Jagran Prakashan, which publishes the daily newspaper Dainik Jagran, is raising money from the market through an IPO.
MUMBAI: Jagran Prakashan, which publishes the daily newspaper Dainik Jagran, is raising money from the market through an IPO.
The issue opens on Wednesday in a price band of Rs 270-Rs 324. The total issue would be of 1.15 crore shares, including a greenshoe option of 0.15 crore shares. This puts the issue size between Rs 312 crore and Rs 324 crore.
The company’s total balance sheet size was Rs 339 crore as on September 2005, which will almost double after the issue. The reason Jagran is raising this amount is to fund capital expenditure and for acquisitions and strategic investments in print and other media related businesses.
The capital expenditure has mainly to do with enhancing its existing printing and publishing capabilities and with regards to the launch of a new brand.
While the plans sound impressive, it’s imperative that they deliver, considering that the issue has been priced at a steep valuation of between 45 times and 54 times annualised earnings for the six month period ended September 2005.
It might be recalled that HT Media had priced its issue between 51 and 60 times trailing earnings, and although the issue got priced at the upper end of the price band, the stock has underperformed the market by a huge margin since listing.
This, despite the fact that growth in earnings per share has been strong at over 61% in the nine month period ended December 2005.
In Jagran’s case, too, earnings growth is expected to be strong going forward. The company has just about begun reaping benefits of the 10-odd new editions it has launched since financial year 2004.
EBITDA (earnings before interest, tax and depreciation) margins improved to 13.8% in the six months till September 2005, up from 7.1% in financial year 2005. EBITDA margins were as high as 17.9% in financial year 2003, which means there’s possible room for further increase.
Earnings could also get a boost from the company’s plan to increase the number of colour pages. Advertisements on colour pages are estimated to command a premium of about 20-30%, and currently only about 36% of display ads in Dainik Jagran are in colour, while the balance are in black & white.
Newsprint costs, too, have been declining. As a percentage of revenues, newsprint costs have declined to 44.7% in the six months ended September 2005, compared to 50.5% in financial year 2005. One of the reasons for this is that the company has managed to bring down the proportion of imported newsprint over time.
Going forward, Jagran’s strategic partner, Independent News and Media PLC, is expected to help the company bring down its newsprint costs further. This is because Independent has operations in six countries world-wide, which allows it to source newsprint at lower costs vis-à-vis regional players.
On the revenue front, the company’s plan of launching a second Hindi newspaper brand at a lower price point could drive growth going forward.
The outdoor advertising business could be another growth driver. It currently has two mobile hoarding vans, and plans to purchase about 250 vans over the next two years.
To reiterate, while Jagran’s growth prospects look good, the pricing of the issue leaves little room for error in delivery as far as the company’s plans go.
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