Description

Jagran is India’s leading print group with operating history expanding 70 years+ and over 68+ million readers and 5 million+ in circulation. It publishes 11 print publications in five languages across 13 states, with a presence in 41 of India’s top 53 towns.  It also operates 39 radio stations across 12 states. 

India is the second largest print market in the world but highly fragmented with over 82,000 newspapers in publication in over 20+ languages. Literacy rate is high at ~74% and the print industry is seeing a trend of growing local content with markets in Tier 2 and 3 cities are experiencing the highest growth rate in the number of households. Compared to contracting circulation and advertising revenues in the developed world, total newspaper circulation more than doubled between 2010 and 2014, going from 110 million to 264 million.  In India, print advertising makes up over 40% of all corporate advertising.  In mature markets (i.e. Japan and US), and developing ones (i.e. Brazil and South Africa), less than 20% of ad revenues go to newspapers.  Between 2010 and 2015, print advertising grew by 60%+.  Ads are expected to make up around 72% of revenues at Indian papers by 2019, up from 65% in 2010.  Ads which historically have been national in nature have become increasingly local.  Advertisers have discovered the reach of vernacular print media and its ability to reach customers in growing tier 2 and 3 towns. Driven by growing readership and the increasing economic clout of a vernacular-speaking middle class, companies and advertisers are looking at smaller towns and rural India as potential growth markets, hence increasing spending on local media outlets.

Hindi and local vernacular language dominate print media circulation.  ~45% of India's 1.2 billion people speak Hindi, but only 25% of the population considers it their native language or mother language.  India has 23 constitutionally recognized languages with 13 accounting for more than 1% of Indian population each, and between themselves 95%.  Amongst the 10 most read Indian daily newspapers in India, only one is in English with Jagran’s Dainik Jagran holding the top spot at ~16.5 million readers.  English newspapers used to have 45% market share as of 2009, but by 2019, expectations are for that to drop to 30% with Hindi comprising 33% of the market and other Indian languages comprising remaining 37%.

Clearly a concern is the threat of the internet.  While the Internet has disrupted the print and newspaper industry in the developed world, ~80% of the country still lacks internet penetration, despite high growth rates. For Jagran specifically, threat from internet is minimized as its target markets are regions with low GDP per capita (<$1,000) and where literacy is lower than national average but growing.  Those with internet access usually suffer from broken links, bad user interfaces and ads shown as news stories which have put readers off. A bigger challenge is the actuall diversity in the regional languages, making texts and computer keyboards challenging to customize for the regional languages, making uniformity difficult.   A further challenge is that accessibility to newspapers is high, as newspapers can cost as little as 0.10 USD. 

Jagran generated ~INR 23.9 billion in revenues in latest fiscal year, of which 75% is derived from advertising (65% print and 11% from radio advertising) and remaining from circulation.  Advertisement revenue is expected to increase by 8-10% this year and at low double digits going forward driven by improvements in yield.  Dainik Jagran, the most widely read publication in India with readership of ~16.5 million readers, generates ~75% of the revenues. Uttar Pradesh (UP), second largest state in India contributes ~50% of Dainik Jagran’s revenues.  UP is home to ~17% of India’s population, with a literacy rate of 55% and of which an estimated 49% are reading a newspaper, thus providing a backdrop for significant growth.

Jagran also owns Radio City, number two radio station in India, which it acquired in 2015.  Acquisition diversifies the company away from print and into a faster growing segment. Unlike the newspaper industry, radio is a relatively new industry in India as private players were only allowed to enter the market in 2002. There is significant growth expectations for the industry, as radio’s reach has grown from 42 million in 2007 to 158 million in 2012 and expected to grow to 182 million to 2020 with advertisement pie expected to double in the medium term. For Jagran, radio business revenues were up 23% yoy in the last quarter, led by price hike as well as an increase in inventory utilization. Management has guided to 15%-17% growth and expects to launch new stations later this year which is expected to driver further growth.

Both print and radio businesses generate high cashflows, with attractive growth profiles.  Consolidated EBITDA margins are at 28-29% (vs. 23% FY 2014).  Margins are expected to continue to improve as it benefits from operating leverage as well as improved synergies from the Radio City acquisition.  A recent tailwind has been the reduction in raw material costs on the newsprint side given fall in demand of newsprint in developed markets creating downward pressure on costs as well as a shift to increasing production in India, reducing the volatility of FX changes.

Looking at valuation based on print advertising growing at high-single digits, circulation growing at mid-single digits and radio growing at mid-double digits, with print EBITDA at ~25% and radio EBITDA at ~35% results in EPS of ~14 in 3 years, bringing 2018 P/E at 14x while 2018 EV/EBITDA at 8x. 

Another way to view this is from a sum of the parts.  If you assume that the print business can generate INR6 to 7 billion in EBITDA and assume the business is valued at 8-10x EBITDA, you are basically getting the radio business at a significant discount, especially given the growth profile and large barriers to entry in this segment. 

Catalyst

- Long runway for growth in underpenetrated markets

- Radio segment growth

- Operating leverage in underlying business kicks in