It is not too late to profit from the explosive growth of Indian regional media and the way to do it is to buy Jagaran Prakashan.
Among the major disappointments for institutional investors have been their investments in media companies. Investments in unlisted companies, like 9x, and listed companies, like TV18 and NDTV, have only brought tears to smart investors. The reason is not that media companies are not making money. It is simply that sharp suits never looked at where the money was flowing to and which business segments have wide moats to keep out competitors.
That segment, in India, happens to be in the regional print media, especially Hindi publications. It is not too late to profit from the explosive growth of Indian regional media and the way to do it is to buy Jagaran Prakashan. This company has 33 editions of the newspaper all over the country, but mainly in the north. Of these, just four are marginally loss-making; one in Jammu & Kashmir. Around two years ago, eight of its editions were loss-making. The past three quarters have been superb for Jagran primarily because of the drastic fall in newsprint prices. Many had not reckoned with this natural hedge: in a downturn, a publication operating in the Hindi heartland will more than make up the fall in advertising revenue with savings from newsprint.
The other competitive aspect of Jagran is that 60% of its advertising revenue is derived from local advertisers; only the remaining comes from national advertisers. This gives it a completely different revenue model, as compared to, say, the TV channels. Another aspect of Jagran’s revenue profile is that two of its biggest advertisement sources are government departments (17%) and education entities (15%). These two sectors are also most immune to short-term economic cycles. None of the other revenue segments contributes more than 6%.
Jagran’s September quarter results surprised the market. Revenues were up 18%. Operating margin was up 34% due to sharply lower newsprint cost and increased ad revenues, thanks to the pre-election advertising by political parties, competitive spending by telecom companies and also spending by consumer products and durables companies. Margins will improve further in the second half of 2010 if ad revenues from financial services, banking and real estate pick up pace.
The stock isn’t cheap right now. At a market price of Rs119, it is trading at 13 times its operating profit. Buy stocks of this company at around Rs90 for long term investment portfolio.
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