As the impact of GST-related hiccups is waning, print ad revenues are expected to grow at a healthy 10% CAGR over FY18-20 on the back of recovery in ad spends led by increased launches across the FMCG and auto space. JAGP should further gain due to its leadership in recent IRS ratings, which should help command higher ad rates. Besides, higher government and political ad spends in FY19 – pre-election year of 2019 general elections and low base bodes well. Circulation revenue is likely to witness a soft 7% CAGR over FY18-20, driven by yield improvement and increase in Naidunia circulation copies contributing 2-3% to overall growth. However, increase in newsprint cost poses a threat. We believe JAGP is well positioned to absorb the increase in newsprint cost on (1) reduced share of imports, (2) lower pagination, and (3) 5-7% increase in price/copy. IRS 2017 indicates a 40% surge in total readership (TR) to 385 m; flat on an average readership (AIR) basis at 173 m though.
Readership of Hindi dailies registered a 45% increase to 176 m, with Dainik Jagran leading the TR/AIR, with 70.3 m/20.2 m readership. Further, in UP (key HSP market), Dainik Jagran maintains leadership, with 39.8 m/11.9 m TR/AIR. This should support better ad yields in FY19. Structural reforms impacted performance in the last two years and FY19 seems to be the year of recovery. Healthy ad and robust radio revenues are expected to steer growth. We believe JAGP would witness 10%/17% revenue/EBITDA CAGR over FY18- 20. Further, though rising newsprint cost could pose a hurdle to margin expansion, with JAGP’s three-pronged controls, we expect margins to reach 29% by FY20. JAGP currently trades at 12.2x FY19E and 10.1x FY20E EPS, and at an EV of 5.8x FY19E and 4.5x FY20E EBITDA. Excluding MBL, the core print business trades at 10.7x FY19E and 8.9x FY20E EPS, and at an EV of 5.5x FY19E and 4.3x FY20E EBITDA. Factoring MBL’s target value, the core print business is valued at just 10x FY19E EPS and an EV of 5x FY19E EBITDA.