>PRINT MEDIA SECTOR (ICICI DIRECT)

The Print Media sector has started gaining momentum after witnessing a setback in FY09 due to the economic slowdown coupled with newsprint prices peaking at $960/tonne. We have seen a selective recovery in the sector with companies with a regional focus finding solace in rising advertisement spends and declining newsprint prices ($560/tonne) in the current fiscal. High cost inventory is already out of the system & is expected to aid margins from Q3FY10E. However, accelerated revenue growth in core businesses would be seen post FY10E. We expect our print universe to post revenue CAGR of 11.8% and EBITDA CAGR of 36.6% over FY09-12E. With highest margins & additional contribution from IPL, Deccan Chronicle (DC) is our top pick. We initiate coverage on DC and HT Media with STRONG BUY and REDUCE rating, respectively. Being a pure regional player, we reiterate our BUY rating on Jagran Prakashan.

Regional - the way to go…

■ Rising ad spend
Advertisement is the major revenue driver for the media industry, contributing ~65% of total revenue of print companies. Over the past three years, advertisement is expected to have grown at a CAGR of 17.1%. Although the recent past has yielded mixed results, the longterm scenario looks positive for the Indian advertisement industry. India is still under penetrated and behind developed nations and even China when compared on advertisement to GDP ratio. This indicates further potential for rise in ad spend for the Indian media industry. Advertisement revenue in the print Industry is expected to grow at a five year CAGR (FY08-13E) of 10.0% led by expansion in emerging sectors like organised retail, telecom, insurance, BFSI and education.

Growing regional focus

The Indian print industry is highly fragmented with over 60,000 newspaper published in 22 languages. According to IRS, Hindi newspapers have highest penetration followed by English, Marathi, Tamil and Telugu. In the backdrop of consumption shifting to smaller towns and villages, the industry has seen various vernacular launches in order to increase circulation and shield against seasonal downturn in national advertising in the recent past. In total, 14 of the top 15 most read dailies in the country are either Hindi or vernacular. In the recent economic slowdown, national players were the most impacted while their regional counterparts did not really face the heat. Going forward, we expect companies with a regional focus like Jagran Prakashan to outpace their national counterparts in terms of print revenue growth.

Outlook and recommendation
Print media companies have exhibited a diverse trend in the recent past, with regional players posting robust revenue growth while their national counterparts have witnessed a decline in advertisement revenue. We believe regional players would continue to outperform the overall print industry as demand in Tier II and Tier III cities and towns has proved to be more resilient to the slowdown.

We advise cherry picking among media companies with a preference for companies with higher regional exposure. We maintain Jagran Prakashan as BUY and initiating coverage on HT Media with REDUCE rating. Deccan chronicle with highest operating margin and additional contribution from IPL is rated as STRONG BUY.

To read the full report: PRINT MEDIA SECTOR