Stock Market Result Update on Jagran Prakashan for 2QFY2012

Stock Market Result Update on Jagran Prakashan for 2QFY2012 with a Buy recommendation and a Target Price of `137 (12 months).

For 2QFY2012, Jagran Prakashan (JPL) reported a weak performance on the revenue and earnings front. The company’s top-line growth was driven by subdued ad revenue and higher circulation revenue growth due to launch of Punjab Jagran. The company’s earnings declined on a yoy basis as well as sequentially. The decline in earnings was due to a 617bp yoy contraction in operating margin on account of high raw-material prices because of increased circulation and forex losses. We maintain our Buy recommendation on the stock.

Key highlights of the quarter: During the quarter, ad revenue grew by ~9.5% yoy (muted 3.7% qoq). Circulation growth during 2QFY2012 stood at ~11.6% yoy and ~5.2% qoq. Non-publishing business revenue, which comprises event, outdoor and digital businesses, grew by 13% yoy, though it declined by 27.1% qoq. During the quarter, readership for Dainik Jagran and I-Next increased by 4.82 lakhs 0.37 lakhs, respectively. During the quarter, circulation for Dainik Jagran and I-Next increased by 9.6% yoy and 30% yoy, respectively.

Outlook and valuation: Post 2QFY2012, we have revised our earnings estimates downwards owing to sluggishness in ad revenue growth and margin pressures faced by the company. We expect JPL to post a 9% CAGR in its top line over FY2011-13E, driven by a ~10% CAGR in ad revenue and a ~3% CAGR in circulation revenue. In terms of earnings, we expect JPL to report a CAGR of 7% over FY2011-13E (impacted by margin pressure). We believe underperformance of the stock provides a good entry point. Hence, we maintain our Buy view with a revised target price of `137 (`148), based on a P/E multiple of 18x FY2013E
(in-line with its historical valuations).