For 4QFY2008, Jagran reported a subdued topline growth of 16% y-o-y to Rs190 crore (Rs164 crore), the slowest in last eight quarters. This was largely led by a 20% y-o-y growth in advertising revenue to Rs125 crore and 5% y-o-y growth in circulation revenue to Rs45 crore.
Operating margins declined by 93bp to 15.8% (16.7%) owing to a 150 bps increase in staff costs and higher other expenditure. Going ahead, we believe the company is likely face margin pressure owing to a sharp fall in the rupee coupled with higher-than-expected losses in its new initiatives.
Intensifying competition (Hindustan and Amar Ujala in UP) and likely cut-down in advertising budgets by key customers like real estate, auto and banking has led us to revise our revenue estimates for FY2009 and FY2010 by 3.9% and 4.5%, respectively.
A sharp fall in the Rupee (by almost 8-10% leading to higher newsprint costs) and higher-than-expected losses in its new initiatives has led us revise our earnings estimates for FY2009 and FY2010 by 21.9% and 22.2%, respectively.
At Rs65, the stock is trading at attractive valuations of 13.1x FY2010E Earnings and we believe the current underperformance of the stock offers an attractive entry point for investors. We maintain a BUY on the stock, with a revised target price of Rs93 (Rs125).