Jagran Prakashan's Q3FY19 results (Neutral) - In-line performance; Q1FY20E to reflect lower newsprint price

Q3FY19 result highlights

• Standalone rev. (excl. Radio/Mid-Day) grew 1.3% yoy (1% miss) to ~Rs5bn, majorly driven by print ad. rev. performance (+2.1% yoy; 1% miss). Print ad performance was driven by state election related business in Nai Dunia while festive season ad spends remained weak. DBCL/Hindustan print ad rev. grew/fell 11.5%/7.3% yoy respectively. Subs. rev. fell 1.2% yoy due to copy rationalization.
• Standalone EBITDA plunged 25.3% yoy to ~Rs1bn (4% miss) due to sharp rise in newsprint costs by 15% yoy (JAGP’s newsprint cost inflation was lower compared to DBCL’s (+34% yoy) and HMVL (+18% yoy) due to estimated 8-10% fall in consumption on decrease in circulation and consumption efficiencies). Margin fell 720 bps yoy to 20.3% (est. 20.9%). PAT fell 12.3% yoy to ~Rs563m (5% miss).
• Cons. Print ad rev. grew 2.0% yoy (1% miss). Subs. rev. fell by 2.1% yoy (4% miss). Digital ad rev. grew 33.4% yoy while Radio rev. grew by 14.2% yoy (3% beat).
• Cons. rev. grew 2.6% yoy to ~Rs6.1bn (1% miss), while EBITDA fell 19.2% yoy to ~Rs1.3bn (1% miss) – operating margin shrank 580 bps yoy to 21.4% (in-line). RM costs increased only 15% yoy (vs est. 29% yoy), a reflection of its commendable effort to keep inflationary costs at bay. Digital biz losses were cut into half yoy, coming in at Rs21m due to rising revenue base (+33% yoy).
• Cons. PAT fell 21.4% yoy to Rs666m (9% beat) due to better than expected other income and lower tax rate.

Key positives: Growth in print ad rev; Digital losses shrink.

Key negatives: Circulation revenue decline.

Impact on financials: Cut FY19E EPS by 11%.

Valuations & view

JAGP’s efficient management of the newsprint inflationary scenario is indeed commendable and with prices falling in Q3 (full benefit to be seen from Q1FY20E), improvement in ad revenue growth (9M growth at 2.5% yoy versus decline in FY18) could be a precursor before a potential margin improvement from current levels. The recent govt. ad rate hike has also come at a perfect time when newsprint prices appear to be cooling off. However pick-up in commercial ad revenue remains to be seen (ground-level weakness remains). JAGP’s strong franchise (high FCF generation, decent return ratios, strong radio business) would be looked upon favourably once ad growth returns to meaningful levels. Maintain Neutral with a revised price target of Rs 112 (10x FY20E EPS).