"Jagran Prakashan Ltd's (JPL) Q2FY13 result was in line with our estimates. The company reported net sales of Rs 322 cr, a growth of 5% YoY driven by 3.6% YoY growth in advertising revenue and 8.8%growth in circulation revenue over Q2FY12. EBITDA stood at Rs 78cr, marginally declined by 1% YoY on account of higher employee cost due to one off provision. Consequently EBITDA margins dropped by 170bps YoY to 24.3%. The company reported net profit of Rs 69crs, a strong growth of 51% YoY. Net profit margin improved by 650bps YoY to 21.6% as the company benefited from tax exemption pertaining losses in Nai Dunai. Shift of festive season from Q2 to Q3 had an impact on ad revenue growth in the quarter. The company witnessed dip in advertising yield by 2-3% due micro economic concerns. We expect JPL will outperform its peers considering healthy mix of ad pie and healthy circulation revenue growth. We believe concerns over slowdown in ad spent on print media are factored in the current valuation.
Ad revenue growth remained muted, circulation revenue growth on track: JPL reported net sales growth of 5% YoY led by mix of ad and circulation revenue growth. Ad revenue grew by 3.8% YoY to Rs 211.8crs. Shift of festive season from Q2 to Q3 impacted on ad growth in the quarter. The management has guided healthy ad revenue growth in Q3FY12 which will be driven by festive season and wedding season after Diwali. Circulation revenue increased by 8.8% YoY to Rs 61.2crs. Out of the total circulation revenue growth, 3% growth was driven by increase in cover price and 6.8% growth was on account of higher circulation.
Higher employee cost eroded EBITDA margins: EBITDA for the quarter stood at Rs 78crs, a marginal drop of 1% over Q2FY12 as employee cost increased due to one off provision in the quarter. Raw material cost also increased by 3% YoY as newsprint prices have increased. Consequently EBITDA margins for the quarter declined by 170bps to 24.3% over Q2FY12. We expect EBITDA margins to be lower in FY13 due to higher employee and other operating expenses on account of acquisition of Nai Dunai. However margins will improve in FY14E with healthy revenue growth and controlled newsprint cost due to change in raw material mix and pagination.
Valuation: Jagran has outperformed in terms of advertising revenue growth compared to its peers which have shown flattish to decline in ad revenue growth over Q2FY12. Circulation revenue continued to inch up further led by mix of cover price increase in higher circulation. Micro economic concerns are overhang on ad spent for print media and we expect industry to grow at a mid single digit in next 2 years. We believe JPL will post healthy revenue growth on the back of higher ad revenue driven by innovative ideas and higher circulation due to quality content. Curtailed operating expenses will help improve margins. Currently the stock is trading at 13.4x PE to its FY14E. We recommend ACCUMULATE on the stock with a target price of Rs 115," says KRChoksey research report.
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