jagran prakashan limited

Jagran Prakashan Limited ACMIIL �

Jagran Prakashan Limited

AnalystBhavesh [email protected]: (022) 2858 3400

Key Data (INR)

CMP 653

Target Price 707

Key Data

Bloomberg Code JAGP IN

Reuters Code JAGP.BO

BSE Code 532705

NSE Code JAGRAN

Face Value (INR) 10

Market Cap. (INR mn.) 38,249

52 Week High (INR) 724

52 Week Low (INR) 276

Avg. Daily Volume (6m) 7,501

Shareholding %

Promoters 52.10

Mutual Funds / UTI 11.45

Financial Institutions / Banks 1.10

Foreign Institutional Investors 3.80

Bodies Corporate 21.38

Individuals/Others 10.17

Total 100.00

As on September 30th 2007

Rs Mn (Year ended June 30th)

FY07 FY08E FY09E

Revenues (Rs. mn) 5,981 8,001 9,665

Sales Growth (%) 24.5 33.8 20.8

Op. Profit (Rs. mn)

1,198 2,123 2,586

OPM % 20.0 26.5 26.8

PAT (Rs. mn) 762 1,318 1,606

EPS (Rs.) 12.7 21.9 26.7

03 December, 2007

B U Y

Background

Jagran Prakashan Limited (JPL) is a leading media house of India, which publishes Dainik Jagran, India’s largest read daily with a total readership of 536 lakh readers per day (IRS 2007 R2). It was also voted the most credible and trusted newspaper in India, (Source survey by Globescan). The first edition was launched from Jhansi, Uttar Pradesh in 1942. Dainik Jagran is now published from 11 states having 29 editions. The company also launched I-next, the first ever bilingual newspaper in the country in December, 2006 and also has an English Infotainment paper called City Plus. The company’s portal www.jagran.com is the most visited Hindi portal. From October 2007 The portal is co branded site with yahoo.com, one of the largest portal in the world.

Investment Rationale

The print media segment is expected to register CAGR of 12.67% from Rs. 144 bn in FY07 to Rs. 232 bn in FY11E. (Source: FICCI - PWC report on Indian Entertainment & Media).

Dainik Jagran (Hindi Daily), the flagship publication of the JPL is leading (in number one and number two slot) publication in terms readership in one third of the centers where readership is measured by the Indian Readership Survey.

There is significant scope for growth, as 359 million people who can read and understand any language do not read any publication. Of this, 68% belongs to class of people who can read and understand Hindi.

CPT is lowest in Dainik Jagran when compared with other three publications. With increased budget being locally spend by real estate, financial services, telecom service providers, automobiles and FMCG products Dainik Jagran has an edge over others in media planning.

Valuation & Recommendation

Increase in literate population, higher economic growth and an increase in urbanization will drive the growth for the print media. We expect JPL to post revenue CAGR of 27.1% and higher earnings CAGR of 44% during FY07-09E. At the current market price of Rs. 653 JPL is trading at 29.8x FY08E and 24.5x FY09E earnings. With 26.5x PE multiple (based on historical trading averages) and FY09E EPS of Rs. 26.7, we recommend “BUY AT DECLINES” rating on the stock with a target price of Rs 707.


Print Media Industry:

Information is the key to growth for any individual or a business entity. Reading of newspaper has now become a routine for an individual. The nature and form of information seeking would differ from person to person depending on the spare time he has at hand and the amount of money he can spare to buy the information. In Print Media information can be accessed at pre-determined price (known as news stand price, which generally remains constant for a longer period). Print is the most affordable medium of information access for an individual.

According to PWC-FICCI study, Print Media is growing at an average of 13.8% in last three years and industry size has increased to Rs. 144,000 million in 2007 from Rs. 97,800 million in 2004. Print Media has been a mainstay of regional players competing with each other.

The industry by nature is fragmented as it caters to the demand of information and awareness of individuals with variety of needs and reading habits. Print media in India is highly fragmented in India due to more than 26 languages, variety of culture and social beliefs. However, in recent past large players are emerging in regional languages like Hindi, Gujarati, Tamil, Telugu, etc. But, industry still remains fragmented.

As on March 2006, there were 62,483 registered newspapers (including dailies, periodicals and magazines) as against 60,413 at the end of March 2005. The total circulation of newspapers increased from 15.67 million in 2004-05 to 18.07 million (an increase of 15.32%) copies in 2005-06. (Source: Registrar of Newspaper for India -RNI).

Ownership of Print MediaOnwership Type No. of Publications

Individuals 6686

Joint Stock Companies 1122

Socieities & Association 260

Trusts 222

Partnership Firms 150

Government 41

Others 31

Total 8512(Source: RNI)

Newspapers owned by individuals have 52.71% share in the circulation of newspapers in India followed by Joint stock companies, which has 39.04% shares. Out of the 8512 newspapers that have submitted their annual statements 350 are big having circulation of 67.698 million copies, 1555 medium with circulation of 64.155 million copies and 6607 are small having circulation of 48.884 million copies. (Refer Annexure 1)

Print media in India has transformed itself from just being a platform for news and government dissemination to a more vibrant and informative source of news, views and information. The latest data suggests that despite increased competition from other platforms (like television, internet and FM radio) print media continues to grow at an attractive rate. The industry has responded well to the new changes and challenges by adoption of Information Technology, which has thereby resulted in better coverage with great speed at affordable price.

The print media industry is unique compared to other services or manufacturing

Demand for information and space is driving the growth

Despite competion print media is growing


industry and to study the industry one needs to assess demand and supply of primary and secondary product it provides. A media organization caters to the demands of information, news and opinion for its audience and at the same time it provides space or time to advertisers to reach out to the audience.

Primary Demand involves the demand of news, information and awareness. To satisfy these needs variety of sources are available (medium like print, television, internet, radio, etc.) Print media is the most accessible (in terms of price and ease in reading it) medium with higher shelf life for future reference as compared with other medium.

Secondary Demand is the demand for space which newspaper provides to advertisers. This demand is also derived on the basis of readership and hence is related to the readership and circulation arising from the primary demand. For creation of space newspaper incurs some cost and it passes this entire burden to the producer or provider of goods and services. For advertiser it provides an opportunity of promoting its products in a cost effective manner to a large audience with a uniform message.

To increase the availability and affordability of the content, media houses subsidizes the cost of buying the content for its readers. This increases the reach (measured in terms of circulation and readership in print media). Publishers of newspaper do not recover the full cost of printing a daily newspaper. The material and operating expenses are always higher than the newsstand price of the newspaper (Please refer Annexure 2 for detailed analysis). In an attempt to increase reach the publisher has to keep in mind the rising costs or higher under recoveries from the circulation sale. With every rise in circulation publisher has to increase advertisement revenue.

Economic Growth:

Indian economy has registered an average growth of 7.7% in last five years ranking it one of the highest in emerging economies. India has become third largest economy in terms of Purchasing Power Parity (PPP). Fast paced Indian economy is expected to spearhead the growth of Entertainment and Media (E&M) in India. The growth of E&M is highly income elastic say when income rises proportionately, more resources get spent on the access of entertainment and media.

Demographic Changes:

The demand for media is also significantly determined by the changes in the relative growth of different age groups, literacy rate and urbanization. With the expansion of economic activity, more number of people are able to find jobs. Increased migration from lower income group to higher income group, changes in family structure (decrease in number of persons in the household, migration to urban areas) are also favouring higher spending on leisure, entertainment and media.

Currently, of the total population, around 300 million people are living in urban area, which is expected to reach 600 million by 2030. Average Indian household size, which was 5.8 persons in 1970s decreased to 5.3 persons per household in 2004, the trend is likely to continue in future.

Revenue Drivers:

Revenue in print media is a function of earnings from the circulation and earnings from the advertisement. As a content creator every media company’s objective is to increase the revenues from advertisement. However, this is a double-edged sword. To increase ad revenue higher readership is required especially in the higher Socio Economic Class (SEC). According to research available higher SEC households have

Circulation Readership is key for advertisement

revenue growth

...higher the circulation higher the loss


higher purchasing power than the lower SEC households. To increase readership one need to provide quality content at affordable price.

Companies that spend on advertisement and promotion using print media however prefer they should get maximum mileage. Reach is measured in terms of Costs Per Thousand (CPT). It means how many readers an advertiser has been able to reach by spending thousand rupees. That is the reason why a daily, which commands highest readership, charges more for an advertisement than its competitors.

1. Demand For Information

Readership is the measurement of reach of a newspaper or magazine in print media. It means how many people have read a copy of newspaper. It is a function of circulation on one hand and number of people who have read the newspaper on the other.

Circulation:

The number of dailies being published in the country was 2130 in FY06 and claimed (Note 1) circulation figure was 88.86 million copies, 12.93% higher than that the previous year. Hindi had 942 dailies claiming a circulation of 76.70 million copies, while 201 English dailies claimed 34.11 million copies.

Top Daily Newspapers’ Circulation (copies in Million)

January to June Period 2003 2004 2005 2006

Dainik Jagran 1.456 1.911 2.406 2.297

Dainik Bhaskar 1.600 1.360 1.928 1.528

Hindustan 0.753 0.957 1.010 0.868

Amar Ujala 0.000 0.581 0.798 1.248

Hindustan Times 1.108 1.148 1.084 1.210

Times of India 1.284 2.438 0.856 2.275

Hindu 0.933 0.989 1.062 1.135

Deccan Chronicle 0.296 0.380 0.431 0.848(Source: Audit Bureau of Circulation)

Readership:

According to the National Readership Survey (NRS) (Note 2) the reach of print medium (dailies and magazines combined) has increased from 216 million in 2005 to 222 million readers in 2006. With right mix of content and proper identification of resources there is ample scope for increasing reach of newspapers in the country. There is significant scope for growth, as 359 million people who can read and understand any language do not read any publication. Of this, 68% belongs to class of people who can read and understand Hindi.

It is quite evident from the circulation figures (mentioned above) and readership figures that regional language is driving the growth of print media in the country.

Note 1:In India, the Audit Bureau of Circulation (ABC) measures official circulation. There are many publications which are not member of ABC, can claim the circulation by providing certificate issued by auditors. ABC cer tificate gives independent verification of the circulation whereas the claimed circulation lacks independent authenticity.

Note 2: NRS is the largest survey of its kind in the world. The survey is conducted once in a year with a fieldwork with large sample size. In 2006, survey was conducted with a sample size of 0.28 million house-to-house interviews. It measures reach of different media platform in India. The ABC and the Indian Newspaper Society (INS) has promoted this survey. The other readership survey in India is Indian Readership Survey (IRS).


Top Dailies in Indian in terms of readership Figures in mn

Daily 2003 2005 2006 2007

Daink Jagran 15.722 17.473 19.071 17.114

Dainik Bhaskar 13.613 13.81 14.571 12.514

Hindustan 7.386 8.192 9.724 9.052

Amar Ujala 8.597 9.276 9.894 8.255

HT 2.946 3.276 3.508 3.331

TOI 7.23 7.041 7.084 6.781

Hindu 2.71 2.661 2.797 2.209

Deccan Chronicle 1.054 1.029 1.132 1.311(Source: Indian Readership Survey) (Note 3)

In terms of readership the largest circulated and read dailies and magazines in English are losing their share to players in other languages. According to NRS 2006, readership of Times of India has declined from 0.809 million in 2005 to 0.750 million readers in 2006. Readership for India Today also declined from 0.629 million to 0.515 million readers in the similar period.

With economic expansion and services sector led growth, the focus of growth is shifting towards Tier 2 and Tier 3 class of cities. According to NCAER, there are 59 such cities of which 30 cities fall in the Hindi belt. These 59 cities inhabit 24% of total Indian households and controls 23% of the total disposable income of the country.

2. Demand for Space:

Advertisement is a non-personal form of sales promotion tool used by the producers or provider of goods and services. Advertising is one of the key drivers of sales of corporates. Advertising is used to create desire and aspiration for higher consumption in the minds of the consumer and at the same time also used as an informative tool for brand and product awareness.

Advertising spend is positively correlated with corporate profits growth and economic growth of any country. During 1996-2006, the average GDP growth of India was 6.5% while the advertising industry’s growth was CAGR 10%. Despite growing higher than the economic growth rate ad-spend to GDP ratio is just 0.47% against the global average of 0.98%.

With Indian economy expected to grow around 8% in next five years. Advertisement spend is expected to grow. With more and more fragmentation in media choice of media and medium would center around those players, which offers better CPT.

Ample scope for growth in Print Media Specially in

Hindi language

Advertising spend is positively correlated with

economic growth

Note 3:The table gives average readership of a daily newspaper meaning the person who has read newspaper at least once in last week. The other measure is also total readership where readership is measured in terms of a person who has read newspaper as of yesterday.


Print media generally finds its usage as a last mile contact between customer and the producer or where advertisement is descriptive in nature, and is a potent medium for disseminating information/news pertaining to local reach. The local player would also prefer to reach its target audience through print media in India. For example, advertisements by automobile or consumer durables player provide information regarding some special offers/product and opening of new showrooms in the local area. Similarly print media is generally preferred mode as far as publishing Government notices/tenders is concerned. The table below explains which are the top categories of advertisers in India are in the past.

Top Categories of Advertisers in PrintCategory 2007 2006

% share in space

Education 15 15

Services - General 12 14

Automobiles 9 12

Banking/Finance/Investment 10 12

Durable Goods 5 6

Retail 5 6

Corporate Brand Image 4 5

Telecom Services 3 4

Personal Accessories 3 4

Computers NA 4

Media 2 3

Others NA 14(Source: AdEx)

Prefered media for Descriptive, localised messages


Advertising Market in India:

The advertising spend is growing at an average 13.7% in the last five years and the size of advertising industry in India expanded to Rs. 163 billion in 2006 from Rs. 132 billion in 2005, registering a growth of 23.4% in one year.( Source Ad-Ex India)

Advertising Industry in India Rupees in Billion

Medium 2005 2006

Print 63.23 78.57

Television 54.12 66.178

Radio 3.17 5.05

Cinema 1.32 1.63

Out of Home 8.98 9.94

Internet 1.06 1.63

Total 132 163(Source: AdEx)

The table shows that each of the media platforms is growing in terms of revenues from advertising. The fastest growing segments are Internet and Radio but from a very lower base. Print media continues to be the most preferred medium. Advertisement revenues in Print grew by 24% in 2006 from last year, which was 200 bps higher than growth rate of Television sector.

Outlook

The growth of print media will continue to be driven by increase in literate population, higher economic growth and an increase in urbanization. Though the share of print media in overall market is expected to fall, it will still remain largest beneficiary of larger spending on advertising. The print media segment is expected to register CAGR of 12.67% from Rs. 144 bn in FY07 to Rs. 232 bn in FY11E. (Source: FICCI - PWC report on Indian Entertainment & Media).

About the Company

Jagran Prakashan Limited is a leading media house of India, which publishes Dainik Jagran, India’s largest read daily with a total readership of 536 lakh readers per day (IRS 2007 R2). It was also voted the most credible and trusted newspaper in India, (Source survey by Globescan)

Established in 1942, Dainik Jagran was promoted by freedom fighter, Late Shri Puran Chandra Gupta. The first edition was launched from Jhansi, Uttar Pradesh in 1942. Dainik Jagran is now published from 11 states having 29 editions. The company also launched I-next, the first ever bilingual newspaper in the country in December, 2006 and also has an English Infotainment paper called City Plus. The group also publishes “Sakhi”, a monthly magazine targeted at women and Jagran Varshiki, an annual general knowledge digest, and various national and state statistical compilations. The company’s portal www.jagran.com is the most visited Hindi portal. From October 2007 The portal is co branded site with yahoo.com, one of the largest portal in the world.

One of the largest media house in Europe, The Independent News and Media Investment Limited (INML) holds 20.8% stake in the company. The INML is publisher of widely read newspaper titled The Independent.

The company also provides Out of Home (OOH) media solutions like product

Advertising in Print media grew by 24% in 2006

JPL is the publisher of lagest circulated, read daily in India


placement, hoardings and billboard advertising sites and other marketing promotion activities like event management. The company provides SMS based value added services (ring tone downloads, e-shopping etc).

Publication Business:

1. Dainik Jagran:

The company is the publisher of largest circulated and read daily in the country. Its Hindi daily newspaper branded as “Dainik Jagran” is published from 11 states with 29 editions.

2. I Next:

This is a new publication target at urban youth and has three editions in UP. It provides news and views in a mixed language (Using Hindi and English). It is in tabloid format where more emphasis is given to news and views related to entertainment, fashion, glamour, career guidance, etc. The publication is distributed at Newsstand price of Rs.1 except Lucknow edition. It has three editions and two new editions have been launched.

As a thumb rule new publication takes at least 4 years to break even but as I Next advertisement space is promoted in combination with Dainik Jagran company expects the publication to break even earlier. However, we have not factored in any contribution from I Next in profits in our projections for next two years.

3. City Plus:This is a weekly (distributed on week end) magazine distributed as complimentary copies to readers. Readers are selected on basis of database created by the JPL in 8 (3 in Delhi, 3 in National Capital Region and One in Banglore) key markets of Dainik Jagran.

This publication has a targeted reader. The contents of the publication is a mix of local content and some general content related to lifestyle, entertainment, business updates. The publication has a unique distribution strategy where distribution is limited to an area of not greater than 25 sq kms. This publication provides an opportunity to small advertisers wishing to promote their product in a local market. The publication is operating on break even as it is mix of 50:50 in terms advertise to editorial ratio. Company plans to launch 30 editions of the City plus in next three years.

The advertisement revenue from the publication division is largest contributor to the revenues of the company. Contribution from the advertisement in total revenues was 62.31% in FY07 and 63.43% in FY06.

Other Business:

1. Out of Home Business:

In this area company provides Billboards, Hoardings, unipoles, kiosks and other out of home sales promotional solutions to the various corporates. Company has 1000 sites across the country including Mumbai, Banglore, Surat, Ahmedabad, Delhi, and Lucknow among others. The company launched this business in FY07 and generated revenues of Rs. 200 million from the business. During FY08E company targets to earn revenues of Rs. 450 million.

2. Event Management:

This division provides product launch and sales promotion solutions to various corporate clients across the country. Company is not involved into managing and promoting events into entertainment, games and live sports. This division is

Divesifying into niche newspapers and other media

solutions


strategic extension of providing extended options to advertisement clients of the company in addition to print and out of home solutions. The division was launched in FY06 and earned revenues of around Rs. 300.3 million in FY07 against Rs. 28.2 million in FY06. Company had managed product launch for corporates like Microsoft India and TVS Motors amongst others.

3. Value Added Services

This business area of JPL provides SMS based services. It provides access of information, news, downloading ring tones, shopping to the clients. The division was launched in the FY05. The revenue from the division was Rs. 13.70 million in FY06.

Business Strategy:

The company is venturing into other segments from being a mere print media player. The company intends to transform itself into from a print advertisement solution provider to a basket of advertisement or sales promotion solution provider. Company is increasing its presence into these new areas with Out of Home, Value Added Services and Event Management tools.

The Company is also looking out to acquire a publication, which has a similar synergy, growth potential and an establishment, that is profit making.

Competitive Advantage:

1. The largest circulated and read daily in the country:

Dainik Jagran, the flagship publication of the JPL is leading (in number one and number two slot) publication in terms readership in one third of the centers where readership is measured by the Indian Readership Survey. This gives better reach to advertisers.

State Total Centers No.1 in No.2 in

UP 23 13 9

Bihar 2 0 2

Jharkhand 4 0 2

Punjab 4 3 0

Haryana 3 2 0

Uttranchal 4 0 4

Jammu & Kashmir 1 0 1

Himachal Pradesh 2 0 0

Delhi 1 0 0

MP 4 0 2

Chandigadh 1 0 0(Source IRS R12007)

Jagran Prakashan Limited ACMIIL �0

2. Lowest CPT

Name of the Paper Advertisement Advertisement Advertisement Readership Cost Per

Rate Rs. Size Sq Cms Budget Rs In 000s Thousand

Dainik Jagran 3276 100 327600 17114 19.14

Dainik Bhaskar 2529 100 252900 12514 20.21

Times of India 4500 100 450000 6781 66.36

Amar Ujala (5 states) 1254 100 125400 8255 15.19

Hindustan (5 states) 1150 100 115000 9052 12.70

Hindustan Times 2310 100 231000 3331 69.34(Source: ACMIIL Research)

CPT is lowest in Dainik Jagran when compared with other three publications. With increased budget being locally spend by real estate, financial services, telecom service providers, automobiles and FMCG products Dainik Jagran has an edge over others in media planning.

Dainik Jagran has a higher CPT compared to Amar Ujala and Hindustan but has wider reach in terms of number of states it is present. Dainik Jagran has presence in 11 states compared to 5 states of other two dailies.

3. It has other media or sales promotion solutions for the corporates.

JPL offers other media solutions like event promotion, Out of Home advertising options and SMS services to advertisers, which is not offered by other Hindi publication houses.

Growth Drivers for the company:

1. 1. Most English daily newspaper’s readership is concentrated in Metros and Tier 1 cities. To reach out to the growing middle class in Mini metros and Non metros regional language newspaper becomes the ideal choice of the media planners. In FY06 of the total advertisement spend in India 66% of the volume is shared by the regional language publications. In terms of language, Hindi is the second most preferred medium by the media planners.

Advertisement spend in Print Media (in mn column cm.)Class of city 2005 2006 Growth

Metros 56 62 12%

Mini Metros 16 19 19%

Non-metros 79 91 14%(Source: AdEx)

Moreover, about 18% of the total advertisement volume is generated in three major states of the North (Source: AdEx India) i.e. Delhi, Uttar Pradesh and Punjab where JPL enjoys clear leadership over its competitors.

2. India has the largest population of Hindi speaking people that augur well for the Publication like Dainik Jagran.

3. With increasing reach JPL is in better position to increase its advertisement volume (in terms of space sold) and in terms of advertisement revenue (with increasing the advertisement rate).

Lowest CPT compared to other players

Jagran Prakashan Limited ACMIIL ��

Financial Analysis:

1. Revenue:JPL derives majority of its revenues from advertisements (around 62% of the total revenues of the company). With increase in advertisement rate, higher space selling and better realisation on premium advertisements (more colour advertisement, higher solus space selling for premium advertisement), company’s advertisement revenue has increased by 25.7% in FY07 to Rs. 3882.20 million and by 33.2% to Rs. 2433.1 million in the first half of current financial year. JPL’s total revenue (including revenues from other business) has increased by 24.5% to Rs. 5981.8 million in FY07 from Rs. 4805.3 million in FY06. The total revenue has increased by 28.8% in H1FY08 to Rs. 3605.90 million.

Advertisement Space Sold

Million Square CMs

2004-05 2005-06 2006-07

Black & White 59.7 61.8 60.1

Colour 15.4 20.9 34.2

Total 75.1 82.7 94.3

Advertisement Revenue Rs. 2330.12 3088.34 3882.15

Growth in Advertisement Revenue 0 132.54 125.7035

Growth in Space Sold 0 110.12 114.03(Source: Company Reports)

We expect revenues from advertisement will continue to expand on account of pricing power company has in increasing the advertisement rate. Going forward the company expects to increase advertisement to editorial ratio. Currently advertisement to editorial ratio is 35:65. The company enjoys a lower CPT as compared to its competitors, which gives it sufficient legroom to increase its advertisement tariff and advertisement to editorial ratio without hampering its circulation. The increase in advertisement revenue would be a result of increase in advertisement rate and increased volume of advertising.

Advertisement spending by corporates also increases during the second half (September to March). The increase is due to higher sales promotion activities during festival season of Diwali, Christmas, Marriage Season and Year-end closing.

(Rs. Mn)Particulars FY05 FY06 FY07 FY08E FY09E

Circulation revenues 1370.43 1603.74 1678.31 1694.77 1745.61

Advertisement revenues 2330.12 3088.34 3882.16 4852.69 6308.52

Other revenues 63.11 113.23 421.36 1454.23 1611.37

Total 3763.66 4805.31 5981.83 8001.69 9665.50(Source: Company, ACMIIL Research)

2. Expenditure:

JPL’s primary business being publication of newspaper, its expenditure is substantially driven by newsprint and other consumables related to printing. Newsprint expenses, as percentage of total sales, was 49% in FY06, which declined to 42.31% in FY07 on account of revenues from non-publication business and company’s strategy to change the usage on newsprint in favour of domestic newsprint. Domestic newsprint is cheaper (by 5 to 10% depending on the quality) compared to import. We expect news print prices to go up by 5% every year in next

Increase in circulation and advertisement revenue

is the driver


two years. Any rise in newsprint prices will be negative for company’s operating margins as newsstand price of publications are more or less fixed. Increased competition from other players (like Dainik Bhaskar and Hindustan) would limit the capacity of JPL to pass these higher prices on readers.

3. Margins

The operating margins of the company have improved substantially from 6.9% in FY05 to 20% in FY07. Further for HIFY08 the operating margins improved by 510 basis points to 25.1%. The improvement is on account of increase in the advertisement rates as well reduction in newsprint costs. We expect the company to post operating margins of 26.5% in FY08 and 26.8% in FY09.

4. Debt - Equity

Company’s long term borrowing is very minimal as it can be seen from the debt equity ratio for FY07 (0.24). Going forward we expect the company to substantially repay its long-term debt resulting in improvement in debt equity ratio further to 0.03 in FY09.

The company intends to incur capital expenditure of Rs. 2200 million in next three years. The funding of the capex will be satisfied through unutilized IPO proceeds (invested in Mutual funds and banks) of Rs. 1486.3 million and internal accruals. Also we expect the company to fund its requirements for new ventures from internal accruals.

In “Out of Home” advertisement business, company would have to shell out rentals in advance to respective municipal corporations or private parties to get the rights of the site. With expansion of other publication brands (I Next and City Plus) fund requirement would also increase in terms of advance payment to suppliers of newsprint, marketing and promotional activities.

Concerns:

1. Any increase in newsprint price will increase under recovery per copy for the company. It is very difficult to pass the burden of rising newsprint cost to consumer as:

a. Price of publication is fixed for a reasonably longer period of time and

b. To keep increase reach (in terms of circulation) the publishers has to keep sale price of its publication reasonable. To recover the newsprint costs alone company needs to sell at least 0.14 million square cms of space in a year.

2. Any slowdown in advertisement revenue will result into decline in profit earning capacity of the company. As space selling (for advertisement) is the only positive revenue driver for the company, to recover all operating costs company needs to sell at least 0.90 million square cms of space in a year.

3. Competition

a. Increased and intense competition in print media will impact subscription as well as space rates adversely.

b. With intense competition in the print segment some of the leading players have funded the sale of advertisement space through equity subscription of the client.

c. c. With advance technologies print media is facing competition from other medium like television, mobile value added services and television.

Less reliance on borrowed funds


Valuations and Recommendation

Increase in literate population, higher economic growth and an increase in urbanization will drive the growth for the print media. The print media segment is expected to register CAGR of 12.67% from Rs. 144 bn in FY07 to Rs. 232 bn in FY11E. (Source: FICCI - PWC report on Indian Entertainment & Media). We expect JPL to post revenue CAGR of 27.1% and higher earnings CAGR of 44% during FY07-09E. At the current market price of Rs. 653 JPL is trading at 29.8x FY08E and 24.5x FY09E earnings. With 26.5x PE multiple (based on historical trading averages) and FY09E EPS of Rs. 26.7, we recommend “BUY AT DECLINES” rating on the stock with a target price of Rs 707. The board of directors of the company have recommended sub-division of the Equity Shares of the Company of face value of Rs 10/- each into face value of Rs 2/- each.


Earnings Summary (Rs. in Millions)

Income Statement FY05 FY06 FY07 FY08E FY09E

Net Sales 3763.7 4805.3 5981.8 8001.7 9665.5

Total Expenditure 3504.5 4103.8 4783.4 5878.5 7079.1

Operating Profits 259.2 701.5 1198.4 2123.2 2586.4

Other Income 10.1 63.5 248.0 200.0 200.0

EBDIT 269.3 765.0 1446.4 2323.2 2786.4

Depreciation 175.7 201.2 237.2 309.2 365.2

EBIT 93.6 563.8 1209.2 2014.0 2421.2

Interest 68.7 76.1 85.0 46.8 23.8

PBT 19.9 457.7 1151.7 1967.1 2397.4

Taxes 7.6 140.7 389.5 649.2 791.2

Profit After Tax 12.3 317.0 762.2 1318.0 1606.3

Growth in sales (%) - 27.68 24.48 33.77 20.79

Operating Profits Growth (%) - 170.69 70.83 77.16 21.82

PAT Growth (%) - 2476.56 140.45 72.91 21.88

Operating Profit Margin (%) 6.9 14.6 20.0 26.5 26.8

Net Profit Margin (%) 0.3 6.6 12.7 16.5 16.6(Source: Company, ACMIIL Research)

BALANCE SHEET (Rs. in Millions)

FY05 FY06 FY07 FY08E FY09E

Share Capital 100.0 502.0 602.3 602.3 602.3

Reserves and Surplus 586.7 4365.4 4508.7 5480.4 6739.4

Total Shareholders Funds 686.7 4867.3 5111.1 6082.7 7341.7

Total Loan Funds 1298.3 1164.4 1067.3 468.3 237.6

Net Deferred Tax Liability 284.0 368.2 383.9 441.0 475.0

Total Capital Employed 2274.3 6400.4 6562.3 6992.0 8054.3

Gross Block 1895.5 2391.9 3211.9 4417.6 5217.6

Less: Accumulated Depreciation 833.2 1034.4 1072.2 1381.5 1746.7

Net Block 1062.3 1357.5 2139.7 3036.2 3470.9

Capital Work in Progress 192.7 240.5 505.7 300.0 100.0

Investments 6.6 1760.0 1445.9 61.6 61.6

Net Current Assets 1012.7 3040.8 2468.9 3594.1 4421.7

Total Assets 2274.3 6400.4 6562.2 6991.9 8054.3(Source: Company, ACMIIL Research)


FINAL CASH FLOW STATEMENT (Rs. Mn)

Particulars FY05 FY06 FY07 FY08E FY09E

Pre tax profit 24.9 457.7 1151.7 1967.1 2397.4

Depreciation 175.7 201.2 237.2 309.2 365.2

Interest Exp 68.7 76.1 85.0 46.8 23.8

Interest income -5.3 -44.6 -138.9 0.0 0.0

Others -4.9 91.8 -2.9 0.0 0.0

Operating profit before WC changes 259.1 782.3 1332.0 2323.2 2786.4

Working Capital changes -60.3 -358.1 -229.8 -638.2 -354.6

Cash from operations 198.8 424.2 1102.3 1685.0 2431.8

Tax -1.5 -43.0 -342.2 -639.0 -784.1

Net Cash from operations 197.3 351.1 706.3 1046.0 1647.7

Cash from investment activities -351.8 -2270.0 -721.6 384.3 -600.0

Cash from financing activities 151.6 3551.8 -716.9 -992.2 -601.8

Total cash generated -2.92 1632.86 -732.1 438.2 446.0

Cash at the beginning 115.66 112.74 1745.6 1013.5 1451.7

Cash at the end. 112.73 1745.59 1013.49 1451.7 1897.6

Key Ratios

FY05 FY06 FY07 FY08E FY09E

Operating Profit Margin (%) 6.9 14.6 20.0 26.5 26.8

EBIT Margin (%) 2.5 11.7 20.2 25.2 25.0

PAT Margin (%) 0.3 6.6 12.7 16.5 16.6

RONW (%) 1.8 6.5 14.9 21.7 21.9

ROCE (%) 4.7 9.3 19.6 30.7 31.9

EPS (Rs.) 0.2 5.3 12.7 21.9 26.7

CEPS (Rs.) 3.1 8.6 16.6 27.0 32.7

BV Per Share (Rs.) 11.4 80.8 84.9 101.0 121.9

P/E (x) NA 0.0 51.6 29.8 24.5

P/CEPS (x) NA 0.0 39.4 24.2 19.8

P/BV (x) 0.0 0.0 7.7 6.5 5.4

Debt/Equity (x) 1.9 0.24 0.21 0.08 0.03

Current Ratio (x) 3.5 9.5 4.8 6.6 6.3

Quick Ratio (x) 2.2 7.8 3.3 4.8 4.6

Inventory Turnover (x) 20.5 15.7 20.9 23.2 24.3

Debtors Turnover (x) 9.8 5.3 5.5 5.8 5.5

Fixed Asset Turnover (x) 7.1 4.0 3.4 3.1 3.0

(Source: Company, ACMIIL Research)


Annexure - I

In print media the primary demand is always demand for information and awareness. To increase the availability and affordability of the content, media houses subsidizes the cost of buying the content for its readers. This increases the reach (measured in terms of circulation and readership). Publishers of newspaper do not recover the full cost of printing a daily newspaper. The material and operating expenses are always higher than the newsstand price of the newspaper In an attempt to increase reach the publisher has to keep in mind the rising costs or higher under recoveries from the circulation sale. With every rise in circulation publisher has to increase advertisement revenue.

Particulars Unit FY06 FY07

Jagran Prakashan Ltd

1 Circulation Revenue Rs mn 1619.36 1708.34

2 Operating Expenses Rs mn 4103.95 4783.04

3 Under Recovery (1-2) Rs mn 2434.59 3074.70

4 Number of Copies Sold mn 898.04 896.59

5 Under Recovery per copy (3/4) Rs 2.77 3.43

6 Newsprint Expenses Rs mn 2076.75 2183.53

7 Newsprint Expenses per copy (4/6) Rs 2.31 2.44

8 Acutal Realisation Per copy (1/4) Rs 1.80 1.91

9 Under Recovery in terms of newsprint cost (7-8) Rs 0.51 0.53

Deccan Chronicle Holdings Ltd








8 Acutal Realisation Per copy (1/4) Rs. 1.11 1.23

9 Under Recovery in terms of newsprint cost (7-8) Rs. 3.37 4.14

HT Media Ltd








8 Acutal Realisation Per copy (1/4) Rs 1.60 1.58

9 Under Recovery in terms of newsprint cost (7-8) Rs. 2.18 3.13

Annexure - II

Size of NewspapersSize Circulation Players

Small upto 15,000 Copies 141

Medium 15,000 to 70,000 276

Large above 70,000 191

(Source: Indian Newspapers Society)


The table above calculates the under recovery for three major listed publication houses. The analysis is based on company’s annual reports. It is evident from the above table that each of the publication is not able to recover even the full cost of newsprint leave alone the other operating costs like salary and wages, news gathering expenses and other administrative expenses amongst others. In an extreme case, where there is no advertisement space sold the company would have incur huge losses to keep business running.

The under recovery in above three cases is different due to,

1. Different newsstand price of the publication.

2. Number of pages per copy. Higher number of pages would result into increase in newsprint cost per copy. When newsstand price is fixed the under recovery may also increase depending on the advertisement to space ratio.

3. Different mix of imported and indigenous newsprint used. In case of HT Media and Deccan Chronicle Holdings usage of imported newsprint is comparatively higher than Jagran Prakashan Ltd. In general, imported newsprint is costlier by 5 to 10% than domestic depending on the quality.


Disclaimer:

This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or

any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information

contained in the report. ACMIIL and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report.

To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views

expressed in the report

Disclosure of Interest Jagran Prakashan Limited

1. Analyst ownership of the stock NO

2. Broking Relationship with the company covered NO

3. Investment Banking relationship with the company covered NO

4. Discretionary Portfolio Management Services NO

This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for

circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security.

The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We

may from time to time have positions in and buy and sell securities referred to herein.

Notes:

HNI Sales:Raju Mewawalla, Tel: +91 22 2858 3220

Institutional Sales:Bharat Patel, Tel: +91 22 2269 5078, 2270 0119 / 121.

jagran prakashan limited

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