IPO, UP polls brighten Jagran outlook

Value unlocking from the share offering is a positive

There are a number of triggers for Jagran Prakashan. Its Radio City, under its subsidiary Music Broadcast, has launched an initial public offering (IPO) of shares which will lead to value unlocking for the parent. The IPO will also enable the radio company to become leaner as most of its debt worth Rs 300 crore will be paid off from the issue proceeds. This company has been growing at a healthy clip and given the new radio stations lined up, the growth trajectory is likely to be strong. 

Jagran's stake in Music Broadcast is likely to come down to 74 per cent post the IPO from 91 per cent. With the share of the high-margin radio business moving up from about 12 per cent of consolidated revenues currently, Jagran's overall operating margins too could improve. In fact, most analysts peg this metric at about 29 per cent levels in FY18 or an expansion of 100 basis points over FY16. Jagran's performance in the ongoing quarter would be much ahead of peers given that the Uttar Pradesh and Punjab elections will boost its advertising revenues meaningfully. Also, performance of its two newspapers — Mid-Day and NaiDunia — have been improving in recent times. Most analysts believe that following near-term hiccups after demonetisation, these businesses should witness improvement in their operating performance. 

In fact, from a break-even level couple of years back, Mid-Day posted operating profit margin of 20 per cent in FY16. "Jagran was targeting operating margin of 24-25 per cent for Mid-Day in FY17, which looks unlikely due to demonetisation, but once the impact normalises, it should be able to improve its margin further," believes Depesh Kashyap, analyst at Equirus Capital.

It is not surprising that the Jagran scrip has surged 25 per cent in the past one year to Rs 187 currently. Strong return ratios, high cash generation, and presence in the high potential vernacular business are other reasons most analysts are positive on the stock. Any sharp, unprecedented rise in newsprint costs poses a risk for the company. Most analysts expect the stock to deliver 15-20 per cent returns in the coming year.