Jagran Prakashan: Buy

Stocks of consumer goods have enjoyed a premium valuation in the market for three years now. But the stock of language newspaper publisher — Jagran Prakashan — remains relatively inexpensive, despite its ability to capitalise on consumption.

The publisher of the leading Hindi Daily  Dainik Jagran , should be able to take advantage of increased spending, especially in the fast-growing smaller towns and cities in many states of North India.

Strength in the resilient local advertising, increased circulation in key geographies and renewed thrust on rural areas by companies in the banking, auto, consumer durables, telecom and education spaces suggest buoyancy in advertising revenues for the company.

At Rs 91, the stock trades at 10 times its likely per share earnings for FY14. This is at a discount to peers such as DB Corp and Hindustan Media Ventures , presenting an attractive entry point for investors with a one-two years’ horizon.

Near-term triggers for Jagran include the possibility of higher advertisement revenues as States such as Madhya Pradesh, Rajasthan and Union Territories such as Delhi go to the Assembly polls.

The general elections, which are likely to be held about a year from now, is another trigger for greater advertisement inflows.

From a business perspective, Hindi newspapers have been able to raise advertising rates faster than their English counterparts, thereby the premium gap enjoyed by the latter.

This could drive up realisations for regional language newspapers such as  Dainik Jagran . In the nine months of FY13, the company's revenues rose six per cent over the previous fiscal to Rs 988.5 crore, while net profits increased by 39.6 per cent to Rs 191 crore.

The profit growth was aided by tax benefits that accrued by acquiring the loss-making Nai Dunia last year.

Topping readership

Dainik Jagran  has consistently topped the charts in terms of readership among the Hindi language newspapers. According to the recent IRS Q3 survey, the newspaper has a readership of around 16.47 million, the highest in its genre and a good 2-4 million ahead of nearest peers.

Advertising accounts for around 64 per cent of Jagran's revenues, while circulation chips in with 16 per cent. Other avenues such as radio and out of home advertising make up the rest.

With 60 per cent of its advertising coming from local advertisers, the company is less affected by trends in national advertising, which hinges on economic prospects.

The company has seen a revival in spends by pan-India advertisers in the December quarter and it anticipates the momentum will sustain.

If interest rates indeed come down over the next few quarters, segments such as automobiles, consumer durables and even construction may pick up considerably, paving the way for higher advertising revenues for players such as Jagran.

This is especially so as it has presence in 11 States including MP, UP, Punjab and Delhi among others. Many of these States have several fast growing cities with high consumption potential and hence are actively targeted by companies.

Jagran acquired Nai Dunia , a Madhya Pradesh-based Hindi Newspaper with significant circulation.

This would augment its presence in that State and allow it to take on peers such as Dainik Bhaskar that have a stronghold in that region.

Some of the company’s largest markets such as MP and Delhi are going to the polls over the next several months. This could translate into advertisements for Jagran Prakashan from political parties in the fray.

Jagran’s circulation revenues have started growing in double-digits in the recent quarters and the company has also been able to take cover price increases. This has helped it partly weather the relatively slow growth in advertising. The company expects advertising to grow in double-digits over the next few quarters. From an industry perspective, the premium that English language newspapers used to command in advertising  vis-à-vis  regional ones is shrinking.

From the 10 times higher rates that English Newspapers commanded in 2007, the differential is down to 3-4 times in 2012, according to a recent FICCI KPMG report. This means that regional newspapers can look to enhance realisations.

Cost control

Raw material cost has increased for Jagran over the past one year. But costs as a proportion of revenues have reduced from over 35 per cent to 33.8 per cent by December 2012. Better ad rates, reduced pagination and a change in its newsprint mix have helped the company control raw material costs.

Risks

Any serious undercutting of cover prices due to competition from players such as  Dainik Bhaskar , Hindustan  and  Amar Ujala  could dent Jagran’s revenues on the circulation front.

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