Jagran Prakashan's Q1FY19 results (Neutral) - Higher RM cost yet to fully hit the P&L…

Q1FY19 result highlights

• Standalone rev. (cons. minus Radio & Mid-Day) grew by 1.7% yoy to Rs5bn (1% miss); Print ad rev. was flat yoy (IDFCe: +4% yoy) as weakness persisted in overall market. DB Corp Print ad rev grew by 5.3% yoy while for HT Media Hindi print ad rev fell by 5% yoy. Standalone subs. rev. grew by 2% yoy as it starts to increase cover prices (avg. cover price have been increased by ~9% which has led to 4-5% drop in circulation as per the management).
• Standalone EBITDA was flat at Rs1.3bn (1% miss) after falling yoy in the past three quarters. JAGP exhibited good cost control as margin fell by just 50bp yoy to 26.5% (IDFCe: 26.4%). RM costs up by only 3.8% yoy despite ~10% increase in newsprint on fall in circulation.
• Cons. Print ad rev. was flat yoy (0.3% fall) versus exp of +3.9% yoy growth led by flat ad rev. of Dainik Jagran & Nai Dunia and 8% yoy fall in Mid-Day. Subs rev. grew by 1% yoy. Digital ad rev. (~2% of cons. rev.) grew by strong 24% yoy, Radio rev grew by modest 7.7% yoy (in line). Cons. rev. grew by 1.9% yoy to Rs6.03bn (miss of 1.9%).
• Cons. EBITDA grew by 1.4% yoy to Rs1.64bn (in line). RM expenses increased by just 3.3% as full impact of higher newsprint prices will be felt from Q2FY19E onwards. Standalone EBITDA was flat yoy, Radio EBITDA grew by strong 17.5% yoy while Mid-Day EBITDA fell by 23% yoy. Cons. PAT down 1.4% yoy to Rs854m (3.8% miss led by lower OI).

Key positives: Better than expected Radio performance.

Key negatives: Lower Print ad rev.

Impact on financials: Cut FY19E/20E EBITDA by 0.6%/2.6% respectively. EPS upgraded by 1.4% in FY19E and 0.7% cut in FY20E after accounting for 15mn share buyback.

Valuations & view

JAGP’s ad rev. decline has bottomed out and should revive from Q2FY19E onwards but the sharp increase in newsprint prices clouds near-term earnings visibility as we expect just 4.5% growth in FY19E EBITDA. While JAGP has built a strong franchise (high FCF generating business, decent return ratios, significant diversification in radio), we believe the street will focus on near-term earnings outlook, which appears to be weak, as longer term impact of disruption risk limits re-rating potential. Maintain Neutral with revised price target of Rs135 (10x FY20E EPS vs 12.5x earlier).