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THE SECTORIAL REPORT ON

PRINT MEDIA

Submitted To: Prof. SAPNA MALHOTRA

Submitted by:

Aatif Ansari (01)

Abdullah Tayyebi (03)

Abrez Bhiwandiwala (05)

Abu Talib Khan (07)

Rizvi Institute of Management Studies andResearch

Carter Road, Bandra West, Mumbai-400050

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Executive SummaryIndian Newspaper Publishing - Standing Tall

We believe the Indian Print Media sector offers an excellent opportunityfor investors to cash in on the strong economic growth and emergingconsumerism theme in India. Contrary to popular belief and in defiance ofglobal trends, Newspaper Publishing in India still stands tall beating

Television in terms of advertising growth. Going ahead, the Rs130bnIndian Newspaper Publishing industry is expected to register a 13.9%CAGR in revenues during CY2007-11 largely driven by advertisingrevenue. While advertising revenue is basically related to strong economicgrowth in the country, we believe Newspaper Publishing in India is set togrow owing to structural growth drivers like rising penetration, higherliteracy levels and improving affordability of the medium.

Newsprint concerns discounted

Rising newsprint prices has emerged as the key concern for Print Mediacompanies in India. Capacity rationalisation in North American markets,lower supplies from China and rising crude oil prices has led to this sharp

hike. However, we believe the impact of rising newsprint prices on PrintMedia companies' profitability has already been discounted in the marketas reflected in the sharp fall in the stock prices of Print Media companiesby 30-45% during the last three months. We believe the newsprint pricesare likely to stabilise in 2HCY2008 as the supply situation from Chinaimproves post the Olympics in Beijing. For our Print Media universe, wehave modeled in an 18% rise in newsprint prices in FY2009E from$600/ton as a base case followed by a 6% jump in FY2010E.

Premium valuations to sustain

Globally, Print Media companies usually command premium valuationsowing to the unique nature of their business model, which entails highoperating leverage and generates strong free cash flows. This allows PrintMedia companies to venture into new businesses/ alternative mediaplatforms and emerge as a complete media house, which further improvestheir bargaining power with advertisers and expands their totaladvertising pie. Beefed up with proper funding (post opening up of FDI), abuoyant economy and better demographics, we believe the Print Mediacompanies in India have also embarked on a similar trend. This new erahas witnessed

Print Media breaking its shackles from its traditional strongholds toexpand into new geographies, launching new editions and even venturing

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beyond Print. We believe such new initiatives will not only help thecompanies maximise use of their infrastructure and brands, it will also actas a stepping stone to unlock shareholder value once the ventures attainsignificant size.

Angel Print Media Top Picks - Set to outpace industry growth

We Initiate Coverage on the Print Media sector in India with a positiveoutlook for our universe of stocks, which includes three companies -

Jagran Prakashan (JPL), HT Media (HTML) and Deccan Chronicle Holdings(DCHL). We expect our Print Media universe to register a robust 21% and30.3% CAGR in Net Sales and Profits during FY2007-10 respectively,outpacing industry growth. Revenue growth is likely to be driven by arobust 22.3% CAGR in advertising revenues and modest 9.4% CAGR incirculation revenues during the period. Jagran Prakashan is our Top Pick inthe sector followed by HT Media. We believe both the companies are aunique play on the Print Media in terms of their market presence andproduct portfolio. We maintain our Neutral view on Deccan Chronicle asdespite its cheap valuations, strong concerns render the risk-reward ratioin the stock unfavourable.

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Indian Media & Entertainment Industry

Over the last several years, Indian Media & Entertainment (M&E) Industry

has consistently outperformed most other sectors in terms of growth.Standing tall at an estimated size of Rs513bn in CY2007, it is expected tocontinue to grow at a steady pace of 18.3% CAGR during CY2007-11.While traditional segments like Television and Print continue to accountfor the largest shares of the overall pie, it is emerging segments likeInternet advertising, Radio and Animation and Gaming, which areexpected to register higher growth. In terms of size, we believe that theIndian M&E industry has just touched the tip of the iceberg. In CY2007,the Indian M&E Industry accounted for a mere 0.9% of the Global M&EIndustry, which stood at US $1,432bn and is expected to grow at a CAGR

of 6.6% over CY2007-11.

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A buoyant economy and extremely favourable demographics are the twokey macro-economic constituents on which the Indian Media industrystands today. Media Industry generally tends to exhibit cyclical naturewherein it grows faster when the economy is buoyant and we believe thetime is right for the Media industry to bask in the glory of India Shiningstory. In perspective, according to a McKinsey report (MGI India ConsumerReport), if India continues on its steady growth path over the next twodecades, a major transformation will take place in the Indian consumermarket. Income levels will triple and result in India taking over as the fifthlargest consumer market (currently twelfth). Such strong growth andhigher incomes will move over 291mn people out of desperate povertyand India's middle class will swell by almost ten times from its current sizeof 50mn to 583mn people (41% of population/ 128mn households) by2025. Income growth will be the fastest in the urban areas where averagereal household incomes will increase by 5.8% whereas rural incomes willaccelerate by 3.6% over the next two decades. Moreover, as higherdisposable incomes propel consumer spending, more money will flow intoleisure activities giving a steady impetus to M&E Industry. Besides themacro-economic factors, we believe steady advertising growth, liberal

government regulations and convergence of diverse platforms will be thekey growth drivers for the Media industry.

Advertising to grow at a steady pace

As consumer wallets swell and companies slug it out to capture a largershare of these wallets, the advertising industry continues to make itsimportance felt registering a robust growth of 21.5% yoy in CY2007 toRs195bn. Print Media continues to account for the largest share of the

advertising pie at 48.1% registering a strong 20.5% yoy growth during theyear. In terms of contribution to the total pie, both the traditional

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platforms viz., Print and Television are expected to converge in CY2011.Low ad spends relative to GDP, buoyant economic growth and high growthin new media platforms are expected to drive a steady 19.3% CAGR inrevenues for the advertising industry during CY2007-11.

Buoyant Economy - the platform for steady advertising growthThe advertising industry tends to exhibit a strong correlation with GDPgrowth (in the range of 1.3-1.5x Nominal GDP growth). During periods ofstrong growth in the economy, higher consumer spending pushes up theneed for advertising and the reverse is true during economic downturns.Going ahead, the Indian economy is expected to grow at a steady pace of7-8% (Real GDP growth) and with inflation estimated at 4-5%, we expect

the advertising industry to sustain 16-18% growth.

Low Ad Spend to GDP indicates huge untapped potential

Advertising spend in India stands at an abysmal 0.47% of GDP comparedto the global average of 0.92%. Lower media penetration, poor

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discretionary spending and lack of regulatory support for media activitiesare to blame. However, we believe the scenario is changing and such lowadvertising activity indicates huge untapped potential for the mediaplayers. This potential can be estimated from the fact that if India were toachieve the global average of 0.92% in CY2011, then the advertising

revenue during CY2007-11 would more than triple instead of justdoubling. As corporates indulge in higher advertising budget outlays todifferentiate themselves, more product categories and segments evolveand new advertising mediums and delivery formats emerge, we believeadvertising spend is bound to improve.

Liberal government regulations - The thrust M&E Industry needed

The Indian M&E Industry is witnessing heightened activity owing to risingparticipation of all its Stake-holders viz., regulators, consumers,corporates and investors. However, this wasn't always the case. Mired bya host of problems like poor regulatory framework, high amount ofunorganised participation and leakages in the revenue models (eg.,piracy), the Indian M&E Industry needed a push to achieve its truepotential. Some of the liberal government policies that followed didprovide the much needed thrust. Thus, while Radio has benefittedimmensely owing to a shift to a revenue-sharing regime (from a licenseregime) and distribution of new licenses under Phase II, digitisation of

Television distribution through DTH and CAS rollout have completelychanged the ballgame for the Television industry. Close on heels was theFilm Industry, which also got its share of favourable policies in terms ofbeing accorded an Industry status. This liberal regime also relaxed foreigndirect investment (FDI) norms for the M&E Industry in India opening thefloodgates for foreign corporates and investments. Print Media was thefirst to benefit. In 2003, FDI upto 100% and 26% was allowed in non-newsand news publishing, respectively. This as followed by 20% FDI in Radio

and DTH, 49% in Cable TV and 100% FDI in Advertising, Films and TVSoftware production. More recently, to abide by the rising convergence

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trends in Media and Telecom, the government is considering allowing FDIupto 74% in segments like DTH, Cable TV and IPTV. Foreign investmentlimit in FM Radio is also likely to be increased to 24%.

The year 2007 witnessed the highest FDI inflow lending credence to thefact that the Indian M&E industry has been gaining favour with the foreigninvestors. Thus, while total FDI Earnings of the Information & Broadcasting(I&B) Ministry stood at $461.8mn levels for the period April 2000 and

December 2007, the nine months of 2007 contributed the lion's share withan inflow of $215.8mn. Incidentally, the highest FDI inflow for any singleyear during 2000-07 was $81.5mn way back in 2000-01. According to theDepartment of Industrial Policy and Promotion, FDI fell to a mere $4.5mnin 2001-02, but then rose to $36.5mn the next year (2002-03) andtouched $56mn in 2005-06 and $43.6mn in 2006-07.

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Print Media

Notwithstanding the threat from Television and emerging media likeInternet and Radio, the Print Media in India continues to dominate theM&E space attracting the highest revenues in terms of advertising. InCY2007, the Print Media segment in India stood at Rs149bn registering ayoy growth of 16.5%. Newspaper publishing, which accounts for 87% ofthe segment, registered a 16.6% yoy growth whereas Magazinepublishing, which contributes the balance, grew at a marginally lower rate

of 15%. Going ahead, Print Media is expected to deliver a 14% CAGR inoverall revenues during CY2007-11 driven largely by advertising revenuesas circulation growth is expected to witness a slowdown.

Newspaper publishing - Standing tall in IndiaContrary to popular belief and in defiance to global trends, Newspaperpublishing still stands tall in India accounting for similar share ofadvertising pie as the popular idiot box (television). Newspaperpublishing, a thriving business in India, generated Rs130bn in revenuesduring CY2007 out of which 61% came from advertising and the balancefrom circulation. In terms of advertising revenue growth, it once againoutpaced television registering a robust 21.2% yoy growth during CY2007as against 20.8% growth in advertising on television. Going ahead, theindustry is expected to register a 13.9% CAGR in overall revenues duringCY2007-11 largely driven by advertising revenue growth.

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The Big Divide - English v/s Regional

The Indian Newspaper industry is highly fragmented with more than60,374 registered newspapers including 6,529 dailies. Hindi languagenewspapers comprise 44.6% of the registered dailies while Englishlanguage newspapers comprise a mere 7.4% of the total.

According to the National Readership Survey (NRS) 2006, reach of thepress medium (dailies and magazines combined) increased to 222mn in2006 from 216mn in 2005. A higher percentage of population in the urbanareas read any print media than their rural counterparts. English language

newspaper readers are largely located in urban areas while the readershipof Regional newspapers (Hindi and Vernacular dailies) is more evenlydistributed between the urban and rural areas. Approximately 7.7% of thepopulation in urban areas read English dailies, compared to a readershipof only 0.3% in rural areas. By contrast, Hindi dailies have aproportionately larger readership in rural areas, in addition to their strongpresence in the urban areas, with a readership of approximately 15.7%and 6.5% in urban and rural areas, respectively.

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Even in terms of overall readership, the Regional dailies (Hindi andvernacular dailies) dominate the pie with The Times of India being theonly English daily to feature in the Top-10 list. Moreover, the Regionaldailies have a readership: circulation multiple of 7-9 times compared withEnglish newspapers of 2-3 times. This is primarily due to higher cover

prices of Regional newspapers compared with English newspapers and thereaders of Regional newspapers are generally from the lower socio-economic segment.Regional Newspapers enjoy a better distribution of readershipTOI is the only English Newspaper to feature in Top 10

However, despite having higher number of registered newspapers, higherreadership and a better proportionately distributed readership (urban +rural), the Regional dailies commands a lower share of the printadvertising pie. English dailies (including Business dailies) attract thehighest advertising revenues with approximately 50% of ad-spendfollowed by Hindi and other Indian language newspapers withapproximately 25% of ad-spend each.

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Regional dailies have grown from 191mn readers to 203.6mn readerswhile readership of the English dailies has stagnated around 21mnreaders (NRS 2006). As metros stagnate in terms of readership andcirculation, advertisers are increasingly shifting allocations to non-metrosto cash in on the growing disposable incomes and improving literacy rates

in these regions.

Huge untapped potential in Hindi dailies

There is significant scope for growth in the circulation and readership ofHindi newspapers as evident from the fact that out of the 359mn peoplein India who can read but do not currently read any publication, 68% canread Hindi. Moreover, 20mn of these literate non-readers belong to theupscale SEC A and B segments (higher socio-economic brackets).

Favourable Business dynamics

Hindi/Vernacular dailies have a lower ad-edit ratio, lower colour inventoryand lower pagination compared to their English counterparts. Goingforward, we expect the Regional dailies to increase colour inventory (asdemand from emerging sectors like retail, education, banking, etc., pickup) and improve pagination (once the ad-edit ratios improve) enablingthem to command better yields.

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We attribute this unique feature to the following:

Family owned businesses Most Newspaper businesses in India are family owned and have a strongregional focus. Moreover, due to lack of funds and localised nature of thenewspaper business, most of them have remained content in their ownboundaries.

Strong Entry barriers Newspaper business has extremely strong entry barriers owing to strongbrand equity, readership loyalty and requirement for a wide distributionnetwork. Moreover, as advertising revenue in a region is generallyabsorbed by the top-two players, in most cases it makes competition

unviable.

Niche focus In general, Regional newspapers (Hindi + Vernacular) offer local andregional focus to their readers, often issuing several different regionaleditions. The content and circulation of English-language newspapers, onthe other hand, is largely focused on the primary urban centers. Hence,both enjoy their own set of readers and advertisers, which has left enoughroom to expand within.

Nonetheless, the scenario is fast changing. Post opening up of FDI in the

sector, several players have attracted large investments and also tappedthe IPO market to raise funds. Equipped with a large war-chest of money,

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these players have broken from their regional strongholds expanding intonewer geographies, launching new editions and even venturing beyondPrint. We believe this trend will pick up further momentum in the future asPrint companies taste the benefits of ad-bundling (arising out of the abilityto offer advertising in multiple editions) and derive synergies from

common infrastructure and brand equity.Attracting Big Investments

Lack of funds to invest in new markets has been one of the key reasonsconstraining Print Media companies in India to their own regionalstrongholds. However, since the government opened the sector to FDI,Print Media has attracted several big ticket investments. In the Print Mediasegment, 100% FDI is now allowed for non-news publications and 26% FDIis allowed for news publications. Printing of facsimile editions of foreign

journals is now also allowed in India. However, the FDI investments aresubjects to certain conditions including:

The largest shareholder must hold at least 51% equity

Three-fourths of directors and all executive and editorial staff have to beresident Indians Over the last couple of years, several big deals havetaken place in the Print Media segment. Players like Warburg Pincus, DEShaw, Henderson, etc., have picked up stakes in Print Media companies.Besides P/E funding, Print Media companies like HT Media, JagranPrakashan and Deccan Chronicle have also raised around US $250mnthrough the IPO/QIP route. DB Corp (Dainik Bhaskar) has also filed its RHP

to raise money via IPO. Other recent deals include investment by theTimes of India Group in Vijayanand Printers to enable its entry into theregional language publishing space. The Times Group also picked up 12%stake in Sandesh, a regional daily for Rs27cr.

Expanding ReachBeefed up with proper funding, a buoyant economy and betterdemographics have seen the Print Media breaking its shackles from thetraditional strongholds to expand into new geographies. The Englishdomain has seen the highest activity in terms of expansion. In 2005,Hindustan Times and DNA (Zee Telefilms - Dainik Bhaskar combine) brokeinto Mumbai (the largest Print Media market in the country), which has

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traditionally been a monopoly ofTimes of India (TOI). While defending itshome turf in Mumbai, TOI has started its own battles denting Telegraph'smarket share in Kolkata and Deccan Herald's in Karnataka. The Southernmarkets witnessed their own share of action with Deccan Chronicleventuring outside its home turf of Andhra Pradesh to challenge The Hindu

in Chennai. Buoyed by its success in Chennai, Deccan Chronicle is all setto enter Bangalore in 1QFY2009. However, TOI, an undisputed leader inBangalore, has already entered Chennai to counter attack DeccanChronicle and strengthen its presence in South India. Not to be leftbehind, Hindi publications have also started expanding. Dainik Jagran hasmoved beyond UP strengthening its position in Punjab and Bihar.However, it hasn't been easy as it had to fight the likes of Hindustan inBihar and Dainik Bhaskarin Punjab (raged a cover price war). Hindustan isplanning to expand aggressively into UP by launching 12-13 new editionsover the next 2-3 years. Dainik Bhaskar has also gained significantmarketshare in Gujarat and Rajasthan. However, Newspapers aren'tsimply sticking to geographic expansions. To truly expand their reach andwiden their readership base, several Publishing houses have launchednew editions of newspapers.

The most prominent launches of 2007 included:

Convergence - Playing its part in Print MediaSitting on huge cash piles and with the ability to generate strong cashflows, Print Media companies have started to realise the importance ofconvergence of media platforms and moving beyond their core business.Rising competition, the need to capture a larger advertising pie and abilityto derive cross-synergies are some of the key reasons necessitating this

transformation. We believe the Print Media companies in India have justembarked on a global trend, which has seen emergence of big media

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houses like Dow Jones, News Corporation, APN News & Media, etc., whichenjoy a strong and diverse presence across media platforms. While BCCLcan be credited as the pioneer in terms of convergence in Print Media inIndia, others like HT Media,Jagran Prakashan and Deccan Chronicle havepicked up fast entering most alternative media platforms including Radio,

Out-of-Home (OOH) advertising, Event Management, Internet Portals andeven Sports Management. Broadcasting majors like TV18, realising thepotential that Print Media offers, has tied up with Jagran Prakashan tolaunch a Hindi financial daily. It has also picked up 40% stake inInfomedia, a company with business operations pan across businessdirectories, B2B and B2C magazine publishing and publishing outsourcing.We believe such new initiatives will not only help the companies tomaximise the use of their infrastructure and brands, it will also act as astepping stone to unlock shareholder value once these ventures attainsignificant size.

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Key Concerns

Rising Newsprint Prices

The cost of production of a newspaper is directly linked to the cost ofnewsprint, which varies with the market price of newsprint, availability

and location of printing facilities and the number of pages used. Newsprintcosts generally account for almost 50-70% of total expenses for apublishing business. Below we have enumerated newsprint costs for ourPrint Media universe vis--vis their total expenditure and revenue.

Newsprint prices vary according to quality. Newsprint is a freely tradedcommodity on the international markets and exhibits price volatility. Indiaimports almost 70% of its newsprint requirement. The English newspapersgenerally use higher quality and mostly imported newsprint compared tothe regional players which use a mix of imported and domestic newsprint.In our Print Universe, the ratio of Imported: Domestic newsprint stands at

90:10 for Deccan Chronicle, 70:30 for HT Media and 35:65 for JagranPrakashan. After bottoming out in July 2002 at US $430MT, newsprint

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prices were on a steady rise for almost four years and peaked at US$640MT levels in July 2006. The rise in newsprint prices during the periodwas attributed to steady demand and cost push inflation. In FY2008however, most Print Media companies reaped the benefits of lowernewsprint costs on account of the dual benefit of declining newsprint

prices and rising Rupee.

India imports almost 70% of its newsprint requirement In FY2008Print Media companies benefitted from declining newsprint pricesand rising Rupee

Newsprint prices in CY2008 have already raised 10-12%

Indian companies, over the last several years, have been able to purchaseimported newsprint (largely from North America) at competitive pricesowing to a positive supply scenario (vast capacities created byinternational newsprint manufacturers), declining demand in UK and parts

of Europe and strong push by Chinese newsprint companies into theIndian market. But, the scenario has now changed. At the beginning ofCY2007, global demand for newsprint was 38.3mn tons while the globalsupply was at 40.5mn tons - a surplus of 2.2mn tons. However, by the endof 2007, several mills closed down resulting in a shortage of 2mn tonstaking the prices up. Newsprint prices in CY2008 have already risen 10-12% to US $640MT levels with more hikes anticipated in the near future.We attribute the sharp rise in global newsprint prices to the followingfactors:

Capacity rationalisation in North America - In CY2007, the North

American newsprint market was suffering from a large demand-supplygap keeping the prices under check. However, owing to the merger of

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Abitibi and Bowater to create Abitibi Bowater, the largest North Americannewsprint producer accounting for almost 50% market share, this gap hasvanished. The merged entity announced closure of the 600,000 ton/yearof capacity as a part of its rationalisation plan and effected a price hike ofUS $60/ton for 1QCY2008. Further, Catalyst Paper acquired Abitibi

Bowaters 375,000 ton/year Snowflake mill capacity resulting in anequation where the Top-five newsprint producers now account for over80% of the newsprint capacity in the North American market.

The Chinese equation - The Chinese suppliers, who were aggressivelyselling to the local buyers, have pulled out as recycled newspapers, theprimary raw material for recycled newsprint, is in short supply. Old NewsPrint (ONP), one of the main raw materials for recycled Chinese newsprinthas seen an increase in price ranging from $130 to $270 per ton, in thelast 5-6 months. Domestic consumption in China has also gone up owingto the run-up to the Beijing Olympics.

Rising crude prices - High crude prices at US$100-105 per barrel arepushing up freight rates as well as the cost of production of newsprint, ahighly energy-intensive process.Newsprint prices to stabilise post 2HCY2008

We expect newsprint prices to remain firm and rise to higher levels in thenear term. However, we note that newsprint demand in the US, thelargest consumer, has declined by 10.8% yoy in CY2007 and is expectedto remain subdued. Besides, the strong domestic demand in China is more

of a transitory phenomenon and is likely to witness moderation in2HCY2008 leading to better supply situation. For our Print Media universe,we have modeled in an 18% rise in newsprint prices in FY2009E from$600/ton as a base case followed by a 6% jump in FY2010E. OurSensitivity Analysis indicates the impact of an additional 100bp rise onEBITDA and PAT on our base case assumptions for the differentcompanies. We believe HT Media is the most sensitive to newsprint pricehikes owing to its large circulation base, higher use of imported newsprintand higher pagination compared to its peers.

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Rising cost pressures likely to lead to industry consolidation

If newsprint price hikes sustain at this rapid pace for another few quarters,

we believe the smaller publishers, which largely depend on circulationrevenues, will likely witness sharp erosion in profitability rendering theirbusiness model unviable. The large newsprint publishers are in a betterposition to absorb the hikes owing to their strong Margin profile, highOperating leverage and ability to garner high amount of advertisingrevenues. Moreover, most large publishing companies have strong cashflows and balance sheet, which gives them the additional advantage toexplore acquisition opportunities, which arise due to changing businessdynamics. We believe the Newspaper publishing companies are likely touse a combination of counter-strategies to mitigate the impact of risingnewsprint prices to protect their Margins and remain competitive.

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Threat from InternetGlobally, internet is posing a serious threat to Print Media companies dueto which they are losing both readers and advertisers to the emerging

medium. However, we believe Internet hardly poses a threat to Print inIndia owing to the dismal broadband penetration, which stands at 3.1mnsubscribers in CY2007. In fact, we expect Internet to emerge as acomplementary medium for Print companies in India as most players haveenhanced their online presence via electronic versions of their paper (e-paper) and making their various services like classifieds, jobs, matrimonialetc available online via dedicated portals.

Slowdown in economyThe advertising industry, the bellwether of Print Media revenues in India,

tends to exhibit a strong correlation with GDP growth. Moreover,newspaper publishing business in India is moving towards the free papermodel (in-line with western countries) where readers are highly subsidized(especially in case of English newspapers) increasing dependence of Printcompanies on ad revenues. Thus, any significant slowdown in theeconomic growth can have a direct impact on Print Media companies'revenue and profitability.

Outlook and ValuationWe believe the Indian Print Media sector offers an excellent opportunityfor investors to cash in on the strong economic growth and emerging

consumerism theme in India. Contrary to popular belief and in defiance ofglobal trends, Newspaper publishing in India still stands tall beatingtelevision in terms of advertising growth. Going ahead, the Rs130bnNewspaper publishing industry is expected to register a 13.9% CAGR inrevenues during CY2007-11 largely driven by advertising revenue growth.We expect our Print Media universe to register a robust 21% and 30.3%CAGR in Net Sales and Profits during FY2007-10 respectively, outpacingindustry growth.

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Robust advertising growth to boost MarginsFor Newspaper publishing companies in India, advertising remains the keyrevenue driver (especially for English Print publications). Advertisingrevenues for the industry are expected to grow at 17.1% CAGR duringCY2007-11 outpacing circulation revenue growth at 8.3% CAGR skewingthe revenue mix in favour of advertising. We expect our Print Mediauniverse to register a robust 22.3% CAGR in advertising revenues and

modest 9.4% CAGR in circulation revenues during FY2007-10. We believethat sustained ad rate hikes, better inventory utilisation and increasingproportion of local and colour ads will be the key drivers for robustadvertising growth. Circulation revenues are expected to witnessmoderation as intensifying competition will keep cover prices undercontrol (decline in certain regions).Pertinently, incremental advertising revenue growth does not entail anymajor expenses (besides capex in terms of machinery). Hence, growthdriven by rate hikes and higher proportion of colour ads percolatesdirectly to the Bottomline perking up Margins disproportionately. Thus,

Print Media companies enjoy extremely high operating leverage once theireditions/launches stabilise and start generating strong advertisingrevenue. However, sharp jump in newsprint prices over the last sixmonths is expected to dent margins of Print Media companies particularlyin FY2009. Nonetheless, we expect Print Media companies to resumeMargin expansion trend in FY2010 as their investments in newventures/editions startgenerating returns, newsprint prices stabilise and further operatingleverage kicks in.

We expect Jagran to be the largest beneficiary registering a 705bp Marginexpansion during FY2007-10. HT Media is expected to witness a modest

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200bp Margin expansion during the period as it remains the mostsensitive company to rising newsprint prices. Moreover, we believeFY2009 will continue to be an investment phase for the company as it isincurring losses in its HT Mumbai edition, Mint and new editions ofHindustan (scale up in UP). In case of Deccan Chronicle, we expect the

company to register the highest Margin expansion amongst our Printuniverse of 810bp during the period. However, we believe DCHL'sOperating Margins have peaked in FY2008E at 61.2% and are expected todecline by almost 630bp during FY2008-10. We believe it would bedifficult for DCHL to sustain its high-Margin model owing to stiffercompetition in Chennai, initial losses on account of the Bangalore editionlaunch and higher newsprint prices.

Premium Valuations to sustainGlobally, Print Media companies usually command premium valuationsowing to the unique nature of their business model, which entails highoperating leverage and generates strong freecash flows. This allows Print Media companies to venture into newbusinesses/ alternative media platforms and emerge as a complete mediahouse, which further improves their bargaining power with advertisers andexpands their total advertising pie.

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In line with these global trends, our Print Media universe also commands

premium valuations to the benchmark indices and their global peers. Weexpect this premium to sustain on account of the following:

Vibrant Newspaper publishing market - India is expected to be amongstthe fastest growing newspaper publishing markets in the world. While theGlobal industry is expected to register a mere 2.1% CAGR during CY2006-11, India is expected to register a much stronger 14.5% CAGR during thesame period.

Strong Revenue and Earnings growth - Our Print Media universe is

expected to deliver a robust 21% and 30.3% CAGR in Net Sales and Profitsduring FY2007-10 respectively, compared to its global counterparts, whichare likely to register growth in the range of 5-15%.

Strong Balance Sheets - Our Print Media universe has an extremelystrong Balance Sheet in terms of low leveraging. While debt-equity in caseof Jagran and HT Media stand at a low 0.2-0.3x, Deccan Chronicle alsoenjoys comfortable position of 0.7x debt-equity. Moreover, all the threecompanies are sitting on huge cash balances ready to fund their newlaunches and cash in on any acquisition opportunities available.

Emerging as complete Media plays - Sitting on huge cash piles andability to generate strong free cash flows, our Print Media universe has

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already started capitalising on available opportunities by enteringalternative media platforms including Radio, Out-of-Home (OOH)advertising, Event Management, Internet Portals and even SportsManagement.

Initiate Coverage with Jagran Prakashan as our Top Pick

We Initiate Coverage on the Print Media sector in India with a positiveoutlook for our universe of stocks. We believe the impact of risingnewsprint prices on Print Media companies' profitability has already beendiscounted in the market as reflected in the sharp fall in the stock pricesof Print Media companies in the range of 30-45% during the last threemonths. Moreover, we believe the rise in newsprint prices is likely tostabilise in 2HCY2008 as the supply situation from China improves postthe Olympics in Beijing.

We have valued the companies in our coverage on DCF basis for their corePrint Media business and used sum-of-the-parts (SOTP) method to derivethe Target Prices in case of multiple businesses ascribing different valuesto each business. To negate the uncertainty regarding newsprint prices,we have modeled in an additional 1% stock risk premium in our DCFmodel for all the companies implying a higher WACC.

We rate Jagran Prakashan as our Top Pick in the sector followed by HTMedia. We remain Neutral on Deccan Chronicle as despite its cheapvaluations, strong concerns render the risk-reward ratio in the stockunfavourable.

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Jagran Prakashan

Printed to LeadJagran Prakashan (JPL), with 37 editions of its flagship Hindi daily DainikJagran, is the leading newspaper publisher in the country. Strong

advertising growth owing to rate hikes, rising proportion of colour ads andhigh differential between English and Hindi daily ad rates is expected toboost JPL's Margins.

Leading Daily newspaper publisher: JPL is the publisher of India'slargest read and circulated daily newspaper, Dainik Jagran, which has astrong base of 16.5mn readers (IRS R2 2007) and circulation of 2.5mn(ABC JJ 2007). The Hindi daily is published in 37 editions and 275+ subeditions and enjoys dominant position across the Hindi belt (coveringalmost 40% of population). Further, the company has expanded beyondits home market (UP/ Uttaranchal) by launching 18-20 new editions post

FY2000.

Robust advertising growth to boost Margins: Rising disposableincomes/ literacy rates in its key markets, high differential betweenEnglish and Hindi daily ad rates and increasing proportion of local andcolour ads in its advertising mix is expected to help JPL sustain robustadvertising growth going ahead. We estimate JPL's advertising revenuesto grow at a CAGR of 27% over FY2007-10, which would in turn perk up itsMargins as well.

New Ventures/ Alternative platforms to de-risk business: Jagran'sstrategy to branch into alternative media platforms like Out-of-Home(OOH) advertising and Event Management will help it de-risk its businessmodel along with opening up new revenue streams. The company'sinnovative extension of its publishing business like City Plus, I-Next andthe tie-up with TV18 for Hindi/Regional business dailies augurs well in thelong run in terms of building strong entry barriers.

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Business Overview

Jagran Prakashan (JPL) is the publisher of Indias largest read andcirculated daily newspaper Dainik Jagran and enjoys dominant positionacross the Hindi belt (covering almost 40% of the countrys population).

JPL also publishes magazines like Sakhi andJagran Varshiki. More recently,JPL initiated several new print offerings in its existing as well as newmarkets like youth focused tabloids such as I-Nextand City Plus. JPL hasalso tied up with TV18 to launch a Hindi business daily. Besides its strongpresence in the Print Media, the company is also present in alternative

media vehicles like Out of Home (OOH) advertising (via Jagran Engage),Event Management (via Jagran Solutions), value-added mobile services(viaJ9) and Internet portals (via its co-branding tie up with Yahoo!).

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JPL derived 65% of revenues from advertising and 28% fromcirculation in FY2007

JPL derives majority of its revenues from its core Print business comprisingadvertising and circulation revenues. In FY2007, the company earnedRs388cr advertising revenues, which accounted for almost 65% of total

revenues. Circulation revenues accounted for 28% of total revenuesamounting to Rs168cr. The other businesses OOH and Event Managementaccounted for the balance 7% of revenues. JPL derives a higher portion ofits revenues from circulation compared to its English counterparts onaccount of higher cover price, larger circulation base and lower ad rates.

The English newspapers, on an average, derive 85% of their revenuesfromAdvertising.

Investment Argument leading daily newspaper publisher in IndiaDainik Jagran has a strong base of 16.5mn readers and a dailycirculation of 2.5mn

Jagran Prakashan publishes the Hindi daily Dainik Jagran, which is Indiaslargest read and Circulated newspaper, with a strong base of 16.5mnreaders (IRS R2 2007) and a daily Circulation of 2.5mn (ABC JJ 2007). Firstpublished in 1942 as Jagran, the paper is now published in 37 editions(five launched in the last couple of months) across 11 states. DainikJagran enjoys the distinction of maintaining its lead over the other Hindinewspapers, and its readership base is substantially higher than the Top-five English dailies combined.

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Uttar Pradesh to remain the key focus market Leader in UP with14 editions and 51% market share in terms of readership

Dainik Jagran is the leader in its home market Uttar Pradesh, with around51% market share in terms of readership (IRS 2007 R2) and enjoys almosta near monopoly position in key cities like Kanpur and Lucknow. Thecompany started its operations in UP way back in 1947, with its Kanpuredition and has since expanded to almost 14 editions including the threenew editions of Rai Bareily, Ayodhya and Mathura, which were recentlylaunched. Owing to its strategy of focusing on local news coupled withlarge number of sub-editions and innovative supplements, Dainik Jagran

continues to be the No1 publisher in the state. Dainik Jagrans maincompetitors in UP include Amar Ujala and Hindustan. Uttar Pradesh isexpected to remain the key focus market for JPL in the future as well as itaccounts for almost 50-55% of its advertising revenue and 60-65% ofcirculation revenue for JPL.

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Dainik Jagrans footprint covers entire Hindi belt (exceptRajasthan)

After consolidating its position in its home market, Jagran entered otherHindi speaking states to capture a larger pie of readers thereby increasingits circulation and advertising revenue potential. The company launchedthe Delhi edition in 1990, entered Punjab in 1999, Bihar and Haryana in2000, Jharkhand in 2003 and Jammu and Himachal Pradesh in 2005. Italso has a presence in Madhya Pradesh (3 editions) through its associatecompany and is present in West Bengal through its Siliguri edition.

Jagran publishes 37 editions covering almost the entire Hindi Belt

Post FY2000, the company has been on an expansion spree launching 18-20 editions most of them outside its home market. With the recentlaunches (five editions Rai Bareily, Ayodhya, Mathura, Haridwar andBhatinda), the company now has totally 37 editions spanning the entireHindi Belt (covers almost 40% of the countrys population) and enjoys adominant No2 position in the states of Uttaranchal, Punjab, Haryana and

Bihar.

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Most editions of Jagran have already achieved breakeven barring 8-9editions, which were launched in the past 3-4 years including the Punjabeditions (owing to severe competition from Dainik Bhaskar). Going ahead,we believe Jagran will focus on consolidating its position in its existing keyregions, and growth is likely to come from further penetration in theseunder-developed markets. A buoyant economy, rising disposable incomesand improving literacy coupled with Jagran's strong brand franchiseshould help it achieve steady circulation growth in the future.

Moreover, the fact that out of the 359mn literates who do not read anewspaper, 68% can read Hindi and a large chunk of this populace residesin the Hindi belt also works in favour of a strong player like Jagran.

Robust advertising growth to boost Margins

Advertising revenues to grow at a CAGR of 27% over FY2007-10E

We believe that sustained ad rate hikes, better inventory utilisation andincreasing proportion of local and colour ads in its advertising mix willhelp JPL sustain robust advertising growth in the future. We estimateadvertising revenues to grow at a CAGR of 27% over FY2007-10 toRs796cr giving a strong boost to its Margins as higher advertisingrevenues flow directly to the Bottom-line. We expect UP to remain the keyrevenue driver accounting for more than half of the advertising revenues

in FY2010.

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few years making them some of the fastest growing markets in terms ofprint advertising spends due to their low base.

Jagran's advertising revenue pie is tilted towards the local ads owing toits presence in under-developed markets. The current local: national ads

mix is 55:45 as against the reverse a few years ago. This works in favourof the company as local ads yield higher rates and are less sensitive toadvertising budget rationalisations in the event of a slowdown in theeconomy. Moreover, we expect this trend in local advertising to furtheraccelerate on the back of higher penetration in Tier-II and III cities byretailers, which tend to localise their advertising campaigns.

English dailies, on an average, command 7-9x premium in terms ofadvertising rates over their Hindi counterparts (which have a largercirculation and readership base) due to the affluent nature of its audience.Market estimates suggest that Hindi advertising space sold is around 80%of the total English advertising space sold but accounts for a mere 25% ofthe overall print advertising revenues. However, as metros stagnate interms of readership and circulation, advertisers are increasingly shiftingallocations to non-metros to cash in on the growing disposable incomesand improving literacy rates in these regions. Hence, we expect this widedifferential to narrow down over a period of time directly benefitingplayers like Jagran, who have a dominant presence in these markets.

Proportion of colour ads to rise Contribution of colour space tototal ad space sold to rise to 47% in FY2010

Over the last several years, Jagran has witnessed a change in itsadvertising mix in terms of Colour and B&W space sold, wherein theproportion of colour advertisements has increased from 20% in FY2005 to

almost 35% in FY2007. This has worked in favour of the company ascolour ads command a 25-40% premium over B&W ads. In case of Jagran,

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the premium is even higher owing to the limited availability of colour adinventory. Moreover, incremental cost of printing colour ads is marginal,with additional revenue directly percolating to the Bottomline. We expectthe proportion of colour ads to rise to almost 47% in FY2010 supported byaugmented colour capacity and rising demand for colour space in Jagran's

key markets. This is expected to give further impetus to Jagran's overalladvertising revenue growth going ahead.

New Ventures/ Alternative platforms to de-risk business model

New Ventures - to consolidate JPL's position in its existingMarkets

Jagran Prakashan is the leading daily in the Hindi Print space whichaccounts for around 25% of the total Print advertising pie. However,realising the need to capture a bigger pie and pressed by competition inits key markets, JPL has initiated several new ventures. In line with thisstrategy, JPL has selectively entered the English Print Media with thelaunch of two new offerings viz., City Plus (English weekly infotainment)and I-Next (bilingual compact tabloid) in its existing as well as newmarkets. We expect these offerings to act as a flanking brand to ward offcompetition for its main brand, Dainik Jagran, and build a new growth

engine for the company in the future. We forecast combined revenues ofI-Nextand City Plus to grow at a fast paced CAGR of 102.5% over FY2008-10 to Rs57cr and account for almost 5% of total revenues in FY2010(estimated at Rs14cr in FY2008). JPL has also entered into a joint venture(JV) with TV18 to launch a Hindi/Regional business dailies. It is alsoplanning a facsimile edition ofThe Independentin India.

City Plus - marks selective entry into English Print

City Plus: Launched towards late 2006, City Plus is a 'youth focused'English infotainment weekly. The paper includes largely local content like

information on movies, markets, shopping, entertainment and weekendevents and is distributed at places with large footfalls like malls, airports,

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clubs, BPOs, restaurants, etc. As the newspaper is distributed free (firstfree newspaper launched by a large print media house), the only source ofincome for the company is advertising revenue. Each edition is expectedto achieve a turnover of around Rs1cr once established. The paper ismainly in colour and maintains high 60:40 advertising: editorial ratio.

Jagran has already launched nine editions this far and primarily in itsexisting markets (eight in Delhi/NCR and one edition in Bangalore). Itplans to launch 14 editions ofCity Plus by 2HFY2009 and scale it upto 30by end FY2010. According to management, City Plus has already achieveda weekly circulation of 1.72 Lakh copies.

I-Next: I-Nextis a compact bilingual (Hindi and English) tabloid targetedat the youth in the age group of 18-35 years. The 24-page city-centricpublication (12 pages in colour) is priced at Re1 and is dedicated to localnews apart from content on national, international, sports, lifestyle, careerand health related issues. Jagran launched the first edition (Kanpur) inDecember 2006 and has since scaled upto 7 editions mainly in UttarPradesh where Jagran is the leader. However, 5 out of the 7 editions havebeen recently launched in 3QFY2008, with the latest being the Dehradunedition in Uttaranchal. I-Nexthas met with significant success in a veryshort span of time and is already No2 in cities like Kanpur and Varanasi.According to management, it has already achieved a daily circulation of2.7 lakh copies. However, the daily is currently running into losses andManagement expects it to breakeven in the next couple of quarters. Apartfrom having high revenue potential, we believe I-Nextis a strategic launchby Jagran to ward of intensifying competition from Hindustan

reminiscence of launch of Mumbai Mirror by Times of India in 2005 tocounter the competition from Hindustan Times and DNA.

JPL - TV18 JV to launch Hindi business daily: In December 2007,Jagran announced a 50:50 JV with TV18 to launch a Hindi business daily inthe second half of CY2008 starting with first launch in Uttar Pradesh. Thiswill subsequently be followed by other regional language dailies focusedon financial and economic news. Both TV18 and JPL have agreed to co-promote the offerings and exploit cross platform synergistic opportunitiesby sharing their respective domain expertise. The JV will be fundedthrough an initial equity infusion from both sides and later through

internal accruals and debt.

The Rs560cr business daily market is currently served by around 10national newspapers and magazines, all in English, with the loneexception ofEconomic Times in Gujarati. However, theHindi space is already facing heightened competition, with EconomicTimes and Business Standard launching their Hindi business dailyversions. Even Amar Ujala is expected to enter this space. While weremain optimistic on the long-term potential of the JV, we haven't factoredin any numbers in our projections due to lack of operational details.

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Jagran derives almost 90% of its revenues from its core business ofpublishing newspapers. However, realising the need to de-risk its businessmodel and reduce dependence on a single media vehicle, the companybranched out into alternative platforms like OOH advertising and EventManagement. It has also entered into a tie up with Yahoo! to co-brand its

Internet portal.

Entry into such emerging and fast growing platforms has given Jagranaccess to an additional 8-10% advertising pie expanding its horizonsbeyond just Print Media. Moreover, it also allows Jagran to cross-leverageon its expertise in Print Media to offer a more diverse mix to its clients interms of advertising options. This reinforces our confidence in themanagement to focus on long term value creation and improves theoverall visibility in terms of future growth.

Out-of-Home Advertising (OOH): Jagran operates in the OOHadvertising segment through its wholly-owned subsidiary, Jagran Engage.

The company operates nearly 2,500 sites predominantly in North Indiawhere JPL is present including places like Mumbai, Bangalore, Hyderabad,Pune, Surat, Kolkata and Delhi. It owns properties in the form of traditional

hoardings, kiosks, bus panels, unipoles, mobile vans and even railwaystations (Lucknow). Going ahead, the company plans to have almost 75%properties by way of hoardings and rest in street furniture and mobileformat. It also proposes to enter more tech driven properties like LEDs(has already started one in Bangalore).

Termed as a primitive and fragmented segment in India, OOH advertisingis finally picking up owing to steady infrastructure development andhigher investments by organised media corporates. The Indian OOHadvertising industry currently stands at Rs1,250cr and is expected to grow

at a CAGR of 14.5% during CY2007-11 to Rs2,150cr (Source: FICCI-PwC

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Report on Indian Media, 2008). We believe Jagran is well placed to encashon this opportunity owing to:

Its strong brand franchise, established relations with local advertisersand widespread presence in North and Central India.

Indrajit Sen, former President of Primesite (Mudra's OOH agency) foralmost six years, is the head ofJagran Engage. A post-graduate from BITS,Pilani, Sen has spent 10 years with The Times Group.

Jagran's strategic tie up with Independent News and Media (INM owns20.8% stake in JPL)provides a substantial edge to the company over its competitors by wayof technical expertise and support. INM is a strong player in the outdooradvertising market in Australia, New Zealand, South East Asia and SouthAfrica through its stakes in APN News and Media and Clear ChannelOutdoors. It owns 75,000 outdoor panels and registered a revenue ofEuros 136mn in CY2006 from its Outdoor Division alone.

Jagran Engage typically operates its sites on a lease model i.e., it leasessites from third parties, which are then on-leased to its clients at higherrates typically for three month period. As the business matures, Jagranplans to move to an ownership model, which will ensure higher returnsand better control. Currently, the business is operating at 65-70%utilisation levels and is clocking monthly revenues of Rs3-4cr. Overallthough, the business is registering losses. But, by 1QFY2009, it is

expected to achieve breakeven. Jagran has already started consolidatingits media properties by taking a decision to quit non-remunerative sites.After establishing its position in the bigger towns, Jagran is once againtraining its eye on its home market to achieve better returns with lowerinvestment. Management expects this segment to record EBITDA and PATMargins of 23-25% and 12-15% respectively once the operations stabilise.We estimate this Segment to grow its revenues at a CAGR of 68% overFY2007-10 to Rs85cr (Rs18cr in FY2007).

Event Management: Jagran operates in the Event ManagementSegment through its wholly-owned subsidiary, Jagran Solutions.

Established in 2004, Jagran offers variety of promotional marketing andevent management services including loyalty and incentive programs,road shows, product launches, presentation, dealer conferences andinternal sales team events. Its past clients include Hutch, TVS Motors,Gillette, LML, Asian Paints, HUL, etc. The Rs1,100cr Live Entertainmentindustry is expected to grow at a CAGR of 18.9% during CY2007-11 toRs2,200cr (FICCI-PwC Report on Indian Media, 2007). A pan-Indiainfrastructure and comprehensive media services offering gives Jagran anatural edge over its competitors in this Segment, which typically offersbelow-the-line marketing activities. We forecast revenues in this Segment

to grow at a CAGR of 51% over FY2007-10 to Rs43cr (Rs12.5cr in FY2007).

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Internet Portal:Jagran has entered into an agreement with Yahoo! Indiato launch a new co-branded Hindi News and current affairs Internetproperty integrating Jagran's content online in e-paper format and

Yahoo!'s other services. Prior to this arrangement, Jagran.com was themost visited Hindi portal in the world. Under the terms of the agreement,

Jagran and Yahoo! will share graphical and keyword advertising revenuesgenerated by the property. Both companies will also partner indistributing Yahoo! India's search offerings.

We believe the step to offer its content online in electronic format is inline with the global trend and has already been initiated by most printmedia companies in India. This should help Jagran avoid losing its readersas new media habits develop and digital formats evolve. However, weremain wary of its ability to monetise such offerings in meaningful termsat least in the short run. Hence, we have not factored in any incrementalrevenues in our projections from this tie-up.

Other Businesses: Besides its Hindi daily, the company also publishesmagazines like Sakhi, a monthly magazine targeted at women, JagranVarshiki, an annual general knowledge digest andvarious national and state statistical compilations. The company alsooperates a separate mobile value-added services division called J9, whichruns a short code service (7272) providing mainly SMS related services.

The company earns revenues from operators for providing the services ona sharing basis. Jagran also proposes to launch a classifieds vertical under

J9. The company also runs a home shopping network, which it plans to

expand and has already tied up with a Kolkata-based company forlogistics.

Financial Outlook

Revenue growth of 24.3% CAGR during FY2007-10E largely due tostrong growth in advertising revenue.

Over FY2007-10, we expect JPL to post a CAGR growth of 24.3% inrevenue largely on the back of strong growth in advertising revenues(expected to grow by 27% CAGR during the period) supported bysustained ad rate hikes, higher proportion of colour ads and betterinventory utilisation of space sold. In terms of circulation revenues, weexpect Jagran to post a CAGR growth of 6.7% during the period aided byaddition ofI-Nextto its portfolio and its focus on consolidating its position

in its existing markets. Alternative media vehicles viz., OOH and EventManagement, put together are expected to register a strong CAGR growth

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of 61.4% in Revenues during the mentioned period largely owing to lowbase, strong industry growth rates and technical support from INM.

The estimate Jagran to register a 37.5% CAGR growth in EBITDA overFY2007-10 driven by strong Margin expansion of 705bp during the periodon the back of the following:

Strong advertising revenue growth - Pertinently, incremental advertisingrevenue growth doesnot entail any expenses. Hence, growth driven by rate hikes and higherproportion of colour ads percolates directly to the Bottomline perking upMargins disproportionately.

Rising contribution of alternative businesses to revenue - As OOH andEvent Management are high-margin businesses, we expect them tocontribute to Margin expansion going ahead once their operationsstabilise and achieve breakeven.

More editions maturing - Jagran has launched 18-20 editions sinceFY2000 with around 8-9 editions still clocking losses (including three inPunjab due to cover price war with Dainik Bhaskar). However, most ofthese editions are nearing breakeven (an edition generally takes 3-4 yearsto register sufficient advertising revenues to cover the fixed costs of

newsprint and employees). We expect further operating leverage to kickin once these editions mature and start contributing to Margins.

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On the Earnings front, we expect Jagran to report a CAGR of 33.8% (onreported basis) over FY2007-10 boosted by robust Topline growth andsharp Margin expansion. We expect JPL's Return Ratios to improvesignificantly during the period owing to strong Earnings growth, moreeditions getting mature and better operating leverage. Jagran is extremelywell placed in terms of funding for future operations as its debt: equityratio is comfortably placed at 0.2x and its working capital requirementsare modest. Moreover, it is already sitting on a cash surplus from its IPOproceeds. Hence, we expect Jagran to fund its future requirements from

internal accruals. Jagran has invested heavily over the past couple ofyears to augment its colour capacity and expand into new markets andverticals. We have factored in capex of Rs107cr in FY2008E and Rs128crin FY2009E for Jagran's new business initiatives. We expect Jagran to startgenerating significant free cash flows post FY2010.

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Key Concerns

Rising Newsprint Prices

During 9MFY2008 Jagran reaped the benefits of low newsprint prices andstrong advertising growth leading to an almost 340bp Margin expansion.In case of Jagran, Newsprint costs account for 50-55% of total expensesand circulation revenues cover 70-75% of the newsprint costs. During9MFY2008, the newsprint prices were on a downturn at $580-600/ton.However, owing to capacity rationalisations in the North Americannewsprint market (major supplier), prices have again started picking upwith the first rate hike of 10-12% already implemented in January 2008and we expect more to follow. The Sensitivity Analysis throws light on theimpact of the rise in newsprint prices on PAT. We have assumed 18% rise

in newsprint prices in FY2009E from $600/ ton as a base case followed bya 6% jump in FY2010E. While Jagran is best placed amongst its

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counterparts to battle the rise in newsprint prices (owing to its mix of65:35 in favour of domestic newsprint, which is cheaper and lowerpagination), any additional rise in newsprint prices could impact ourforecasts.

Impact of slowdown on Advertising Revenue

Advertising Revenue is the key growth driver for the company andcontributes 65-70% of its revenues. However, advertising revenues arelinked to overall GDP growth. Hence, any slowdown in the overalleconomy can adversely impact Jagran's revenues.

Increase in competitive intensity

In the past, Jagran has successfully entered new markets and establishedits position. Moreover, it continues to be the leader in UP and is adominant No2 in states like Uttaranchal, Punjab, Haryana and Bihar.However, intense competition (as witnessed in the case of Punjab withDainik Bhaskar) in its key markets can adversely impact JPL's circulationrevenues thereby hitting its profitability. Players like Hindustan in UP andAmar Ujala is Punjab are already planning major activities.

Outlook and Valuation

JPL has seen multiple re-ratings in its short trading history owing to itssuperior Earnings growth, long-term potential (due to presence in under-developed markets) and entry into new markets and segments.Previously, JPL traded in the 14-19x two-year forward P/E band and at asignificant discount to HT Media owing to its limited presence in the Print

Media sector (Hindi daily with dominant position in UP covering only 25%of the Print advertising pie). However, over the last 12-15 months, post

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launch of new formats (City Plus and I-Next) and scale up of its newsegments (OOH and Event Management), the stock has got re-rated onthe bourses to the 19-24x two-year forward P/E band. We expect JPL tocontinue to command premium valuations in the future also owing to:

Huge customer base - Jagran's dominant position in the Hindi Beltthrough its flagship daily Dainik Jagran (India's largest read and circulatednewspaper) provides a strong platform for long-term sustainable growth.

Expanded addressable market - Entry into alternative media vehicles likeOOH and Event Management has expanded Jagran's addressable marketin the Media Sector by an additional Rs2,350cr giving better visibility interms of future revenue growth.

Superior Earnings growth: We expect Jagran to report a CAGR growth of33.8% (reported basis) over FY2007-10E, which is superior than most ofits domestic and global peers.

We rate Jagran Prakashan (JPL) as our top pick in the Print Media sectorand believe current underperformance of the stock offers attractive entry

point for investors. At the CMP of Rs88, he stock is trading at 14.5xFY2010E Earnings and 8.7x EV/ EBITDA. We have used the DCFmethodology to value the company owing to its steady cash flowgeneration in the future.Assuming a WACC of 12.9% (including an additional 1% stock riskpremium owing to uncertainty surrounding newsprint prices) and aterminal growth rate of 6%, our FY2010E Target Price works out to Rs125at which the stock would trade at 20.6x in line with its two-year forwardP/E band of 19-24x.We Initiate Coverage on the stock, with a Buy recommendation.

At our DCF-based Target Price of Rs125, the stock would fetchhandsome returns of 42% from current levels.

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HT Media

Time to Mint

HT Media (HTML), a dominant player in the North, publishes India's two

leading newspapers viz., Hindustan Times (second largest English daily)and Hindustan (third largest Hindi daily). In the last couple of years, HTMLhas transformed itself into a diversified media play by entering newsegments and geographies.

Emerging diversified Media play:HTML is the only Print Media House in India enjoying the Top-3 positionboth in the Hindi and English domain. Recently, the company also enteredthe business daily segment through Mint. Combined with HTML's entryinto Radio (Fever 104) and scale up of its internet properties, its

addressable market now covers 42.4% of the overall advertising pie inMedia making it one of the top media preferences for any advertiser in thecountry.

Strong Portfolio in Print, HT Mumbai and Hindustan to drivegrowth:HTML enjoys leadership position in Delhi (HT), Bihar and Jharkhand(Hindustan). We expect HT Delhi to remain the mainstay in terms ofcontribution to advertising revenues. However, strong growth in HTMumbai along with rising contribution from Hindustan, UP will be the keygrowth drivers. We have factored in 33% and 48% CAGR in advertising

revenues from Mumbai and UP respectively, over FY2007-10E.

New Initiatives to lay foundation for sustainable growth:Over the past couple of years HTML has entered into new complementarybusinesses through strategic partnerships. We expect Mint to growexponentially in the ensuing years to Rs78.5cr in FY2010 and expect theRadio business to post revenues of Rs73cr in FY2010 growing at a CAGRof 61% over FY2008-10.

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Business Overview

HT Media, with its rich heritage and diversified brand portfolio, is one ofthe largest Media companies in the country today. A dominant player inthe Print Media (second largest in revenue terms), its two dailies HT(English) and Hindustan (Hindi) are amongst the leading dailies in their

respective segments. The company also publishes two Hindi monthlymagazines, Nandan (targeted at women and children) and Kadambini(targeted at the Hindi literary readers) HTML has adopted the route ofstrategic partnerships to achieve the status of a media powerhouse. In2007, the company launched Mint, its business daily, with an exclusiveagreement with Wall Street Journal. Recently, it tied up with BCCL tolaunch a city centric daily tabloid called MetroNow in Delhi. Expanding itshorizons beyond the Print Media, the company has entered the Radiosegment in partnership with Virgin Radio UKby launching Fever 104 Radiostation.

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HT Media belongs to the KK Birla group. Dr Birla, a renowned industrialist,has established one of India's well-known business conglomerates,spanning a wide spectrum of key industries like sugar, fertilisers,chemicals, heavy engineering, textiles, shipping and media. HTML has onits Board of Directors eminent personalities like Shobhana Bhartia

(Editorial Director of HTML - 20 years of experience in newspaperindustry), YC Deveshwar (ITC - Chairman), Ajay Relan (MD - India,Citigroup Venture Capital International) and KN Memani (ex- Chairmanand Country Managing Partner of Ernst & Young). Moreover, its editorialteam is rated as one of the best in the industry owing to quality staff likePankaj Paul (Editor-in-Chief, ex- Managing Editor of The News Journal inDelaware), Raju Narsetti (Chief Editor - Mint, worked as Editor of the WSJ'sEuropean edition), Mrinal Pande (Editor of Hindustan) and Vir Sanghvi(Advisory Editorial Director, a prominent TV anchor and journalist)

Investment Argument

Emerging diversified media playOnly Print Media House with a top 3 position in both Hindi andEnglish domain

HTML, a dominant player in the Delhi and North-East regions, publishestwo of India's leading newspapers Hindustan Times (second largestEnglish daily) and Hindustan (third largest Hindi daily). Both combinedhave a daily circulation of around 2.5mn (ABC JD 2006) and a wide

readership base of 11.9mn readers (IRS 2007 R2). HTML is the only Print

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Media House in India with a top 3 position in both Hindi and Englishdomain.

HTML enjoys leadership position in Delhi (HT), Bihar and Jharkhand(Hindustan). However, realising the need to reach out beyond its coremarkets to achieve sustainable growth, HTML has expanded its footprintin the Print domain by entering new markets and segments. The companyentered Mumbai in 2005 by launching Hindustan Times and has alreadyachieved daily circulation of close to 300,000. It has also expanded itsreach in UP beyond Lucknow by launching four new editions (Meerut,Agra, Kanpur and Varanasi). More recently, the company also entered thebusiness daily segment through Mintand launched a city centric tabloidMetro Now in Delhi (JV with BCCL) expanding its presence to cover almost

75% of the Newspaper Print advertising pie of Rs8,000cr. Combined, withHTML's entry into Radio last year (Fever 104 FM) and scale up of itsinternet properties, its addressable market opportunity now constitutes42.4% of the overall advertising pie in Media estimated at Rs19,540cr.

This transformation into a diversified media play with a national presencealong with its core strengths of strong brand equity and editorialsuperiority has made HTML one of the top media preferences foradvertisers in the country.

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Hindustan Times - A solid platform

Dating way back to 1924, HT Media's flagship publication Hindustan Timeshas established itself as the second largest English daily in the country.Renowned for its editorial excellence, today the publication has achieveda daily circulation of around 1.4mn copies (ABC JD 2006) and a readershipbase of 3.3mn (IRS 2007 R2). Over the past several years, the daily hasenhanced its look (first smart-age newspaper in India to evolve into a newinternational size) and has revamped its supplement offerings byintroducing daily supplements catering to specific target audience.

Hindustan Times is published in six editions (Delhi, Mumbai, Lucknow,Patna, Ranchi and Kolkata) with a dominating presence in Delhi and theNorthern regions. In July 2005, the daily successfully entered the biggestprint market in the country - Mumbai. Apart from its six core editions, it isalso circulated in other regions like Punjab and Rajasthan through its nineprinting locations. The publication's Delhi key edition is also India's largestsingle-edition daily in terms of circulation.

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HTML derived almost 77% of its revenues in FY2007 from its flagshipdaily, Hindustan Times of which 92% came from advertising and balancefrom circulation. While HT Delhi remains the key market in terms ofcontribution (accounted for 61% of total revenues), HT Mumbai isexpected to remain the key growth driver for the publication. We expectHindustan Times to post a CAGR of 13.6% in overall revenue duringFY2007-10 largely on the back of steady growth in advertising revenues.

We estimate the Mumbai edition to achieve breakeven in FY2009 andstart contributing meaningfully to net circulation revenues (as discountsreduce) in FY2010. We have factored in an overall 10% CAGR growth forHT Delhi and 39.4% CAGR for HT Mumbai in the mentioned period. Whileleadership position and strong brand equity remain HT's key strength inthe Delhi market, we expect the Mumbai market also to witness

significant traction in ad revenues in the future owing to highercirculation/readership levels. Moreover, the ability to offer bundle

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packages for the top two print markets (Mumbai + Delhi) gives it asignificant edge over some of its competitors like DNA boosting thepublication's revenue prospects.

Delhi market to remain mainstay for HT

Delhi, a duopoly (TOI and HT), is the country's second largest Print marketin terms of advertising revenues (next only to Mumbai). Over the years,HT has maintained its leadership position in Delhi while combatingaggressive competition from TOI, which throws light on its strong brandequity. In 2005, HT ended a 10-year cover pricing war with TOI raising itscover price from Rs1.5 to Rs2 and subsequently to Rs2.5 in 2006. Morerecently, TOI and HT came together to launch a daily tabloid calledMetroNow as a flanking strategy against new entrants. We rate Delhi as amature market (expect 10-12% growth in advertising revenue) in terms ofPrint Media and expect no significant competition for the duo in the futureas both the players are well established and have very old relations withadvertisers and distributors in the region. Moreover, due to exhaustiveofferings from both the players there is hardly any value a new publicationcan offer to the Delhi readers.

Delhi is the single largest market for HT in terms of revenue accountingfor almost 78% of the publication's revenue and 61% of total revenue forthe company (both advertising and circulation revenue combined forFY2007). We expect Delhi to remain the mainstay for HT owing to itsdominant position in the market and large circulation and readership

base. However, we expect the contribution of HT Delhi in total revenue ofHTML to decline to 50% in FY2010E owing to significant scale up inMumbai operations of HT along with planned expansion of Hindustan inUP. We have factored in a 10% CAGR in HT Delhi's overall revenues overFY2007-10E largely on the back of 10.6% CAGR in advertising revenues.HT has witnessed a significant slowdown in ad revenues in the Delhimarket in 9MFY2008 owing to poor bookings by the Real Estate and AutoSectors (partially owing to higher base). We believe this situation is likelyto improve in the future and expect HT Delhi to continue to benefit fromscale up of its Mumbai edition (owing to ad-bundling packages).

Mumbai - All set to post rapid growth

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HT entered Mumbai, the country's largest Print media market in terms ofad-spends, in July 2005 simultaneously with DNA, which was alsolaunched during the same period. Traditionally, a monopoly of TOI, entryof HT and DNA into the Mumbai market marked a new era of competition,which saw TOI respond with launch of its daily tabloid Mumbai Mirror.

However, backed by heavy discounts and aggressive subscriptionschemes, the new dailies helped expand the Mumbai market, which stilllags Delhi in terms of circulation. Both dailies have garnered a decentsubscriber base with TOI still leading the race followed by DNA and HT.However, HT Mumbai continues to remain loss-making owing to heavymarketing expenses and lower ad revenues (not enough to cover fixedcosts).

HT Mumbai accounted for 10.6% of the publication's revenue andcontributed to almost 8% to total revenues of HTML in FY2007. It isexpected to scale up its operations significantly over the next couple ofyears and account for almost 14% of total revenues in FY2010. We expectHT Mumbai to post revenue CAGR of 39.4% over FY2007-10 backed by33% CAGR in advertising revenue and positive net circulation revenues inFY2010 (we expect Mumbai edition to achieve breakeven by FY2009E).

Since its launch, HT Mumbai has grown its readership base, albeit at aslower pace, and is well placed to exhibit strong growth traction onaccount of the following:

Ad Rate differential to narrow - HT Mumbai's ad-rates are significantlylower than the market leader TOI (in absolute terms). We expect thisdifferential to narrow once HT Mumbai achieves a circulation base of400,000+ subscribers. Moreover, the readership: circulation (x) multiple isthe lowest in case of HT Mumbai and we expect this situation to change asthe publication gains in popularity giving further boost to ad rates.

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Ability to offer bundle packages a key advantage - HT's ability to offerbundle packages for thetop two print markets (Mumbai + Delhi) gives it a significant edge oversome of its competitors like DNA boosting the publication's revenueprospects in both regions.

Positive Ad Revenue dynamics - Improvement in ad-edit ratio of 25% to33% in FY2010E (relative to Delhi, which enjoys 50%) coupled with better

inventory utilisation and 10.5% CAGR hike in ad rates is expected to drivea 33% CAGR growth in advertising revenue for HT Mumbai during theperiod FY2007-10.

Hindustan - Better focus and expansion to drive growth

Hindustan, the company's Hindi offering, is the third most widely readHindi daily in the country, with a total circulation of 1.1mn (ABC JD 2006)and readership base of 8.6mn (IRS 2007 R2). The newspaper has eightkey editions (Delhi, Patna, Ranchi, Lucknow, Kanpur, Agra, Varanasi and

Meerut). Hindustan is the leader in Bihar and has consistently beenmaintaining a wide gap from its closest competitor in terms of bothreadership and circulation. Hindustan is also a strong player in regions like

Jharkhand and Delhi.

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We believe Hindustan is well placed to capture the huge potential offeredby the Hindi newspaper market owing to the following reasons:

Rich editorial content - Edited by Mrinal Pandey, a noted journalist,Hindustan is well recognized for its width and depth of editorial content.Moreover, a range of acclaimed supplements gives the daily a significantedge over competition in the Hindi language newspaper market.

Strong brand equity - A widespread presence in the Northern regioncoupled with strong brand equity allows Hindustan to cross leverage andoffer bundled packages/ better deals to advertisers looking to cash in onthe Tier-II and Tier-III consumption boom.

Significant expansion plans in UP: Hindustan is looking at aggressivelyexpanding in states like UP (largest Hindi newspaper market) where it hasalready achieved the status of being the fastest growing publication.HTML plans to launch 12-13 editions of the daily in UP over the next 2-3years at an investment of Rs200cr and has already launched three neweditions in 2006 (Meerut, Agra and Kanpur). Management expects toachieve incremental circulation of 50-60,000 per edition from theseexpansion plans over the next 3-4 years.

Hindustan currently accounts for around 20% of total revenues of HTML of

which 65% is derived from advertising and the balance from circulation(Hindi newspapers derive a larger portion of their revenues from

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circulation owing to higher cover prices and lower ad rates). TheBihar/Jharkhand region contributes more than half of the publication'srevenues. During FY2007-10, we expect Hindustan to post a CAGR of 23%in revenues backed by 29% CAGR inadvertising revenues and 11% CAGRin circulation revenues. We expect the UP region (owing to significant

expansion plans) to be the key growth driver for the publication andexpect its contribution to the total publication revenues to increase fromthe current estimated 30% to 47% in FY2010.

To harness the full potential that Hindustan has to offer and to improve itsfocus on the segment, HTML has already transferred Hindustan into aseparate wholly-owned subsidiary. While value unlocking at this stagelooks less likely (owing to the current stock market turmoil), we believeHTML is well placed to fund Hindustan's expansion plans from internalaccruals.

New Verticals - Laying the foundation for sustainable growth

Over the past couple of years, HT Media has made conscious efforts to de-risk its business model and dependence on its existing properties byentering into complementary businesses where it can leverage its brands,existing customer base and infrastructure. It has successfully adopted theroute of strategic partnerships to exploit such synergistic opportunitiesand we believe HTML stands to benefit immensely from its range of newinitiatives over the long term.

'Mint' - Truly means business

Launched in February 2007 with an initial presence in Mumbai and Delhi,Mint marked HTML's foray into the Rs560cr business daily space. Adifferentiated offering in the domain dominated by BCCL's EconomicTimes, Minthas already emerged as the second largest business daily inkey cities like Mumbai and Delhi, with a circulation of more than 100,000copies. Recently, the daily was also launched in Bangalore (HTML's firstoffering in the Southern market) taking its total daily circulation to anestimated 120,000 copies. HTML plans to achieve a pan-India presence forMint with priority launches in cities like Kolkata and Chennai. Since

majority content in a business daily is national (entailing lower contentcosts), we believe Mintwith its strong editorial team in place is all set toroll out nationally leveraging on HTML's printing and distributioninfrastructure.

Mint is positioned as a premium offering in the business daily space(commands higher ad rateson CPT basis compared to Economic Times) and has achieved significantsuccess in a short span of time owing to its inherent unique features:

Mint has been launched in association with Wall Street Journal (WSJ),which contributes 4

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pages of content daily (out of total 24 pages) giving the newspaper anedge in internationalreporting. Moreover, Raju Narisetti, editor of WSJ Europe, has beenappointed as the Managing Editor ofMint. WSJ does not have any equitystake. The partnership only entails a management fee for the services.

Mintis the first white business newspaper in the country which is sizedbetween a tabloid and broadsheet (Berliner) making it easier to read. Thelayout of Mint is highly differentiated from other business dailies andincludes an index on page 2 for easy navigation. It focuses on more newsand analysis and publishes regular contributions from renowned industryexperts.

Mint is extremely well complemented by its online portal Livemint.comand its unique weekend supplements Lounge (lifestyle magazine) andCampaign (advertising magazine).

We estimate Mintto grow exponentially during the next couple of years toRs78.5cr in FY2010 drawing from its aggressive subscription-based model,better ad-edit ratio (currently at a low 15-20%) and higher ad rates (as

more editions are rolled out). In terms of circulation revenues, we expectthe daily to achieve breakeven only in FY2010 owing to highercommission and discount structure. Overall, we expect Mintto scale upto4.7% of total revenues of HTML in FY2010 from an estimated 1.8% inFY2008. We have modeled Mintto achieve almost 12-13% marketshare ofthe advertising pie for business dailies by FY2010E, which we believe ispossible owing to HTML's distribution strength and Mint's premiumpositioning. During 9MFY2008, Mint reported almost Rs30cr loss onEBITDA level owing to high marketing expenses. However, it is expectedto achieve breakeven in the next 2-3 years.

'Fever 104' (Radio) - A Long term haul

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HTML entered the Radio segment with launch of its FM channel Fever 104in association with Virgin Radio, UK (consulting partnership). The radiobusiness is housed in a separate subsidiary company, HT Music andEntertainment, in which HTML has 75% stake and its parent Hindustan

Times owns the balance 25%. During the Phase II license distribution, itacquired licenses for four territories (one-time fee of Rs75cr for 10 years)all of which are now operational including the recently launched Kolkataradio station. Fever 104, was launched in Delhi (Nov 2006), Mumbai (Jan2007) and Bangalore (March 2007) during the initial rollout. A youthcentric radio station, Fever 104, is credited as the first format station inthe country with a tagline 'More musicless talk'. The format has beendesigned in consultation with Virgin Radio, which follows similar formatglobally. Radio is one of the cheapest forms of entertainment in Indiaowing to its nature of being a free medium. Over the past couple of years,the Radio industry has undergone major changes owing to liberalgovernment policies on licensing (Phase II) and foreign investment.Although radio as a medium covers 99% of the population in India, itsshare in overall ad spend is relatively low at 3.2% as against globalaverage of 7-8%. FICCI-PwC expects the Radio industry in India to registera CAGR of 25% from Rs620cr to Rs1,500cr (3.8% of overall ad spend)during the period CY2007-11.

We forecast the company's Radio business to post revenue of Rs73cr in

FY2010 (FY2008E revenue at Rs28cr) growing at a CAGR of 61% duringFY2008-10. It is expected to achieve breakeven by FY2010 at the PBTlevel as inventory utilisation levels and ad rates improve. By FY2012, weexpect the business to achieve 7.3% market share of Rs1,500cr radioadvertising pie and post PBT margins of 17%. We have valued HTML'sRadio business using the DCF model assuming a cost of equity of 13.6%and terminal growth rate of 6%. On FY2010E basis, we have arrived at a

Target value of Rs391cr for the business. After accounting for 25% shareof the parent, the value on per share basis for HTML's Radio businessworks out to Rs13.

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We believe HTML's entry into the Radio segment is a well thought outstrategy to cross leverage from the synergies arising out of two segments,which involves high amount of local advertising. It would also help HTMLde-risk its Print business and capture a bigger pie of advertising.According to management, Fever 104 has already achieved 10-12%volume share in Delhi and Bangalore, and Mumbai station is also nearingsimilar share. In value terms, it is already a number three or four player inits key markets. The company's strate

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