaper growth its easy to make out where the max impact of disruption is felt. Thats not to say that jagran also will not be affected. But that scenario looks a few years away.

About freebies provided by gujarat samachar and sandesh it was to mitigate the impact of a new player dainik bhaskar. It had nothing to do with internet impact. And after a brief spell it all stopped. In fact a few months back gujarat samachar has raised its prices.

For newspapers to raise prices its not a very difficult thing. Just think about a scenario where a 2 rupee newspaper costs 2.50. How much is it going to impact the reader of the newspaper? For the newspaper company it makes a huge impact but on the reader’s wallet it makes a change of only 15-20 Rs per month.

And about radio, just look at the story of ENIL and you will see the impact of radio. As long as internet data charges dont reach abysmally low levels, radio seems to be there to stay.

I like the characteristics of the business. Growth will not be explosive. But some amount of growth from new ventures like radio, and digital plus turnaround of subsidiary newspapers (which seems to have started looking at last two quarters results) could provide decent profit growth.

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Hi Hitesh,

Thanks for bringing this to our attention. I have downloaded financial reports and will be going through them over next few days in detail and will ask for clarity/questions as required.

Though valuation exercise should be considered in the end, however just a quick glance on moneycontrol website shows below figures for consolidated:

EPS (TTM) 13.24
P/E 10.68 @ CMP 141.3

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There is extraordinary income in the TTM figures.

Try looking up the company presentation put up along with results or download the results and get the figures.

EPS before extraordinary items for first half is 4.8.

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Hi Hitesh,

Interesting post. I have been invested in HMVL and I understand the newspaper business. I agree with you that its a sticky business as it is a habit product for consumers and thus switching costs are high. The thesis in HMVL was margin expansion and severe under-valuation.

In Jagran, I understand that the reason for attractiveness here is primarily driven by the radio & digital business?

The newspaper business will do an EBITDA of ~500-550 Crores based on current numbers this year. If we accord a multiple of 10X to this- which looks fair to me given the long term prospects of the business. It comes at ~ 5000 Crores EV. Current EV is 4600 Crores. So essentially we are saying the rest of the business o.e. radio & digital are coming for free? Is that the broad thesis?

I haven’t looked at the radio business before, but looks similar to print business atleast in terms of profitability.
Also just saw that ENIL is ~ 500 Crore company with a market cap of ~3000 Crores.

Radio City is ~ 200 Crore sales company with similar profitability. What value will market assign to it will be interesting to see. JP paid ~ 600 Crores for the acquisition as per this article

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rohit,

If u compare the valuations of DB Corp and JP then also there’s a bit of valuation gap. Both companies have almost similar financial characteristics in terms of balance sheet and dividend payout etc. DB is at around 20 PE while Jagran is close to 14-15 PE.

Plus while DB has been static in terms of growth, JP has shown consistent growth.

And yes if u look at the whole picture there seems to be no value assigned to the digital and radio business.

For JP, some things are falling in place. Mainly the other newspapers besides Dainik Jagran which were making losses are now breaking even and some are even turning profitable.

As mentioned in the q1 concall the management is making some propositions to advertisers by providing bundled packages etc. while not specifically taking any strong price cuts.

The q2 concall also is interesting where management comes across as very confident about next few quarters. q3 is also likely to be good bcos of navratri and diwali falling in q3.

In a question regarding possibility of value unlocking by demerging the radio division, the reply was that currently it is not being considered but they did not rule out the possibility of value unlocking in future.

They are also looking out to sell properties to realise value although they mentioned that they will not sell in distress.

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Got it, Hitesh. Prima facie looks interesting. Will delve deeper and post if I find anything interesting. Thanks for sharing the idea here.

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Much interesting. This company has a mixed portfolio of hindi and english newspapers…where they are leaders in hindi newspaper - “dainikjagran” - almost around 16 million people read this newspaper.

Now looking at the disruption of this industry - it will not occur in next 25 years - since today if you tell me to go for newspaper online - even I would not like to. I need those 10 page leaflet.
Now think about that part of India who reads Hindi newspapers - how much time they will take to shift to online. - I might be wrong over this. Suggestions please on this point.

Does not these companies earn from their online portals - revenues from advertisements and google advertisements, etc. Views on this please.

This company seems better to me than HT media. OPM and NPM consistently rising vis a vis HT media.

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Rohit, Hitesh,
One of the reason for higher valuation to DB Corp is their ability to enter any given market and start as No.1 or 2 newspaper from day 1 of circulation, which no newspapers in the world are able to achieve. This reduces their gestation period.

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Hiteshbhai,

Excellent narration of the Jagran story. Few questions I have

  1. Company’s operating margins in last 5 years have been fluctuating between 19-29% and hence the bottom line growth seems relatively slower compared to its peer (DB Corp - CAGR 12%; HMVL - 28%). What is the normalized margin trajectory for Jagran post turn around of Nai Duniya & Mid day and consolidation of radio business?

  2. There is hardly any top line growth in Other publications (Mid day, Nai Duniya), Dainik Jagran has been growing at 10% odd CAGR while radio business has been growing at faster clip but with much smaller base. In this context, what will drive the topline growth going forward?

To me, two critical catalyst in the Jagaran’s case

  • Improving margins on non- Dainik Jagaran publications from 7-8% to Dainik Jagran’s base business OPM level of 28-30% ( Though I am not clear whether this is possible given the smaller size of these publications and niche market that they serve hence the hypothesis needs to be validated.) It will also be useful to understand the time line to achieve the base business level OPM.
  • Management has indicated in concall that new cities acquired in Phase-III will add 40% to topline eventually thus driving the contribution to topline. Whether company is able to achieve the same and in what time frame?
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Highlights of the call by Capital Mkt
For the quarter ended Sept 2015, the consolidated operating revenue increased by 19% to Rs 519.51 crore, Advertisement revenue increased 27% to Rs 388.96 crore. Circulation revenue was up by 3.5% to Rs 99.83 crore. The net profit increased by 61% to Rs 91.28 crore.On standalone basis, the company reported 7% growth in revenue to Rs 437.26 crore. Advertising revenues grew 9% to Rs 312.74 crore, Circulation revenue was up by 3% to Rs 93.87 crore. The net profit grew 4% at Rs 58.31 crore.The company has discontinued publication of Cityplus in Q2.
Dainik Jagran’s ad growth was driven by mix of yield improvement (50%) and volumes (50%) while growth for other editions primarily driven by volume increase. October-2015 has seen better than expected ad growth, mgmt expects at least 10% growth till Diwali. UP has started to get its due share with improving national advertisement.
Madhya Pradesh market is going very slow. The mgmt said that local market is low while national one is not impacted. Bihar, U.P. doing well.City plus had 0.7% impact on the ad growth.
The sector which has contributed to advertisement revenue growth are automobile, white goods and online shopping companies. Auto did excellently. Online shopping also did well but the company has not carried every company ads to protect rates. Retail on local side is picking up.
Radio operating revenue grew 8% to Rs 55.5 crore, driven by yield improvement. EBITDA stood at Rs 16 crore registering decline of 2% with EBITDA margin of 29% vs 32.1% in Q2 FY15. EBITDA was impacted by higher provision for license of Rs 3.5 crore. The net profit was Rs 12 crore. In H1, core market has grown by 10-12%. Utilization has not grown. Both large and small markets have grown, large markets grown on rate hike and small market on volume. Consumer durable. Government and e-commerce companies have helped ad revenue growth for H1. The company will take rate hike in radio business. 8% growth is sustainable.
There was improvement per copy realization especially in Midday.65% digital ad revenue growth for Q2. Rs 5 crore run-rate per quarter in digital biz.
I next - increased share in core market after its re-launch. Circulation improved 55%.Newsprint consumption for H1 was 80000 tonnes. The mgmt said that newsprint price will remain stable.
Land parcel – always looking for disposal of it, at right price.The capex for Jagran Prakashan is Rs 60 – 70 crore for FY16.Net Debt stands at Rs 104 crore for the group as on 30th September 2015.Tax rate for FY17 will be 27-28%.

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dhwanil,

From management commentary it seems that the current margin levels are likely to be maintained going forward. They seem focussed on profitability and that comes out from two statements in q2 fy 16 concalls.

first is when they specifically mentioned that the OOH busines (out of home) is profitable but its profitability doesnt match with other lines of business and hence they are in the process of gradually easing out of it.

Secondly in response to some question about ads from online retailers they were quite categorical that they could have got more volumes of ads but did not want to compromise on profitability.

In response to your second query, I think till now focus might have been to turn these publications profitable and then chase growth. The q2 concall also mentions that the other newspapers have started becoming profitable. So for next few quarters, if the profitability of these publications improve, then bottomline growth may be much more than topline growth. About topline growth, the base Jagran business can grow anywhere between 10-15% by a mix of growth in ad and circulation revenues. How they manage to grow the radio business needs to be seen. They also mentioned in q1 concall that their focus is on getting radio stations in regions where they are strong in the newspaper business so that there is opportunity for cross selling and providing bundled packages.

the smaller publications’ profitability and margin picture is the key monitorable.

all in all Jagran to me looks like a steady business not likely to show too scorching a growth but a steady 10-15% topline growth and 20-25% bottomline growth in a company with good honest capacble management and extremely good financial characteristics like good clean balance sheet, good cash flows, high dividend payouts and good return ratios. I also expect some slight re rating to happen to take it in line with valuations of DB corp. This can take a couple of quarters time.

Radio business is an optionality that can play out if things go right. Management is on record saying that they dont completely rule out demerger or any other value unlocking opportunity.

The current perception about newspaper business is that its a no growth business likely to get decimated with the onslaught of online readership. But if company can prove this perception to be wrong by posting decent results for next few quarters, its likely to provide decent returns.

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Hitesh,
Any reason why you have not looked at the leader in this space db corp as it also has good leadership, financial characteristics and a PE of 20 which is slightly higher than jagran. Where do you feel jagran can overtake db corp in terms of performance

regards
rajesh

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Thanks Hiteshbhai. It is very useful. I think it is very good quality business available at reasonable valuation with some optionality. Though, the turn around of the non- dainik jagran business remains a key monitorable.

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rajesh,

The leader DB corp is stuck with negligible growth. Its more to do with the geography where it is present. i.e MP and chattisgarh. Once it starts showing growth it too might become interesting.

Jagran is present in UP and Bihar where things seem to be quite good in terms of economic activity as is evident from the numbers and management commentary.

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