MOSL: JAGRAN PRAKASHAN (Buy)-Market weakness takes toll on earnings-ad outlook uncertain
JAGRAN PRAKASHAN: Market weakness takes toll on earnings; ad outlook uncertain
(JAGP IN, Mkt Cap USD0.3b, CMP INR78, TP INR105, 35% Upside, Buy)
- Limited earnings support amid weak operating environment: JAGP reported a dismal performance in 1QFY20, in line with other print companies, due to weak market conditions and the limited benefits of softening newsprint prices. Consol. EBITDA declined 14% YoY to INR1.4b (28% beat), with the margin contracting 300bp YoY to 24.2% due to (a) lower revenue (-3% YoY with print ad/circulation revenue down 3%/1%) and (b) lower-than-expected newsprint price decline. Subsequently, PAT was down 23% YoY to INR658m (41% miss), further impacted by higher depreciation and interest cost.
- Concall highlights: (1) Auto ad sales (14-15% of total sales) declined ~30%, leading to a revenue loss of ~INR150m. (2) Operating environment in Jul'19 was weak but a recovery is expected from Aug'19. (3) Company expects softening of newsprint prices to translate into savings of ~INR400m.
- Newsprint prices softening, but growth commentary cautious: We note that JAGP has seen limited benefit from soft newsprint prices, as evident from RM cost decline of only 10% v/s more than 25% newsprint price fall over the past six months. Considering this and the cautious commentary across national/local advertisers, we cut our revenue estimates by 8%/4% for FY20/21. Subsequently, we lower our EBITDA/PAT estimates by 20%/28% for FY20, but build in a recovery in FY21.
- Valuation view: Given the cut in earnings, we revise our target price to INR105 (prior: INR138), valuing it at a P/E of 8x on FY21. The stock is attractively priced and the benefits of soft newsprint prices are likely to start reflecting in the performance going forward, in our view. However, further earnings and valuation upside hinges on a recovery in the market and the company's ability to capitalize on that to turn around earnings. Maintain Buy.
Jagran Prakashan Limited is a media and communications company with interests in print, digital, radio, out-of-home (OOH) and activation. The Company is engaged in the business of printing and publication of newspapers and periodicals, business of radio broadcast and all other related activities through its radio channels operating under brand name Radio City 91.1 frequency modulation (FM) in India. It is also engaged in the business of providing event management services and outdoor activities. The Company publishes approximately 12 print titles in over five different languages spread across 15 states with over 100 editions. The Company's print media brands include Dainik Jagran, inext, mid-day, Nai Dunia, mid-day Gujarati, Inquilab, Sakhi, Punjabi Jagran and Jagran Josh. The Company's digital media brands include Jagran New Media, Jagran.com, Jagranjosh.com, Jagran Post, Jagran Junction and Jeetle. The Company's social initiative brand include Jagran Pehel.
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