Jagran Prakashan - One-off impacts profitability - Centrum

Jagran Prakashan posted Q4FY13 results below expectations with 10.4% YoY (1.8% below expectations) growth in revenues on the back of 8.2%YoY ad growth and 21% circulation growth. Q4FY13 results include NaiDunia financials and hence they are not comparable. Ex-NaiDunia, ad growth was flat. Operating profit declined by 18%YoY on the back of write-offs and provision for the events business. Adj PAT was down mere 6% YoY to Rs402mn despite sharp decline in operating profit as the company did not pay tax due to the accumulated losses from NaiDunia acquisition. We maintain Buy rating on the stock and expect strong margin expansion going forward.

- One-off impacts Q4FY13 results: During the quarter, Jagran posted 10.4% YoY growth in revenues on the back of 8.2% ad growth and 21% circulation growth. YoY numbers are not comparable as during the quarter the company consolidated the financials of NaiDunia. Excluding NaiDunia, ad growth was flat on the back of high base in Q4FY12 and upside from UP elections. During the quarter, the company had Rs194mn write-offs & provision for doubtful debtors of Rs140mn on the back of the events business which was done for the state government. Hence, operating profit for the quarter was down 18%YoY to Rs540mn. NaiDunia posted Rs30mn operating loss. Adj PAT for the company was down 6%YoY to Rs402mn due to lower operating profit.

- 10-11% ad growth guidance: Management has guided for 10-11% ad growth for FY14 following the strong growth of NaiDunia on the back of national advertising coupled with 25%YoY growth in Mid-Day due to traction from Gujrati Mid-Day and Inquilab. Further upside from state and national elections is possible.

- Operating margin expansion on cards: Operating margins during the quarter were low at 15.8% on the back of write-offs and provisioning. For FY13, on a consolidated basis the operating margin was at 19.35%. Going forward, the OPM is expected to be between 22-25% as guided by the management as the RM cost is set to increase by ~3% for the next 6 months. Losses in NaiDunia is expected to reduce to Rs80mn while MidDay is expected to turn around and post profit of Rs100mn against a loss of Rs40mn. Losses in Punjabi Jagran is also expected to reduce to Rs80mn. Hence we have modelled OPM of 22.6% for FY14 and 24.1% for FY15E.

- Other highlights: During FY13, the company has shown an impairment loss Rs500mn following NaiDunia acquisition while Rs984mn has been shown as exceptional item due to excess value of OCD for NaiDunai acquisition. The company has sold the property from NaiDunia acquisition for Rs380mn and the revenue will accrue by October 2013. Dividend of Rs2/share was announced against Rs3.5/share in FY12. The company could consider a possible buyback in H2FY14 and hence is conserving cash.

- Estimates revised; Maintain Buy: We are reducing our revenue, EBIDTA and PAT estimates for FY14E and FY15E on the back of lower than expected ad growth. Jagran Prakashan is currently trading at 12.4x and 10.4x FY14E and FY15E EPS of Rs6.9 and Rs8.2 respectively. We maintain our Buy view on the stock with a target price of Rs115 (14x FY15E) and believe that the stock has bottomed out and the double digit ad growth, coupled with the turnaround of Mid-Day and NaiDunia by FY15 will help in margin expansion and PAT growth.

Source : Equity Bulls

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