The stock of Jagran Prakashan, publisher of the leading Hindi daily Dainik Jagran , has gained about 20 per cent since end-May. The government nod to the company’s acquisition of leading radio station Radio City helped. So did a strong show in the June quarter.

At ₹139, the stock trades at 17.5 times its trailing 12-month consolidated earnings, close to its five-year average. But investors can still buy the stock as it holds potential for further upside. One, the company’s advertising revenue should go up as the economy gathers pace.

Also, higher election-related advertising in Bihar in the near term and Uttar Pradesh, Uttarakhand and Punjab until 2017 should help.

The acquisition of Music Broadcast, which operates the profitable Radio City station, should also give a leg-up to Jagran Prakashan’s revenue.

Besides Dainik Jagran, its flagship publication, the company publishes Naidunia , a Hindi daily, and other newspapers, such as Midday English, Midday Gujarati and Punjabi Jagran .

Leading presence

The company has 68 million readers with 12 publications in five languages across 15 States. It has the largest reader base in Uttar Pradesh and is among the leading publishers in Bihar, Haryana and Uttarakhand. Between 2011 and 2014, Jagran Prakashan’s ad revenue (70 per cent of total income) grew at an annual average of 12 per cent.

But in 2014-15, ad revenue grew just 5 per cent. Subdued economic growth and the fact that the company kept away from low-rate advertisements played a part. In the recent June quarter though, growth improved to 12 per cent — attractively priced ad deals helped.

As the economy improves, players such as Jagran Prakashan should benefit. According to a FICCI-KPMG industry report, advertising revenues in the Hindi print media are expected to grow from ₹4,500 crore in 2014 to ₹6,700 crore in 2016.

Jagran Prakashan with its inroads into interior India will benefit from the growing ad-spend of companies in smaller cities and towns.

Last year, an increase in the circulation of Dainik Jagran and better per copy realisation across its newspapers saw Jagran Prakashan’s circulation revenue grow 8.6 per cent.

But this was lower than the double-digit growth in earlier years. With limited scope for further price hikes for Dainik Jagaran , circulation revenue, though expected to expand, is likely to do so at a slower pace.

Investors can however, draw comfort from the fact that the company’s loss-making publications have shown improvement in the recent June quarter.

Financial performance

Jagran Prakashan’s revenue grew at a modest 4 per cent to ₹1,770 crore in 2014-15. Subdued ad and circulation revenue growth, combined with an exit from the unprofitable outdoor advertising business, were dampeners.

But a fall in costs, aided by lower newsprint prices, boosted operating profit 18 per cent to ₹451 crore. Prices of newsprint, which account for a chunk of the company’s cost, have been on a decline (down 9 per cent year-on-year in the June quarter). Adjusted net profit last fiscal grew 32 per cent to ₹245 crore.

In the June quarter, adjusted net profit grew 42 per cent year-on-year to ₹78 crore. Inclusion of Radio City’s numbers from June onwards aided performance.

Lucrative radio business

The full impact of the acquisition will be reflected from the September quarter. Radio City, among the largest players in this space, posted net profit of ₹43 crore in 2014-15.

Its presence in high-growth markets in the country and high operating margins (31 per cent in 2014-15) should boost Jagran Prakashan’s performance.

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