Newsprint prices continue to ease- an obvious positive for publishing companies like Jagran Prakashan Ltd (JPL), HT Media and DCHL. Sharp decline in NP prices to close to $480-490/MT levels (down c45% from October 2008) to materially benefit publisher financials over FY10-11E.
Financial benefits have started reflecting for most publishers; impact has varied depending on quantum of higher cost inventory being carried; expect full impact H2FY10E onwards.
We now expect NP prices to rise marginally, and stabilize at $610-625 levels over FY11E; upsides to estimates exist if NP prices do not rise as much as expected.
Macro for advertising environment too has improved; we continue to expect a pick up in advertising spends 2HFY10 onwards. We reiterate that traditional media (print, TV broadcasting) will be the early beneficiaries of a pick-up.
JPL- a strong regional franchise remains a preferred bet on our positive stance on regional media markets; we expect this to drive higher than peer revenue growth over FY10-11E.
It is also better positioned than peers to lever margin growth as newsprint prices ease, in our opinion. Adjust FY10E earnings to account for a better revenue pickup in 2HFY10 and lower NP prices; maintain our positive outlook with a revised price target of Rs124 (Rs.117 earlier).
In our previous note on the print sector (28-8-09) we had highlighted the fact that print stocks are likely to consolidate over the near term and underperform the broader markets. With a c8% under-performance, relative to the Sensex over the last 1M, we believe the JPL stock may offer opportunities for longer-term investors -use this recent underperformance to move the stock to a BUY.