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Jagran Prakashan's Q4FY18 results (Neutral) - Weakness persists!

Q4FY18 result highlights

• Standalone rev. (cons. minus Radio & Mid-Day) declined by 4.5% yoy to Rs4.5bn (3% miss); Print ad rev. was down 5.8% yoy (IDFCe: 2.5% fall yoy) due to weak govt./political spending in key markets vs the base quarter (UP elections). DB Corp print ad rev grew by 8.8% yoy (weak base) while for HT Media Hindi print ad rev fell by 14.6% yoy. Standalone subs. rev. fell by 2.8% yoy and fell by 2.5% qoq and is surprising as competitive pressures were easing on cover prices.
• Standalone EBITDA fell by 25.5% yoy to Rs889m (16% miss led by rev. miss). Overall costs were in line and grew by 2.7% yoy (newsprint +3.3% yoy, employee +9.5% yoy due to higher gratuity provisions, others -1.6% yoy). Margin fell 560bp yoy to 19.9% (est: 22.8%). Standalone PAT fell by 35.4% yoy to Rs491m (15% miss).
• Cons. Print ad rev. fell 6.4% yoy (IDFCe: 2.5% fall) due to 5.8% yoy decline in Dainik Jagran + Nai Dunia while Mid-Day ad rev fell 18.3% yoy; Radio ad rev. grew by strong 14.1% yoy (IDFCe: 12%); circulation rev. fell 2.6% yoy; digital ad rev. (~1% of cons. rev.) was flat yoy. Cons. rev. fell by 2.5% yoy to Rs5.5bn (3.7% miss). Cons. EBITDA was down 16.4% yoy to Rs1.2bn (12% miss on rev. miss and lower than est. performance in Mid-Day - 41% fall in EBITDA on sharp ad decline). Radio EBITDA grew 64% yoy (weak-base). Cons. margin fell 360bp yoy to 22.0% (IDFCe: 24.1%). Cons. PAT fell by 27% yoy to Rs590 m (14% miss).

Key positives: Better than expected Radio performance.

Key negatives: Lower Print ad rev., weak margins.

Impact on financials: Cut FY19E/20E earnings by 11.1%/6.5% respectively as we account for sharp increase in newsprint prices.

Valuations & view

JAGP’s growth has decelerated sharply because of continued weakness in overall ad spends in its areas of operation; this is unlikely to revive sharply before H2FY19E. Coupled with this, the sharp increase in newsprint prices clouds near-term earnings visibility and makes us cut ours estimates sharply. 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 Rs169 (12.5x FY20E EPS).

Q4FY18 result highlights

• Standalone rev. (cons. minus Radio & Mid-Day) declined by 4.5% yoy to Rs4.5bn (3% miss); Print ad rev. was down 5.8% yoy (IDFCe: 2.5% fall yoy) due to weak govt./political spending in key markets vs the base quarter (UP elections). DB Corp print ad rev grew by 8.8% yoy (weak base) while for HT Media Hindi print ad rev fell by 14.6% yoy. Standalone subs. rev. fell by 2.8% yoy and fell by 2.5% qoq and is surprising as competitive pressures were easing on cover prices.
• Standalone EBITDA fell by 25.5% yoy to Rs889m (16% miss led by rev. miss). Overall costs were in line and grew by 2.7% yoy (newsprint +3.3% yoy, employee +9.5% yoy due to higher gratuity provisions, others -1.6% yoy). Margin fell 560bp yoy to 19.9% (est: 22.8%). Standalone PAT fell by 35.4% yoy to Rs491m (15% miss).
• Cons. Print ad rev. fell 6.4% yoy (IDFCe: 2.5% fall) due to 5.8% yoy decline in Dainik Jagran + Nai Dunia while Mid-Day ad rev fell 18.3% yoy; Radio ad rev. grew by strong 14.1% yoy (IDFCe: 12%); circulation rev. fell 2.6% yoy; digital ad rev. (~1% of cons. rev.) was flat yoy. Cons. rev. fell by 2.5% yoy to Rs5.5bn (3.7% miss). Cons. EBITDA was down 16.4% yoy to Rs1.2bn (12% miss on rev. miss and lower than est. performance in Mid-Day - 41% fall in EBITDA on sharp ad decline). Radio EBITDA grew 64% yoy (weak-base). Cons. margin fell 360bp yoy to 22.0% (IDFCe: 24.1%). Cons. PAT fell by 27% yoy to Rs590 m (14% miss).

Key positives: Better than expected Radio performance.

Key negatives: Lower Print ad rev., weak margins.

Impact on financials: Cut FY19E/20E earnings by 11.1%/6.5% respectively as we account for sharp increase in newsprint prices.

Valuations & view

JAGP’s growth has decelerated sharply because of continued weakness in overall ad spends in its areas of operation; this is unlikely to revive sharply before H2FY19E. Coupled with this, the sharp increase in newsprint prices clouds near-term earnings visibility and makes us cut ours estimates sharply. 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 Rs169 (12.5x FY20E EPS).