Jagran Prakashan's Q1FY20 results (Outperformer) - Weak Q1; all hopes on festive season…

Q1FY20 result highlights

• Standalone (excl. Radio/Mid-Day): Rev. fell 2.3% yoy (3% miss) to ~Rs4.9bn. Print ad revenue fell 2.3% yoy (1% miss) on account of declines in auto segment and weak political ad revenue. DBCL/Hindustan ad declines stood at 4.4%/2.4% yoy respectively. Circulation fell 1% yoy (3% miss).
• Std. EBITDA fell 13.3% yoy to ~Rs1.15bn on account of weak top-line performance (adj. for Ind-AS 116, EBITDA would have been ~Rs1.11bn – 11% miss). RM costs were flattish yoy, while Employee costs grew 7.8% yoy. Other costs were flat yoy. EBITDA margin fell ~300 bps yoy to 23.5% (IDFCe: 24.8%). PAT fell 21.6% yoy to ~Rs595m (16% miss).
• Consolidated: Revenue fell 3% yoy to ~Rs5.8bn (4% miss) due to weak print ad (2.6% yoy fall) and circulation (1% yoy fall) as well as sharper underperformance in Radio ad rev. (7.8% yoy fall vs est. of 7% growth). Digital ad revenue rebounded in Q1, registering 14.1% yoy growth (vs 10.1% yoy fall in Q4).
• Radio EBITDA fell by 14.2% yoy to Rs224m (20% miss) on –ve operating leverage. Cons. EBITDA fell 13.7% yoy to ~Rs1.4bn (10% miss). RM costs were flat yoy. Cons. PAT fell 24.6% yoy to ~Rs644m (17% miss).

Key positives: Flat RM costs.

Key negatives: Print/Radio ad declines.

Impact on financials: FY20E/21E EPS cut by 10%/13% respectively.

Valuations & view

Weakness in print/radio ad performance on account of overall general slowdown has been more accentuated than expected in Q1 (and in July), although JAGP sees signs of an uptick in August and expects things to improve in the pre-festive/festive season spread over Q2/Q3. Nevertheless, we would await to see credible signs in consumption pick-up before raising our expectations after the disappointment in Q1. In addition, the 10% BCD imposition on imported newsprint (which would indirectly impact domestic newsprint too due to price linkages) has soured the potential savings on newsprint costs for FY20E after prices had shot up over FY19 (although RM costs yoy would still decline). One silver lining is JAGP’s Big FM acquisition (through MBL), which once approved, would provide strong growth triggers for the radio business. The sharp fall in stock price due to overall underperformance of the mid-cap space makes us retain our tactical OP rating despite cuts in earnings (as we value it at 9x FY21E EPS). From a long-term perspective, the print business faces risk of obsolescence due to digital and thus fails to enthuse us, despite the uptick in near-term earnings trajectory.