Jagran Prakashan Strong leadership position in Uttar Pradesh Initiate coverage with a Buy rating Jagran Prakashan is one

e of the largest Hindi print media companies in India. Its flagship Hindi newspaper Dainik Jagran has been the most widelyread newspaper in India since 2003. Jagran Prakashan benefits from fastgrowing advertising spending in the tier 2 and 3 cities due to strong economic growth and rising consumption there compared to the metros. Strong leadership position in the largest Hindi market Jagran Prakashan has a strong leadership position in Uttar Pradeshs (UP) print media sector, which allows it to charge premium ad rates. We estimate it is likely to generate strong free cash flow yield of 4.9% and a dividend yield of 3.9% in FY12. It should also report robust FY12 ROCE and ROE of 29.9% and 31.4%, respectively. Risks: decline in average readership, intense competition in UP and Bihar While Dainik Jagran remains the most widely-read newspaper in India, its average daily readership declined from 17.1m during the IRS R1 2007 survey to 16.1m during the Q410 survey. If this trend continues, the share price could come under pressure. We believe competition intensity is likely to increase in

both of Dainik Jagrans large markets of UP (with Hindustan launching in Gorakhpur) and Bihar (potential entry of DB Corp in FY12). Jagran Prakashan benefits from rapidly-growing advertising spending in the tier 2 and 3 cities due to strong economic growth and increasing consumption there compared to the metros. The company has a strong leadership position in print media in Uttar Pradeshone of the largest Hindi print media markets in India with an estimated market size of Rs8bn. We believe Jagran Prakashan is wellpositioned to benefit from its strong market position as it can charge premium advertising rates. We expect revenue contributions from its out-of-home advertising, event management and Internet businesses to increase. We estimate Jagran Prakashan will generate strong free cash flow yield of 4.9% and a dividend yield of 3.9% in FY12. We forecast robust FY12 ROCE and ROE of 29.9% and 31.4%, respectively. While Dainik Jagran continues to be Indias most widely-read read newspaper, average daily readership has declined gradually from 17.1m during the IRS R1 2007 survey to 16.1m during the Q410 survey. Going forward, we believe Jagran Prakashans margins are likely to come under pressure due to: 1) increased competition in Bihar

and Jharkhand; and 2) higher newsprint prices along with a planned increase in circulation. Key catalysts IRS readership data. According to IRS readership data (released quarterly), Dainik Jagrans average issue readership increased from 15.95m during the Q310 IRS survey to 16.07m during the Q410 survey. If Dainik Jagran is able to sustain or expand its average daily readership from its current levels, the stock could be re-rated. Increase in circulation. A pick up in circulation copies could act as a catalyst as this follows readership at a lag. Stable newsprint prices. Newsprint prices constituted around 37% of Jagran Prakashans total operating expenses in FY10. We believe data points showing stability in newsprint prices could act as a catalyst for all print media companies, including Jagran Prakashan. Risks Competition in Bihar could intensify after DB Corps entry. DB Corp has announced plans to enter the Bihar market by end-FY12 (after its planned launch in Maharashtra). Should DB Corp gain meaningful readership share in a short span, this could impact Jagran Prakashans subscription and advertising revenue to some extent. However,

unlike in Jharkhand, we believe print media operators in Bihar are unlikely to cut cover prices in anticipation of DB Corps launch. In Jharkhand, the cover price cut was initiated by Prabhat Khabar, the second-largest print operator in Jharkhand in terms of readership. The Bihar market is dominated by Hindustan and Dainik Jagranboth have expressed no intention to initiate cover price cuts in Bihar. Further decline in Dainik Jagrans readership share. While Dainik Jagran continues to remain the most widely-read newspaper in India, its average daily readership has been on a decline, from 17.1m during the IRS R1 2007 survey to 16.1m during the Q410 survey. Exchange rate fluctuations. Jagran Prakashan is exposed to currency risks (primarily US$/Rs) as 11-12% of its total expenses are in foreign currency. Increase in newsprint prices. Newsprint is a significant cost for most print media companies, including Jagran Prakashan (31.4% of revenue in FY10). Higher newsprint prices could significantly impact the print media companies profitability. However, sensitivity to newsprint price increases is less for Jagran Prakashan than its peers as 8-10% of the companys revenue come from non-newsprint based

businesses (outdoor and event management), which are profitable. A macroeconomic downturn. Advertising revenue constituted 68% of Jagran Prakashans FY10 revenue. This could impact profitability in a macroeconomic slowdown as advertising rates would be affected. However, should there be an economic downturn, Jagran Prakashan is likely to be the least impacted within our print media coverage in India as its ad revenue makes up a smaller proportion of total revenue than its peers. Valuation and basis for our price target We have a Buy rating and a price target of Rs145.00. Our price target is 17.3% above its current share price. We value Jagran Prakashan at 16.5x FY13E PE, in line with its average one-year forward PE for the past two years. Competitive advantage Figure 1: Jagran Prakashan SWOT analysis WEAKNESSES 1. Heavy reliance on advertising revenue could impact profitability during a macroeconomic downturn 2. Significant reliance on one state (Uttar Pradesh) for revenue THREATS 1. Competition from other newspapers and media platforms 2. Newsprint prices could increase 3. Increasing penetration of digital media could affect newspaper readership in the

long term STRENGTHS 1. Leadership position in Uttar Pradesh (one of the largest Hindi print markets in terms of revenue market size) 2. Wide circulation reach 3. Pan India infrastructure 4. Experienced management OPPORTUNITIES 1. Growth in ad spend, especially in tier 2 and 3 towns, led by strong GDP growth 2. Increasing print media penetration in tier 2 and 3 cities 3. Improving literacy levels