Equitymaster Agora Research Private Limited

Independent Investment Research

22 December 2017

Promoters Believe in the Strength of the Business;

Have Increased Stake in This Company!
Welcome to the Eighth issue of Smart Money Secrets!

Whenever we think about 'smart money' invested in any stock, the first that come to mind are funds, whether
Indian or foreign, big and well known stock investors and even FIIs. But what about Promoters?

We believe, one of the strongest sources of smart money is 'Promoters increasing the stake in their own company.'

And why not?

A promoter knows everything about his company. When you see a promoter increasing his stake, it's a strong
indicator since he believes in his own business. In a sense, promoters are super investors as well.

One way of gauging this is through an example.

Imagine a company with return ratios of around 9% and a debt-equity ratio above two times. Add a declining EPS
growth rate...and our screeners would never throw this kind of company.

However, somewhere between these depressed numbers was something magical - increasing promoter holdings.

The question here is: Why would the owner buy more into a company with such depressed numbers?

The reason is simple...yet ignored: The owner knows more about his company and its prospects than anybody
else.

Specifically, in this example, we are talking about the auto ancillary company, Steel Strips Wheels Ltd.

The promoter group had been increasing its stake in the company. From 53.8% in March 2013, it grew to 54.2% in
June 2013 and continued inching upwards to 58.7% in March 2017.

Not only had the business fundamentals improved but the stock's performance had also been stellar, multiplying
six times in the last four years (a CAGR of 65%).
So you see, promoters increasing stake is a very valuable indicator of smart money invested.

But the company we are recommending this month is not Steel Strips Wheels Ltd. That was just an example to
highlight the importance of promoter holding.

This month our focus is on Jagran Prakashan Ltd, and what piqued our interest in this company is the promoter
increasing stake.

Jagran Media Network Investment Pvt Ltd (JMNIPL) is the holding company of Jagran Prakashan Ltd and is the
main promoter. Jagran Prakashan was founded in 1942 by the Late Shri Puran Chandra Gupta, a freedom fighter.
His descendants Mr Mahendra Mohan Gupta and family are promoters of JMNIPL and consequently they are also
promoters of Jagran Prakashan Ltd.

JMNIPL has increased its stake in Jagran Prakashan over the years; from 56.71% in March 2013 to 60.55% in
March 2017. In the subsequent quarter, JMNIPL bought additional stake from Blackstone Capital Partners thereby
increasing its stake in Jagran Prakashan Ltd to 60.63%.

Clearly, the promoters believe in the strength of Jagran Prakashan's business.

Jagran's regional flavour (Dainik Jagran is a strong brand in the Hindi heartland of India), a rapidly growing digital
business, and sound financials are strong enough reasons for promoters to increase their stake in the business
over the years.

Here's more on what makes Jagran Prakashan such a compelling case...

Strong Brands in Print, Digital and Radio Will Rake in the Advertising Moolah...
From a newspaper that was started by freedom fighter Late Puran Chandra Gupta during the Quit India Movement,
Jagran Prakashan has come a long way.

Given the massive disruptions in technology over the last couple of decades, there was this risk that the printed
newspaper business will gradually die out. Indeed, we live in an internet age where information is available at the
click of a mouse. Thus, internet has more or less become a substitute for newspapers as far as getting
information is concerned. This is particularly true in advanced countries where internet penetration is high.

Indeed, newspapers have not always been an easy business to be in. In the past, not just Jagran Prakashan, but
even other newspapers of its ilk have barely managed to cover operating costs with cover prices.

And yet, Jagran Prakashan's print business has weathered many storms and done well over the years. The
reasons for these are many.

For starters, its flagship daily Dainik Jagran is the most widely read Hindi newspaper in the country and Jagran
has a total readership base of 68 million. More importantly, its publications cover 13 states, which are largely Hindi
speaking and in the vernacular belt. This gives the newspaper a strong regional flavor.

Thus, despite various challenges that the print media has been facing in recent times, Jagran Prakashan has
retained its edge because it has content that is superior, relevant and local.

Besides Dainik Jagran, two other publications are also doing well viz., Naidunia and Midday. Naidunia has largely
given Jagran presence in the states of Madhya Pradesh and Chattisgarh. Since posting losses in FY14, Midday
turned around in FY15 and profits started inching up since then. Jagran Prakashan considerably revamped the
Midday newspaper, which led to increased circulation and better overall performance.
Now, in print media, the top two players also garner the largest share of the advertisement revenues as they boast
of the largest circulation and readership. Moreover, large print media players like Jagran Prakashan earn majority
of their revenues from couple of their flagship markets. For instance, Jagran derives more than 50-60% of its
revenues from the key flagship markets like Uttar Pradesh and Bihar.

We believe Jagran will continue to gain readership in its present markets as established newspaper publishers
have strong franchise. While the possibility of more competition cannot be entirely ruled out, a new player will not
be able to penetrate deep into the markets Jagran is strong in, without undertaking cuts in cover prices and
compromising on margins.

However, this is only the print business. The company now has two more faster growing business segments under
its belt - radio and digital.

The digital business is an extension of the company's print business and highlights the company's willingness to
adapt to change. The business has been growing at a scorching pace of more than 40% and this has largely been
because of the company's efforts to ensure that it is not just an e-version of its printed newspaper, but a product
that offers value to readers in its own right.

Besides this, the company is also focusing on attracting advertisers either on its own or through networks such as
Google and Facebook. Producing videos is also another option that Jagran is keen on developing. Currently, the
digital business is loss making (it is expected to start contributing to profits FY20 onwards).

The third important growth driver for Jagran is radio. The company acquired Music Broadcast Ltd (which owns the
brand 'RadioCity') in 2015. Currently, the company has a network of 39 radio stations across 12 states, and this
medium is also expected to grow overall advertising revenues. Firstly, in the overall advertising pie, the
contribution of radio is low at a mere 4%, which means that there is ample headroom for growth.

Further, the completion of the first batch of Phase III auctions provided strong tail winds to the overall radio
industry. Though expensive, it was considered successful with 96 channels out of 135 channels getting allocated.
Jagran Prakashan was awarded licenses in 11 cities.

Jagran has already completed capex for the radio business, which involved migration fees for Phase I and Phase II
stations, new licenses for Phase III stations, and set up cost for new stations.

There is no more capex on the anvil for the radio business, which means that once the advertising revenue from
this business picks up pace, it will directly flow to the bottomline. Further, the radio business has been reporting
healthy operating margins of more than 30%, which is expected to continue in the coming years as well.

The overall strength of the business model is further reinforced by its financials. In the last six years, sales and net
profits have grown at a CAGR of 11% and 9% respectively. The company has a lean balance sheet with hardly any
debt on its books at a consolidated level. And its ROE has averaged at a robust 26% during the same period. Not to
mention a healthy average dividend payout ratio of 35%.

Company Pro le - Jagran Prakashan Limited

Jagran Prakashan Limited (JPL) is the flagship company of the Kanpur (Uttar Pradesh)-based Jagran Group,
promoted by the P C Gupta family. The company is a media conglomerate with interests spanning across printing
and publication of newspapers & magazines, FM Radio, Digital, Outdoor Advertising and Promotional marketing,
Event management and on ground activation businesses.

JPL Reach
The Group publishes 8 newspapers and a magazine from 37 different printing facilities across 13 states in 5
different languages. In addition, through FM Radio, it has expanded its presence and operations to 39 cities as on
FY17.

In recent years, the company management has preferred the inorganic route for growth as the management likely
perceives this as relatively 'low-risk'.

Following acquisitions were made in the last few years:

Recent Acquisitions

Year Category Description

FY11 Print Acquired Mid-day Infomedia Ltd through a share swap deal. Mid-Day Multimedia's publication
business comprises the afternoon newspaper 'Mid-Day' (published from Mumbai, Pune, Bangalore
and Delhi), 'Sunday Mid-Day', Gujarati Mid-Day and Urdu newspaper 'Inquilab', along with its website
mid-day.com.

FY13 Print Acquired Suvi Info Management (Indore) Pvt Ltd (Suvi). Suvi is the holding company of Naidunia
Media Ltd (NML), which publishes Nai Dunia, a Hindi daily in Madhya Pradesh and Chhattisgarh.
NML has been merged with JPL effective 1 April 2012.

FY15 Radio Acquired Music Broadcast Private Limited (MBPL) in 2015. MBPL (now MBL) operates the popular
Radio City FM stations.

Source: Equitymaster

The company has four product offerings, namely, Print (newspapers & magazines), Radio (FM Radio), digital (Web,
text/voice-based value-added services and products) and Out-Of-Home (Hoardings and Billboards).

# Print Business
Jagran group publishes 8 newspapers and 2 magazines from 37 different printing facilities in 13 states. JPL has a
leadership position of its flagship Hindi daily, Dainik Jagran, and its increasing revenue diversity through its
English, Gujarati and Urdu dailies, MiD-DAY, Gujarati MiD-DAY, and The Inquilab.

JPL also publishes six editions of Hindi daily Naidunia from Indore, Ujjain, Gwalior, Jabalpur, Raipur and Bilaspur
and Navdunia from Bhopal, besides the national edition from New Delhi. Besides newspapers, JPL also publishes
the magazine Sakhi and Khet Khaliyan in addition to various other publications and coffee table books.

Newspaper O erings

Dainik Jagran is India's largest daily in terms of readership (56.46 million as per the Indian Readership Survey [IRS]
in the fourth quarter of 2012), and one of the largest Hindi dailies in terms of advertisement revenue (more than
Rs. 10 billion).

Dainik Jagran has an established market position across the Hindi belt in Uttar Pradesh (No 1 Position),
Uttarakhand (No 2 Position), Bihar (No 2 Position), Jharkhand (No 3 Position), Punjab, Haryana (No 2 Position),
and the National Capital Region. JPL has maintained its leadership position in the market through Dainik Jagran,
despite competition from other Hindi dailies. Competition in the Hindi belt is intense as all leading players are
expanding their operations to new markets to increase their readership.
 JPL Hindi Publication Readership - By States*

It is important to note that JPL is a market leader in Uttar Pradesh. UP is the second largest state in GDP terms
contributing 8.1% in India's GDP. UP is the most populous state with more than 200 million population (16.5% of
India's population). Similarly, UP accounts for large number of tier-II cities in India (12 out of 62) which is the target
market for advertisers.

Going forward, the company will be strengthening circulation in untapped or under-tapped regions across 13
states where JPL is present.

Urbanization - A Key Growth Driver

According to UN World Urbanization Prospects report of 2014, the annual rate of urbanization in India between
2010 to 2015 was 1.1%, the highest among major global economies. India is expected to add over 400 million
people to its urban population between 2014 and 2050.

More people in the cities means more readers for newspapers. Emerging urban clusters are driving this growth.
More consumers and increasing purchasing power beyond the metros are key to the economic growth.
 JPL's presence in Key Cities (Marked in Red)

In recent years, these markets recorded higher rates of readership, circulation and circulation growth relative to
metros. JPL has strong presence in 39 of the top 54 cities and towns with a 1 million+ population through print
and radio footprint.

How acquisitions helped JPL to expand its network?

JPL acquired Mid-day Infomedia Ltd and Suvi Info Management (Indore) Pvt Ltd in 2010 and 2012 respectively.

Mid-day Infomedia Ltd

Through the acquisition of Mid-day Infomedia Ltd, JPL expanded its language offerings in English (Mid-Day),
Gujarati (Gujarati Mid-Day) and Urdu (Inquilab). This helped the company to extend its presence in a large city like
Mumbai along with strengthening advertising revenue from key verticals like the film industry. Similarly, JBL
consolidated its presence in the North through presence with Inquilab.

JBL turned Mid-day Infomedia Ltd into a profitable entity. The subsidiary was a loss-making entity until FY14.
Under JBL, its operating margins of this subsidiary increased from 1.1% in FY14 to 18.4% in FY17. Operating profit
has grown by over 30% CAGR in the last 2 years.

Suvi Info Management (Indore) Pvt Ltd (NaiDunia)

JPL acquired NaiDunia in 2012 for Rs 2.25 billion. The company recovered Rs 1.2 billion from tax benefits and
selling immovable properties. NaiDunia has 6 operational printing facilities and strong brand.

The acquisition helped to widen JPL's geographical presence in Hindi heartland i.e. Madhya Pradesh and
Chhattisgarh (MPCG). MPCG region offers huge potential going forward as the literary rate is 62% and newspaper
penetration is only 15%.
JPL managed to turn NaiDunia business into breakeven territory at the EBITDA level. In FY15, this division incurred
loss of Rs 110 million at the EBITDA level. JPL is mainly focusing on increasing circulation. Its circulation
increased by over 7% and also improved the per copy realisation besides registering growth of nearly 6.5% in
advertisement revenue from the local market.

Strong Operational Track Record

JPL's operating capabilities are supported by its economies of scale. The company has its own printing facilities
and is able to get better terms than local competitors because of bulk procurement of newsprint.

Stable operating performance

JPL's operating margin improved from 22.5% in FY13 to ~30% in FY17 due to stronger advertisement yields and
average realisation per copy. This has also been supported by declining losses in its other print publications
(NaiDunia). Furthermore, JPL's revenue model is marked by higher contribution from circulation revenue (as
against peers in the English daily business), leading to high recovery of raw material cost through circulation
revenue. Going forward, JPL will maintain a healthy operating margin backed by increasing revenue from
advertisements and stable newsprint prices.

More about the Print Media Industry

According to Audit Bureau of Circulations (ABC India) published in May 2017, print media added 23.7 million
copies in the last 10 years and print is growing at an incredible 4.9% increase in CAGR over a 10-year period.

This is unlike other developed countries, where circulation dropped across the board and the number of
publications stagnated or decreased. The decline in circulation of print media in the developed countries is driven
by stagnating or declining population and much faster growth of digital media. In contrast, India's population and
literacy are still increasing and internet penetration remains weak. Rising literacy rates coupled with localised
content coverage explains the sustained spike in regional newspaper sales.

Despite the strong growth of digital media in India, the print was the largest contributor, accounting for 38.11% of
the advertising share in 2016 and is projected to be 40.7% in 2017. Newspapers specifically still serve as an
effective way for advertisers to reach a significant audience.

According to FICCI report, newspaper growth is coming from papers published in Hindi and in other local
languages and dialects (also known as vernacular papers). English is only prevalent in India's largest cities, leaving
readers in smaller cities and rural areas with an appetite for content in their local languages. This is evident in the
ABC India report which points out that in 2016, two of the top three circulated newspapers were Dainik Jagran and
Dainik Bhaskar, both Hindi dailies, followed by The Times of India in English.
Hindi-speaking areas have a higher population growth rate and their literacy rates have begun to pick up only in
the last two decades. So, these areas are witnessing significantly higher growth compared to the South where
population is not growing as fast and literacy levels reached high level as early as the 1990s.

Hindi Newspaper Has Shown Strong Growth in the Last Decade

Print media is likely to continue to register stable growth compared to developed countries because its population
is growing and it has not yet achieved universal literacy. Similarly, the rise in incomes in smaller towns and the
entry of big players in regional markets is likely to drive the future expansion of circulation and readership across
India.

The print industry is estimated to reach US$ 4.76 billion in 2016 and is expected to grow at a CAGR of 7.3%
between 2016-2021, with the market expected to reach US$ 6.69 billion by 2021. Considering the huge potential in
regional print markets, national advertisers are entering these markets to increase their advertising share.
Accelerated growth is forecasted in regional print and local news segments.

# Radio

JPL entered into the radio business through an acquisition of Music Broadcast Private Limited (MBPL) in 2015.
Music Broadcast Limited (MBL) now a listed subsidiary, runs Radio City, which is India's first private FM radio
broadcaster in India with over 15 years of expertise in the radio industry. MBL operates radio stations under the
brand - Radio City.

MBL has grown its presence from four cities in 2001 to 39 cities currently. The company is present in 12 of the top
15 cities in India by population. MBL has 39 stations, including 11 new Radio City stations acquired in Phase-III
and 8 stations from Radio Mantra taken over under the scheme of arrangement. The new radio stations acquired
in Phase-III are now fully operationalized. Radio Mantra stations have since been rebranded to Radio City. MBL
operates 40 web radio stations through planetradiocity.com in eight languages.
MBL's radio content typically comprises RJ shows and film music. MBL has created popular radio shows such as
'Love Guru' and 'Kal Bhi Aaj Bhi' and pre-programming features such as 'Babber Sher' and 'Joke Studio'. 'Radio City
Super Singer', a popular singer talent hunt on radio was launched in 2011 and continues till date. MBL has also
launched 'Gig City' a unique initiative which broadcasts music concerts simultaneously across multiple radio
stations.

MBL's expansion of radio stations has been based on the strategy of concentrating on markets with a potential for
high media consumption. Content programming, brand recognition, market position, long operating history, growth
in revenues from operations, pan-India presence, long operating period for licenses and listenership statistics are
a strong indication of MBL's leadership in the radio industry.

Radio Business - Improving Financials

MBL's financials (on standalone basis) have been improving over the years. The topline has grown at a CAGR of
18%, whereas, the bottomline grew at a much faster CAGR of 33% in the last 5 years. The operating margins
improved and remained above 30% level.

FY12 FY13 FY14 FY15 FY16 FY17

Net Sales Growth (%) 16.4 13.0 10.1 30.3 12.3 20.4

EBITDA Margins (%) 23.4 26.3 29.5 34.3 41.2 35.3

PAT Margins (%) -1.8 8.4 15.8 23.4 12.3 13.5

Total Debt/Equity(x) -6.2 -10.8 12.1 5.1 2.4 0.3

ROCE (%) 3.1 11.7 22.0 21.8 16.0 13.5

Source: Ace Equity (* denotes negative net worth)

The Key Drivers of Growth in the Radio Industry

The radio industry is expected to show the strongest growth among the traditional sectors due to increase in
reach in the long term supplemented by increased advertising inventory. In addition to traditional advertising, radio
players are exploring other non-traditional avenues for revenue generation such as live concerts, award shows,
reality shows, etc. Non-music based content is emerging as a key trend amongst radio players to garner higher
revenue.

Radio has the potential to provide uniqueness and contextualisation in communication and content differentiation
to standout. Sectors like automobile, retail, consumer durables, financial services, etc. continue to drive growth in
this segment. The top three segments by advertising volume in the radio industry are Government and public
service advertisement, real estate and e-commerce.

Radio's share in the overall advertising pie is currently at 4-5%, which is much lower than many other developed
countries. Globally the share of radio in overall ad spends is between 7-10%, which clearly demonstrates
headroom for growth.

Radio as a segment is projected to grow fastest at over 16% CAGR. This growth is expected to be driven by the
commencement of the new radio stations, an increase in listenership in tier-II and tier-III cities, an overall increase
in advertisement rates in metros and tier I cities as well as new industries such as e-commerce choosing radio as
a medium for advertising.

# Digital

JPL offers web, text/voice-based value-added services and products. JPL's internet portfolio has nine websites
across genres like news, education, blogging, classifieds, youth and videos. Digital division offers products and
solutions to general and corporate consumers, including services that range from web-based advertising
solutions, permission-based content sales, contesting and utility based services like digital classified platform.
 Jagran's Digital O erings

The digital segment is growing at a staggering rate of more than 50%. As per Comscore, Jagran continues to be
the No.1 Hindi website in news and communication category and No.1 overall mobile website in the education
category and is the first newspaper group to have over 22 million Facebook fans in March 2017. Jagran is also the
fastest growing news network in India on mobile with over 32 million unique users in March 2017.

JPL's Digital Statistics

Currently JPL's top 3 markets UP, Bihar and UKD form only 11.8% of JPL's total sessions.

JPL's primary traffic is from Delhi, Maharashtra and Karnataka where the internet penetration has
already peaked and reaching saturation level.

With increasing internet penetration in the regions like UP and Bihar, Jagran would naturally benefit from
the internet growth in these markets.

JagranJosh has maintained No 1 position in Education category with an average of 36 million unique
visitors/month.
 OnlyMyHealth has maintained the No.1 Ranking amongst Indian sites in Health category an average of
25 million unique visitors/month.

Jagran Hindi website is ranked No 5 with an average of 101 million unique visitors/month.

Digital division is making losses at the operating level. However, by FY20 onwards, the management expects JPL
to be a major player in news and information category having a significant share in the digital ad pie and start
making profits.

Key Triggers for growth in Digital Segment

Hindi is driving regional content consumption in India. Google India states that Hindi content
consumption on Internet is growing at 94%, re-emphasizing the importance of focusing on local
language content.

The government is spending Rs 27,000 crore to lay optic fibre connecting 2.5 lakh panchayats across the
country under its Digital India campaign to give universal broadband access with accompanying e-
literacy programs.

Google announced that, AdSense will support Hindi. The move will help the AdSense platform support
the "wealth of quality Hindi content" that is currently available online.

Local Language Users are growing at a faster rate than Overall Internet Users. With this, the share of
digital advertising in local language is expected to go up from 5% in 2015 to 30% by 2020.

Digital Advertising is the fastest growing vertical in the Indian M&E industry at 28%. It holds a lot of promise for
the future as it is expected to grow at 30.8% CAGR by 2021. The growth in digital is largely being led by mobile
penetration and it is estimated that internet based mobile phones will grow by 133% and touch 700 million mobile
handsets by 2021. Mobile advertisement is expected to grow at 50.93% CAGR from Rs 16.92 billion in 2016 to Rs
132 billion in 2021.

# Out of Home (OOH)

JPL provides specialised 'Out-of-Home' advertising services with a pan-India footprint. Its offering includes
hoardings and billboards, street furniture advertising, advertisements in railway stations and bus stands.

In FY17, the revenue from OOH segment grew by 30% and turned profitable at the operating level. However, in the
long term, the company has plans to completely exit from outdoor media as these are dominated by the
unorganized sector and scalability remains an issue.

Comparison with competitors

Parameters (FY17) Jargan Prakashan DB Corp HMVL

(Standalone)

Dividend Pay Out Ratio (%) 31.0 19.63 4.55

EBITDA Margin (%) 29.8 29.2 31.9

PAT Margin (%) 16.6 16.6 20.74

ROE (%) 20.9 25.19 18.6

ROCE (%) 27.2 35.69 23.4

Sales Growth (CAGR growth of last 5 years) 11% 9% 9%

PAT Growth (CAGR growth of last 5 years) 14% 13% 24%

 Parameters (FY17) Jargan Prakashan DB Corp HMVL
(Standalone)

Debt/Equity 0.1 0.05 0.1

Source: ACE Equity

Who Owns the Company?

Our love to find owner-operators is well known to our subscribers. What we mean by owner-operator setup is
owners who are involved in the operations of the business. This gives us the comfort on the incentives of the
owners.

Jagran Prakashan Limited (JPL) is the flagship company of the Kanpur based Jagran group, promoted by the P C
Gupta family. The company is a media conglomerate with interests spanning across printing and publication of
newspapers & magazines, FM Radio, Digital, Outdoor Advertising and Promotional marketing, Event management
and on ground activation businesses.

Together with the family, the promoter group holds around 60.85% in the company. In fact, Jagran Media Network
Investment Private Limited (Promoter/Holding Company of JPL) consistently increased its stake in the company
over the years from 56.71% in Mar-2013 to 60.63% in Sept-2017.

Promoter shareholding Pattern

  Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Sep 17

JMNIPL 56.71 57.6 57.6 60.55 60.55 60.63

Suvi Info-Management 4.71 4.79 2.95 0 0 0

Others 0.2 0.2 0.21 0.21 0.21 0.22

Total 61.62 62.59 60.76 60.76 60.76 60.85

Source: Stock Exchange, Equitymaster

In June 2015, JMNIPL (Promoter/Holding Company of JPL) increased its stake from 57.6% to 60.23% post this
acquisition of shares from Suvi Info-Management (Indore) Private Limited.

In June 2017, Blackstone GPV Capital Partners sold its entire stake in JMNIPL to the existing promoters of
JMNIPL. With this, the promoters stake further increased to 60.63%.

Apart from the promoters, the following mutual funds have recently entered or increased their stake:

Shareholding Greater than 1% Mar-17 Apr-17 Jun-17 Sep-17

ICICI Prudential Mutual Fund - - - 1.09

HDFC Trustee Company Ltd 4.58 4.81 5.09 6.77

Franklin Templeton Mutual Fund 2.04 2.10 2.10 2.61

Sundaram Mutual Fund - - - 1.07

Source: Stock Exchange, Equitymaster

 Smart Money Invested

About the Owner Operators:

Dainik Jagran launched its first edition in 1942 in Jhansi and is a brainchild of late Puran Chand Gupta. This is the
same year when the freedom struggle of India reached its crescendo and found expression in the "Quit India
movement". The newspaper was launched in order to reflect the free voice of the people.

From its first edition in Jhansi, the paper expanded to Kanpur in 1947, and then to Rewa and Bhopal in Madhya
Pradesh the 1950s. Uttar Pradesh remained a stronghold, as the newspaper went on to launch editions in
Gorakhpur, Varanasi, Allahabad and Lucknow, then Meerut, Agra and Bareilly before reaching Delhi in 1990. It then
branched into the smaller towns of Uttar Pradesh as well as neighbouring states.

Jagran Prakashan Limited (JPL) was incorporated on July 18, 1975. in 2006, JPL got listed on BSE and NSE.

The principal business of JPL is publication of newspapers, magazines and journals, outdoor advertisement, event
management, digital business, including value added services through mobile and maintenance and running of
web portals.

Mahendra Mohan Gupta is the Chairman and Managing Director of JPL and also holds the position of Editorial
Director of Dainik Jagran. Mr Gupta has 59 years of experience in the print media industry. He held various key
positions in the industry including being the Chairman of United News of India (UNI), President of The Indian
Newspaper Society (INS), President of Indian Languages Newspaper Association (ILNA), Council Member of Audit
Bureau of Circulations, Member of Press Council of India and Member of Film Censor Board of India.

Closely Held by Owners

Does the Company Qualify on Equitymaster's Smart Money ScoreTM?
We believe, any good business needs to pass our checklist i.e. smart money score. You can find a detailed
explanation of what the smart money score in our guide. Smart Money Secrets - A Quick Start Guide.

1. Smart Money Invested - One of the important catalysts we look in a stock is the smart money. Based on the
holding (higher the better) and our comfort with super investor we assign a rating on a scale of 10.

We also like to see either the super investor or the promoters of the company increase their stake in the
company.

Jagran Media Network Investment Pvt Ltd (JMNIPL) is the holding company of Jagran Prakashan Ltd and is
the main promoter. Jagran Prakashan was founded in 1942 by the Late Shri Puran Chandra Gupta, a freedom
fighter. His descendants Mr Mahendra Mohan Gupta and family are promoters of JMNIPL and consequently
they are also promoters of Jagran Prakashan Ltd.

As highlighted earlier, promoters increasing stake in the company is a positive sign according to us because it
demonstrates their confidence in the business and its growth story. Indeed, Jagran Prakashan has emerged
as the most widely read Hindi newspaper in the country, which is always critical in terms of attracting
advertisers. Not to mention that the company enjoys superior margins and healthy return ratios in both the
print and the radio business as well as a lean balance sheet.

As can be seen, JMNIPL has increased its stake in Jagran Prakashan over the years; from 56.71% in March
2013 to 60.55% in March 2017. In the subsequent quarter, JMNIPL bought additional stake from Blackstone
Capital Partners thereby increasing its stake in Jagran Prakashan Ltd to 60.63%.

This for us is the most important Smart Money catalyst for the stock.

Besides this, mutual funds such as Franklin Templeton, ICICI Prudential, and Sundaram to name a few have
also consistently increased their stake in the company over the last few quarters.

Promoters Increasing the Stake

Promoters: Gupta Family Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Jagran Media Network Investment Pvt Ltd. 56.71 57.6 57.6 60.55 60.55

Suvi Info-Management 4.71 4.79 2.95 0 0

Others 0.2 0.2 0.21 0.21 0.21

Source: Stock Exchange, Equitymaster

Thus, keeping in mind that the promoter has increased its stake in the company over the years as well as
some mutual funds also doing the same, we assign a rating of 10 to Jagran Prakashan Ltd.

2. Business Quality - One reason that makes Jagran Prakashan Ltd such a compelling story is the strength of its
business and its dominance in the Hindi heartland of the country.

In a business, which is pretty competitive, Jagran Prakashan Ltd has managed to retain its edge and come out
on top. Its flagship daily Dainik Jagran is the most widely read Hindi newspaper in the country with a
readership of 56 m. More importantly, its publications cover 13 states, which are largely Hindi speaking and in
the vernacular belt. This gives the newspaper a strong regional flavour. Uttar Pradesh and Bihar, in particular,
are the company's flagship markets.
Besides this, Jagran Prakashan had also purchased the newspaper Mid-Day in 2010. Since posting losses in
FY14, Mid-Day turned around in FY15 and profits started inching up since then. Jagran Prakashan
considerably revamped the Mid-Day newspaper, which led to increased circulation and better overall
performance.

Now, we live in an age which is largely internet driven. In an era of computers, laptops and fancy smartphones,
which have made internet access very easy, there is a plethora of news that can be accessed on the web. This
means that newspaper businesses can no longer rely solely on their traditional print businesses. They need to
develop a smart digital strategy as well.

We believe that Jagran has made significant inroads on this front. The company's digital business is growing
at a scorching pace (around 40% plus) and is expected to start contributing to profits in a couple of years.

Radio is also an important growth driver for Jagran. The company acquired Music Broadcast Ltd (which owns
the brand 'RadioCity') in 2015. Currently, the company has a network of 39 radio stations across 12 states, and
this medium is also expected to grow overall advertising revenues. Firstly, in the overall advertising pie, the
contribution of radio is low at a mere 4%, which means that there is ample headroom for growth. It is also a
business that has healthy margins of around 34% and is expected to grow faster than the print business.

The quality of Jagran Prakashan's business is reflected in the following metrics.:

Business Quality

Return Ratios Last 7 year Average Next 5 Year Average Score (out of 3)

ROEs (out of 1.5) 26% 16% 0.5

ROCES (out of 1.5) 26% 23% 1.5

Total     2

       

Topline & Bottomline CAGR 10 years > 10% Last 7 year Average Next 5 Year Average Score (out of 3)

Topline Growth (out of 1) 11% 9% 0.5

Bottomline Growth (out of 1) 9% 12% 0.5

Operating Profits (out of 1) 10% 9% 0.5

Total     1.5

       

Debt to Equity Last 7 year Average Next 5 Year Average Score (out of 2)

D/E 0.4 0.1 2

       

Operating Cash Flow/ PAT Last 7 year Average Next 5 Year Average Score (out of 2)

OCF/PAT 1.4 1.4 1.5

Source: Ace Equity, Equitymaster

As can be seen, the company has a lean balance sheet - there is no debt on its books.

The company has been facing some headwinds in recent times, as demonetization and GST transition has
hurt advertising revenues. However, the situation is expected to improve going forward. Also, the company is
looking to exit its outdoor media businesses (around 7% of revenues) since they are not contributing much to
 growth. That is why sales growth over the next five years is lower than the historical average. That said, the
core business (print, radio and digital) is expected to grow at a CAGR of 10% over the next five years, in
tandem with the historical average.

The same goes for return ratios. These are again below the historical average due to near term pressures but
expected to improve over the longer term. Having said that, we have penalized the company for the same.

Thus, we assign a rating of 7 on business quality.

3. Competitive Advantage: One of the important factors super investors look for is sustainable competitive
advantages aka economic moats. They love to invest in companies focusing on widening of moats.

So what makes Jagran Prakashan stand out?

First, Jagran Prakashan's Dainik Jagran is the most widely read newspaper in the country. It is particularly
present in 13 states, which basically make up the Hindi heartland of the country. Uttar Pradesh and Bihar
particularly are its flagship markets.

This gives Jagran's newspapers a strong regional avour. Typically, there is no substitute for such regional
dailies. Not that there is no online threat to them but such dailies are relatively more insulated from being
substituted. They are indispensable as far as local news is concerned. If they find the right mix of revenues
(circulation + advertising) and adapt to the threat of the internet well, they can thrive for long periods. Such
dailies can sustain profitability and even manage to grow, despite competitive pressures.

Indeed, a strong regional flavour has enabled the company to focus on local advertising. Plus, it has also been
focusing on revamping and growing its digital business, which can perfectly complement its flagship print
business.

Second, Jagran has also been working on revamping and developing its digital business, which complements
not just the agship print business, but the radio business as well.

Now, we live in an internet age where information is available at the click of a mouse. Thus, internet has more
or less become a substitute for newspapers as far as getting information is concerned. This is particularly
true in advanced countries where internet penetration is high.

This means that besides having a regional presence, it is also important for newspaper companies to develop
a smart digital strategy without compromising on content. We believe that Jagran has done a good job of
adapting to this change and focusing on growing its digital business.

As far as the radio digital is concerned, Jagran operates a web radio on radiocity.in, which has 42 stations
with a listenership of 32 million.

Currently, the digital business has been growing upwards of 40% and is expected to grow faster than print and
radio over the next few years too. Besides attracting advertising revenues on its own, Jagran is also partnering
with biggies such as Google and Facebook to bring in more ad revenues. Also, the company is clear that it
does not want the digital business to be just an e-version of the print business, but instead focus on it as a
product in its own right. We believe this to be a smart strategy that will augur well for Jagran's digital business
going forward.

Third, Jagran has also been focusing on increasing circulation of Mid-Day and Naidunia by revamping their
content. For instance, lot of effort was put in English Mid-Day, specifically where the company actually did a
refurbishment of the brand recently. Going forward, the company is also looking at refurbishing both Inquilab
 and Gujarati Mid-Day. Thus, since posting losses in FY14, Mid-Day turned around in FY15 and profits started
inching up since then.

Naidunia has also been showing promising results with an increase in circulation copies.

Basically, as far as the publication business is concerned, idea is to revitalize growth primarily led by the
strengthening of the brand.

Fourth, what makes Jagran Prakashan stand out is its management's keen attempt to keep a close eye on
pro tability. The company has made every effort to keep the bottomline strong even during periods of stress.
Advertisement revenue growth particularly depends a lot on economic environment in the country. Typically, in
slowdown, ad revenues get hit. However, Jagran Prakashan has managed to remain resilient with focus on
local advertising.

Indeed, the financials speak for themselves. According to the management, Dainik Jagran has consistently
reported operating margins of more than 30%. Music Broadcast Limited, Jagran's radio subsidiary, has also
been clocking in operating margins of more than 30%, and at the same time is also growing faster than the
traditional print business. This is commendable given that competitive pressures exist in both the print and
the radio business.

Thus, after doing a detailed analysis regarding Industry Rivalry, Bargaining Power of Buyers, Bargaining Power
of Suppliers, Threat of New Entrants and Threat of Substitutes, we assign a rating of 8 to Jagran Prakashan
for its economic moat.

4. Soul in the Game - The idiom of soul in the game stands for the owner operated companies i.e. companies
where owners and operators of the business are same. We believe higher stake and active involvement in the
business puts the incentives perfectly aligned

So, we look out for companies owned and operated by good managers.

Jagran Media Network Investment Pvt Ltd (JMNIPL) is the holding company of Jagran Prakashan Ltd and is
the main promoter. Jagran Prakashan was founded in 1942 by the Late Shri Puran Chandra Gupta, a freedom
fighter. His descendants Mr Mahendra Mohan Gupta and family are promoters of JMNIPL and consequently
they are also promoters of Jagran Prakashan Ltd.

In a business, which is pretty competitive, Jagran Prakashan Ltd has managed to retain its edge and come out
on top. Its flagship daily Dainik Jagran is the most widely read Hindi newspaper in the country with a
readership of 56 m. Realising the disruptive impact of the internet, Jagran's management has displayed its
ability to adapt to change. Accordingly, it has continuously evolved and revamped its digital business so that it
can complement the company's flagship print business.

The acquisition of the radio business is also expected to help the company attract more advertising revenues
and not rely completely on print. What more, the radio business is expected to grow faster than the print
business over the next five years.

Further, in FY12-17, the total salary drawn stood at 3% of the total profits earned during the same period. In
FY17 too, salaries accounted for 3% of net profits. Thus, the salary numbers are decent given the kind of
involvement and improvements the management provides to the company.

Also, we have gone through the auditor's report and Related Party Transactions; even though the company
has entered in some related party transactions, we do not find any material transactions which may raise
 questions on the management integrity.

We believe, management has put its soul in the business. This is a kind of pattern our Super Investors look out
for. Thus, we assign a rating of 9 on this parameter.

5. Capital allocation - One of the patterns our super investors and we seek for is the efficient capital allocation
by the management. The best way to evaluate this could be to look at both the sources and the application of
the funds by the management over a period.

Sources of Funds

By sources of funds we mean the money raised by the company to grow its business. Typically, there are three
big sources i.e. Equity Dilution, Raising Debt and Internal Accruals (cash generated by the business).

We love the companies with capabilities of funding their growth using cash generated by the business itself.
Further, if these companies are present in the industries with big market opportunity, sky is the limit for them.

In case of Jagran Prakashan Ltd, in the period FY12-17, of the total funds raised by the company, around 69%
of the total funds were generated by the business. We believe this shows the robustness of the company's
business model. This shows the growth has been funded by cash generated by the business.

Sources of Funds over FY12-17

Application of Funds

After sourcing the capital, the next and most important aspect is the allocation of the raised money. We
believe generating cash from the business is not enough, it is very important for the company to deploy the
same in profitable ventures.

In the case of Jagran Prakashan Ltd, around 33% has gone towards growth capex, around 22% towards the
payment of dividend. The payment of dividend again gives us comfort for the shareholders of the company.
Thus, we believe that the company is a good allocator of capital.
 Application of Funds over FY12-17

Thus, not only does Jagran Prakashan score well in terms of its business generating healthy cash, we believe
its capital allocation is also healthy. We, thus, assign a rating of 9 for capital allocation.

6. Earnings Quality - One of the key challenges while evaluating small and mid-cap companies is the quality of
their earnings.

The growth in the sales and profits should translate into cash flows for the company. There should be a good
comparison between the accounting and cash profits to understand the quality of the earnings.

One crucial tool to check the earnings quality is the proper analysis of the Cash Flow Statements (which many
people miss to look at).

Over the years, we have found a similar pattern in companies that were fraudulent or bankrupt or both in India
and abroad. The usual culprit in both the cases involved money stuck in their working capital which meant
accounting profits weren't converted into cash profits.

We have devised a simple way to inspect earnings quality of any company. We begin with cash flow from
operations. Divide it in two parts i.e. Gross Cash Flow from Operations (GCFO) and Net Cash Flow from
Operations (NCFO). The difference being the 'changes in working capital'.

As a thumb rule, for a manufacturing company NCFO as a percentage of GCFO should not be signi cantly
below sixty percent. This simply means ideally not more than forty percent of the money should be stuck in
working capital.

We applied the same rule on Jagran Prakashan Ltd and over FY12-17 this number on an average stood at
107% which well above the sixty percent rule.

We also compare the net cash flow from operations with operating profits because theoretically they should
be close to each other.

For Jagran Prakashan Ltd both accounting and cash operating profits were close.

Also, the cash conversion cycle is on the lower side at more than 65 days, which we believe is a good sign.

Thus, we assign a rating of 9 for earnings quality.

7. Scalability of the Business - Identifying a good business is one thing, identifying a good business with
potential to grow at decent rates for years to come is another. One crucial factor for a business is the size of
 the market it caters to.

Jagran Prakashan's flagship print business (around 80% of total revenues) is one of those businesses that
can grow at a stable rate of 10% in the longer term, but not more. Essentially, as far as the print business is
concerned, around 76% comes from advertising and the rest comes from circulation. Growth in advertising
revenues is a function of how popular a newspaper is. In this regard, Jagran scores very well because its daily
Dainik Jagran is the most widely read newspaper in the country with a readership of around 56 m. The
company's dailies such as Dainik Jagran and Naidunia are very strong in the country's Hindi heartland.

Given that Jagran focuses on being a regional newspaper, it is also able to attract regional advertising. That
said, advertising also depends a lot on economic developments. During an economic downturn, companies
will look to curtail advertising spends and that would impact Jagran as well. Case in point are the recent
developments of demonetization and GST transition, which hurt many industries badly (particularly retail) and
hampered Jagran's ad revenue growth.

The other factor for the print business are circulation revenues. Here, while the company has no plans
currently of venturing into new states, it is looking at reaching out to untapped areas in its existing states. The
idea is to boost circulation of copies. Also, when the competition intensifies, the company is compelled to cut
cover prices to bolster volumes.

So keeping all these factors in mind, the print business is not really scalable but can grow at a stable rate of
10% over the long term.

Jagran's other businesses particularly radio has a potential to grow much faster. Music Broadcast Ltd, which
is the company's radio subsidiary and operates the brand Radio City, is expected to grow at a faster rate of
19% as advertising revenues start picking up pace. This business accounts for 12% of sales and 14% of
operating profits currently on a consolidated basis.

Indeed, the capex with respect to radio (payment of license fees, and setting up new stations post the Phase
III auctions) has already been completed. Thus, there is no capex for the radio business in the near term.
Therefore, growth in advertisement revenues will directly flow to the bottomline.

Jagran Prakashan's sales and profits have grown at a CAGR of 11% and 9% respectively in the last ten years.
We expect the company to deliver revenue and profit CAGR of 9% and 12% respectively over FY17-22.

Thus, given all these factors, we assign a rating 7 based on scalability of business parameter.

8. Market Leadership - Dainik Jagran is the company's flagship print publication and is India's largest read daily
newspaper. Along with its other publication Naidunia, the company has a very strong presence in the Hindi
heartland. Uttar Pradesh and Bihar in particular are the company's core markets. As far as radio is concerned,
Radio City was India's first private FM radio broadcaster. The company has 39 radio stations and a listener
base of more than 52.5 million listeners in India across 23 cities.

That said, the print business is competitive and Dainik Jagran has to compete with Dainik Bhaskar, Hindustan,
Amar Ujala and Patrika in the states where it is present in.

Radio City also has to compete with other FM stations. And yet, the radio business is expected to grow faster
than the print business, one of the reasons being the lower share of radio in the overall advertising pie, which
means that there is ample room for all players to grow.

Keeping these aspects in mind, we have assigned a rating of 7 to the company on this parameter.
Considering the above analysis, the total ranking assigned to the company is 66 (out of 80). On a weighted basis,
it stands at 8.3. This indicates that fundamentals of the business are robust.

Equitymaster Smart Money ScoreTM

Smart Money Score (A) Weightage Weighted

Equitymaster's
(B) (A*B)
Smart Money Points High - Medium - Low
Score
1 2 3 4 5 6 7 8 9 10

Smart Money 10.0                     15.0% 1.5

Invested

Business Quality 7.0                     15.0% 1.1

Competitive 8.0                     10.0% 0.8

Advantage

Soul in the Game 9.0                     10.0% 0.9

Capital Allocation 9.0                     10.0% 0.9

Earnings Quality 9.0                     15.0% 1.4

Scalablilty in the 7.0                     15.0% 1.1

Business

Market 7.0                     10.0% 0.7

Leadership

Final Rating 66   8.3

What are the Risks to be looked out for?

Newsprint price uctuation:Ḁ Newsprint, as the primary raw material, represents a significant portion of
overall expenses. Newsprint cost is the largest operating cost for JPL and typically accounts for
45%-48% of total operating costs. Earlier in FY09, high domestic newsprint prices resulted in significant
erosion in EBITDA margins across the print media industry. Any significant movement in newsprint
prices will adversely impact the profitability.

Over dependence on advertisement revenue: JPL derives more than 70% of total revenue from
advertisement. Advertising revenue depends on overall economic conditions. Low economic growth,
high inflation, high interest rate and certain policy decisions of the government may hurt the overall
consumer sentiment, which will negatively impact the consumption and thus media industry. Similarly,
shortfall in the expected growth in revenue for any reason will disproportionately reduce the growth in
profits or result in lower profits because advertisement revenue has high operating leverage.

Intense competition and threat from Internet: Newspaper market is highly competitive and is
dominated by two or three players. Competition in the Hindi belt is intense as all leading players are
expanding their operations to new markets to increase their readership. The company's prospects may
get adversely impacted in case some existing or new players with deep pockets enter or increase
presence in the company's markets.

Similarly, the increasing use of the Internet search function, primarily through large engines such as Google, has
also changed the habits of readers. Instead of perusing general interest publications, such as newspapers, readers
are seeking particular writers, blogs or sources of information through targeted searches. The Internet proved as a
convenient vehicle for classified advertising, particularly in categories such as jobs, vehicles, and real estate. In
the US, free services like Craigslist have decimated the classified advertising departments of newspapers.

Further, JPL's digital division faces competition for revenue from local as well as international giants like Google
and Facebook which have the lion's share in the digital pie.

Updates On JAGRAN Valuations

PRAKASHAN:
We have valued Jagran Prakashan Ltd based
Add: Alert | Portfolio
on price to earnings on its consolidated One could
Market Data business, which includes the print and radio consider
businesses. While the print business is not a buying the
Price On Reco. Date (Rs) 171 (BSE)
very high growth one, radio and digital are stock of
CMP - BSE / NSE (Rs) 171 / 171 expected to grow faster over the coming Jagran
Change Since Reco.  0.0% years. That said, we believe it can surprise our
Prakashan Ltd
at current
52-week High/Low (Rs) 209 / 161 conservative assumptions on the positive
price or lower.
NSE Symbol JAGRAN side, so we have conducted a scenario
BSE Code 532705 analysis.
No. Of Shares 311.4 m
What we have essentially done is kept both the earnings growth and the
Face value 2.0
PE multiple in a range that we are comfortable with and have tried to
FY17 dividend/share (Rs) 3.0
deduce target price based on different combinations of the same.
Dividend yield (%) 1.8%

Stock Classification Small cap The below permutations and combinations based on earnings growth and
Free Float 39.2% P/E multiples gives a fair idea about the potential upside for the stock.
Market Cap (Rs m) 53,249 However, in addition to this we have derived a target price on basis of our
numbers.
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Expected Target Price (FY22) Under Di erent Assumptions of Earnings Growth and P/E Multiples

Earnings CAGR (FY17-FY22E)

Forward PE Multiple   14% 15% 20% 25% 30%

15 309 322 399 489 595

16 329 344 425 522 635

18 370 387 479 587 714

 Earnings CAGR (FY17-FY22E)

20 411 430 532 652 793

Source: Ace Equity, Equitymaster

Jagran Prakashan's flagship daily Dainik Jagran is the most widely read Hindi newspaper in the country with a
readership of 56 m. More importantly, its publications cover 13 states, which are largely Hindi speaking and in the
vernacular belt. This gives the newspaper a strong regional flavor.

Thus, despite various challenges that that print media has been facing in recent times, Jagran Prakashan has
retained its edge because it has content that is superior, relevant and local.

Besides Dainik Jagran, two other publications are also doing well viz., Naidunia and Mid-Day. Naidunia has largely
given Jagran presence in the states of Madhya Pradesh and Chhattisgarh. Since posting losses in FY14, Mid-Day
turned around in FY15 and profits started inching up since then. Jagran Prakashan considerably revamped the
Mid-Day newspaper, which led to increased circulation and better overall performance.

However, this is only the print business. The company now has two more faster growing business segments under
its belt - radio and digital.

The digital business is an extension of the company's print business and highlights the company's willingness to
adapt to change. The business has been growing at a scorching pace of more than 40% and this has largely been
because of the company's efforts to ensure that it is not just an e-version of its printed newspaper, but a product
that offers value to readers in its own right.

The third important growth driver for Jagran is radio. The company acquired Music Broadcast Ltd (which owns the
brand 'RadioCity') in 2015. Currently, the company has a network of 39 radio stations across 12 states, and this
medium is also expected to grow overall advertising revenues. Firstly, in the overall advertising pie, the
contribution of radio is low at a mere 4%, which means that there is ample headroom for growth.

Despite competitive pressures, a focus on local advertising, constant efforts to revamp publications and content
both in print and radio has enabled the company to maintain healthy profitability. Return ratios have also averaged
at around 26% in the last seven years, although they have fallen in the last couple of years largely on account of
capex in the radio business, demonetization and GST transition. However, these are expected to improve going
forward.

Jagran Prakashan also has a very strong balance sheet with no debt on its books. Plus, the company does not
plan to undertake major capex in the coming few years as most of it (especially the radio business) has already
been done.

In the last ve years, Jagran Prakashan has traded at an average price to earnings of 17 times and median price to
earnings ratio of 18 times.

Now, at current price of Rs 171, the stock is trading at a trailing price to earnings ratio of 16 times, which we
believe is reasonable. Infact, the stock currently is trading close to its 52-week low of Rs 161.

We are valuing the company by assigning a price to earnings multiple of 16 times on its consolidated business
from FY22 perspective.

As such, we have arrived at a target price of Rs 312 for the company (from FY22 perspective). This implies a
CAGR of 15.2% (excluding dividend yield of ~1.8%) and a point to point upside of 82%.
The maximum buy price for the stock is Rs 185.

According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be
considered to comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small
cap stock should not form more than 2-3% of the total portfolio. Please note that this allocation will vary from
person to person. For something that works best for you, we recommend you talk to your investment advisor.

Consolidated Financials

(Rs m) FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E

Sales 17,698 20,792 22,830 24,375 26,662 27,747 31,017 34,730

Sales growth (%) 4% 17% 10% 7% 9% 4% 12% 12%

Gross Profit 11,442 14,506 16,305 17,306 19,064 19,839 22,333 25,006

Gross Profit Margin (%) 65% 70% 71% 71% 72% 72% 72% 72%

Operating Profit 4,463 5,867 6,395 6,754 7,522 7,828 8,905 9,971

Operating Profit Margin (%) 25% 28% 28% 28% 28% 28% 29% 29%

Net Profit 3,080 3,508 3,493 3,239 3,784 3,986 5,123 6,074

Net Profit Margin (%) 17% 17% 15% 13% 14% 14% 17% 17%

 
Balance Sheet

Fixed Assets 7,731 14,223 14,919 15,035 14,119 13,167 12,177 11,151

Other Assets 8,842 2,353 6,354 5,912 5,980 6,013 6,111 6,222

Inventories 929 669 935 856 937 975 1,090 1,220

Receivables 3,636 4,480 5,158 5,142 5,625 5,854 6,543 7,327

Cash and Bank Balances 4,931 502 3,491 3,190 5,865 9,161 10,996 14,753

Current Assets 10,254 10,067 10,843 13,795 17,385 20,999 24,132 29,323

Total Assets 26,827 26,643 32,116 34,742 37,484 40,179 42,420 46,695

Net Worth 11,342 16,309 21,549 23,636 26,112 28,603 32,231 36,810

Long Term Debt 1,952 2,592 502 502 502 502 502 502

Short Term Debt 3,527 2,556 832 4,162 4,000 4,000 2,000 1,000

Other Non Current Liabilities 5,322 1,931 4,234 1,872 1,872 1,872 1,872 1,872

Current Liabilities 8,212 5,811 5,831 8,733 8,999 9,202 7,816 7,512
Total Liabilities 26,828 26,643 32,116 34,742 37,484 40,179 42,420 46,695

Key Financial Ratios

Ratios FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E

Operational & Financial Ratios

EPS (Rs.) 10 11 11 10 12 13 16 20

Book Value per share (Rs.) 35 50 66 76 84 92 103 118

Dividend Payout Ratio (%) 37% 0% 28% 29% 29% 31% 24% 21%

 
Margin ratios (%)

EBITDA Margins 25% 28% 28% 28% 28% 28% 29% 29%

EBIT Margins 21% 25% 24% 24% 25% 25% 26% 26%

PBT Margins 24% 22% 23% 19% 20% 21% 24% 25%
 Ratios FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E

PAT Margins (adj) 17% 15% 15% 13% 14% 14% 17% 17%

 
Performance Ratios (%)

ROE 29% 22% 18% 14% 15% 15% 17% 18%

ROCE 24% 27% 25% 23% 22% 22% 24% 25%

ROIC 32% 36% 25% 24% 27% 29% 34% 39%

 
Turnover Ratios Days

Debtors 73 71 77 77 74 75 73 73

Inventory 20 14 13 13 12 13 12 12

Creditors 25 17 18 23 24 25 24 24

Cash Conversion Cycle (days) 68 68 71 67 62 64 61 61

Fixed Assets turnover (x) 1 1 1 1 1 1 2 2

 
Financial Stability Ratios (x)

Debt-equity 0 0 0 0 0 0 0 0

Current ratio 1 2 2 2 2 2 3 4

 
Growth Ratios

Net Sales growth (%) 4% 17% 10% 7% 9% 4% 12% 12%

PAT growth (%) 36% 0% 14% -7% 17% 5% 29% 19%

Valuation Ratios

Price to earnings (x) 17 15 15 16 14 13 10 9

Price to book value (x) 5 3 3 2 2 2 2 1

Price to sales (x) 3 3 2 2 2 2 2 1

Performance Review
TThis is as per the closing prices for the stocks as on 22nd December.

The stock of SP Apparels is trading below the price at which we had originally recommended the stock. Our
maximum Buy price for the stock is Rs 460. Thus, we maintain BUY view on the stock of SP Apparels.

Our view on the stock of TCPL Packaging Ltd remains a HOLD considering the steep run-up in its prices post our
recommendation. Please note the maximum Buy price for the company is Rs 600.

The stock of Ador Fontech Ltd has also gained since our recommendation. The maximum Buy price for the
company is Rs 100. Given that the current price is above the maximum Buy price, our view on the stock of Ador
Fontech remains HOLD.

Mayur Uniquoters has also gained considerably since we recommended the stock. The maximum Buy price for
this stock is Rs 400. Since the current price is above our maximum Buy price, our view on the stock of Mayur
Uniquoters remains a HOLD.

TVS Srichakra Ltd has also gained quite a bit since we recommended the stock. The maximum Buy price for this
stock is Rs 3,250. Thus, our view on the stock of TVS Srichakra Ltd remains a HOLD.
Honda Siel Power Products Ltd has moved upwards since we recommended the stock. The maximum Buy price
for this stock is Rs 1,400. Since the current price now is above our maximum Buy price, we change our view on the
stock of Honda Siel Power Products Ltd from BUY to HOLD

The performance review of our open positions table is mentioned below:

Summary of Open Positions for Smart Money Secrets as on 22 nd December 2017

Company Reco. Reco. Reco. Target Price as Change View as Expected

Date Price Price on 22nd (%) on 22nd Return
(Rs) (Rs) Dec Dec From
2017 2017 Current
Price (%)

SP Apparels Ltd 3-Jun-17 Buy 424 766 396 -7% Buy 94%

TCPL Packaging 23-Jun-17 Buy 515 1,100 650 26% Hold 69%
Ltd

Ador Fontech Ltd 27-Jul-17 Buy 95 169 129 36% Hold 31%

Mayur Uniquoters 21-Aug-17 Buy 345 673 515 49% Hold 31%
Ltd

TVS Srichakra Ltd 25-Sep-17 Buy 3,127 4,934 3,553 14% Hold 39%

Honda Siel Power 26-Oct-17 Buy 1,314 2,387 1,526 16% Hold 56%
Products Ltd

AIA Engineerinng 27-Nov-17 Buy NA NA 1,624 NA Buy at NA

Ltd at Lower
Lower Price
Price

Jagran Prakashan 22-Dec-17 Buy 171 312 171 0% Buy 83%

Ltd

The Top Stocks To Consider Buying Now

As you are aware, the list of top stocks allows subscribers to choose a handful of Best buys from amongst our buy
recommendations. The 'must have' criteria for stocks to be eligible in the list of best buys are a high rating on the
Smart Money Score. The additional level of filter will be their return potential over a period of three to five years.
But as you understand, the list will not be static but will evolve over time.

Of the seven stocks we have recommended under Smart Money Secrets so far, five have run up since we had
recommended them. Thus, the list for this month comprises of Jagran Prakashan Ltd. The potential upside allows
subscribers to buy this stock even at current prices.

Please do pay attention to our latest views on the stocks mentioned in this list every month.

According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be
considered to comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small
cap stock should not form more than 2-3% of the total portfolio. Please note that this allocation will vary from
person to person. For something that works best for you, we recommend you talk to your investment advisor.

Here is our list of Top Stocks To Consider Buying

>> Jagran Prakashan Ltd.

Kunal Thanvi (Research Analyst), Managing Editor, Smart Money Secrets , a member of the Institute of Chartered
Accountants and the Companies Secretaries of India. He started his career with a PMS as a buy-side analyst. He is a
balance sheet driven analyst who loves niche businesses with competitive advantages.
 He practices value investing based on Ben Graham's principles of 'Margin of Safety'
and 'Mr Market'. He is an avid reader who believes it's better to learn vicariously than
the hard way.

Where Smart Money Secrets Fits In...

Our team will focus primarily in the mid and small cap domain. Having said that, we will remain market-cap agnostic towards
mispriced opportunities that the markets may present to us.

Market participants must note that stock markets tend to be very volatile. Mid and Small cap stocks are inherently riskier
compared to large blue-chip stocks. On the brighter side, they present a huge growth potential. It is not unusual for a good small
and mid-cap stock to turn a multibagger in a short period of time. But on the flipside, there is a considerable risk attached. And
putting too much money in a single stock or sector can be very risky.

According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be considered to
comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small cap stock should not form more
than 2-3% of the total portfolio. Please note that this allocation will vary from person to person. For something that works best for
you, we recommend you talk to your investment advisor.

Frequently Asked Questions

These are some of the Most Frequently Asked Questions on Smart Money Secrets. Please view the others here.

If the stock price runs up post the recommendation and trades at levels higher than the
buy price, should one still buy the stock?
Please note that small and midcap stocks, in general, have low market capitalisation and liquidity. There is always
the possibility that these stocks may shoot up in price in no time, even at the time of our recommendation.

Therefore, we would like to recommend to our subscribers not to chase prices and not to consider buying a stock
once it goes beyond our recommended maximum buy price. There will be enough recommendations in a year so
that the pain of missing out on a few recommendations is eased considerably.

Do note that we give maximum buy price range for every stock we recommend in Smart Money Secrets.

Can there be an overlap or contrary views on the stocks recommended under this service
and that of the other Equitymaster services?

We believe that earning good returns from stocks is all about following a well-defined process.

In line with this, each of our product teams, be it the Smart Money Secrets team or Hidden Treasure or The India
Letter, has its own unique screen and checklist for selecting and recommending stocks. In rare cases, where there
is a compelling proposition to recommend a stock in more than one service simultaneously, could there be an
overlap in stocks.

For example, the Smart Money team has unique smart money screener for any stock to pass i.e. 1) Greater than 1%
shareholding of Super Investors; 2) Bulk & Block Deals; and 3) Increasing Promoter Shareholding. On the other
hand, same stock could be recommended under another service irrespective of the smart money screener. In fact,
any service may have recommend a stock and now smart money has entered the stock, it becomes a candidate
for Smart Money Team.
Thus, there could be recommendations that overlap with those in our other services. This aspect also leaves the
stage open for sometimes contradictory recommendations.

What does 'Closed Position' mean?

StockSelect recommendations are meant to meet the target prices within a time frame of three years. So when the
stock meets target price or completes the time frame we 'close the recommendation'. However, since we keep
reviewing our assumptions and estimates for the stock even in the interim, the view or target price on the stock
may warrant a change. This could be a revision upwards or downwards. In such cases, if the previous
recommendation on the stock is no longer valid we close that recommendation. So we essentially close
recommendations either by giving a Sell view or putting out a changed view.

How to read the returns calculations?

For positions that are not closed returns are calculated from date of recommendation till date.

For closed positions, there can be two types of calculations.

Assuming we initially gave a Buy on a stock with no subsequent recommendations on the same stock.
In that case the calculation is fairly simple. The returns shown in this case is simply the change in stock
price from the date of recommendation till the date on which the position was closed.

Now let us take a case where we initiated with a Buy (1st position) and subsequently came with another
recommendation (2nd position) on the same stock. Let us assume that the subsequent recommendation
was also a buy. In such cases, the return calculation depends on whether the 1st position is closed or
not. If the first position is closed before we reiterate buy then the return on the first position will be
calculated as shown previously. However, if 1st position was not closed before we reiterated buy, then
the return calculation is from the earlier buy recommendation till the date on which the position was
closed. Basically where we have reiterated view on a stock we try to show cumulative returns. The same
logic applies with Hold recommendations as well.

Now let us look at Sell recommendations. There can be two situations here.

If there is no recommendation subsequent to the Sell recommendation we show maximum drop in stock
price from date of sell recommendation till date.

If the Sell recommendation is followed up by another recommendation, we show maximum drop in stock
price between the two recommendation dates.

Basically we have tried to cover all hypothetical instances in this note that may help you better understand the
return calculations and closed positions of our recommendations. If you have any query pertaining to it please do
write in to us for further clarifications.

De nitions of Terms Used

Buy recommendation: This means that the subscribers could consider buying the concerned stock at
current market price keeping in mind the tenure and objective of the recommendation service.

Hold recommendation: This means that the subscribers could consider holding on to the shares of the
company until further update and not buy more of the stock at current market price.
 Buy at lower price: This means that the subscribers should wait for some correction in the market price
so that the stock can be bought at more attractive valuations keeping in mind the tenure and the
objective of the service.

Sell recommendation: This means that the subscribers could consider selling the stock at current
market price keeping in mind the objective of the recommendation service.

To enhance your experience of using Smart Money Secrets and to ensure that this journey is smooth for you we have compiled a
list of Frequently Asked Questions.

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014

INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint
venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research
Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment
opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:

For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:

a. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
b. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
c. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject
company at the end of the month immediately preceding the date of publication of the research report.
d. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research
report.
e. Equitymaster's technical team/other research services have given a 'Buy at lower prices' view on Jagran Prakashan Limited

DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:

a. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
b. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
c. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject
company in the past twelve months.
d. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or
brokerage services from the subject company in the past twelve months.
e. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the
research report.

GENERAL DISCLOSURES:

a. The Research Analyst has not served as an officer, director or employee of the subject company.
b. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.

De nitions of Terms Used:

a. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective
of the recommendation service.
b. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock
at current market price.
c. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive
valuations keeping in mind the tenure and the objective of the service.
d. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the
recommendation service.

Feedback:

If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.
MORE ON JAGRAN PRAKASHAN MORE SMART MONEY SECRETS

Sorry! There are no related views on news for this Honda Siel Power Products: Still Awaiting a Rural
company Recovery
(Quarterly Results Update - Detailed)
Dec 11, 2017

Good monsoons and a strong product portfolio are

expected to improve Honda Siel's growth prospects
in the coming quarters.

TVS Srichakra: Rise in Depreciation Hits Pro t

Growth
(Quarterly Results Update - Detailed)
Dec 8, 2017

TVS Srichakra is gearing up to cater to the

replacement demand in the export markets in the
coming months.

AIA Engineering Limited

(Smart Money Secrets)
Nov 27, 2017

Smart Money Secrets recommendation report for

the month of November 2017.

Mayur Uniquoters: Auto Industry Drives Sales

(Quarterly Results Update - Detailed)
Nov 21, 2017

There are significant growth drivers for Mayur

Uniquoters in the coming months.

SP Apparel Ltd: Transitioning from Brexit Impact,

Second Half Looks Promising
(Quarterly Results Update - Detailed)
Nov 17, 2017

Recovering from the Brexit. Reducing geographic

concentration by acquiring new clients.

More Views on News     Recommended Reading

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