StocksInsights Hidden Treasure December 2015 pick –

Jagran Prakashan Ltd(JPL)-A Play on the Regional Print Media Space

Content Index

•JPL Limited – Investment Snapshot :- Slide #3

• Media Industry – An Overview:- Slide #5

• Investment Arguments :- Slide #19

•P&L - Slide #31

• Concerns & Reasoning :- Slide #33

Jagran Prakashan Ltd - Investment Snapshot (as on Dec 30, 2015)

Recommendation :- BUY

Maximum Portfolio Allocation :- 3%

Investment Phases & Buying Strategy

1st Phase (Now) of Accumulation :- 50%

Current Accumulation Range :- 155-165Rs

JPL is our typical Multibagger stock, but a Stock which is a GoodInvestment under current Market conditions. It has a presence ina space which offers enormous potential and is also trading atreasonable valuations which will deliver superior returns in thelong run.

Core Investment Thesis :

The company is in print media space and has a strong brandwhich has been its strength. The company has good reach in theHindi heartland and has been growing its readership base. Thecompany is also likely to benefit from strong AD revenues goingforward which makes it an attractive bet.

Current Market Price – Rs.158.00

Current Dividend Yield – 2.20%

Bloomberg / Reuters Code –JAGP. IN/ JAGP.NS

BSE / NSE Code – 532705/JAGRAN

Market Cap (In Rs. Cr) - 5190

Equity Share Capital [Cr]– 63.45

Face Value – Rs.2

52 Week High / Low – Rs. 164/Rs.107.25

Promoter’s Holding – 60.76%FII - 14.95%Mutual Funds - 12.70%Other Holdings - 11.59%

Key Investment Highlights

1.) Presence in a growing sector:- Company is in a space which is a growing sector which presents growthopportunities.

2)Good Brand Recall: Company has a good brand recall and has built good reputation. This has helped the company to increase subscription revenues which has enhanced revenues and profitability.

3.) Strong consumption theme :- The stock is a proxy play on the consumption theme and rural demand which offers structural long term demand.

4.) Strong return on Incremental Investments:- The company has strong return on incremental investments with ROE of 27% across cycles.

5) Under Penetrated Industry:- The print industry remains highly under-penetrated with rural reach as low as 21% which provides significant growth potential.

6.) Strong & Healthy Balance sheet :- Company has a very strong balance sheet with low Debt-Equity of about 0.3x that throws light on the quality of the business.

7.) Presence in growing Markets :- Company is currently present in major hindi speaking states that are growth engines of the economy whose GDP growth is above national average.

8) Margin Accretive:- The company’s margins are likely to improve going forward as low news print cost will enhance the margins of the company.

9.) Management/ Corporate Governance :- The company has a good management and adhere to strong corporate governance norms. The company is run professionally by a team of professionals who have a strong understanding of the business and have a strong vision about its business.

10.) Compelling Valuations :- In spite of so many advantages, the company is quoting at very attractive Valuations. The company is quoting at 11.13x its FY15 consolidated EPS which is reasonable for the Quality of this stock which has strong market share in key growth states which provides revenue visibility.

Industry Opportunity & Potential- An Overview

Media & Entertainment Industry

Strong Demand and policy Support

Media & Entertainment Industry

•The vernacular market continues to enjoy the highest total readership which is followed by Hindi andEnglish.

• English continues to garner the largest share of revenues i.e around 41% on account of better coverage of SEC A and SEC B homes which correspond to consumers with high purchasing power and are concentrated in urban areas.

•The top six metros constitute around 31% of the total goods and services consumed in India ,however 62% of the media spends still go these six cities.

•Further the readership and circulation have a strong correlation with literacy levels which improved from 65% in 2001to about 75% at present.

Segments of the Indian Entertainment Industry

•The entertainment industry continues to be dominated by the television segment, accounting for 45 percent of market share in terms of revenues, which is expected to grow further to 50 per cent by 2018.

•Television, print and films together account for 86 per cent of market share in 2013.

•The dominance of television in the Indian Entertainment Industry is expected to continue as it is likelyto witness an increase in its share of revenues from 45% in 2013 to about 50% in 2018.

•Print media would be the second largest sector and Out of Home (OOH), Music and Gaming is expected tocontribute 2.0 per cent each to the entire industry by 2018.

its existing customers

Print Media Market Overview

•.The entire media sector isestimated to be about Rs.834 Bnand is expected to grow to aboutRs.1400 Bn by 2017.

•The print media industry size ispegged at about Rs.224 Bn in 2012and is projected to grow to about340 Bn in 2017.projects.•Within the print media marketNewspaper revenues account for95% while the rest 5% is accountedby the magazine segment .

•While the advertising revenues areexpected to grow by a CAGR ofabout 10% the circulation revenuesare expected to grow by a CAGR ofabout 4.5%.

•The total industry is expected togrow by a CAGR of about 8% giventhe GDP growth likely to be about6% in the coming years.

Print Media 2014

•The print Media advertising grew by 8.5% in 2014 to reach Rs. 176 billion from `Rs.163 billion in theprevious year.

•Print contributed 43% to the total advertising revenue for the industry in 2014, retaining its No.1 positionamong various media segments.

•Circulation revenue grew by 7.9% to reach ` 87 billion in 2014. Growth in circulation mainly came from TierII and Tier III cities with regional language newspapers outperforming the National English dailies.

•Hindi and vernacular markets accounted for nearly 64% of the total print revenue in 2014. Contributionfrom the regional advertisement also increased in the overall print advertising pie this year.

Television to be the fastest growing segment

•With a growth rate of 15.8* per cent in 2011, Indian television industry stood second when compared with BRIC and other major developed economies.

•In 2013, the television industry in India derived the major share of its revenue from advertising segment (33 per cent) and the rest from subscription (67 per cent).

•Nonetheless, the share of subscription in the overall revenue of the TV segment is expected to increase to 71 per cent by 2018.

• A vibrant economy and higher disposable income would lead to higher advertising spend by companieswhich will have the highest positive impact on the television segment.

Regional Entertainment Industry

•Regional Entertainment channels comprising mostly of regional GECs (General Entertainment Channels),regional movies and regional music.

•It accounted for 23 per cent of the total television viewership share in 2013.

•In print media, the rise in literacy rates, significant population growth, the rise in incomes in smaller townsand the entry of big players in regional markets is likely to drive future expansion of circulation andreadership across India .

•Viewership in South India is dominant for regional entertainment. It is comparatively less for Oriya, Gujarati and Bhojpuri, which is equivalent to only 1 per cent each.

Industry Advertising Revenues

•Total spending on advertising across all media stood at USD17 billion in 2014.

•Print is the second largest contributor, accounting for 26 per cent of the advertising share.

•Advertising revenue is expected to touch USD11.3 billion by 2018 at a CAGR of 13.9 per cent.

• The AD revenues have been growing in the region of 5.5% to 6.2% and this is likely to increase to about11.3% in FY2018.

Digitalization

•With the advent of the internet age, newspaper readership growth in metro cities has stagnated in the pastfew years.

•Most office goers prefer surfing for news on the internet, other factors such as long travel times andalternative recreation forms such as malls, theaters, etc have contributed to a slowdown in newspaperconsumption in the metro regions. On the other hand, regional newspapers have a lot of room to grow giventhat they are still largely under-penetrated.

•while internet connections are rapidly increasing pan-India, the quality of the connectivity in the non-metrocities acts as a major hindrance to surfing for news online. However we do not foresee that digitalization willimpact newspaper readership in the non-metro cities in the next few years.

Porters Five Forces

Rising Pricing Power

•With competition easing regional print companies have rationalized circulation strategies and raisedrealizations on sale of newspapers.

•Circulation revenues are now set to contribute higher for print media companies on account of increase in prices.

•The regional print media is in a sweet spot as there is scope for further increase in prices due to customerstickiness and raising regional prosperity.

• However the print media is likely to increase prices on a judicial basis considering their long term business interest and actions of competitors.

High Potential Hindi Market

• Hindi speaking states offer immense potential due to lower readership among literates which shows thelevels of under penetration in these markets.

•In terms of AD revenue UP is the largest market constituting 31% of Hindi market followed by Rajasthan at about 19% while Chandigarh, Punjab, Haryana, Himachal Pradesh account for about 15%.Madya Pradesh accounts for about 31%.

•Intense competition has resulted in top 2 player being dominant in the market. In states like Rajasthan andBihar the top 2 players control 85-90% of readership while it is about 65% for Haryana and Chhattisgarh.

JPL – Investment Arguments

Company Snapshot

•JPL is one of the leading print media companies in India. Dainik Jagran, its flagship daily Hindi publication, is the most widely read newspaper in India across all languages.

• JPL, in addition to Dainik Jagran, has 11 publications across five languages, 121 editions and is distributed in15 states.

•JPL also has a significant digital presence, with the prominent websites being jagran.com andjagranjosh.com. All the Jagran sites combined have clocked 30 million unique users.

• JPL has acquired a 100% stake in Music Broadcast Pvt Ltd. (MBPL), which operates the leading FM stationbrand ‘Radio City’ (91.1FM). MBPL has 20 stations under the ‘Radio City’ brand and 14 internet radio stationsunder the brand PlanetRadiocity.com .

Market Leader

•JPL derives ~75% of its revenues through Dainik Jagran, of which advertising revenues accounted for 76% ofrevenues, while circulation revenues accounting for the rest.

• Dainik Jagran is the highest read publication in India with a weekly readership of 16.4 mn followed byDainik Bhaskar with a weekly readership of 14.4 mn .

• Dainik Jagran has a strong foothold in UP, the most populous state in India, which accounts for ~50% of itstotal revenues.

• JPL also has a dominant presence in Bihar and Jharkhand, which forms ~15% of the total revenues. Apart from these three states, Dainik Jagran has a strong presence in the northern belt viz. Delhi, J&K, HP, Punjab, Chandigarh, Haryana, J&K and Uttaranchal and the central region states of MP and Chhattisgarh.

Growing Presence

Competitive Position

JPL vs DBCORP

Presence in high per capita states

•The per capita income in JPL’s key markets is amongst the lowest in India; on the upside, it has a lot ofpotential to increase in tandem with the economic growth anticipated in the overall economy.

•According to the management, a per capita income of Rs.1.2L and beyond triggers growth for newspaperconsumption in a region.

•The penetration of internet in the Hindi belt has been in the range of abut 10-18% which will also increasedemand for newspapers given growing income levels.

Print Revenues

•From 1942, when the first edition of Dainik Jagran was launched in Jhansi, JPL now has a presence in 15states, with 12 publications and 121 editions across 5 languages.

•JPL’s print media revenues have grown at a 3 year CAGR of 12.2% as compared to the industry average of8% .

•Dainik Jagran’s revenues in the past three years have remained flat owing to a subdued economy andmoderation in ad rates in FY12-13. Going forward, with the pick-up in economic growth and higher adspending, JPL’s revenues are expected to grow at a CAGR of 15%.

Mid-Day Acquisition

•JPL acquired Mid-Day from Mid-Day Multimedia now known as Next Media Works in a cashless transactionin 2010.•

•JPL’s Mid-Day’s English edition is Mumbai based and also has a Gujarati publication and an Urdu publicationviz. Inquilab.

• The Mid-Day acquisition has helped the company diversify into English dailies and tap the youth readershipin metro cities. Further, it also gives JPL access to Mid-Day’s advertiser’s base which it can leverage for itsflagship publication. According to IRS Mid-Day is the 7th highest read English publication in India .

Digitalization

•JPL also has a significant digital presence, with the prominent websites being jagran.com andjagranjosh.com.

•JPL’s Jagran sites combined have clocked 30 million unique users as per Q3FY15 Result presentation by thecompany.

• The JPL management expects a 30-40% CAGR in this segment over the next few years given the room toincrease advertising revenues with higher viewership.

Print Radio & Digital

Robust Growth

P&L

Balance Sheet

Concerns & Reasoning

1.) Steep rise in newsprint cost :Newsprint forms the major raw material for the print media sector and forms a significant portion of theirexpenses. JPL imports ~20% of its newsprint requirements, thereby exposing itself to the risk of currencyfluctuations.Any significant increase in the price of newsprint could adversely affect the margins of thecompanies in the print media.

2.) Dependence on AD Revenues :

Ad-spend by advertisers and ability to attract new advertisers is influenced largely by the circulation andreadership, the geographical reach, readership demographics of newspapers and the preference ofadvertisers for one media over another. Further intense competition from new entrants may depress ADrevenues which may affect the financial results of the company.

3.) Decrease in circulation :

Circulation of newspapers and magazines among the readers is an important source of revenue for theCompany since it derive significant revenues from subscriptions. In addition, circulation and readershipsignificantly influence ad-spend by advertisers and the advertising rates in the newspapers. Circulation andreadership is dependant on the quality and reach of the publications and the loyalty of existing readers. Adecline in circulation will adversely impact the financial results of the company.

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