Jagran Prakashan's Q3FY20 results (Outperformer) - Cost rationalization covers for weak revenue growth…

Q3FY20 result highlights

• Standalone (excl. Radio/Mid-Day): Rev. down 7.2% yoy (in-line) to ~Rs4.7bn. Print ad revenue fell 9.5% yoy to ~Rs3.1bn (2% miss) as central govt./national categories pressure continued (DBCL/HMVL ad declines stood at 10.8%/6.7% resp.). Circulation rev. grew 1.2% yoy to ~Rs1bn (in-line) due to cover price hikes.
• Std. EBITDA, however, was up 23.7% yoy to ~Rs1.3bn (30% beat) on account of sharp fall in RM costs (~26% drop) while other costs were also tightly controlled (6% drop). EBITDA margin expanded ~700 bps yot to 27.0% (IDFCe: 20.6%).
• Consolidated Revenue fell 9.9% yoy to ~Rs5.5bn (3% miss) mainly on account of weak print (10.4% yoy fall; 3% miss) and radio performance (~20% yoy fall; 3% miss). Circulation was flat yoy (in-line). Digital ad revenue grew 12.6% yoy (13% beat).
• Cons. EBITDA grew 10.9% yoy to ~Rs1.5bn (25% beat) – strong performance due to cost cutting across line-items and sharp fall in RM costs. EBITDA also got a slight boost from digital business which posted profits for the first time since Q4FY16. EBITDA margin stood at 26.6% (+500bps yoy; IDFCe: 20.7%)
• Cons. PAT grew 14.0% yoy to ~Rs759m (41% beat).
• Govt. (esp Central) and National Ad spending remains weak across Print, Digital, and Radio as per the management. Q4FY20E is contending with a strong base and January 2020 has been flat, although JAGP expects some pick-up post the Budget in February.

Key positives: Lower RM costs, tight cost control.

Key negatives: Continued weakness in Radio/Print ad performance

Financials: FY20E/21E EBITDA cut by 6%/3% respectively. Introduce FY21E.

Valuations & view

Continued weakness in the ad environment (both for print and radio) due to weak corporate spending (esp. on national side) and the virtual non-existence of central government spending continues to drag down revenue performance of JAGP (as well as its peers). The only silver lining remains the sharp fall in newsprint costs for the company, which we estimate to continue into H1FY21E as well before the base will catch up. We retain our tactical Outperformer rating given that cost reductions and lower tax rate would create a disproportionate positive impact on earnings despite a sluggish top-line performance (FY19-21E rev/PAT CAGR of 1%/11% respectively). However, over the long-term, we remain believers that print’s Ad share would continue to slide down. Our revised TP stands at Rs87 (8x FY21E EPS).