Shares of print media companies could get rerated in next two quarters as governments move to raise advertisement rates and moderation in news print prices are expected boost profitability.
The likelihood of an increase in ads in run-up to general elections is also expected to lift sentiment for these stocks which have fallen 40-60 per cent in last one year.DB Corp is most preferred bet among print companies as its advertisement growth is relatively better than peers and return ratios are superior, said analysts.Shares of DB Corp ended up 7.6 per cent at Rs 182.65 biggest one day gain while Jagran Prakashans shares ended up 3 per cent at Rs 117.55 on Wednesday.
Shares of HT Media hit 20 per cent upper circuit to close at Rs 47.10-biggest one-day gain since May 2009.About 10-15 per cent of advertising revenue for these companies comes from government ads.
The newsprint cost which had gone up 25-30 per cent in last one year has started to moderate, said Deepesh Kashyap, analyst at Equirus Securities.
The moderation in newsprint cost and increase in government ad rates will benefit these print media companies, said Kashyap.The government announced a hike of 25 per cent over and above existing rate structure.
Analysts said move will boost profitability of print media companies, especially regional papers.
About 10-15 per cent of advertising revenue for these companies comes from government advertisements, said analysts.
The last revision was in 2013 when an increase of 19 per cent was announced over and above rates of 2010 This decision will be valid for three years.Abneesh Roy, Senior Vice President-Institutional Equities at Edelweiss Securities said these stocks has not been on radar of institutional investors due to margin pressure, lower liquidity and lagging growth in advertising.We expect ad growth of print companies to gather pace in fourth quarter of FY19, and FY20 spurred by this development as well as spurt in election-related advertising.
The valuation for print media remains attractive at around 10 times FY20 price-to-earnings, and we expect certain re-rating to happen for print stocks, said Roy.The sector's advertisement revenue growth has been under pressure due to subdued advertising on account of Goods and Services Tax and RERA.
Higher newsprint cost also spoiled sentiment.
Shares of Jagran, DB Corp and HT Media fell 38-64 per cent in one year till Tuesday.ICICIdirect has raised target price on DB Corp to Rs 215 from Rs 190 and for Jagran Prakashan, target price has been increased to Rs 130 from Rs Rs 112.
However, it prefers DB Corp to Jagran Prakashan.