>JAGRAN PRAKASHAN: Naidunia investments shall likely be calibrated

■  Disappointing 4QFY12 Results:Jagran reported 4QFY12 advertising revenue growth of 11%, below our estimates. Although the growth is above industry average for the quarter, we note that Jagran enjoyed a better exposure to assembly elections held in 4QFY12. We believe stringent restrictions imposed by the EC on advertising, as well as increased competition (UP) have resulted in a somewhat soft revenue growth for the quarter. Reported PAT was broadly in line with our expectations, on account of higher other income (reversal of forex losses).


■  Revenues to be under pressure, cost management is the key: We believe that advertising revenues of JagranPrakashan, as well as newspaper publishers at large, shall continue to remain under pressure. We expect Jagran's advertising revenues to grow 5% in FY12. While circulation revenues shall likely register stronger growth (higher circulation, cover price increases), revenue growth shall be modest in FY13. We therefore believe that management of expenses is the key here.We expect margin gains in FY13/FY14, to the extent of 1.4 ppt/ 1.2ppt. WE forecast FY13/ FY14 EPS at Rs 6.3/ Rs 7.3 (FY13 estimates reduced 22%).


■  Several areas of improvement in costs, margins likey to expand if newsprint prices don't play spoilsport: The management has guided for a modest rise in newsprint consumption, and newsprint prices have declined, although marginally, from average levels of FY12, and may bring margin benefits (newsprint expenses shall likely be flat y/y) to JagranPrakashan. In addition, Jagran stands to gain from lower expenses on Mid-Day (closure of certain editions), and rationalization of expenses.


■  Naidunia investments shall likely be calibrated: From management's comments, we believe the investments in NaiDunia are likely to be calibrated as per the economic scenario, and are unlikely to create large deviations from our earnings estimates. We note that Naidunia losses amounted to Rs600mn in FY12, and are likely to be reduced to below 250mn (large part from the now closed Delhi edition).


■  Valuations reasonable, BUY with a long-term view: We find the valuations of JagranPrakashan attractive at CMP (13.7x PER FY13E), considering the presence of multiple negatives in FY13, which are unlikely to persist simultaneously in the long-term. We also believe JagranPrakashan, owing to incumbent status, is less exposed to competitive pressures than peers. We maintain a BUY rating on JagranPrakashan, with a price target of Rs 113/ share.


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