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Jagran Prakashan Ltd. BUY

- 1 of 32 - Monday 23rd

March, 2015

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Target Price `201 CMP `127 FY17E PE 13.2x

Index Details Jagran Prakashan Ltd. (JPL), a leading print media company, is well

poised to benefit from the anticipated economic recovery. JPL’s

flagship newspaper, ‘Dainik Jagran’, is the most widely read

newspaper in India, across all languages. We are positive on the

company’s prospects given that:

JPL enjoys a leadership position in the large but relatively

untapped markets of Uttar Pradesh and Bihar, which

constitute nearly 70% of the total revenues. The per capita

income in JPL’s key markets is amongst the lowest in India,

which has a lot of potential to increase in tandem with the

economic growth anticipated in the overall economy. We

expect JPL to post a 3 year revenue CAGR of 8% to `2,142

crore in FY17. The EBITDA margin is expected to improve

from 21.5% in FY14 to 25.7% in FY17.

JPL’s acquisition of Radio City (owned by Music Broadcast

Pvt Ltd – MBPL) gives the company access to high growth-

high margin radio business. This segment is expected to see

significant growth traction as Phase III auctions are likely to

commence in April 2015, after much delay. Radio City enjoys a

high listenership in key metro regions and has an EBITDA

margin of 30%+. The acquisition is expected to deliver rich

rewards for JPL in the long run. We expect MBPL’s revenues

to grow at a healthy 10 year CAGR of 9% and EBITDA margin

to normalize to ~25-26% by FY25.

We initiate coverage on JPL as a BUY with a Price Objective of `201,

representing a potential upside of 58% over a period of 24 months.

At the CMP of `127, the stock is trading at 13.2x its forward earnings

for FY17E. We have valued JPL (excluding radio) by assigning a PE

of 15x to FY17E EPS of `9.6 to arrive at the target price of Rs 144. We

have used the DCF method to value MBPL and arrive at a target of

Rs 57 per share net of JPL’s acquisition amount.

Sensex 28,261

Nifty 8,570

BSE 100 8,692

Industry Publishing

Scrip Details

Mkt Cap (` cr) 4,223

BVPS (`) 34

O/s Shares (Cr) 32.7

Av Vol (Lacs) 0.09

52 Week H/L 154/95

Div Yield (%) 3.1

FVPS (`) 2.0

Shareholding Pattern

Shareholders %

Promoters 62.6

DIIs 11.7

FIIs 15.0

Public 10.7

Total 100.0

JPL vs. Sensex

15000

20000

25000

30000

35000

60

70

80

90

100

110

120

130

140

150

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep

-14

No

v-1

4

Jan-1

5

Mar-

15

Jagran Prakashan Sensex (RHS)

Key Financials (` in Cr)

Y/E Mar Net

Sales EBITDA PAT

EPS (`)

EPS Growth (%)

RONW (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

2014 1703 366 226 7.2 128.9 23.9 16.5 17.5 2.5

2015E 1807 441 218 7.0 -3.5 20.4 15.2 18.2 2.2

2016E 1972 491 256 8.2 17.8 21.7 17.8 15.4 1.9

2017E 2142 550 300 9.7 17.2 22.5 20.0 13.2 1.7


March, 2015


Company background

JPL is one of the leading print media companies in India. Dainik Jagran, its flagship

daily Hindi publication, is the most widely read newspaper in India across all

languages, according to the Indian Readership Survey 2012. JPL, in addition to

Dainik Jagran, has 11 publications across five languages, 121 editions and is

distributed in 15 states. According to the Indian Readership Survey (IRS), 2012 –

Q4, the company enjoys a total readership of 68.01 million for all its publication

brands. The company also has a significant digital presence, with the prominent

websites being jagran.com and jagranjosh.com. All the Jagran sites combined have

clocked 30 million unique users (Source: Q3FY15 result presentation).

JPL has acquired a 100% stake in Music Broadcast Pvt Ltd. (MBPL), which operates

the leading FM station brand ‘Radio City’ (91.1FM). MBPL has 20 stations under the

‘Radio City’ brand and 14 internet radio stations under the brand

PlanetRadiocity.com. The deal is likely to receive final approvals by the end of FY15.

Jagran Prakashan Business Structure

R: Revenue, RS: Revenue Share, Excludes other operating income Source: JPL, Ventura Research


March, 2015


Key Investment Highlights

Enjoys leadership position in large, high growth markets

JPL derives ~75% of its revenues through Dainik Jagran, of which advertising

revenues accounted for 76% of revenues, with circulation revenues accounting for

the rest in FY14. According to the IRS 2012-Q4, Dainik Jagran is the highest read

publication in India with a weekly readership of 16.4 mn followed by Dainik Bhaskar

with a weekly readership of 14.4 mn.

Dainik Jagran has a strong foothold in UP, the most populous state in India, which

accounts for ~50% of its total revenues. It also has a dominant presence in Bihar

and Jharkhand, which forms ~15% of the total revenues. Apart from these three

states, Dainik Jagran has a strong presence in the northern belt viz. Delhi, J&K, HP,

Punjab, Chandigarh, Haryana, J&K and Uttaranchal and the central region states of

MP and Chhattisgarh.

Dainik Jagran – the highest read newspaper

Publication Language

IRS 2013

Readership

( in mn)

IRS 2012 Q4

Readership (

in mn)

Dainik Jagran Hindi 15.5 16.4

Dainik Bhaskar Hindi 12.9 14.4

Hindustan Hindi 14.2 12.2

Malayala Manorama Malayalam 8.6 9.8

Amar Ujala Hindi 7.1 8.4

The Times Of India English 7.3 7.6

Daily Thanthi Tamil 8.2 7.3

Lokmat Marathi 5.6 7.3

Rajasthan Patrika Hindi 7.7 6.8

Mathrubhumi Malayalam 6.1 6.3

Source: IRS 2013 and 2012; numbers denote average weekly readership Note: The findings of IRS 2013 has been widely contested in the industry


March, 2015


Dainik Jagran’s Positioning & Competitive Landscape

Source: IRS 2012 –Q4

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Dainik Bhaskar

The Tribune

Hindustan Times

Amar Ujala Dainik Jagran

2010 2011 2012

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Dainik Bhaskar

Hari Bhoomi

Nava Bharat

Nai Dunia Dainik Jagran

2010 2011 2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Hindustan Times

The Times Of India

Navbharat Times

Hindustan Dainik Jagran

2010 2011 2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Dainik Bhaskar

Dainik JagranPunjab KesariHari Bhoomi

2010 2011 2012

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Amar Ujala Punjab Kesari

Divya Himachal

The Tribune

Dainik Jagran

2010 2011 2012

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

0.5

Daily Excelsior

Amar Ujala Punjab KesariDainik Jagran

2010 2011 2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Hindustan Prabhat Khabar

Dainik Jagran Dainik Bhaskar

2010 2011 20120.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Dainik Bhaskar

Group

Patrika Nai Dunia Dainik Jagran

2010 2011 2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Ajit Punjab Kesari

Jag Bani Dainik Bhaskar

Dainik Jagran

2010 2011 2012

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Dainik Jagran

Amar Ujala Hindustan Aj

2010 2011 2012

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Amar Ujala Dainik Jagran Hindustan The Times Of India

2010 2011 2012

0.0

5.0

10.0

15.0

20.0

25.0

Hindustan Dainik Jagran

Prabhat Khabar

Aj

2010 2011 2012

HP J&K

Uttaranchal

Bihar

Jharkhand

ChhattisgarhMP

Haryana

ChandigarhUP

Delhi

Punjab


March, 2015


The per capita income in JPL’s key markets is amongst the lowest in India; on the

upside, it has a lot of potential to increase in tandem with the economic growth

anticipated in the overall economy. According to the management, a per capita

income of `1.2L and beyond triggers a hockey-stick growth for newspaper

consumption in a region.

With the advent of the internet age, newspaper readership growth in metro cities has

stagnated in the past few years. While most office goers prefer surfing for news on

the internet, other factors such as long travel times and alternative recreation forms

such as malls, theaters, etc have contributed to a slowdown in newspaper

consumption in the metro regions. On the other hand, regional newspapers have a

lot of room to grow given that they are still largely under-penetrated. Further, while

internet connections are rapidly increasing pan-India, the quality of the connectivity

in the non-metro cities acts as a major hindrance to surfing for news online. We do

not foresee that digitalization will impact newspaper readership in the non-metro

cities in the next few years.

Per capita income of JPL’s key markets Highest per capita states in India

33269 28317

88783

122660

43384 43864

0

20000

40000

60000

80000

100000

120000

140000

Uttar Pradesh

Bihar Punjab Haryana Jharkhand Madhya Pradesh

in Rs

2012-13

192652

156961142625

107670122660

0

50000

100000

150000

200000

250000

Goa Chandigarh Sikkim Maharashtra Haryana

in Rs

2012-13

Source: JPL, Ventura Research Source: JPL, Ventura Research


March, 2015


Internet penetration low in the Hindi Belt

17%

10%

8%

10%

5% 5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

UP and Uttarakhand Bihar and Jharkhand MP & Chattisgarh

% of total Population % of internet subscriber base

Source: JPL, Ventura Research


March, 2015


Regional newspapers benefit from rising literacy and income levels

Rising literacy as well as income levels presents a significant upside potential for the growth of regional

newspapers.

Non-English print media has out-paced the growth in the English print media. The growth in volumes of

regional newspapers is closely linked to the growth in Tier II and Tier III cities (i.e. improvement in

consumer savings and improved income levels).

Higher CAGR in Non-English Print Media Category

7900

8300

8600

9100

5800

6200

6800

7500

5600

6300

6900

7600

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

2010 2011 2012 2013

` Cr

English Market Hindi Market Vernacular Market


Increasing literacy rates… …and per capita income to aid regional growth

18.3%

28.3%

34.5%

43.6%

52.2%

64.8%

74.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1951 1961 1971 1981 1991 2001 2011

%

Literacy Rate

274 373 763 1,8525,621

17,381

54,151

74,920

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1951 1961 1971 1981 1991 2001 2011 2014

`

Per Capita Income



March, 2015


Print revenues to grow at a steady rate

JPL’s print media division has consistently grown with an expansion in new markets,

the launch of new editions and acquisition of publications viz. Mid-Day in 2010 and

Nai Duniya in 2012. From 1942, when the first edition of Dainik Jagran was launched

in Jhansi, JPL now has a presence in 15 states, with 12 publications and 121

editions across 5 languages. Its print media revenues have grown at a 3 year CAGR

of 12.2% as compared to the industry average of 8% (Source: FICCI, KPMG 2014

Report).

Dainik Jagran’s revenues in the past three years have remained flat owing to a

subdued economy and moderation in ad rates in FY12-13. Going forward, with the

pick-up in economic growth and higher ad spending, we expect its revenues to grow

at a CAGR of 10% to `1656 crore by FY17. The company will largely look to

penetrate further into the existing markets for growth avenues.

The company acquired Mid-Day from Mid-Day Multimedia (now known as Next

Media Works) in a cashless transaction in 2010. Mid-Day’s English edition is

Mumbai based. It also has a Gujarati publication and an Urdu publication viz.

Inquilab. The Mid-Day acquisition has helped the company diversify into English

dailies and tap the youth readership in metro cities. Further, it also gives JPL

access to Mid-Day’s advertiser’s base which it can leverage for its flagship

publication. According to IRS 2013, Mid-Day is the 7th highest read English

publication in India; however it does not feature in the top 10 list in the IRS 2012

– Q4 survey. In FY14, it constituted ~8% of total print revenues. We expect Mid-

Day’s revenues to grow at a 3 year CAGR of 4.4% to `133 crore by FY17.

Dainik Jagran’s ad and circulation trend Dainik Jagran’s revenue trend

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0

500

1000

1500

2000

2500

3000

FY12 FY13 FY14 FY15E FY16E FY17E

in mn nosin Rs per

sq cm

Average Circulation per day (RHS) Ad rates

-15%

-10%

-5%

0%

5%

10%

15%

0

200

400

600

800

1000

1200

1400

1600

1800


in Rs crs

Dainik Jagran % growth (RHS)



March, 2015


JPL acquired Madhya Pradesh based Hindi daily Nai Dunia for an enterprise

value of Rs 150 crore from Suvi Info Management (Indore) Pvt. Ltd. The key

markets for Nai Dunia are Gwalior, Indore, Jabalpur and Bhopal in Madhya

Pradesh and Raipur and Bilaspur in Chhattisgarh. Post the acquisition by JPL,

Nai Dunia’s circulation has increased from ~4L copies/day to ~6L copies/day

currently, as indicated by the management. With revenues of Rs 137 crore in

FY14, it contributes 9% of total print revenues. We expect Nai Dunia’s revenues

to increase at a 3 year CAGR of 10% to `183 crores by FY17.

Nai Dunia revenues and trend

0%

5%

10%

15%

20%

25%

30%

35%

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

FY13 FY14 FY15E FY16E FY17E

in Rs crs

Nai Dunia % growth


Top English publication in India Mid-Day revenue trend

Publication Readership ( in mn)

The Times Of India 7.3

Hindustan Times 4.3

The Hindu 1.5

Mumbai Mirror 1.1

The Telegraph 0.9

The Economic Times 0.7

Mid Day 0.5

Deccan Herald 0.5

The Tribune 0.5

Deccan Chronicle 0.3

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

100

105

110

115

120

125

130

135


in Rs crs

Mid Day % growth (RHS)

Source: IRS 2013, JPL, Ventura Research Source: JPL, Ventura Research


March, 2015


Overall, print media revenues are expected to grow at a 3 year CAGR of 10% to

`2049 crore by FY17.

Print media revenues and trend

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

500

1,000

1,500

2,000

2,500

FY11 FY12 FY13 FY14 FY15EFY16EFY17E

Revenues ( in Rs crs) Revenue growth (RHS)



March, 2015


Circulation and readership of newspapers continues to grow

The company has also been able to take price increases in the past and yet was

able to protect its circulation in key states such as Madhya Pradesh and

Chhattisgarh. JPL has been able to uphold advertisement revenues by getting into

growing segments, such as FMCG and healthcare, where it has seen significant

traction.

Low Media Spend offers high room for growth Print Industry revenues have grown steadily

0.33%

0.85%

0.97%

0.78%

0.86%

0.76%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

India UK US China Japan World

(%) Media Spend as % of GDP

6500 6700 6900 7400 8100

4900 5300 5700 59006200

31003700

41004500

50003000

36004200

46005100

0

5000

10000

15000

20000

25000

2009 2010 2011 2012 2013

` Crore

Subscription Rev English Ad Rev Hindi Ad. Rev Vernacular Ad. Rev

17500

2090019300

2240024400


Print media revenues expected to grow higher than historical average

Print Media Market (` bn) 2011 2012 20132013

Growth2014p 2015p 2016p 2017p 2018p

CAGR

(13-18)

Total Advertising 139 150 163 8.7% 179 199 222 248 275 11.1%

Total Circulation 69 75 81 8.1% 85 88 92 95 99 4.2%

Total Print Market 209 224 243 8.5% 264 287 313 343 374 9.0%

Total newspaper revenue 197 211 230 8.7% 250 273 300 329 361 9.5%

Total magazine revenue 12 13 14 4.5% 14 14 14 14 14 0.3%

Total Print market 209 224 243 8.5% 264 287 313 343 374 9.0%



March, 2015


Digital to grow at a robust pace

The company also has a significant digital presence, with the prominent websites

being jagran.com and jagranjosh.com. All the Jagran sites combined have clocked

30 million unique users (as per Q3FY15 Result presentation). The management

expects a 30-40% CAGR in this segment over the next few years given the room to

increase advertising revenues with higher viewership.

Indian print media industry at a nascent stage of growth



March, 2015


Shift in strategy in activation revenues

In the outdoor advertisement and activation, JPL earlier undertook activation for

government initiatives such as the Health Activation drive for the Bihar Government.

However, it experienced delays in recovering receivables from government

contracts. Accordingly, it is now focusing more on private sector contracts and

winding down of government contracts, which are likely to hamper revenue growth in

the coming two years. However, we believe that this shift in strategy will hold the

company in good stead in the long term.

India digital media poised for robust growth

Digital advertisement spend is expected to grow at a CAGR of ~28% (2013-2018), which would be

far higher than television advertisement spends of 13.2% in the same period.

Digital advertising market in India , 2013P-2018P

Digital ad spend vs TV ad spend India , 2013P-2018P

26703610

47705900

73008320

340

510

740

1070

1510

1910

0

2000

4000

6000

8000

10000

12000

FY13 FY14 FY15E FY16E FY17E FY18E

` Crore

Desktop Internet advertising Mobile advertising

1360015200

17200

19500

22100

25300

30104120

55106970

881010220

0

5000

10000

15000

20000

25000

30000

FY13 FY14 FY15E FY16E FY17E FY18E

` Crore

TV ad spend Digital ad spend

Source: KPMG in India analysis Source: KPMG in India analysis


March, 2015


Acquisition of Radio City to reap rich rewards

JPL, in 2014, acquired a 100% stake in Music Broadcasters Pvt. Ltd, which runs the

FM station brand, Radio City brand of FM station for an estimated enterprise value

of `410 crore (excluding `200 crore of migration fees expected for renewal of Phase

II licenses). Radio City has 20 stations, with 7 in the top metro cities wherein it

enjoys a high listenership.

Digital + Activation revenues and trend

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

FY13 FY14 FY15E FY16E FY17E

in Rs crs

Revenues ( in Rs crs) % growth (RHS)



March, 2015


Radio City has a sizeable market share across the top metro cities RAM ratings for Week 47 (All 25 years +, 16Nov to 22Nov, Mon-Sun 12AM-12AM)

The latest RAM ratings for the period January 4-10, 2015 reveals: T.S.L = Time Spent Listening, Tarp%= Target Audience Rating Points are also known as ratings and are an estimate of the size of a specific viewing audience to a channel, programme or timezone. 1 TARP is the equivalent of reaching 1% of the target audience.

The company is expected to incur `200 crores as migration fees for Phase II

licenses and further `50-60 crores for 9-10 new licenses in the upcoming Phase III

auctions. The company plans to add licenses in cities where JPL has a strong print presence. This strategy will help new licenses break-even faster as the radio business can leverage on the infrastructure setup and content bank of the print division. Radio is a high growth, high margin segment and foray into this segment is

Mumbai Share % T.S.L Tarp%

Radio City 19.0 5.52 1.4

Big FM 17.5 6.03 1.3

Radio Mirchi 13.8 4.22 1.0

Fever FM 12.5 6.14 0.9

Red FM 12.1 4.11 0.9

Oye 3.2 3.12 0.2

Radio One 3.1 2.26 0.2

Delhi Share % T.S.L Tarp%

Fever FM 19.5 5.15 1.4

Radio City 13.0 3.54 1

Big FM 12.7 3.41 0.9


Red FM 9.7 2.55 0.7

Oye 5.3 2.55 0.4

Radio One 2.6 1.34 0.2

Source: RAM, Ventura Research Source: RAM, Ventura Research

Kolkatta Share % T.S.L Tarp%


Big FM 17.2 5.2 1.4

Oye 10.2 3.4 0.8

Radio One 10.1 3.38 0.8

Red FM 8.4 2.56 0.7

Fever FM 7.2 3.05 0.6

Bengaluru Share % T.S.L Tarp%

Radio City 24.2 9.48 2.7

Big FM 21.0 8.09 2.4

Radio Mirchi 17.9 7.27 2

Fever FM 10.6 6.51 1.2

Red FM 6.6 4.2 0.8

Radio One 3.4 3.01 0.4


Market Share Mumbai Delhi Kolkatta Bangalore

Radio City 19.1 12.5 22.5

BIG FM 18.9 12.6 9.9 21.6

Radio Mirchi 14.6 13.1 20.8 17.7

Fever 104 13.1 19.1 11.5

RED FM 11.7 11.3

Oye 104.8 11.2

Radio One 10.4

TSL Mumbai Delhi Kolkatta Bangalore

Fever104 6.26 5.08 7.36

Big FM 6.16 5.02 8.35

Radio Mirchi 3.4 7.49

Radio city 9.18

Red FM 2.59



March, 2015


expected to reap rich rewards for JPL in the coming years. For instance, MPBL clocked EBITDA margin of ~32% in 9MFY15, while JPL has reported an EBITDA margin of 25.5% in the same period. The acquisition of MPBL will boost JPL’s consolidated margins. While, radio, as a medium, is well penetrated into the metros and non-metro cities in India, the share of radio advertising is projected to be only 1.6% of the total media and entertainment revenues in 2014. This is significantly lower than the world average of 6%. According to the FICCI-KPMG Indian Media and Entertainment Industry Report 2014, the radio industry outperformed all other traditional media segments by clocking a growth of 15 per cent. Currently, clients are being forced to re- evaluate their media mix as their advertising budgets are constantly under pressure. There has been a tendency to shift focus from nationwide pure brand-building to more tactical, local, focused promotional targeting. This has played in radio’s favour as it enables local reach to advertisers increasingly looking to target specific audiences and at affordable pricing.

MPBL’s key financials – P&L MPBL’s key financials – BS

In Rs crores FY12 FY13 FY14

Revenue 124 140 154

EBITDA 26 34 42

EBITDA margin 21% 24% 27%

PAT 5 12 24.8

PAT margin 3.8% 8.8% 16.1%

In Rs crores FY12 FY13 FY14

Networth -27.5 -14.4 10.3

Debt 139.3 118.0 103.2

Current Liabilities 67.9 63.9 52.6

Tangible Assets 11.09 6.17 7.72

Intangible Assets 48.0 36.0 23.9

Current Assets 83.2 92.0 107.5



March, 2015


Also, to draw parallels from the mature market of the US, the growth in radio has not

been impacted despite the increased penetration of broadband.

According to the website, Statista.com, radio is the second most powerful medium in

the United States, reaching 59 percent of the country’s population daily. In

comparison, 49 percent are reached by the Internet while print media accounts for

13 percent. Only TV, with a daily reach of 80 percent, is consumed on a daily basis

by a broader audience. Online radio is, somewhat surprisingly, used by just 15

percent of American radio listeners, even though close to 80 percent of the U.S.

population has access to the internet.

Radio revenues projected to grow at a robust pace

0

5

10

15

20

25

30

35

40 in ` bn

Source: Edison Research, Statista


March, 2015


Accordingly, we are positive on the long term prospects of the radio industry given

the inherent interactivity in the medium, which appeals to all age groups.

Digital has not killed the Radio Star

86%

61%

31%

17% 14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AM/FM Radio CD Player MP3 Player/ Owned Digital

Music

Satellite Radio Online Radio

% of people in the US who use the following in their primary car

Source: Edison Research, Statista


March, 2015


Competitive landscape – Dainik Jagran and Dainik Bhaskar (Operational Parameters)

Jagran Prakashan DB Corp

Flagship

Publication

Dainik Jagran Dainik Bhaskar

Language Hindi Hindi

IRS 2012

Publication Rank

1 2

Avg Weekly

Readership ( in mn)

16.4 14.4

FY14 Print

Revenues

Rs 1541 crores Rs 1787 crores

FY14 Print

EBITDA margin

24.3% 27.9%

Key Markets

Radio Brand Radio City MY FM

No. of Radio

Stations

20 17

FY14 Radio

Revenues

Rs 154 crores Rs 80 crores

FY14 Radio

EBITDA margin

27.5% 39.7%

Chandigarh, 1%

Chhattisgarh, 6%

Haryana, 9%

HP, 1%

Jharkhand, 6%

MP, 29%

Punjab, 6%

Rajasthan, 43%

UP, 0%DainikBhaskar

Bihar, 18%

Chandigarh, 0%

Chhattisgarh, 0%

Delhi, 4%

Haryana, 6%

HP, 0%

J&K, 0%

Jharkhand, 5%

MP, 2%

Punjab, 4%

UP, 55%

Uttaranchal, 4%

DainikJagran

Source: Ventura Research


March, 2015


Key Risks

Volatile newsprint prices: Newsprint prices are inherently volatile, following global

demand-supply imbalances. Further, JPL imports ~20% of its newsprint

requirements, thereby exposing itself to the risk of currency fluctuations. However,

with the slowdown in the newspaper industry globally, newsprint prices have been

on a downward trend with a marked reduction in volatility. Further, the company has

set rigid systems to minimize newsprint wastage and optimize consumption. Overall,

the decline in newsprint prices is expected to benefit the company through margin

expansion in the coming year.

Subdued macro economy: Deterioration in the macro economy will lower

corporate spending on advertisements and thereby impact the revenues of JPL.

Delay in the second batch of Phase III auctions: The Phase III auctions, which will open up 839 licenses for bidding, is to be conducted in two batches – the first batch, which commences in April 2015, will comprise bidding for 135 licenses in 69 existing towns. The bidding for the remaining stations will take place a year later. Any delay in the second batch of Phase III auctions will continue to be a drag on the growth of the radio industry in India.

Irrational bidding: Limited licenses in the key metro regions, which are relatively more profitable, could lead to irrational bidding. Higher cost of acquisition will result in extended break-even periods or limited profitability, thereby suppressing return ratios.

Declining trend in newsprint prices

400

450

500

550

600

650

700

750

800

Au

g-0

1Fe

b-0

2A

ug-

02

Feb

-03

Au

g-0

3Fe

b-0

4A

ug-

04

Feb

-05

Au

g-0

5Fe

b-0

6A

ug-

06

Feb

-07

Au

g-0

7Fe

b-0

8A

ug-

08

Feb

-09

Au

g-0

9Fe

b-1

0A

ug-

10

Feb

-11

Au

g-1

1Fe

b-1

2A

ug-

12

Feb

-13

Au

g-1

3Fe

b-1

4A

ug-

14

Feb

-15

USD/tonne

Source: Bloomberg


March, 2015


Financial Performance Q3FY15 revenues increased by 3.4% to `470 crore driven by 8.6% YoY growth in

Dainik Jagran’s revenues. Q3FY15 EBITDA grew 21% YoY to `132.5 crore. Lower

newsprint prices helped the company report a 400 bps expansion in EBITDA

margins to 28.2% in Q3FY15. Depreciation during the quarter was markedly higher

owing to an additional depreciation of Rs 6.3 crore provided on account of the new

Companies Act. The effective tax rate was lower in Q3FY14 owing to accumulated

losses in Nai Dunia (acquired in 2012). Accordingly, higher depreciation and tax

expenses resulted in a 1.5% YoY decline in Q3FY15 PAT to `66.7 crore.

Quarterly Financial Performance (` in crore)

Particulars Q3FY15 Q3FY14 FY14 FY13

Net Sales 470.5 455.2 1702.7 1521.8

Growth % 3.4 11.9

Total Expenditure 338.0 345.3 1336.3 1236.1

EBIDTA 132.5 109.9 366.4 285.7

EBDITA Margin % 28.2 24.1 21.5 18.8

Depreciation 26.6 19.8 78.9 125.5

EBIT (EX OI) 105.9 90.1 287.6 160.2

Other Income 1.0 7.5 62.8 129.9

EBIT 106.9 97.6 350.3 290.1

Margin % 22.7 21.4 20.6 19.1

Interest 7.9 9.5 34.5 30.7

Exceptional items 0.00 0.00 10.1 2.8

PBT 99.0 88.1 305.7 256.6

Margin % 21.1 19.4 18.0 16.9

Provision for Tax 32.3 20.4 79.5 0.5

PAT 66.7 67.7 226.3 256.1

PAT Margin (%) 14.2 14.9 13.3 16.8



March, 2015


Financial Outlook

During FY11-FY14, the company reported ~12% CAGR in revenues to `1702 crore

in FY14 driven by a steady growth in print media advertising revenues. We expect

the company to post a 3 year revenue CAGR of 8% to `2,142 crore in FY17. We

expect the company to report a 3 year EBITDA CAGR of 14.5%; the EBITDA margin

is likely to improve from 21.5% in FY14 to 25.7% in FY17 led by decline in newsprint

prices, improving profitability of Mid-Day and Nai Dunia and pick-up in corporate ad

spending with recovery in economy. Further, the likely consolidation of the high

margin radio business from FY16 onwards will boost the overall margins of JPL.

PAT is expected to grow at a 3 year CAGR of 9.8% to `298 crore in FY17. EPS is

likely to expand from `7.25 in FY14 to `9.59 in FY17. RoE is expected to stabilize to

22% by FY17.

Revenue and Growth trend EBITDA margin trend

0%

2%

4%

6%

8%

10%

12%

14%

0

500

1000

1500

2000

2500

FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Revenues ( in Rs crs) Revenue growth (RHS)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%


Overall Dainik Jagran Mid-Day

Nai Dunia Others


Leverage at comfortable levels; RoE, PAT margin to stabilise

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0%

5%

10%

15%

20%

25%

30%

35%


PAT margin RoE D/E (RHS)



March, 2015


We have valued MBPL based on the discounted cash flow method (DCF) with

projections from FY15-FY25. Since the auction of the first batch of Phase III licenses

(135 licenses in 69 existing towns) is commencing in April 2015, the timing of the

auctions no longer remain uncertain. We have modeled MBPL’s financials based on

management and industry interactions. The assumptions are illustrated below

Key Assumptions:

Number of Stations: The management has indicated that they intend to add

10-12 stations in Phase III, specifically in cities where JPL has a strong print

presence. We have assumed that the company will successfully bid for 12

stations in Phase III, of which 1 station will be auctioned in the first batch. We

have ranked the cities based on the population and the State GDP to arrive

at the potential stations which MBPL will look to add to its portfolio.

Commencement of the new stations: The time to set-up a new station will

be considerably lower since infrastructure sharing is allowed in Phase III. We

have assumed that stations in the Category A cities will commence

operations by end FY16 (all of which are available for bidding in the first

batch); Category B, C and D city stations will commence operations in FY17.

Utilization Rates: Across cities, we expect utilization rates to gradually ramp

up and operate at optimum levels as we come closer to the 2019 General

Elections. Post the elections, we have assumed utilization rates to moderate

to sustainable levels.

Pricing: Based on our industry interactions, we do not believe radio

advertisement rates for established players such as MBPL will fall even with

the addition of 839 licenses into the system. Our interactions reveal:

i) Advertisement rates set by market leaders are sticky even in the face

of expansion in stations and increasing competition. Market leaders

possess the brand and the reach – two primary factors which

advertisers are willing to pay a premium for over other new

entrants/lesser known brands.

ii) New licenses acquired by existing players in the metros are likely to

focus on a different niche than the existing ones such as English,

Devotional or Retro. These stations will attract different kinds of

advertisers which will not directly impact the advertising rates of

existing general music category players.

iii) At low budgets, advertisers will have to compromise on peak timings

We expect MBPL to add 10-12 stations in Phase III

Advertising rates not expected to decline despite the addition of Phase III licenses


March, 2015


or program popularity in top radio brands. The radio is unlikely to

reduce rates to accommodate the client.

iv) MBPL is likely to set the pricing in stations in the Category B, C and D

cities based on the prevailing rates or by drawing a parallel to print

media rates in first time cities. Price discovery in untapped markets

will be aimed at protecting gross margins. We have assumed the

existing pricing standards in cities which have a radio presence and

have drawn parallels from print media rates to arrive at rates for first

time towns.

v) Established players have the capabilities to secure exclusive tie-ups

with national advertisers for their newly launched channels which will

help them fill ad inventory. A case in point is Zee Entertainment

Enterprises which signed an exclusive deal with HUL for its newly

launched Zee Bangla – A Bengali movie channel. As part of the deal,

HUL was to be the exclusive advertiser in Zee Bangla for one and half

months, thus occupying 30% of the total ad inventory. For Zee, the

company could secure advertisements from Day 1 irrespective of the

performance and HUL, on the other hand, benefited through

exclusive promotional activities.

Migration fees: We have assumed migration fees of Rs 200 crore, on the

upper side of management’s indicated range of Rs 180-195 crore.

One time Reserve Fee: We have assumed a 50% increase over the highest

bid price for Phase II in the key stations. In total, we have assumed that the

company will spend Rs 50-60 crore towards the acquisition of 12 new

stations.

We expect MBPL’s revenues to grow at a healthy 10 year CAGR of 9% post the

addition of stations in Phase III and robust advertising growth during 2018-19, the

election year.


March, 2015


EBITDA margins are expected to dip in the short term as manpower and

administration expenses are likely to increase during Phase III and Category C and

D cities are expected to have a higher break-even period of 2 years. Post this, we

expect margins to normalize to ~25-26% with the increasing saturation of the radio

industry.

MBPL phase-wise revenue growth trend

0

100

200

300

400

500

600

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25

Histroic CAGR 11.5%

Pre-Phase III: average growth of 25% in existing stations; marginal

revenues to accrue f rom the new station in FY16

Phase III: FY17-19 to see full impact of new stations; FY19 is also

the pre-election year; we expect a 2 year CAGR of 18%

Post-Phase III: Moderation in utilisations to lead to a modest 9% 5

year CAGR from FY20-25

Source: MBPL, Ventura Research

Margins to dip in short term and stabilize at 26%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0.0

5.0

10.0

15.0

20.0

25.0

FY

14

FY

15

E

FY

16

E

FY

17

E

FY

18

E

FY

19

E

FY

20

E

FY

21

E

FY

22

E

FY

23

E

FY

24

E

FY

25

E

in Rs

EPS EBITDA margin (RHS) PAT margin (RHS)

Source: MBPL, Ventura Research


March, 2015


PAT margins are expected to be more impacted in the short term due to: i) dip in

operational margins and iii) we expect the company to raise Rs 200 crore of debt,

thereby resulting in interest costs. However, as the company starts to generate

excess cash reserves from FY21 onwards, PAT margin will revert to 17% by FY25.

Due to accumulated losses, the company’s net worth was completely eroded till

FY13; networth in FY13 stood at negative Rs 14.4 crore. With improving profitability,

the networth turned positive to Rs 10.3 crore in FY14. Given the small base, return

ratios do not reflect the correct picture. Going forward, we expect RoE to stabilize at

14-15% by FY25. D/E is expected to go upto a maximum of 3.1x in FY16; the

company is expected to turn debt free by FY25.


March, 2015


Valuation

We initiate coverage on JPL as a BUY with a Price Objective of `201, representing a

potential upside of 58% over a period of 24 months. At the CMP of `127, the stock is

trading at 13.2x its forward earnings for FY17E. We have used the SOTP method to

arrive at the target price of Rs 201.

We have valued JPL (excluding radio) by assigning a PE of 15x to FY17E EPS of Rs

9.6 to arrive at the target price of Rs 144. JPL has traded at an average of 15x in the

past 9 years.

We have used the DCF method to value MBPL and arrive at a target price of Rs 156

for the company. The target price implies EV/Sales of 3.2x FY17 estimates, which is

a 45% discount to ENIL’s EV/Sales valuations. (Refer our Initiating Coverage report

on ENIL dated 3rd February 2015).

JPL P/E trend

0

50

100

150

200

250

300

Sep

-06

Jan-0

7

May-0

7

Sep

-07

Jan-0

8

May-0

8

Sep

-08

Jan-0

9

May-0

9

Sep

-09

Jan-1

0

May-1

0

Sep

-10

Jan-1

1

May-1

1

Sep

-11

Jan-1

2

May-1

2

Sep

-12

Jan-1

3

May-1

3

Sep

-13

Jan-1

4

May-1

4

Sep

-14

Jan-1

5

CMP 11X 13X 15X 17X 19X



March, 2015


We arrive at a target of Rs 57 per share for MBPL after considering the estimated Rs

99 per share that JPL has paid to acquire 100% stake in MBPL.

Key DCF assumptions

Projected Years FY15-FY25

Risk Free Rate 9%

Risk Premium 9%

Beta 0.73

Cost of Equity 15.57%

Target D/E 0.0%

WACC 15.57%

Terminal Growth Rate 5%


JPL Valuation Snapshot

JPL

FY17 EPS 9.6

Target PE multiple 15x

Target price 144

MBPL

Risk free rate 9%

Risk Premium 9%

Beta 0.73 ( Same as ENIL)

Terminal Growth Rate 5%

WACC 15.57%

Projection Years FY15-FY25

DCF based share

price

156

Company Target Price

per share

JPL 144

MBPL 156

Total 300

Less: Paid by JPL to

acquire MBPL

99

Total Target for JPL (

including MBPL)

201

CMP 130

Upside 55%



March, 2015


Peer Valuation (` in crore)

Jagran Prakashan

2014 1702.7 366.4 225.7 22% 13% 23.9 17.5 4.1 11.4

2015E 1806.6 440.6 217.7 24% 12% 20.4 18.2 3.7 9.1

2016E 1972.5 490.7 256.4 25% 13% 21.7 15.4 3.4 7.8

2017E 2142.3 550.4 300.4 26% 14% 22.5 13.2 3.0 6.6

DB Corp

2014 1859.8 500.3 306.6 27% 16% 28.2 23.3 6.3 14.6

2015E 2036.6 550.1 333.3 27% 16% 27.2 21.5 5.5 13.2

2016E 2284.8 635.3 386.3 28% 17% 27.5 18.5 4.8 11.5

2017E 2595.8 744.3 454.6 29% 18% 28.0 16.6 4.3 9.8

ENIL

2014 384.8 119.4 83.5 31% 22% 14.4 33.5 4.8 20.5

2015E 432.6 136.8 99.2 32% 23% 14.7 28.2 4.2 17.0

2016E 512.8 124.8 39.6 24% 8% 5.6 70.8 4.0 22.9

2017E 697.2 133.2 38.5 19% 6% 5.2 72.7 3.8 21.7

TV Today

2014 385.1 103.6 58.0 27% 15% 16.3 23.9 3.9 NA

2015E 481.6 144.1 82.4 30% 17% 19.4 16.7 3.1 NA

2016E 531.4 175.0 102.6 33% 19% 20.4 13.4 2.6 NA

2017E NA NA NA NA NA NA NA NA NA

HT Media

2014 2198.0 2850.5 192.6 14% 9% 11.2 16.1 1.7 9.3

2015E 2349.1 309.6 202.9 15% 9% 11.0 15.1 1.6 6.8

2016E 2593.1 350.5 245.3 16% 9% 11.6 12.5 1.4 5.4

2017E 2850.5 415.7 303.5 16% 11% 12.6 10.1 1.2 4.3

Hindustan Media Ventures

2014 718.0 151.9 111.2 21% 15% 19.9 14.9 2.7 9.3

2015E 823.5 182.1 135.7 22% 16% 18.6 12.9 2.2 8.0

2016E 920.2 209.2 153.5 23% 17% 17.7 10.9 1.8 6.9

2017E 1024.2 220.6 170.2 22% 17% 16.8 10.2 1.6 6.6

EV/EBITDA

(x)

EBITDA

Mgn

PAT

Mgn

P/BV

(x) ROE

P/E

(x) Y/E March Sales EBITDA PAT



March, 2015


P/BV

0

50

100

150

200

250

Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

CMP 2X 3X 4X 5X 6X


EV/EBITDA

2000

2500

3000

3500

4000

4500

5000

5500

6000

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

EV 9X 10X 11X 12X 13X



March, 2015


Financials and Projections

Y/E March, Fig in Rs. Cr FY 2014 FY 2015e FY 2016e FY 2017e Y/E March, Fig in Rs. Cr FY 2014 FY 2015e FY 2016e FY 2017e

Profit & Loss Statement Per Share Data (Rs)

Net Sales 1702.7 1806.6 1972.5 2142.3 EPS 7.2 7.0 8.2 9.7

% Chg. 11.9 6.1 9.2 8.6 Cash EPS 10.6 10.8 12.1 13.4

Total Expenditure 1336.3 1366.0 1481.8 1591.9 DPS 4.00 3.00 4.00 4.00

% Chg. 1159.4 925.5 991.1 1041.5 Book Value 31 34 38 43

EBITDA 366.4 440.6 490.7 550.4 Capital, Liquidity, Returns Ratio

EBITDA Margin % 21.5 24.4 24.9 25.7 Debt / Equity (x) 0.5 0.4 0.3 0.2

Other Income 62.8 23.9 28.3 31.1 Current Ratio (x) 1.5 1.9 1.9 2.2

Exceptional items 10.1 0.0 0.0 0.0 ROE (%) 23.9 20.4 21.7 22.5

PBDIT 419.1 464.5 518.9 581.5 ROCE (%) 16.5 15.2 17.8 20.0

Depreciation 78.9 108.1 112.0 115.9 Dividend Yield (%) 3.15 2.36 3.15 3.15

Interest 34.5 31.6 24.4 17.3 Valuation Ratio (x)

PBT 305.7 324.8 382.5 448.3 P/E 17.5 18.2 15.4 13.2

Tax Provisions 79.5 107.2 126.2 147.9 P/BV 4.1 3.7 3.4 3.0

Reported PAT 226.3 217.6 256.3 300.3 EV/Sales 2.5 2.2 1.9 1.7

Minority Interest 0.2 -0.1 -0.1 -0.1 EV/EBIDTA 11.4 9.1 7.8 6.6

Share of profit from associate -0.4 0.0 0.0 0.0 Efficiency Ratio (x)

PAT 225.7 217.7 256.4 300.4 Inventory (days) 21 20 20 20

PAT Margin (%) 13.3 12.1 13.0 14.0 Debtors (days) 73 75 75 75

Interest / Sales (%) 2.0 1.7 1.2 0.8 Creditors (days) 27 25 25 25

Balance Sheet Cash Flow statement

Share Capital 62.3 62.3 62.3 62.3 Profit Before Tax 305.7 324.8 382.5 448.3

Reserves & Surplus 899 1007 1117 1272 Depreciation & Amortisation 89.0 108.1 112.0 115.9

Long Term Prov and other liab 377.4 504.0 587.6 683.3 Working Capital Changes -12.0 -19.6 -11.6 -11.9

Total Loans 465.8 420.8 325.8 230.8 Direct Taxes Paid & Others -52.2 -78.2 -106.1 -136.3

Deferred Tax Liability 85.1 85.0 85.0 85.0 Operating Cash Flow 331 335 377 416

Total Liabilities 1891 2080 2179 2333 Capital Expenditure -49.7 13.7 -50.0 -50.0

Gross Block 1336.3 1386.3 1436.3 1486.3 Dividend Received 0.0 0.0 0.0 0.0

Less: Acc. Depreciation 545 653 765 881 Others -120 -97 -74 -42

Net Block 791 733 671 605 Cash Flow from Investing -170 -83 -124 -92

Capital Work in Progress 113.69 50.00 50.00 50.00 Inc/(Dec) in Loan Fund -21.7 -49.0 -102.0 -102.0

Investments 332 445 537 598 Interest Paid and Others -166.7 -157.9 -156.2 -187.7

Net Current Assets 237.6 305.2 283.2 338.1 Cash Flow from Financing -188.4 -206.8 -258.2 -289.7

Deferred Tax Assets 0.0 0.0 0.0 0.0 Net Change in Cash -27.7 45.4 -5.8 34.1

Other Non-Current Assets 416.5 547.3 638.3 741.9 Opening Cash Balance 51.8 24.1 69.5 63.8

Total Assets 1891 2080 2179 2333 Closing Cash Balance 24.1 69.5 63.8 97.9


March, 2015


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