Numero Uno in UP, the largest print market Jagran Prakashan's (JPL) key strength is its leading position in the UP market with a 49% share in total readership. It leads by 37% in readership vs. its closest competitor. UP is the largest Hindi print market with a readership base of 19.6mn (28% of total Hindi readership in India) and Hindi ad print share of 31% of the total market of ~ Rs2.6bn. UP recorded economic growth at 11% over FY04-08. We believe JPL will continue to be the undisputed leader in the buoyant state, capitalizing on accelerated growth opportunities.

Well-built business model JPL expanded into other media verticals such as event mgmt, OOH, and bilingual papers (I-Next and Cityplus) and the print business of Mid-Day Multimedia. We believe diversification beyond its main print business will enable the company to capture growth opportunities in other forms of media businesses. We expect this segment to grow at FY10-12 CAGR of 25% to Rs1.4bn.

Strong business growth assuring healthy financials With leadership in the Hindi print market, the company's ad and circulation revenue grew at a 3yr CAGR of 18% and 8% respectively, during when the economy grew at 8%. JPL delivered healthy revenue CAGR of 17% CAGR over FY07-10. It delivered strong return ratios with ROE and ROCE at 29% and 34% respectively as of FY10. We expect the company to record FY10-12 revenue and PAT CAGR of 20% and 22% respectively. Considering cost efficiency measures, improving profitability from emerging businesses of I-Next and City plus, and stable interest cost, we estimate OPM at 32% and NPM at 19% for the next 2yrs.

VALUATIONS AND RECOMMENDATION At CMP, the stock trades at 16x FY12E EPS (after incorporating Mid-Day numbers). Considering that JPL is the largest player in terms of readership , with better cost efficiency, phased and planned expansion into other forms of media businesses, and a wider portfolio (including Mid-Day), we have a positive outlook on the company and believe it is well poised to benefit from steady growth in the print media sector. We initiate coverage on JPL with a 12-month target price of Rs165 (20x FY12E earnings).