Jagran Prakashan's Q4FY19 results (Upgrade to Outperformer) - Lower RM benefits to now kick in…

Q4FY19 result highlights

• Standalone (excl. Radio/Mid-Day): Rev. grew 9.0% yoy (in-line) to ~Rs4.9bn. Print ad revenue grew 10.8% yoy (in-line) majorly driven by government ad revenue (supported by price hikes); DBCL/Hindustan ad growth stood at +8.2%/+8.7% yoy respectively. Circulation grew 3.1% yoy (est 2.0%) led by price hikes.
• Std. EBITDA grew 15.6% yoy to ~Rs1.0bn (6% beat) supported by healthy ad revenue growth and lower than est. RM costs (+12.6% yoy vs est +13.3%). Employee/other costs were under control in Q4. EBITDA margin improved ~120 bps yoy to 21.1% (IDFCe: 19.9%). PAT grew 9.9% yoy to ~Rs539m (10% beat).
• Consolidated: Revenue grew 8.2% yoy to ~Rs5.9bn (in-line). Circulation revenue grew 2.1% yoy (est. 1.2%) and Radio ad rev. grew 7.8% yoy (vs est. 12.5%) on utilization/pricing improvement. Digital ad rev., however, fell 10% yoy (due to one-off events in base quarter).
• Cons. EBITDA grew 14.6% yoy to ~Rs1.4bn (8% beat). RM costs grew just 12.2% yoy (vs. est. 14.6% yoy), which was the main driver for EBITDA beat. Other costs were kept under control. Cons. PAT grew 12.6% yoy to ~Rs665m (21% beat – on EBITDA beat and higher OI (+14.2% yoy; 140% beat)).

Key positives: Double digit print ad growth.

Key negatives: Digital revenue decline.

Impact on financials: FY20E EPS cut by 2%. Introduce FY21E.

Valuations & view

JAGP’s ad revenue performance was commendable in the quarter and with government ad spending resuming post elections (at a higher price), and national ad spending resuming after taking a pause earlier in the year, we believe that the stage is set for the company to deliver healthy growth over FY20E. RM deflationary tailwinds (which is expected to set in completely from Q2FY20E onwards) would be an additional kicker for the company’s near-term performance. The recent acquisition of Big FM (through MBL), once approved, would provide additional strong growth triggers for JAGP’s radio business. With these triggers falling in place, we believe that JAGP’s strong franchise (high FCF generation, decent return ratios, and strong radio biz) would be eventually looked upon favourably by the markets. As a result, we roll-over our valuation to FY21E and upgrade JAGP to Outperformer with a revised target price of Rs130 (10x FY21E EPS). From a long-term perspective we are not enthused about Print businesses but the near-term earnings trajectory is too good to ignore for a tactical upgrade.