Jagran Prakashan's Q2FY19 results (Neutral) - Ad rev. trajectory worsens; awaiting fall in newsprint prices...

Q2FY19 result highlights

• Standalone rev. (excl. Radio/Mid-Day) fell 0.6% yoy to ~Rs4.5bn (3% miss). Print ad rev. fell sharply by 8% yoy (IDFCe: 3% fall) given shift of festive season/weak national and Central Govt. ad spends . DBCL/Hindustan print ad rev. grew/fell 4%/6.4% yoy respectively. Subs. rev. grew 5% yoy (est. 4%) due to cover price increases.
• Standalone EBITDA plunged 30% yoy to ~Rs700m (25% miss) due to ad rev. fall and sharp rise in newsprint costs by 10% yoy (JAGP’s newsprint cost inflation was lower compared to DBCL’s (+30% yoy) and HTML (+18% yoy) due to estimates 8-10% fall in consumption on decrease in circulation and consumption efficiencies). Margin fell 660 bps yoy to 15.5% (est. 20%). PAT fell 34% yoy to ~Rs339m (33% miss).
• Cons. Print ad rev. fell 9% yoy (est. 3% fall). Subs. rev. grew by 3.8% yoy (est. 3.6%). Digital ad rev. grew 35% yoy while Radio rev. grew by decent 5.7% yoy (in-line; ~15% yoy adjusting for festive season).
• Cons. Rev/EBITDA fell 2.3%/28% yoy to Rs5.5bn/1bn respectively while operating margin shrunk 650 bps yoy to 18% (IDFCe: 21.2%). RM costs increased 9.3% yoy and Jagran’s ability to limit its increase is commendable; however, we hope the loss in circulation (estimates at 5-6%) does not impact competitive positioning. Digital biz. losses reduced to Rs30m (vs Rs44m yoy) due to increased revenue (however digital revenue is only ~2% of cons. revenue).
• Cons. PAT fell 39% yoy to Rs421m (26% miss).

Key positives: Digital losses reduced yoy.

Key negatives: Weak print ad rev.

Impact on financials: Cut FY19E/20E EPS by 10%/16% respectively as we build in lower ad growth (CAGR of 4% over FY18-20E vs 8% earlier).

Valuations & view

JAGP’s ad performance has been weaker than expected and this makes us cut our estimates sharply. Management believes newsprint prices can fall 7-8% from current spot levels; however, they need to fall by at least 15-20% before any positive impact is visible in the P&L. this coupled with clouded visibility on ad revenue growth makes us maintain Neutral. Even though 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. Maintain Neutral with revised price target of Rs113 (10x FY20E EPS).