Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the debt instruments and bank facilities of Jagran Prakashan Ltd (JPL).

 

The ratings continue to reflect the leadership position of the group’s flagship daily, Dainik Jagran, JPL’s healthy market position in the radio business and its strong financial risk profile. These strengths are partially offset by exposure to risk arising from competition and volatility in newsprint prices and economic cycles.

 

Although JPL’s operating performance has been significantly impacted in fiscal 2021 by the ongoing Covid-19 pandemic, there has been a sequential improvement in its operating performance over the three quarters through December 2020. Advertisement revenue, which contributes about three-fourth to the total revenue of print media companies, including JPL, has high correlation with economic growth. As the economy is expected to rebound in fiscal 2022, advertisement revenue should also recover.

 

CRISIL Ratings believes the impact of the second wave of the pandemic on print media companies will be less severe as compared to the first wave. This is because the circulation of newspapers has rebounded significantly, which will gradually push up advertisement revenue. While print media companies’ revenue may remain modest in the first quarter of fiscal 2022, it is expected to gradually recover from the second quarter onwards, with a full recovery in fiscal 2023. Any sustained decline in subscription of newspapers, impacting operating performance, would remain a key monitorable.

 

JPL has also undertaken various cost-rationalisation measures, such as reduction in pagination in line with lower advertisement space, employee cost and other fixed costs, which have helped the company save operating costs to a large extent in fiscal 2021. But newsprint cost, which accounts for 35-40% of the total expenses, have increased 20-30% over the past 4-6 months. While earnings before interest, taxes, depreciation and amortisation (EBITDA) is expected to improve in line with the recovery in revenue in fiscal 2022, any further significant and sustained increase in newsprint prices impacting profitability and the credit risk profile will remain a key rating sensitivity factor.

 

JPL’s credit risk profile is resilient due to its market leadership, healthy liquidity of over Rs 1,000 crore (including unutilised limits) as on March 31, 2021, prudent capital structure, and high financial flexibility despite decline in revenue in fiscal 2021.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JPL, its subsidiaries - MBL and Midday Infomedia Ltd (MIL; ‘CRISIL AA-/Stable’), and associate companies - Leet OOH Media Pvt Ltd and X-Pert Publicity Pvt Ltd. This is because all these entities, collectively referred to as the JPL group, have strong linkages and common promoters.

 

CRISIL Ratings has also amortised the goodwill arising from the acquisition of Nai Dunia Media Ltd (NDML) and MBL, over 5 and 10 years, respectively.

 

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Leadership position of the flagship daily, Dainik Jagran: As per the last available readership survey data, Dainik Jagran had a total readership (TR[1]) of over 6.8 crore, which is the highest amongst all newspapers in India. The JPL group enjoys a competitive position, aided by established presence of Dainik Jagran, mainly in the Hindi belt (across Uttar Pradesh, Uttarakhand, Bihar, Jharkhand, Punjab, Haryana, the National Capital Region, central and other regions). Strong position in the print media segment should also sustain, underpinned by Dainik Jagran and supported by Nai Dunia, MidDay and Inquilab.

 

• Healthy market position in the radio business: The JPL group has 39 radio channels, under the established Radio City brand, following organic and inorganic expansion. While the business was generating healthy operating profit till fiscal 2019, the operating profit of MBL was impacted in fiscal 2020, owing to the weak macroeconomic environment that had impacted overall advertisement volume. Last fiscal too, the operating performance got significantly impacted as the demand for advertisements remained sluggish, though there have been sequential improvement in revenue through the quarter ended December 31, 2020. The business achieved break-even in the third quarter of fiscal 2021 after reporting cumulative operating loss of around Rs 18 crore in the first half of fiscal 2021.

 

With economic recovery, advertisement revenue is expected to improve in fiscal 2022, although full recovery is expected only in fiscal 2023.

 

• Strong financial risk profile:

The financial risk profile is supported by liquidity of over Rs 1,000 crore as on March 31, 2021 (including unutilised limits), which comfortably exceeded total debt of Rs 267 crore. On March 2, 2021, JPL’s board approved buyback of shares of up to Rs 118 crore. With estimated gearing of 0.2 time as on March 31, 2021, there is sufficient headroom for leveraging. However, CRISIL Ratings understands that JPL will use existing liquidity for the buyback and will not leverage for funding the transaction.

 

Despite impact on operating performance in fiscal 2021, the interest coverage ratio continued to remain strong at over 10 times. Thus, the financial risk profile is expected to continue to remain strong over the medium term.

 

Weaknesses:

• Susceptibility to volatility in newsprint prices and economic cycles:

A substantial share of operating income is derived from advertisement revenue, which has a strong linkage to economic activity and is affected by economic cycles. Recessionary cycles and uncertain market conditions lead to slowdown in spending, constraining the advertisement revenue for newspapers, as seen in the last fiscal.

 

In addition to linkages with overall economic activity and corporate spending, the operating cost of the company also depends on movements in newsprint prices. As newsprint accounts for 35-40% of the operating cost and the company is expected to import over half of its newsprint requirement, its operating margin is susceptible to volatile newsprint prices and foreign exchange rates. JPL’s EBITDA was impacted in fiscals 2019 due to higher newsprint cost and in fiscal 2020 due to reduced advertisement revenue from various sectors. Furthermore, with recent rise in newsprint prices, profitability could get further impacted in fiscal 2022, if prices continue to rise, and hence, will continue to be monitored.

 

• Exposure to competition from other Hindi dailies: JPL faces competition from other Hindi dailies, such as Amar Ujala and Hindustan, which have a healthy circulation in core markets of Uttar Pradesh and Uttarakhand. Ability to withstand competition and drive revenue growth will remain a key monitorable.

[1] Newspaper read in the past one month, as per IRS 2019 Q4 data

Liquidity: Strong

JPL’s strong liquidity is driven by cash and cash equivalent of over Rs 1,000 crore as on March 31, 2021 (including unutilised limits), and estimated cash accrual of Rs 250-300 crore per fiscal over the medium term, against nil principal debt repayment in fiscals 2022 and 2023. Furthermore, fund-based limit of Rs 175 crore was utilised less than 20% as of March 2021. Therefore, available liquidity and cash accrual will more than suffice to cover moderate capital expenditure (capex) over the medium term.

Outlook Stable

CRISIL Ratings believes the JPL group’s business risk profile will continue to be strong, aided by its market leadership position in the Hindi belt and healthy contribution from the radio business. Improvement in cash accrual should support the financial risk profile as well.

Rating Sensitivity factors

Upward factors

• Sustained improvement in return on capital employed to over 25%
• Revenue diversity in terms of businesses and geographies, along with healthy profitability and capital structure

 

Downward factors

• Sustained weakening of operating performance, such that net cash accrual sustains below Rs 200 crore on an annual basis
• Large, debt-funded acquisition or capex, weakening the capital structure or debt protection metrics

About the Group

JPL is the flagship company of the JPL group that is based in Kanpur, Uttar Pradesh. It is promoted by the PC Gupta family. The group publishes eight newspapers and a magazine, from 37 printing facilities across 13 states in 5 languages. JPL acquired MIL in a 2:7 equity-swap ratio in fiscal 2011. In April 2012, JPL acquired Suvi Info Management (Indore) Pvt Ltd (Suvi) at an enterprise value of Rs 225 crore. Suvi was the holding company of NDML, which published Nai Dunia. NDML has been merged with JPL effective April 1, 2012. In fiscal 2016, the JPL group acquired MBL which has now grown to 39 stations and 50 online stations.

 

Furthermore, on April 8, 2021, JPL’s subsidiary, Music Broadcast Ltd’s (MBL; 'CRISIL AA/Stable/CRISIL A1+') board decided not to pursue the proposed investment in Reliance Broadcast Network Ltd.

 

Net profit was Rs 43 crore on revenue of Rs 925 crore in the nine months ended December 31, 2020, against net profit of Rs 273 crore on revenue of Rs 1,680 crore in the corresponding period of the previous fiscal.

Key Financial Indicators (Jagran Prakashan Ltd – consolidated)

As on / for the period ended March 31		2020	2019
Operating revenue	Rs crore	2,101	2,366
Adjusted profit after tax (PAT)	Rs crore	281	274
Adjusted PAT margin	%	13.4	11.6
Adjusted debt/adjusted networth	Times	0.17	0.32
Adjusted interest coverage	Times	14.0	21.80

These are CRISIL adjusted numbers and may not match directly with the numbers reported by the company

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity level	Rating assigned with outlook
INE199G07040	Debentures	21-Apr-20	8.35	21-Apr-23	100	Simple	CRISIL AA+/Stable
INE199G07057	Debentures	27-Apr-20	8.45	26-Apr-24	150	Simple	CRISIL AA+/Stable
NA	Debentures^	NA	NA	NA	50	Simple	CRISIL AA+/Stable
NA	Commercial paper	NA	NA	7-365 days	70	Simple	CRISIL A1+
NA	Cash credit	NA	NA	NA	175	NA	CRISIL AA+/Stable
NA	Letter of credit*	NA	NA	NA	50	NA	CRISIL A1+
NA	Bank guarantee	NA	NA	NA	25	NA	CRISIL A1+
NA	Proposed working capital facility	NA	NA	NA	35	NA	CRISIL A1+

^Yet to be placed

*Fully interchangeable with bank guarantee

Annexure – List of entities consolidated

Name of entities consolidated	Extent of consolidation	Rationale for consolidation
Midday Infomedia Ltd	Fully consolidated	Strong financial and business linkages
Music Broadcast Ltd	Fully consolidated	Strong financial and business linkages
Leet OOH Media Pvt Ltd	Equity method	Proportionate consolidation
X-pert Publicity Pvt Ltd	Equity method	Proportionate consolidation
MMI Online Ltd	Equity method	Proportionate consolidation