>JAGRAN PRAKASHAN: Acquires Nai Dunia in an all-cash deal

JAGP, which owns India’s largest read daily Dainik Jagran, has acquired Nai Dunia (ND) – the country’s ninth largest Hindi newspaper. This acquisition gives JAGP a much-awaited entry into the underpenetrated and fast-growing markets of Madhya Pradesh (MP) and Chhattisgarh (CG), and brings consolidation in the print media industry. Financial highlights of the deal: (a) JAGP has valued ND at an enterprise value of Rs 2.25bn (incl. ~Rs 250mn debt), or ~2x EV/sales; (b) JAGP is entitled to tax benefits of ~Rs 800mn owing to ND’s accumulated losses of Rs 2bn-2.5bn. While the valuation is on the higher side given ND’s negative EBITDA, we feel this acquisition is a good strategic fit for JAGP on account of: (a) its geographical expansion in Hindi-speaking states, (b) reduction in gestation period for expansion in new territories and (c) cost and revenue synergies. Maintain BUY with TP of Rs 135.


■  Underpenetrated MP and CG markets offer good growth: Literacy rates of MP and CG are lower than the national average, and so is newspaper penetration, with sole readership at a mere 15%. With rise in disposable incomes owing to increased GDP growth rates (~6.5% for MP, 9.5% for CG), these markets offer good growth potential.


■ JAGP’s ongoing litigation in MP necessitates inorganic route: We note that JAGP has wanted to enter MP and CG since 2005. However, it couldn’t use its flagship brand Dainik Jagran due to family litigation and hence, had to either introduce a new brand or acquire an established player like ND.


■ ND – a good fit: Nai Dunia is published in the Hindi heartland states of MP and CG with a circulation of 0.5mn copies and a readership base of ~2mn, which has more than tripled over the last five years. While ND’s current readership share is 23%, its advertisement market share is ~15%. Its FY11 revenues were at Rs 1bn (FY12E: Rs 1.1bn) with 70‒75% generated from advertising (mostly local). The company incurred an EBITDA loss of Rs 250mn in FY12.


■ Turnaround to be quick, aided by synergies: On the revenue side, JAGP expects to increase the contribution from national advertising to ND’s revenues from <25% now to closer to its own 40% levels. On the cost side, JAGP will benefit from reduced newsprint and manpower costs.


■ Deal financial summary: The deal was closed for an all-cash consideration of ~Rs 2.25bn (including debt). However, JAGP stands to gain tax benefits to the tune of Rs 0.8bn owing to ND’s accumulated losses. Post the deal, JAGP has Rs 1bn of net cash on its books.


■ Maintain BUY with a TP of Rs 135: We believe that this acquisition is another step in the direction of consolidation in the print media space, wherein smaller regional players will be acquired by larger national players like JAGP, owing to both revenue and cost synergies. We continue to like the print media space because of: (a) healthy ROEs (25% +), (b) good dividend payouts (45‒50%) and (c) attractive valuations (currently 12.7x FY14E). Maintain BUY with a TP of Rs 135 (17x FY14E).


To read full report: JAGRAN PRAKASHAN
RISH TRADER