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Sunday, April 20, 2008

Long Term Stock Tips - 4

COMPANY: Jagran Prakashan Ltd. ( NSE Code: JAGRAN )

Latest Price: Rs 86.60 (17-Apr-2008)
Face Value : 2.00
P/E Ratio : 34.22
Market Cap: 2,608.14 Cr

An investment can be considered in the stock of Jagran Prakashan with a medium-term perspective. The relative advantages of the print media sector in terms of greater bargaining power with advertisers, lower competitive intensity and increasing penetration in Tier-2 and Tier-3 cities make Indian newspaper publishers better placed than broadcasters to capture the rising trends in advertising.

Jagran Prakashan, as a publisher of leading Hindi newspaper, Dainik Jagran, remains a preferred pick, with vernacular newspapers expected to grow at a faster rate than English dailies.

Jagran’s recent joint venture with the Network 18 group to launch business newspapers in regional languages has rich prospects and offers an upside to revenue and earnings estimates over the long term. Revenues from this source have, however, not been factored into our recommendation.

Valuation and risk

At a valuation of about 25 times its estimated FY-09 per share earnings, the stock is not inexpensive. It is, however, likely to be an outperformer within the media sector. Given the premium valuations, though, a modest return expectation in the near term is called for.

Investors with more aggressive return expectations can consider accumulating the stock on declines linked to broad market weakness.

A slowdown in advertising spends would be significant risk to earnings. Real estate and automobiles are among the biggest advertisers in the print segment.

Consequently, a slowdown in either of these segments could affect advertising spending. However, we believe that the advertising momentum would be sustained over the next two-three years as real-estate players enter new locations and car-makers line up new model launches.

Strong quarter performance

Jagran Prakashan continued to sustain its strong growth momentum in the October-December quarter of 2008, reporting a 27 per cent growth in revenues and a 46 per cent rise in profits over the corresponding quarter of the previous year.

The advertising revenue stream continued to drive growth, on the back of improving yields and increasing share of colour advertisements.

With advertising revenue growth outpacing that of circulation revenue, margins have moved up sharply from 17 per cent in the corresponding previous quarter to 21.7 per cent in the December quarter 2008. Advertising income has evidently managed to offset the negative impact of edition launches on profitability.

Aggressive launches

Jagran Prakashan operates over 30 editions of Dainik Jagran in the Northern states. In 2007, it launched a new publication, I-Next, a bi-lingual tabloid targeted at the youth; it launched City Plus, a free English Infotainment weekly in late 2006.

Jagran has been fairly aggressive in launching editions. It runs seven editions of I-Next; three editions were launched in the last quarter of the calendar year.

The company claims to have met with success with this compact daily. So far, however, I-Next has been launched mainly in Uttar Pradesh, where Jagran is a market leader. The company has only recently launched a Dehradun edition of I-Next in the state of Uttarakhand.

The company is also increasing penetration of the Dainik Jagran in Punjab, where it has taken on leading publication Dainik Bhaskar. Both newspapers launched a Patiala edition in quick succession in December.

We view the aggressive expansion into these markets that are characterised by low penetration and improving literacy rates as a positive. It could, however, impose a heavy burden on profitability, if advertising spends were to slow down and newsprint prices continue their uptrend.

Newspapers rely on advertising income to offset newsprint costs. Dainik Jagran derives about 35 per cent of its revenues from circulation and the balance from advertising and new ventures.

Outdoor media business scaling up

Continuing momentum in advertising would also augur well for Jagran Engage, the out-of-home (OOH) media advertising and event management arm.

The OOH industry is growing at a rapid rate (estimated at 17 per cent a year). Jagran’s OOH division is also growing on the back of this trend and is expected to break-even in the current quarter.

Scaling up of this business would provide some cushion to margins in the event of rising newsprint prices, besides offering a diversification to the newspaper segment. For now, the business still contributes less than 10 per cent of revenues.

Source : The Hindu Business Line ( www.thehindubusinessline.com )

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