Jagran Prakashan's Q3FY18 results (Neutral) - Weak quarter; newsprint price increase could play spoilsport!

Q3FY18 result highlights

• Standalone rev. (cons. minus Radio & Mid-Day) declined by 1% yoy to Rs4.95bn (in-line); Print ad rev. was down 2.8% yoy (IDFCe: flat yoy) due to weak govt./political spending in key markets vs the base quarter and shift in festive season. DB Corp print ad rev fell by 5.8% yoy while for HT Media Hindi print ad rev grew by 4.9% yoy. Standalone subs. rev. was largely flat yoy (+0.5% yoy, in line) led by competition induced cover price cuts taken in UP/Bihar.
• Standalone EBITDA fell by 12.1% yoy to Rs1.4bn, (in-line). Overall costs grew by 4% yoy (newsprint +1.8% yoy, employee +4.9% yoy, others +6.4% yoy). Margin fell 350bp yoy to 27.5% (est: 27.6%). Standalone PAT fell by 13.2% yoy to Rs774m (4% miss).
• Cons. Print ad rev. fell 3.5% yoy (flat yoy est.) due to 2.8% yoy decline in Dainik Jagran + Nai Dunia while Mid-Day ad rev fell 15% yoy and Radio segment rev. grew by 4.7% yoy (IDFCe: 10%); circulation rev. grew 0.7% yoy (in-line); digital ad rev. (~2% of cons. rev.) grew 17% yoy. Cons. rev. fell by 0.6% yoy to Rs5.98bn (miss of 1.6%). Cons. EBITDA was down 13% yoy to Rs1.63bn, 5% miss on rev. miss and lower than est. performance in Mid-Day (46% fall in EBITDA on sharp ad decline) and Radio (12% yoy decline in EBITDA). Cons. margin fell 380bp yoy to 27.2% (IDFCe: 28.2%). Cons. PAT fell by 13% yoy to Rs848 mn (7% miss).

Key positives: Better than expected other operating revenue.

Key negatives: Lower ad rev., weak margins.

Impact on financials: Cut FY18E/19E earnings by 10.5%/12% as we account for sharp increase in newsprint prices. Introduce FY20E financials.

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 before FY19E. Coupled with this, the sharp expected increase in newsprint prices clouds near-term earnings visibility and makes us cut ours estimates sharply. While Jagran 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 Rs183 (roll-forward to 13x FY20E EPS).