SECTOR REPORT 18 MAR 2019 Print Media HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Rebound likely (cyclical)! FY17-19 washout years: Indian print media had been caught up in the crossfire of demonetisation, GST, an economic slowdown, govt clampdown on classified ads and a steep rise in newsprint prices. Consequently, 9MFY19 EBITDA margin have declined by 400-600bps to 21-22% vs. the 5yr trailing avg of 26-27% (and peak margins of 30-32%). FY19-21 upswing likely - levers in place: The Indian print industry is at the cusp of a revival (albeit cyclical). Newsprint prices have declined by ~20-25% from their peak, increase in DAVP (govt ads) by 25%, upcoming elections and an economic rebound will boost ad revenues. Thus, we believe that the print industry earnings will revert to its potential growth. Government ads accounts for ~15% of revenues. Print - Dead or alive? The debate continues: Globally, with a shift to digital, the future prospects (and thus terminal values) of print media continue to be shrouded in an air of uncertainty. Indian print media, we believe has a few more years of growth ahead of it. India is under-indexed on advertising expenditure (adex) compared to other countries. There are other factors that differentiate the Indian print media industry from its global peers like local content, a unique distribution model, low literacy, cultural habits etc. We thus expect both traditional and new age media to co-exist and grow, for now. Trough earnings, trough multiples – a rare duo: We are surprised at investors’ pessimistic view on Indian print media, consequently, they are available at low earnings and multiples. Valuations at 9-10x earnings are near a decadal low. Surprisingly, global peers, that run a higher extinction risk, are trading at 2x (18-20x PE) the multiples of their Indian peers. Robust cash flows, healthy payout: Led by a revival in ad spends and a decline in NP prices, we expect DB Corp (DBCL) to generate healthy cash flows of ~Rs 4.5bn p.a. over FY19-21 (13% FCFE/Mcap) followed by Jagran (JAGP), at Rs 3.8bn p.a. (11.7% FCF/Mcap). With a ~55-60% payout, the dividend yields are healthy at ~6-7%. BUY: Initiate with a BUY on DBCL with a TP of Rs 282 (+41%) and JAGP with a TP of Rs 148 (+33%), both at a modest 12x FY21E EPS (35/25% discount to historic average) . We have assumed a revenue CAGR of 5.5/6% for DBCL/JAGP over FY19-21E. Our EBITDA/earnings CAGR is 21.5/25% for DBCL and 16/21% for JAGP are led by a decline in NP prices. Valuation Summary Name MCap (Rs Bn) CMP (Rs) TP (Rs) Reco P/E EV/EBITDA P/B ROE FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E DB Corp 35 198 282 BUY 12.8 9.9 8.5 6.4 4.9 4.0 1.9 1.8 1.7 14.6 18.8 20.8 Jagran 33 113 148 BUY 12.9 10.7 8.8 5.7 4.6 3.9 1.7 1.5 1.6 12.8 14.8 17.7 Source: HDFC sec Inst Research Company Mcap (Rs bn) CMP (Rs) TP (Rs) Rating DB Corp 35 198 282 BUY Jagran 33 113 148 BUY Media Companies: Absolute Return (%) Company 3M 6M 12M DB Corp 13.8 (8.5) (38.4) Jagran (2.4) (5.1) (31.4) HT Media 5.6 (19.3) (51.5) HMVL (4.9) (24.8) (47.9) Zee Ent (1.2) (1.5) (19.8) Sun TV 5.4 (7.7) (31.3) TV18 (1.3) (12.0) (46.7) MBL (6.8) (7.8) (17.4) ENIL (9.3) (16.1) (25.9) Dish TV 7.2 (40.2) (42.9) PVR 8.7 26.3 30.8 Inox Leisure 35.9 32.6 18.1 Himanshu Shah [email protected]+91-22-6171-7315
Transcript
SECTOR REPORT 18 MAR 2019
Print Media
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Rebound likely (cyclical)! FY17-19 washout years: Indian print media had been
caught up in the crossfire of demonetisation, GST, an economic slowdown, govt clampdown on classified ads and a steep rise in newsprint prices. Consequently, 9MFY19 EBITDA margin have declined by 400-600bps to 21-22% vs. the 5yr trailing avg of 26-27% (and peak margins of 30-32%).
FY19-21 upswing likely - levers in place: The Indian print industry is at the cusp of a revival (albeit cyclical). Newsprint prices have declined by ~20-25% from their peak, increase in DAVP (govt ads) by 25%, upcoming elections and an economic rebound will boost ad revenues. Thus, we believe that the print industry earnings will revert to its potential growth. Government ads accounts for ~15% of revenues.
Print - Dead or alive? The debate continues: Globally, with a shift to digital, the future prospects (and thus terminal values) of print media continue to be shrouded in an air of uncertainty. Indian print media, we believe has a few more years of growth ahead of it. India is under-indexed on advertising expenditure (adex) compared to other countries. There are other factors that differentiate the Indian print media industry from its global peers like local content, a
unique distribution model, low literacy, cultural habits etc. We thus expect both traditional and new age media to co-exist and grow, for now.
Trough earnings, trough multiples – a rare duo: We are surprised at investors’ pessimistic view on Indian print media, consequently, they are available at low earnings and multiples. Valuations at 9-10x earnings are near a decadal low. Surprisingly, global peers, that run a higher extinction risk, are trading at 2x (18-20x PE) the multiples of their Indian peers.
Robust cash flows, healthy payout: Led by a revival in ad spends and a decline in NP prices, we expect DB Corp (DBCL) to generate healthy cash flows of ~Rs 4.5bn p.a. over FY19-21 (13% FCFE/Mcap) followed by Jagran (JAGP), at Rs 3.8bn p.a. (11.7% FCF/Mcap). With a ~55-60% payout, the dividend yields are healthy at ~6-7%.
BUY: Initiate with a BUY on DBCL with a TP of Rs 282 (+41%) and JAGP with a TP of Rs 148 (+33%), both at a modest 12x FY21E EPS (35/25% discount to historic average). We have assumed a revenue CAGR of 5.5/6% for DBCL/JAGP over FY19-21E. Our EBITDA/earnings CAGR is 21.5/25% for DBCL and 16/21% for JAGP are led by a decline in NP prices.
Contents Industry Overview........................................................................................................................................... 3
Indian print – hanging on ..................................................................................................................................... 3 TV lost to digital, early on .................................................................................................................................... 4 Print followed later .............................................................................................................................................. 4 Key factors keeping Indian print alive! ................................................................................................................ 5 Buoyancy in regional print to continue ............................................................................................................... 7 Market overview .................................................................................................................................................. 8 Key customers - Print vs. TV vs. Digital .............................................................................................................. 12 Cost structure: Newsprint key ingredient .......................................................................................................... 13 Radio complements the print business ............................................................................................................. 16 Outlook .............................................................................................................................................................. 21 Valuation Summary ............................................................................................................................................ 22 1yr fwd P/E & EV/EBITDA charts ........................................................................................................................ 24
Companies
DB Corp – Aggression rebounds ........................................................................................................................ 25 Jagran Prakashan – Well-poised for growth ...................................................................................................... 37
PRINT MEDIA : SECTOR REPORT
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Industry overview Indian print – hanging on
India with a world population share of 17% and a global GDP share of ~7.4% has an Adex (advertising expenditure) share of mere 1.5%.
China and USA has substantially higher Adex than both population and GDP. Thus, the headroom for growth of media in India is phenomenal. India continues to register a healthy 3-4x (12-16%) growth in Adex vs. the global average of 3-4%.
Contrary to popular belief of Print as a fading business, it may provide some solace that print may continue to register a modest growth in the foreseeable future as consumption and thus adex grow.
Global Advertising Industry Overview
Year 2017 As % of Global
Population GDP Adex* China 18.0 18.0 24.0 USA 4.0 15.0 35.0 India 17.0 7.4 1.5 Rest of the World 61.0 59.6 39.5 World 100.0 100.0 100.0 Total Size of the market 7.55bn $75 trillion $ 550bn Source: Industry estimates, Pitch Madison, HDFC sec Inst Research *Adex is advertising expenditure
Global print media industry has been on the decline and losing consumers and thus advertising revenues to alternate mediums. On the contrary, as the oldest pillar of the M&E industry, Indian print media has not only survived through peaks and troughs over a period of time, but continues to grow defying the global trend.
Adex Spend As % Of GDP – India vs. Global Segment-wise M&E Growth Trend
Source: FICCI-KPMG report 2017, DB Corp Investor Presentation, HDFC sec Inst Research
Source: Pitch Madison, HDFC sec Inst Research *Others comprises of Out of Home (OOH), Radio and Cinema
Indian advertising industry has registered strong 13% CAGR over CY09-18 (last four years 17%). This is despite headwinds of demonetization, RERA etc. However print has underperformed due to structural and cyclical concerns. As the situation improves, we expect the growth to pickup. Despite healthy growth, M&E spend in India is considerably lower than the global peers. It is reflective of sizeable potential.
0.33%
0.85%
0.97%
0.76%
0.86%
0.76%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
India UK US China Japan World
(5.0)
5.0
15.0
25.0
35.0
45.0
55.0
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
E
TV Print Digital Others Overall
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TV lost to digital, early on Segment-wise Advertising Revenue Mix
Source: Pitch Madison, HDFC sec Inst Research
Over CY09-14, digital primarily gained share from TV. We believe this was due to lack of inventory expansion (new channel launches) on account of capacity constraints on analogue cable with limited channel carrying capacity, and over-dependence on FMCG sector for advertising revenue. Over the last four years (CY14-18), these factors got reversed with digitization of cable leading to new channel launches and consequent superior advertising revenue growth and stability in its share in the advertising pie.
Print followed later
While TV declined during CY09-14, share of print media was stable. Post the global downturn; print especially Hindi and regional witnessed expansion in its inventory with entry into new states or deeper penetration into existing markets with new edition launches, increased demand from local advertisers etc. Within print, Hindi and regional print have performed relatively better, while English newspapers have struggled.
Absolute copies in circulation per day increased from 39mn in CY06 to 63mn in CY16 viz. growth of 60% or 5% CAGR. Similarly, absolute Hindi copies in circulation per day increased from 10.6mn in CY06 to 24.5mn in CY16 viz. growth of 130% or 8.8% CAGR. In our view, significant increase in circulation was primarily during CY06-13 that enabled growth of print.
Circulation CAGR 2006-16 (%)
Source: ABC, HDFC sec Inst Research
TV lost to digital over CY09-14 due to lack of digitization and thus capacity constraints. It was followed by Print over CY14-18 due to lack of expansion.
8.76% 8.28%
6.40%5.51%
4.11%2.87%
1.50%
Hin
di
Telu
gu
Kann
ada
Tam
il
Mal
ayal
am
Engl
ish
Oth
ers
Circulation CAGR 2006-16
43.4
42.1
41.8
39.8
38.7
37.9
39.2
38.1
37.0
38.5
39.0
41.2
41.9
42.0
41.5
41.0
40.8
38.5
36.7
35.1
31.9
28.8
3.6
4.1
5.6
8.0
9.5
10.6
11.6
14.8
17.5
19.2
22.0
-
20.0
40.0
60.0
80.0
100.0
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
E
TV Print Digital OOH Radio Cinema
%
PRINT MEDIA : SECTOR REPORT
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However, over the last four years with rapid digitization, demonetization, GST, RERA etc; the growth for the sector had stumbled to low-to-mid single digit. It is also reflected in the space of advertisement sold in the newspapers.
Advertisement Space Sold In Newspapers In India
Source: Pitch-Madison, HDFC sec Inst Research
Key factors keeping Indian print alive!
Globally, print industry is witnessing rapid readership shift to digital platform. Yet, in India we expect print to stay and grow in near future before the electronic medium starts to influence its hazard. We high-light some of the distinctive features that differentiate the Indian print industry from globe:
Literacy rate in India of 79% is below the global average of 86% and provides scope for further improvement in print penetration. Newspaper readership penetration is just 30-35% of the people who can read, providing opportunity to tap these potential readers.
Historically, due to lower income and consequent lack of advertising revenues had led to lack of availability newspapers in this market. As the income level rises and advertisers chase this market, print should emerge as the beneficiary to tap these advertising revenues.
Data released by the Indian Readership Survey (IRS) 2017 indicates encouraging trends for print, especially the Hindi and Vernacular newspapers. The survey released its results after a gap of almost four years. Some of the key highlights from the IRS survey 2017 are:
Media Consumption Trend % Reach among Individuals aged 12+ Urban Rural Total
Universe size (Mn) 363 683 1,046
TV 88 (+3) 68 (+14) 75 (+10)
Newspapers read 53 (+6) 31 (+9) 39 (+8)
Listened to Radio 28 (+13) 15 (+7) 19 (+9)
Accessed Internet 33 (n.a.) 12 (n.a.) 19 (n.a.)
Magazines read 9 (n.a.) 3 (n.a.) 5 (n.a.)
Watched Cinema 6 (*) 2 (*) 3 (*) Source: MRUC (IRS 2017), HDFC sec Inst Research Figures in brackets indicate growth over IRS 2014, n.a. = not available in earlier IRS; * = insignificant
199
231
272
288
316
310330.8
341.8
342.3
338.1
150
200
250
300
350
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
Vol in CC (Mn)
Key factors driving newspaper readership in India is habitual factor, unique distribution model, improving literacy rate and local contents
PRINT MEDIA : SECTOR REPORT
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Dailies Have Added ~110mn Readers In Last Three Years
Source: IRS 2017, HDFC sec Inst Research
Dailies Readership (In Last Month, 12+ Yrs): Growth Across Demographic Classification Of Consumers
Source: IRS 2017, HDFC sec Inst Research
Dailies Readership (In Last Month, 12+ Yrs): Growth Across Age Groups
Source: IRS 2017, HDFC sec Inst Research; Note: respective NCCS or Age group = 100 Dailies Readership (In Last Month, 12+ Yrs): Growth Across Age Groups
Source: IRS 2017, HDFC sec Inst Research
Data recently released by the Indian Readership Survey (IRS) 2017 indicates encouraging trends for print media, especially the Hindi and Vernacular newspapers
Whiles Readership Base Expands, “Yesterday Reader” Base Is Almost Flat - A Worrying Sign
Dailies Readership (in Mn, 12 yrs+) IRS 2014 IRS 2017 % chg vs.
2014 Last 1 month 276 385 39%
Upto 7 days 243 306 26%
Upto 3 days 208 241 16%
Yesterday 172 173 1% Source: MRUC, IRS 2017, HDFC sec Inst Research Base: All languages, All India (U+R), 12+
Unique distribution model in India, where the newspapers are made available at the doorstep of the readers for Rs 4-6/copy vs. significantly higher price globally.
Globally, due to high labour cost, newsreaders are forced to reach out the distribution centre/public places thus constraining the growth.
Localization of content in the Indian market, relevant to the newsreaders, has been another driving factor in the growth of circulation/readership. Globally, newspaper publishing houses have been adamant to local news with focus on national/international news.
Credibility is another factor that would differentiate print media from other mediums especially with the rising menace of fake news.
Moving forward from breaking news phenomenon: While readers consume news differently, they demand that news is well-researched, authenticated and reliable. This creates an opportunity for traditional newspapers. Digital medium often face the menace of fake news and on the ownership of content. Print is no more a breaking news but break-the-news (analysis) phenomenon.
Buoyancy in regional print to continue
Rising readership penetration, localization of content and low cost of reaching the end consumers will drive the readership base and revenue growth for print media companies.
Push for copies in circulation to steer the growth especially for regional print. Circulation growth would be a function of increasing advertiser’s interests to tap the rising consumerism beyond metros and top cities. This has given rise to local and regional advertisers who constitute ~50%+ of the overall ad spend, momentum of which would continue unabated. We thus believe regional print companies are likely to continue to grow.
Circulation would also be driven by the need to further deepen the readership penetration as well as abate the growing competition especially in the regional print.
Content localization attract readers
National news dominates coverage over local and regional news. Television and social media have an edge in national news over print as it suffers from a time lag. On the other hand, local news is unlikely to be covered in as much detail by national media such as television though digital media has an edge over here too.
The need for local news is also borne out by the huge increase in number of editions of individual papers. This is also enabling local businesses to advertise in one or a few editions that serve their target markets. We believe, the focus on localization of content will act as a lever in: i) increasing readership in regions where media penetration is low; and ii) developing local advertising markets.
Yesterday readership base is flat over three years. This is a cause of concern.
PRINT MEDIA : SECTOR REPORT
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English vs. Hindi/Regional – difference not only confined to growth outlook
English and non-English dailies differ on various parameters in terms of quality of newspaper, number of pages, mix of colour vs. black and white (Refer table below for difference) etc. Most of the regional newspaper have similar characteristic.
English dailies are generally bulkier and have high cost of production. This is primarily due to better monetization of their advertising inventory in terms of volume and rates. However over a period of time even the regional dailies have started catching up with the increase in their readership and competition. This is evident from the increase in the number of colour pages in regional language newspapers.
English primarily being a metro phenomenon is more vulnerable to digital adoption. Hindi and regional print have been able to depict resilience and grow.
Differences: English vs. Hindi/regional newspaper English Hindi / Regional No of pages >35 20-25 Cover price Low High Advertising rate High Low Advertisers Geography
Large corporate, national
National, SME and Local
Area of operations Metro / top cities All Colour pages High Fewer Content National news Local news Newsprint Imported > 70% Imported < 70% Readership to circulation 1.5-2x 5-6x
Revenue growth Negative to low single digit
Low-to-mid single digit
Source: Industry discussion, HDFC sec Inst Research
Market overview Indian Print media is a ~Rs 320bn market with 2/3rd of
the revenue from advertising and 1/3rd from subscription. The segment has grown at ~10% CAGR over the trailing decade. In last 4-5 years the sector has grown at ~5% CAGR. The market is broadly equally distributed between English, Hindi and the regional print.
Language-Wise Share Of Volumes And Revenue (%)
Advertisement Market Size Of Key Regional Markets
Source: Industry discussion, HDFC sec Inst Research
The Rs 320bn Indian print industry is broadly equally distributed between English, Hindi and the regional print
25.1 34.6 31.7 33.6
34.4 31.6 36.1 33.1
40.5 33.8 32.2 33.3
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20.0
40.0
60.0
80.0
100.0
Volume Advertising Circulation Overall
English Hindi Regional
340 mn cc Rs 210bn Rs 108bn Rs 318bn
1,250
850 750 750 750
550 400
300
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200
400
600
800
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1,200
1,400
UPU Ra
j
MPC
G
CPH
Guj
arat
BJH
Mah
Delh
i
Advt market size (Rs Cr)
PRINT MEDIA : SECTOR REPORT
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Regional Print: Financial Snapshot For Key Players
55,861 19,771 76,316 18,505 24% 73.2 25.9 Source: Industry, MCA, HDFC sec Inst Research *Standalone FY17 ** We have assumed advertising/subscription revenue mix of 70:30 for Amar Ujala in absence of details State-wise Print Presence Of Key Players
DB Corp and Jagran has one of widest foot-print and leads in the Hindi/regional print market
PRINT MEDIA : SECTOR REPORT
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Print: Stable on competitive front…..
Regional print has been a highly stable market on competitive front. Each publisher enjoys leadership/significant market share in their niche market. This enables them to grab a lion’s share of advertising pie enabling them superior margins. Contrary to TV, in print market leader enjoys a disproportionate share of advertising pie. The difference in advertising rate is significantly large.
……. lack of consolidation opportunities
In the near future we don’t foresee any significant consolidation taking place. This is primarily due to strong operating profits and established positioning of each player in their niche market. The only consolidation witnessed by the industry since 2000 (to the best of our knowledge are):
Print Media: Limited Consolidation Year Acquirer Seller
2004 DB Corp Saurashtra Samachar
2010 Jagran Prakashan Mid-day
2012 Jagran Prakashan Nai Dunia Source: Industry, HDFC sec Inst Research In absence of consolidation opportunities DB Corp is
one of the player that has most aggressively expanded its footprint organically to newer states like Rajasthan (1997), Gujarat (2004), Central Maharashtra (2010), Jharkhand (2010) and Bihar (2015). DB Corp recently also increased its aggression in these markets especially in Rajasthan, Gujarat, MPCG and Bihar-Jharkhand by increasing the number of copies in circulation aggressively.
However, in the long run as advertising market starts shrinking (owing to shift to digital) and/or newsprint costs hurts adversely for a prolonged period, consolidation opportunity may arise. Stronger players with multi-state/national footprints like Jagran and DB Corp may look to grab the opportunity.
Top 10 Dailies AIR (‘000) - None Of The English Dailies Make It To Top 10 As TOI Moves Out
Publication Language 2013 2014 2017 % chg 2014-17
Dainik Jagran Hindi 15,527 16,631 20,563 24 Hindustan Hindi 14,246 14,746 18,134 23 Dainik Bhaskar Hindi 12,857 13,830 14,781 7 Amar Ujala Hindi 7,071 7,808 11,908 53 Malayala Manorama Malayalam 8,565 8,803 9,383 7 Rajasthan Patrika Hindi 7,665 7,905 8,103 3 Eenadu Telugu NA NA 7,016 NA Daily Thanthi Tamil 8,156 8,283 6,971 (16) Mathrubhumi Malayalam 6,136 6,020 6,355 6 Lokmat Marathi 5,601 5,887 6,342 8 Source: MRUC (IRS 2017, 2014), HDFC sec Inst Research
Only three M&A transaction in trailing 15-20 years in Print industry Niche and strong positioning of print players in their home turf coupled with healthy cash flows limits consolidation opportunities
PRINT MEDIA : SECTOR REPORT
Page | 11
Top 10 Hindi Dailies AIR (‘000) – Nai Dunia Is A New Entrant Replacing Hari Bhoomi
Publication 2013 2014 2017 % chg 2014-17
Dainik Jagran 15,527 16,631 20,563 24 Hindustan 14,246 14,746 18,134 23 Dainik Bhaskar 12,857 13,830 14,781 7 Amar Ujala 7,071 7,808 11,908 53 Rajasthan Patrika 7,665 7,905 8,103 3 Prabhat Khabar 2,719 2,988 3,559 19 Patrika 4,628 4,847 3,555 (27) Punjab Kesari 2,291 2,377 3,252 37 Navbharat Times 2,480 2,736 2,327 (15) Nai Dunia NA NA 1,612 NA Source: MRUC (IRS 2017, 2014), HDFC sec Inst Research Top 10 English Dailies AIR (‘000) – Indian Express Group Is A New Entrant; Deccan Herald And Midday Moves Out Publication 2013 2014 2017 % chg 2014-17 The Times Of India 7,254 7,590 5,500 (28) Hindustan Times 4,335 4,515 3,549 (21) The Hindu 1,473 1,622 1,801 11 The Economic Times 722 834 938 12 Mumbai Mirror 1,084 1,195 662 (45) The Telegraph 937 1,003 533 (47) The New Indian NA NA 433 NA The Indian Express NA NA 426 NA Deccan Chronicle 337 361 420 16 The Tribune 453 507 395 (22)
While only 4 categories account for 75% of television advertising, it takes as many as 13-14 categories to contribute the same percentage to print advertising. It demonstrates that print has a wide-spread clientele and therefore less vulnerable to volatility in individual categories.
Another fact that brings out the resilience of print partly is that it has ~2,00,000 advertisers compared to TV which has only 12,000 advertisers. Large advertiser base may act as support and thus lead to delay in the much pronounced death, if any of print media.
Customer Mix In Adex: TV vs. Print vs. Digital
Source: Pitch-Madison, HDFC sec Institutional Research
Segment-wise advertising revenue and the number of advertisers is widespread for Print vs. TV/Digital, thus reducing its dependence on vagaries of any single sector
50
12 8 5 5 3 3 2 1 1 1 1 7
14 14 10 6 6 5 4 4 4 3 2 1
26 28
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12 12 17
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Auto
Educ
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PRINT MEDIA : SECTOR REPORT
Page | 13
Cost structure: Newsprint key ingredient
Raw material primarily comprising of newsprint (NP) is one of the largest cost components of the print media companies constituting 45-50% of the overall costs for various players.
Cost Mix Of Various Print Players
Source: Companies, HDFC sec Inst Research
Newsprint prices and profitability inversely related
As a largest cost component, newsprint prices have a high bearing on the profitability of the company. It is difficult to pass on the fluctuation (increase/ decrease) immediately in newsprint prices to readers in the form of higher cover price or advertisers through ad rate hike.
This was evident since 2HFY18 when the newsprint prices sky-rocketed resulting into collapse of EBITDA margins for the publishers.
EBITDA Margin Trend Of Various Print Players
Source: Companies, HDFC sec Inst Research
Key factors driving the newsprint prices Newsprint, being a global commodity, is largely
driven by a) Demand-supply balance in the newsprint market and b) Cost of raw-materials: Prices of wood and pulp, constitute 30% of the cost of newsprint, energy 25% and rest is labour and other expenses. Energy prices further affect the cost of production and transport of newsprint.
Numerous factors impacted NP costs in CY18…… Indian print industry witnessed one of the highest
increases in newsprint prices in a decade in trailing 12 months. This has been primarily on account of (1) China’s campaign against environmental pollution resulting into ban on imports of pulp and paper waste for newsprint production. This in turn led to steep increases in newsprint imports causing global prices to rise. (2) Besides this the increase in crude prices and subsequent decline, increase in demand from US
27.6
27.6
31.0
25.6
27.3
24.5
27.2
22.0
27.1
18.0
21.6
31.5
27.9
31.6
21.7
31.4
24.6
23.5
17.3
26.6
15.9
21.2
14.0
17.0
20.0
23.0
26.0
29.0
32.0
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19
3QFY
19
JAGP DBCL Newsprint account for 50% of the total operating costs of the publishers Newsprint prices peak and trough in FY19
47.0
45.5
44.6
46.1
41.0
41.0
41.4
47.7
52.8
48.0
51.2
50.8
19.4
19.8
20.6
20.4
25.8
26.4
24.7
22.2
14.6
12.9
13.4
13.7
33.6
34.7
34.9
33.5
33.2
32.7
33.9
30.1
32.6
39.1
35.4
35.5
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20.0
40.0
60.0
80.0
100.0
FY16
FY17
FY18
9MFY
19
FY16
FY17
FY18
9MFY
19
FY16
FY17
FY18
9MFY
19
RM Costs Staff costs SG&A costs%
JAGP DBCL HMVL
PRINT MEDIA : SECTOR REPORT
Page | 14
and Europe and reduction in output of Canadian millers were other factors for increase in NP prices.
Newsprint Cost Trend
Source: Company, HDFC sec Inst Research
….and now, NP prices are heading back to normal
Recently the newsprint prices have declined to historical levels on account of China resuming its imports of waste paper and opening of idle newsprint manufacturing capacities. This has led to a drop of 30-40% in newsprint imports. We expect the newsprint prices to sustain at current levels viz. $ 550-580/MT vs. recent high of $750-780.
This should bode well for the print publishers. However due to increase in inventories owing to sharp rise in NP prices, the benefit is likely to accrue gradually from 1QFY20.
Newsprint Cost Trend: Domestic vs. Imported
Source: Industry, HDFC sec Inst Research
IRS: the lone measurement currency
The industry’s mixed reactions on IRS 2013 (Indian Readership Survey) results pushed for complete overhaul in the IRS methodology. This led to data-dark period of four years, which affected the media planning and the decision making ability in the print medium. IRS results are important for large corporate advertisers that account for ~50% of the ad spend.
IRS the lone readership study for print readership in India released its last report IRS 2017 in Jan-18 after a gap of four years. IRS 2017 has thrown up encouraging trends for print media as highlighted earlier viz. 40% increase in readership base from 290mn readers to 400mn. Rural readers increased by 70mn to 214mn.
20-25% reduction in newsprint prices is significantly positive for future earnings
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15.4
5.
2 8.8
(0.2
)(6
.4)
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44,000
48,000
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Indian Imported (RHS)Cost/tonne (Rs) Cost/tonne ($)
PRINT MEDIA : SECTOR REPORT
Page | 15
Regular survey results from IRS are essential for sustainability and growth of print advertising revenues. It could also help improve the advertising rates for the publishers.
Convergence – can lead to an evolution of business models
The traditional non-video segments like print may be amongst the first to see a wave of disruption caused by convergence, both in terms of consumption and how businesses are run. Thus a new age news organization would need to be conversant with, broadcast and print, as well as digital business models.
This convergence of business models also brings in additional revenue monetization opportunities, as number of channels expand to reach the consumer. For eg. News broadcasters and print players could look at garnering additional syndication revenue by disseminating their content on digital news aggregation platforms.
Therefore, whether it is traditional radio looking to stream digital music or print companies looking to establish a well-rounded digital presence across own applications, aggregator platforms and technology platforms; convergence is all about innovating across business models to monetize changing consumer preferences in optimal manner.
Recently, ten of India's biggest media companies created Digital News Publishers Association (DNPA). DNPA has been formed to find ways to cooperate in maximizing the current and future potential of the industry. DNPA is committed to providing the most credible news in all languages to the Indian audience, to self-regulation and to promote the business and editorial interests of all members.
Monetization on digital – long haul
Most of the print publishers have created a digital platform and are focusing to strengthen the same. All of us believe that in traditional print, publications cannot make money out of subscription. However, Jagran’s papers like Inquilab and Guajarati Mid-day are making money on subscription. With specialized and niche content monetization through subscription is feasible even on digital. Even business newspaper ‘Business Standard’ digital version is payable.
That said, in the short term, getting people to pay for digital content looks difficult in India. Since, there is a challenge in trying to monetize digital through the subscription route; so the primary source of revenue for digital is also advertising and as page views and more importantly engagement of the readers with digital platforms increase, the advertising revenues will go up.
However, over next 5 to 7 years from now, people may pay for good, genuine and credible content. As a consequence of that, print publishers are looking at preparing niche content that is monetizable through the subscription route.
PRINT MEDIA : SECTOR REPORT
Page | 16
Radio complements the print business
India’s radio sector is fairly consolidated, due to cost economies of scale and higher entry barriers. As a result, ~78-80% of revenues and ~70% of stations are held by the top 6 networks. This consolidation, coupled with the expansion of radio in Phase III (to over 400 stations in 115 towns), means that a single network can now offer an advertiser significant reach and create a viable add-on to print.
All the leading print (Times, Hindustan, Jagran, Bhaskar, Patrika, Mathrubhumi etc) and TV companies (Zee and Sun) have significant footprint in radio business. Regional print player Jagran and DB Corp have strong radio businesses.
Phase III set the stage for growth: With Phase-III auctions in FY16 and FY17, radio coverage increased significantly. Stations increased from 241 to 404 (+67%) and covered cities from 86 to 115 (+37%). This has led to growth in ad inventory in an otherwise supply crunched industry.
Phase III Auction Summary
Available for migration/
Auction Migrated/
Won Reserve Price
(Rs Mn) Migration/
Winning price (Rs Mn) Premium
(%) Phase II to III migration 245 241 - 19,650 Phase III, Batch 1 auctions 135 97 4,599 11,569 151.6 Phase III, Batch 2 auctions 266 66 1,893 2,007 6.0 Total 646 404 6,492 33,226 Source: MIB, Companies, HDFC sec Inst Research
Benefits of Phase III (a) Business visibility for fifteen years (b) Increased reach from 86 to 115 cities (c) Additional inventory in a supply crunched industry with stations increasing from 241 to 404 (d) Additional stations in existing cities should lead to content differentiation opportunities and thus improve listener base Government mobilized Rs 33bn from the radio sector Phase III, Batch 2 auctions were flop owing to high reserve prices
PRINT MEDIA : SECTOR REPORT
Page | 17
Industry Overview: Operator-Wise, Number Of Stations And Category Of City-Wise
No of stations, category of city-wise Migration/Winning Price (Rs Mn)
Metro A B Others Total Metro A B Others Total
ENIL (Brands: Radio Mirchi, Mirchi Love and Ishq FM)
Phase II to III migration 4 9 12 10 35 894 1,052 1,160 574 3,680
Phase II to III migration* 3 - - - 3 771 - - - 771
Phase II to III migration - 4 4 9 17 - 296 304 334 934
Phase III, Batch 1 - - 1 13 14 - - 61 263 324
Total - 4 5 22 31 - 296 365 597 1,258
Phase III, batch 1 saw participation from existing players with different strategies ENIL, Sun TV and HT Media focused on second stations in Metro and A cities similar to second GECs for TV Music Broadcast, Zee Media DB Corp etc focused on geographic expansion in B & C categories cities 2/3rd (66%) or Rs 7.6bn of the Rs 11.57bn spent were on second stations (14 out of 97 auctioned) in the Metro and A category cities Metro and A category cities accounts for ~60-65% of the Rs 21-22bn radio sector advertising revenue ENIL and Sun TV were the only major participants in Phase III, Batch 2
PRINT MEDIA : SECTOR REPORT
Page | 18
No of stations, category of city-wise Migration/Winning Price (Rs Mn)
Metro A B Others Total Metro A B Others Total
Next Media Works (Radio One)
Phase II to III migration 4 3 - - 7 894 488 - - 1,382
Others
Phase II to III migration 7 2 7 40 56 914 293 702 1,036 2,945
Phase III, Batch 1 - - 2 20 22 0 0 67 235 302
Phase III, Batch 2 - - 1 31 32 - - 70 618 688
Total 7 2 10 91 110 914 293 838 1,890 3,936
Overall
Phase II to III migration 32 39 51 119 241 6,854 4,846 4,327 3,623 19,650
Grand Total 36 58 66 244 404 11,536 9,151 5,610 6,929 33,226 Source: MIB, Companies, HDFC sec Inst Research *ENIL to acquire three stations of TV Today (brand Ishq FM) in Mumbai, Delhi and Kolkata Radio Operators Number Of Stations In Major States State ENIL MBL Sun Group ZMCL HT Media DB Corp Others Total Maharashtra 11 11 8 7 2 10 11 60 Tamil Nadu 7 3 12 3 - - 14 39 Uttar Pradesh 6 5 6 8 6 - 6 37 Gujarat 12 3 4 3 - 3 9 34 Rajasthan 3 5 2 5 - 6 5 26 Andhra Pradesh 7 2 7 3 1 - 5 25 Karnataka 4 2 5 5 2 1 5 24 West Bengal 5 - 4 2 1 - 7 19 Madhya Pradesh 6 - 3 3 - 4 3 19 Kerala 2 - 4 - - - 12 18 Punjab 3 2 1 3 - 2 1 12 Jammu and Kashmir 2 - 3 2 - - 11 18 Delhi 2 1 1 1 2 - 2 9 Others 6 5 9 14 - 5 25 64 Total 76 39 69 59 14 31 116 405 Source: MIB, Companies, HDFC sec Inst Research
85 of the 116 stations owned by regional/small players are with ten major radio players like Rajasthan Patrika, Mathrubhumi, Sambhaav Media, etc concentrated in states of Rajasthan, UP, TN, Kerala, J&K and Gujarat Rest is owned by other smaller companies with one or two stations
PRINT MEDIA : SECTOR REPORT
Page | 19
City-Wise Major Radio Operators And Number Of Stations
Cities ENIL* MBL Sun Group** ZMCL (RBNL) HT Media DB Corp Radio One Others Total
Metro Chennai 1 1 2 1 - - 1 3 9
Delhi 2 1 1 1 2 - 1 1 9
Kolkata 2 - 1 1 1 - 1 3 9
Mumbai 2 1 2 1 2 - 1 - 9
Sub total 7 3 6 4 5 - 4 7 36
A category cities Ahmedabad 2 1 1 - - 1 1 - 6
Bengaluru 2 1 1 1 1 - 1 1 8
Hyderabad 3 1 2 1 1 - - - 8
Jaipur 2 1 1 - - 1 - 1 6
Kanpur 2 1 1 1 1 - - - 6
Lucknow 2 1 1 1 1 - - - 6
Nagpur 2 1 1 1 - 1 - - 6
Pune 2 1 1 1 - - 1 - 6
Surat 2 1 1 1 - 1 - - 6
Sub total 19 9 10 7 4 4 3 2 58
B category cities 14 8 15 12 2 5 - 10 66
C, D & Other cities 36 19 38 36 3 22 - 91 245
Total 76 39 69 59 14 31 7 110 405
Stations market share (%)
Metros 19.4 8.3 16.7 11.1 13.9 - 11.1 19.4 100.0
A 32.8 15.5 17.2 12.1 6.9 6.9 5.2 3.4 100.0
B 21.2 12.1 22.7 18.2 3.0 7.6 - 15.2 100.0
C, D & Other cities 14.7 7.8 15.5 14.7 1.2 9.0 - 37.1 100.0
Overall 18.8 9.6 17.0 14.6 3.5 7.7 1.7 27.2 100.0 Source: MIB, Companies, HDFC sec Inst Research * ENIL’s number of stations include 3 stations in Mumbai, Kolkata and Delhi to be acquired from TV Today for which MIB approval is pending **Sun Group includes stations of entities South Asia FM Limited, Kal Radio Limited and Sun TV limited Classification of Cities: (i) ‘A+’ category cities – metro cities: Delhi, Mumbai, Kolkata and Chennai; (ii) ‘A’ category cities – population above 20
lakhs; (iii) ‘B’ category cities – population above 10 lakhs and up to 20 lakhs (iv) ‘C’ category cities – population above 3 lakhs and up to 10 lakhs (iv) ‘D’ category cities – population above 1 lakhs and up to 3 l(vi) ‘Others’ category cities – population up to 1 lakhs
ENIL’s foot-print is the strongest with dual stations across cities in the core radio advertising markets of Metro and A category cities
PRINT MEDIA : SECTOR REPORT
Page | 20
After registering healthy double digit revenue growth over FY15-16, radio industry’s revenue growth has been muted in low-mid single digit for last several quarters led by demonetization, GST and RERA impact. Slowdown in growth has been despite increase in the number of operational stations from 245 to 326. The low base, rising consumer sentiment and upcoming national (and state) elections may combine to deliver positive surprises.
Radio Industry’s Revenue Trend
Source: TRAI, HDFC sec Inst Research
Small-size of radio industry of Rs 20-25bn, being an add-on medium and for free; we believe the impact from digital/data revolution should be limited. Led by Phase-III expansion in new markets, utilization improvement and modest price increases in established markets; the radio industry should be able to deliver high single-digit growth.
Radio Industry’s Revenue Trend
Source: TRAI, HDFC sec Inst Research Radio : Operating Stations
Source: TRAI, HDFC sec Inst Research
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3QFY
18
4QFY
18
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2QFY
19
Operational stations
Despite increase in inventory on new station launches, radio industry has struggled to witness a healthy revenue growth We expect this to reverse as utilization improves further on new stations and yields on established stations
PRINT MEDIA : SECTOR REPORT
Page | 21
Outlook
FY17-19 washout years: The print sector wasadversely impacted due to the after effects ofdemonetization (Nov-16), coupled with weakadvertising demand due to implementation of GST(Jul-17) and RERA (May-16 and May-17).
Print advertising has been outside the gambit ofservice tax. However, 5% tax was levied on GSTimplementation. Local advertisers account for 55-60% of advertising revenue for regional printcompanies. These set of advertisers with highdependency on cash had a more profound impact ofdemonetization and GST.
Central Government’s decision to publish ads oftender notices digitally instead of newspapers tooimpacted the growth.
On top of it, steep increase of ~30% in newsprintprices from 2HFY18-1HFY19 added fuel to theburning problems of print media companies.
Happy days are likely to be back again (FY19-21):Most of the advertising agencies expect the Indianprint media to continue to grow in mid single digit.As per KPMG, over FY14-18 Indian print industryregistered 6.5% growth. It expects the print industryto grow at a healthy (though would lag othermedium) 6% CAGR over FY18-23E.
During downturn, flat yields due to demand crunchand peak newsprint prices were key concerns. Boththese worries are fading with the recovery in demandand decline in newsprint prices. Our assumptions are~5-7% advertising revenue CAGR between FY19-21E.
To conclude, India’s print media story continues to bea happy one. And a robustly growing India will remainparadise for newspaper mavens for a while yet. Thereare still ~280 million people yet to become literate.And when they get there, they may want their ownnewspapers, too. In our view, sponsorship programsby newspaper publishers with schools are importantto keep this cultural habit alive and ringing.
Surprisingly, global peers, where the risk of extinction of print is higher, are trading at 2x (18-20x PE) the multiple of Indian peers.
PE multiple – Global vs. Indian regional print: Globally print media is considered as dying business. To our surprise, still these global companies are trading at near 2x the PE multiple (18x CY20) of Indian regional print (9x FY21E). We believe this divergence is owing to success of some of the global print players in monetizing news on digital platforms.
Initiate with BUY on Jagran Prakashan (JAGP) with TP of Rs 148 and DB Corp (DBCL) with TP of Rs 282, both at 12x FY21E EPS (25/35% discount to historic average PE of 16/18x respectively). Over FY19-21E, we are assuming modest revenue CAGR of 6/5.5% and EBITDA/earnings CAGR of 16/21% for JAGP and 21.5/25% for DBCL.
Source: Bloomberg, Company, HDFC sec Inst Research Source: Bloomberg, Company, HDFC sec Inst Research
Due to dual whammy of low advertising revenue growth and steep increase in Newsprint prices, Indian regional print media companies are trading at near triugh valuationsin our view. 0
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INITIATING COVERAGE 18 MAR 2019
DB Corp BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
Aggression rebounds DB Corp’s (DBCL) flagship daily, the Dainik Bhaskar is the 3rd most widely read Hindi daily. However, DBCL is the overall leader in ad revenue, occupying the top spot in MP and Chandigarh, it ranks 2nd in Rajasthan, Gujarat Chhattisgarh, Punjab and Haryana in Hindi print. Consequently, it enjoys a higher readership and thus revenue share in high-yielding urban markets.
DBCL’s readership and revenue is better diversified across geographies vs. its peers. DBCL is thus better placed to endure an economic slowdown or an increase in competition, if any in these markets.
Led by a recovery in ad revenue growth and benign newsprint costs, we estimate revenue/EBITDA/earnings to grow at a CAGR of 5.5/21/25% over FY19-21E. We initiate coverage with a BUY rating and a TP of Rs 282 (+47%), 12x FY21E EPS (a discount of ~35% to 3/5/10 years avg PE).
DBCL - A well-diversified leader: DBCL has one of the most diversified readership base and revenue streams, unlike its competitors. None of the markets contribute to more than 35% of its readership or revenue. Apart from diversification, DBCL is ranked either no. 1 or 2 in the markets where it operates indicating strong presence in geographies of presence. This positioning makes it less dependent on any single market and enables it to benefit from a regional uptick in ad demand.
Circulation aggression offers upside: With market winning launches in large markets (Raj and Guj), DCBL’s execution strategies have found their way into case studies at top B-schools (IIM-A). DBCL garnered
readership close to the leader in these markets within a year of its launch, thus reducing the gestation period.
DBCL has recently increased its aggression in Gujarat, Rajasthan and BJH, increasing its overall circulation by almost 10-15% from 5mn to 5.7mn copies/day. Absence of strong national players in these regional markets should enable DBCL to strengthen its positioning.
Radio complements the print business: DBCL launched its FM operations in 2006. Today it broadcasts out of 31 stations in Tier-II and III cities. DBCL’s radio footprint is primarily in Maharashtra, Gujarat, MPCG and Rajasthan where it has a strong print presence. This helps it cross-sell ads on the two mediums effectively. In FY19, radio would account for ~6/10% of its revenue/EBITDA. New station launches and improving yields should boost radio growth.
Key risk: Rise in newsprint costs and a slowdown in the economy are near term challenges. An (eventual) shift to digital is a medium-to-long term challenge.
DB Corp in comparison to its competition has well diversified mix of readership and revenue. This reduces the risk of decline in revenue from increasing competition in the Hindi print segment or owing to economic slowdown in any of the key markets.
State-wise: Advertising Revenue Mix (%)
Source: Industry discussions, HDFC sec Inst Research estimates
State-wise: Readership Mix (%)
Source: Industry discussions, HDFC sec Inst Research estimates
BJH – growth market; Guj/Raj gaining share
Unlike DBCL’s market winning launches in Rajasthan and Gujarat where both these states were single/two player markets at the time of its entry; DBCL has been able to grab limited foothold (15-16% share) in Maharashtra and Bihar-Jharkhand.
However, recently DBCL has increased its competitive intensity in BJH, Gujarat and Rajasthan with significant increase in copies in circulation. DBCL’s Muzaffarpur and Bhagalpur editions have been certified by Audit Bureau Circulation (ABC) and soon Patna and Gaya are also likely to be certified. Once that happens we believe DBCL will have the advantage of the ABC rates on higher actual circulation, and this should benefit them in Bihar.
Proven business model and strong execution capability
DBCL’s proven market-entry strategy has redefined category norms and broken barriers across languages and geographies, time and again. It has an innovative approach towards penetrating regional markets and competing with local newspapers. It has proven its ability to operate and launch in different geographies (with varied languages and socio-economic cultures), and achieve success in each market it enters.
DBCL has built a strong vernacular print media footprint across multiple states and languages, with 68 editions. The company's flagship Hindi daily, Dainik Bhaskar, is the leader in key Hindi print markets of Madhya Pradesh, Chhattisgarh, and Rajasthan. Its Gujarati publication, Divya Bhaskar, is a strong No. 2 player in the Gujarat market, while its relatively newer Marathi publication, Divya Marathi, is a competent player in tier-2 cities of Maharashtra.
Bihar-Jharkhand, Gujarat, Rajasthan and Maharashtra alongwith radio business are the key growth markets for DBCL
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DB CORP: INITIATING COVERAGE
Page | 27
Radio effectively complements the print business
DBCL launched its FM operations in 2006 with 17 stations under operation in seven states. In the phase-3 FM radio auction, it increased its footprint to 14 new cities with an outlay of only Rs 324mn. Total pay-out, including 17 Phase II stations migration fee to Phase III, was at Rs 1.25bn (vs. annualized EBITDA of Rs 0.5bn p.a.).
DBCL existing as well as new stations are primarily in states such as Gujarat, Maharashtra, and Madhya Pradesh etc where DB Corp has a strong print-media presence. This helps it to cross-sell the two mediums effectively. With a much wider footprint, we believe
that the company would be able to tap synergies in local ads with its larger print business.
State-wise Summary Of DBCL’s Radio Footprint State No of Stations Amount Spent (Rs Mn) Maharashtra 10 291 Rajasthan 6 130 Madhya Pradesh 4 258 Gujarat 3 229 Chhattisgarh 2 38 Punjab 2 103 Haryana 2 19 Chandigarh/UT 1 190 Karnataka 1 2 Grand Total 31 1,258 Source: MIB, HDFC sec Inst Research
DBCL’s investment of Rs 1.25bn on radio business (existing license renewals and new stations acquisitions) generates an EBITDA of ~Rs 0.5bn p.a.
DB CORP: INITIATING COVERAGE
Page | 28
DBCL’s Radio Footprint
City City Type State Reserve Price (Rs Mn)
Amount spent (Rs Mn)
Existing 17 stations migrated from Phase II to Phasee Ahmedabad A Gujarat 132 Ajmer C Rajasthan 8 Amritsar B Punjab 60 Bhopal B Madhya Pradesh 75 Bilaspur C Chhatisgarh 3 Chandigarh C Chandigarh/UT 190 Gwalior C Madhya Pradesh 14 Indore B Madhya Pradesh 131 Jabalpur B Madhya Pradesh 38 Jaipur A Rajasthan 77 Jalandhar C Punjab 42 Jodhpur C Rajasthan 21 Kota C Rajasthan 10 Nagpur A Maharashtra 51 Raipur C Chhatisgarh 34 Surat A Gujarat 36 Udaipur C Rajasthan 11 Sub Total 934 New stations acquired in Phase III, Batch I auctions Ahmednagar C Maharashtra 4 5 Akola C Maharashtra 3 3 Aurangabad C Maharashtra 30 62 Bikaner C Rajasthan 3 3 Dhule C Maharashtra 5 5 Hissar D Haryana 6 8 Jalgaon C Maharashtra 4 4 Karnal D Haryana 9 10 Muzaffarpur C Karnataka 2 2 Nanded C Maharashtra 3 3 Nasik C Maharashtra 35 147 Rajkot B Gujarat 35 61 Sangli C Maharashtra 5 5 Sholapur C Maharashtra 7 7 Sub Total 149 324 Total 1,258 Source: MIB, HDFC sec Inst Research
DBCL’s radio business effectively complements the core print business with footprint in tier-II and III cities in core print markets
DB CORP: INITIATING COVERAGE
Page | 29
Robust free cash flows and high dividend pay-out should support valuations
DBCL is poised to generate significant free cash flow over the next couple of years. We estimate FCF of ~Rs 4.6bn p.a. in FY20/21 (~13% yield). DBCL has maintained a dividend pay-out of ~55-60% and we believe that scope of higher pay-outs exists as cash generation improves.
DBCL recently completed buyback of 9.2mn shares @ Rs 350/sh viz. Rs 3.2bn payout in Sep-18. However, with promoter holding at 71.6% the scope for future buyback declines. This is owing to the concern of promoter breaching the cap of 75% as not all the minority shareholders tender their shares in the buyback. Promoter holding increased by 180bps from 69.8% to 71.8% post the buyback in Sep-18.
Dividend Payout %
Source: Company, BSE, HDFC sec Inst Research *FY19 includes maiden buyback of DBCL of Rs 3.2bn (viz. 9.2mn shares @ Rs 350/sh)
26.9 39.8 51.6 45.5 58.3
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We expect DBCL to return its FCF to shareholders mostly through dividend then buyback. This is primarily owing to high promoter holding at 71.6% which limits the scope of buyback
DB CORP: INITIATING COVERAGE
Page | 30
Earnings growth recovery/free cash flow generation not priced in
After a 45% correction in the past six months due to sharp increase in newsprint prices and broader weakness in market especially w.r.t small and mid-cap stocks, DBCL is trading at historic low multiples (viz. the IPO price in 2009 was at Rs 212).
We see room for a re-rating over the next 2-3 quarters, based on a recovery in ad growth and the decline in newsprint prices. We reiterate that DBCL has a strong brand franchise and wide readership base in most of its markets. Its recent circulation expansion may augment medium-term growth.
Initiate with a BUY rating and TP of Rs 292 (+47%), 12x FY21E EPS (a discount of ~35% to 3/5/10 years avg PE of 18x).
Source: HDFC sec Inst Research Sensitivity analysis of EPS to change in advertising revenue growth and Newsprint prices Change In Earnings For Every 5% Change In Ad Revenue Growth And/Or NP Prices % change in FY20E EPS NP prices Advertising -5% +5% -5% -9.2% -25.8% +5% 25.8% 9.2% Source: HDFC sec Inst Research
DBCL’s earnings sensitivity is significantly levered to advertising revenue growth and newsprint prices. Both these factors are likely to turn favourable.
Consolidated Balance Sheet As at March (Rs mn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Share Capital 1,839 1,840 1,749 1,749 1,749 Reserves 14,105 17,451 16,424 17,411 18,574 Total Shareholders Funds 15,944 19,291 18,173 19,160 20,322 Long Term Debt - - - - - Short Term Debt 561 449 404 363 327 Total Debt 561 449 404 363 327 Other Non current liabilities 1,336 1,424 1,433 1,505 1,574 TOTAL SOURCES OF FUNDS 17,841 21,163 20,010 21,028 22,223
APPLICATION OF FUNDS Net Block 7,672 8,557 8,276 7,936 7,542 Other Non current assets 4,217 4,598 2,697 2,832 2,973 Non Current Assets 11,889 13,155 10,973 10,768 10,516 Inventories 1,987 1,599 2,395 2,278 2,149 Trade Receivables 4,180 5,418 6,375 6,064 5,720 Other Current Assets 1,032 960 911 869 822 Current Assets 7,199 7,977 9,682 9,211 8,692 Trade Payables 2,094 2,591 3,049 2,900 2,736 Other Current Liabilities 908 601 532 562 589 Current Liabilities 3,002 3,192 3,581 3,462 3,325 Net current Assets 4,197 4,785 6,100 5,749 5,367 Cash & Equivalents 1,754 3,223 2,936 4,510 6,341 TOTAL APPLICATION OF FUNDS 17,841 21,163 20,010 21,028 22,223
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
Well-poised for growthJagran Prakashan (JAGP) is the publisher of India’s most widely read Hindi daily, the Dainik Jagran. It enjoys a pole position in the largest, yet under-penetrated Uttar Pradesh-Uttarakhand (UPU) market. JAGP comes in at a strong number 2 in BJH market.
While DBCL followed the organic route for expansion into new markets, JAGP followed the inorganic route. The value of JAGP’s investment (Rs 3.5bn) in Music Broadcast (MBL) has increased by 3.5x since its acquisition in Dec-14. JAGP owns 72.8% in MBL, whose market capitalization (Mcap) is Rs 16.6bn vs. its own Mcap of Rs 32.3bn. JAGP had also acquired Mid-day (2010) and Nai-Dunia (2012). These acquisitions were positive from a strategic perspective, as they reduced the risk of revenue concentration without earnings dilution and provided growth opportunities.
Led by a recovery in ad revenue growth and benign newsprint costs, we estimate a revenue/EBITDA/ earnings CAGR of 6/16/21% over FY19-21E. We initiate coverage with a BUY rating and a TP of Rs 148 (+34%), 12x FY21E EPS (a discount of ~25% to its historic avg PE).
Well positioned to capitalize on market growth: Increase in per capita consumption expenditure will boost adveritising spends in JAGP’s key markets (UPU and BJH). In the near-term, general elections may provide a boost as well. JAGP with its leadership in UPU and BJH (no.2) is well-poised to capture this growth.
Radio- healthy growth trajectory: JAGP’s promoters’ prior broadcast experience, uncertainty around pricing and renewal of Phase II licenses enabled JAGP
to acquire Music Broadcast (MBL) from the PE player: India Value Fund for ~Rs 3.5bn (net of loan repayment of Rs 0.85bn) vs. its current Mcap of Rs 16.6bn (JAGP owns 72.8%).
MBL has since expanded its footprint from 20 stations to 39, through the acquisition of JAGP’s promoter’s eight ‘Radio Mantra’ stations and an additional eleven stations in the Phase III auctions.
We admire JAGP’s radio business due to its superior execution, focus on geographic than multi-frequency expansion, healthy balance sheet (~Rs 2bn net cash), return ratios and cash flows. Led by an expansion into new markets, an increase in utilization and modest price increases in established markets; a ~9-11% CAGR growth can be expected.
Key risks: Akin to DBCL, a rise in newsprint cost and slowdown in the economy are near term challenges. An eventual shift to digital is a medium-to-long term challenge.
Market leader in under-penetrated Hindi print segment
UPU despite being significantly larger state, ad spend is low (with higher share from government) due to lower per capita income and readership penetration. In UP, only six out of fifteen towns (viz. Kanpur, Lucknow, Benaras, Meerut, Agra and Allahabad) contribute largely to advertising revenues. Kanpur and Lucknow alone account for ~40-50% of the advertising spend.
JAGP has been an unbeaten leader in the Hindi print readership market. It enjoys pioneering position in the largest Hindi market of Uttar Pradesh and is at number 2 in Bihar, Punjab, and Uttaranchal and number 3 in Haryana, Jharkhand and Delhi market. UPU (Uttar Pradesh-Uttaranchal) and BJH (Bihar-Jharkhand) are the markets with high growth potential on account of low literacy levels and readership penetration, likely robust economic growth outlook and the significantly higher population base. Markets of UPU are at an inflection point of media spending. JAGP is best positioned to capitalize on the same.
State Wise Literacy Trend
Source: Census 2011, HDFC sec Inst Research
94.0
86.2
86.0
82.8
82.3
80.1
78.8
78.0
76.3
75.8
75.6
75.4
74.4
70.3
69.3
67.7
67.2
67.0
66.4
66.1
61.8
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60.0
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Literacy Rate in % (Person) Literacy Rate in % (Male) Literacy Rate in % (Female)
JAGRAN PRAKASHAN: INITIATING COVERAGE
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JAGP’s has done two attractive buybacks in recent years. With promoter holding at 61.3%, we except JAGP to reward shareholders more through buyback then dividends due to built-in inefficiency on account of hefty dividend distribution taxes
Hindi belt – well covered except Rajasthan
JAGP reasonably covers the Hindi belt with fairly high readership in larger markets of UPU and BJH except the state of Rajasthan. We see JAGP’s entry into Rajasthan market is less likely to be on organic basis. Rajasthan is a large market with print advertising market size of Rs7.5-8bn requiring huge upfront investments and presence of two large players thus requiring high gestation period. However, we don’t rule out the possibility of JAGP’s entry on an inorganic basis through joint venture / acquisition.
Acquisitions help diversify revenue and readership mix DB Corp had expanded organically in new markets of BJH, Maharashtra in last decade. Its entry into Rajasthan (1997) and even in Gujarat (2003) as well as radio business (2006) too has been an organic business. On the contrary, JAGP expansion has been inorganic
through acquisition of Mid-day (2010), Nai Dunia (2012) and Music Broadcast (radio business). These acquisitions besides diversifying JAGP’s revenue and readership mix, have been at reasonable valuations and provided tax benefits to JAGP on accumulated losses of acquired company (viz. Nai Dunia).
Snapshot Of Acquisitions Of JAGP
Company Acquisition
Deal Value
(Rs Mn)
Ownership % Transaction detail Remarks
Mid-day May-10 1,725 100% Share Swap, 15mn shares @ ~Rs 115 (at the time of announcement).
JAGP has not been able to scale up Mid-day significantly. It generates an avg ~Rs 200mn EBITDA p.a. since acquisition)
Nai-Dunia Apr-12 1,500 100% Cash payout was ~Rs 2.3bn on EV basis. However JAGP enjoyed a tax shield of ~Rs 0.8bn on Rs 2.5bn accumulated losses. Thus net acquisition costs were Rs 1.5bn.
Since Nai Dunia had been merged with JAGP, we are not able to track it separately. However, we believe the contribution at EBITDA level is trivial from Nai Dunia too, although it remains a significant opportunity.
Music Broadcast
Dec-14 3,490 100% Jagran did a cash payout of Rs 4.34bn out of which loans of Rs 0.85bn were repaid back by MBL. In FY18, MBL had a revenue/EBITDA/PAT of Rs 3/1/0.5bn respectively.
MBL's Mcap is Rs 16.6bn and JAGP owns 72.8% in the company post IPO i.e. near 2.8-3x return post acquisition.
6,715 Source: Company, HDFC sec Inst Research
JAGRAN PRAKASHAN: INITIATING COVERAGE
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JAGP’s has done two attractive buybacks in recent years. With promoter holding at 61.3%, we except JAGP to reward shareholders more through buyback then dividends due to built-in inefficiency on account of hefty dividend distribution taxes
Robust free cash flows and high dividend pay-out/buybacks to support valuation
JAGP is poised to generate significant free cash flow over the next couple of years. We estimate FCF of ~Rs 3.8bn p.a. in FY20/21 (~11.8% yield). JAGP has maintained a dividend pay-out of ~60-65% and we believe that scope of higher pay-outs exists as cash generation improves.
JAGP has done three buybacks in last five years
FY14 FY18 FY19 No of shares (Mn) 5.0 15.5 15.0 Rs/sh 95 195 195 Total Rs Mn 475 3,023 2,925 Source: Company, HDFC sec Inst Research
With promoter holding at 61.3%, there is a significant scope for future buyback. This is without promoter breaching the mandatory 75% limit even if not all the minority shareholders tender their shares in the buyback. This is not the case with DBCL. Promoter holding has increased by meagre 55bps from 60.8% as at Mar-17 to 61.3% as at Dec-18. This is despite recent two buybacks.
We expect JAGP to continue doing buyback every year or two. We have assumed a buyback of 15mn shares (5% of outstanding shares) in FY21. Possibility of buyback in FY20 is also feasible; however we have taken a conservative approach.
Dividend Payout %
Source: Company, BSE, HDFC sec Inst Research *Payout is including dividend distribution tax. Also, FY14, FY18 and FY19 includes buyback
Earnings growth recovery/free cash flow generation not priced in
After a 35% correction in the past six months due to sharp increase in newsprint prices and broader weakness in market especially w.r.t small and mid-cap stocks, JAGP is trading at historic low multiples (viz. the IPO price in 2009 was at Rs 212).
We see room for a re-rating over the next 2-3 quarters, based on a recovery in ad growth and the decline in newsprint prices.
JAGP has a strong brand franchise and leading readership base in attractive market of UPU and BJH.
Initiate with a BUY rating and TP of Rs 147 (+32%), 12x FY21E EPS (a discount of ~25% to its historic average PE of 16x).
82.8
26.3
71.5
50.0
69.7
35.8
37.6
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138.
4 161.
4
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60.0
90.0
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180.0
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900
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3,600
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Payout* PAT Dividend payout %* - RHS
Rs mn
JAGRAN PRAKASHAN: INITIATING COVERAGE
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JAGP’s earnings sensitivity is significantly levered to advertising revenue growth and newsprint prices. Both these factors are likely to turn favourable.
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Date CMP Reco Target 18-Mar-19 198 BUY 282
150
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-18
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DB Corp TP
Date CMP Reco Target 18-Mar-19 113 BUY 148
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RECOMMENDATION HISTORY
PRINT MEDIA : SECTOR REPORT
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