ValuePickr Forum

Jagran prakashan

its a non disposal undertaking, not a pledge. It just means as long as company loan is not paid promoter will keep on running the company. Secondly it had debentures last year also. they get very competitive rates. makes a lot of sense to keep some money handy just in case things become very bad. Every company (large or small) is exercising bank lines etc so that they are prepared for worst and at that time they have cash hand.

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Sir, please don’t create posts without full knowledge and fact checking. It is an NDU not a pledge, buyback decision of 100 cr from open market was taken (not 400 cr) in a pre-coronavirus scenario as the company’s shares were cheap even at 66-67 Rs odd price (44 rs now) as per the management. In a coronavirus scenario, it is good thing to shore up liquidity as liquidity ought to be raised when it is available and not when you want it, thats how conservative managements behave.

Jagran is a net cash company and business comes under essential services so will continue. Profitability will be hit this year for decrease in ad revenues but that will be one-off.

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First of all thanks for pointing out my mistake that it is NDU not an pledge, second as per new sebi circular Non-Disposal Undertakings
(or agreements) (“NDUs”) are signed usually by the debtor in favour of the
lender in relation to any loan obligation undertaken by the debtor. An NDU helps
in ensuring that the debtor does not transfer the shares held by it in a
company by way of outside arrangements such that the creditor is left without
access to significant assets of the debtor. Usually, the usage of an NDU is
prevalent in the stock market as shareholders, predominantly promoters, tend to
undertake a loan against their shares in the company and with an understanding with
the creditor that they will not alienate or create any other form of
encumbrance upon the shares, therefore, creating a negative lien upon them. Typically,
the shares are transferred to a new escrow demat account for the purposes of
this arrangement, but the beneficial ownership over the shares does not change (remaining
with the debtor) and the creditor is also not able to dispose them off to clear
off the dues (unlike a pledgee).

In the banking
sector, such NDUs are coupled with a power of attorney (“PoA”) thereby
appointing a security trustee. The combination of the NDU along with a PoA
ensures that there is a positive as well as a negative covenant in the
arrangement such that if the debtor (being the shareholder) fails to keep up
with its dues against the creditor, the security trustee can exercise his
powers under the PoA to alienate the shares in favour of the creditor (or any
other person). The alienation of the shares by the debtor is safeguarded by the
presence of the PoA and the escrow account under which such shares are held.
Such an arrangement has been intentionally designed to avoid the framework of a
pledge to ensure that banks do not hold more than 30% of the shareholding of
the total paid-up share capital in the company as mandated under section 19(2)
of the Banking Regulation Act, 1949.
The complex legal arrangement has been formulated to avoid the compliance
required under section 19(1) of the Banking Regulation Act as the holding of
shares in an arrangement of pledge has a possibility of the bank becoming a
shareholder (in case of non-payment of dues) resulting in the company whose
shares are so pledged/encumbered to become its subsidiary.

Irrespective of the
structure of an NDU, there is no doubt that it creates an limitation of some
sort upon the shares of the promoters (especially when it is coupled with a
PoA) and it is vital that such information is disseminated adequately in the
public sphere. Previously, the Securities Board of India (“SEBI”) had amended
its formats under the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”)
to ensure that appropriate disclosures are made with respect to NDUs within the
scope of “encumbrances” to help investors in taking an informed decision.


A non-disposal undertaking (NDU Agreement) is an agreement to not dispose off shareholding held by the person holding the shares (“NDU Provider/Obliger”) in a company, usually a Special Purpose Vehicle (“SPV”). This agreement is usually coupled with a power of attorney appointed on the security trustee. It is a combination of contractual negative and affirmative covenant wherein the Obligers agree not to sell the securities unless the sale is required to discharge dues to the lenders. This Agreement involves a deposit of shares in a new Demat account which is then linked to an Escrow Account. The power to sell is given to a Security Trustee who may exercise the Power of Attorney appointed on it along with this Agreement and appropriate the resultant proceeds towards payment of their dues. The PoA and the escrow account safeguard the lenders against any attempts by the Obliger to breach its promise. Furthermore, this is not like a pledge where a beneficial interest or right of the Lender is created in the subject matter. The need to set up this complex legal framework is to take more than 30% of shares in a company as collateral and yet not attract S. 19(2) of the Banking Regulation Act, 1949 (“BR Act, 1949”) which mandates that a bank cannot hold more than 30% of shareholding of the total paid-up capital in a company unless it conforms to S.19(1) which is banking business and any activity in promotion thereof.

So my conclusion is it is still risky though now I know thanks to you that its not as risky as pledge.

what’s really important is to get information why such NDU was created and then take a decision

  1. As promoters want to have liquidity for any acquisition opportunity or any other need that may arise in covid 19
    2.Promoters need money as they are short on funds for investments/debts made in personal capacity
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Its listed subsidiary - Music Broadcast(Radio City), seems to be a bargain bet right now. I wd have started a new thread for it, but the statistical cheapness begets taking a deep dive. It can be more of a typical value investment as a part of a diversified portfolio. The stock is available at an EV of 2.67 times last yr’s operating earnings.

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Interesting find. The recent credit rating report by CRISIL says this:

While the base case assumes a decline in revenue by 22-25% in fiscal 2021, in line with the industry standard, MBL’s credit risk profile remains supported by its strong market position, healthy liquidity of over Rs 215 crore as on March 31, 2020, nil debt, and high financial flexibility. Furthermore, expectation of waiving off of license fees for radio players could support their operating profit and, hence, remains a key monitorable.

Zero debt, good liquidity, low P/E (8) and P/B (0.7). It deserves a deeper look.

Would be great if you could start a new thread.

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Thanks.
As mentioned, I may not be the correct person to start new thread on this. For my personal portfolio, I buy these statistically cheap cos. only on basis of cursory numbers analysis. I’ll start that portfolio thread soon.

Disc: Invested. 5% of personal portfolio.

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Why advertisement revenue down 25-30% both for radio and print (Jagran) in Q4 pre Covid-19 period ? Shift in platform preference or weak economy ?

For radio, the reason was cut back of ad expenditures by govt nd local retailers.

I don’t know about Jagran, but on the MBL (subsidiary of Jagran. Owner of Radio City) conference call Apurva Purohit (President. Jagran Group) mentioned that they have been seeing weakness in the economy since October-November 2019. Plus advertisers started cancelling confirmed ad spends since the 2nd week of March. So I think it is a combination of both factors.

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Hello Sarvesh,
Would love to know your views on the future of jagran prakashan. Have heard and followed you asking incisive questions at their concalls.

Thanks

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I have started a thread on MBL (74% subsidiary of Jagran). Here is the link:

Hi @sarthakkumar19_ Jagran is currently trading at cheap valuations (P/E of ~3x normalized profits against historic average of low double digit P/E). However all media stocks will show performance but with a lag as they are the first derivative of growth numbers in GDP which are currently undergoing a downward revision. So business will take some time to recover and so will be the valuations as its a small cap and belongs to a sector which is not a fancy of the current set of investors. Also, company is strong enough from a balance sheet perspective to survive this crisis.

How fast the recovery will happen is anybody’s assumption and will depend on overall speed of Indian economic recovery. But if I have to hazard a guess I think if one can hold this for the next 18-24 months, one can get 2x to 4x returns.

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Will this crises lead to permanent erosion in readership, advertisement channel preference by the advertisers?
Monetization in digital space does not look that great either!

But this cirsis also has led to reverse migration to majorly UP and a good chunk of these folks may not return back to metros because of the efforts UP govt is making in terms of relaxing labour laws and such. In that case, if UP economy grows at a faster clip driven by rural demand, I see some prospects in the next 2-3 years for the company. Also, 2022 is the state election year before which we could see some ramping up of govt ad spends. All in all, next couple of years look interesting for JPL.

Disclosure: Studying the stock and no holdings currently

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I considered both - Jagran Prakashan and its subsidiary MBIL for investment. Happy to hear contradictory viewpoints : -

Jagran Prakashan :- This is a real Cigar-Butt valuation-wise. Taking a holding co. discount of 30-60% the co. is trading at 1.2 - 1.5 times trailing EV\EBITDA. While the co. will take some hit on topline this yr, the margins might be maintained owing to falling newsprint costs, Collaborative cost cutting by industry and circulation restored to 80% pre-covid levels.

Music Broadcast :- This is not an absolute cheap stock but a Fair business available at a cheap price. The company’s strong liquidity position will get it thru this phase where the topline hit might be 20-25%. Thus, here one is paying for a decent recovery and strong comeback of the business.

Which side to play is anybody’s call…

Disc. Not invested in Jagran. Exited MBIL in the recent run-up.

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Can you share the reasoning behind this assumption. Incase it is through some source, would appreciate sharing the same.

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Check DB corp thread. Company Director mentions in a recent interviw that circulation is back to 80% in most places other than tier-1 cities. With railway stations, bus depots etc. closed, it is not possible to achieve pre-covid levels for the next few months. However, he also hints that ad revenues have dropped considerably. I feel the impact should be similar for Jagran too in circulation.

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@vikskukreja:-

Yes, The circulation %age was confirmed by management in Q4 concall : -

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Can someone shed more light on Promoter’s Pledged Shares. What Project have they pledged them for?

Today’s exchange filing should clear the air around pledging

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