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Citi bullish on Deccan Chronicle + Jagran Prakashan

December 12, 2007

Citigroup has initiated coverage on Deccan Chronicle and Jagarn Prakashan with a BUY Rating. DCHL publishes the fourth-largest selling English newspaper in India and has leadership in the state of Andhra Pradesh. After Chennai, DCHL will expand into the Bangalore market, which will give it a strong foothold in South India.

DCHL is the most leveraged play on Indian print media. Its superior business model rests on: heavy advertising skew which should be sustainable as advertising revenues grow at a 25% 3-yr CAGR; strong profitability (>2x that of listed peers) due to a lean fixed-cost base; and exposure to the English print market, which has higher ad yields.

Citi values DCHL at 22x FY09E EPS, which is a premium to regional peers but at a 20% discount to Indian peers and recommends a target price of Rs 286 / share.

Jagran publishes Hindi-language Dainik Jagran, India’s largest daily on average readership (17.1m, IRS 2007 R1) and circulation (2.3m, ABC JJ 2006), and has a leadership position in Uttar Pradesh. With 31 editions across 12 Hindi-speaking states along with newly launched newspaper formats I-Next and City Plus.

Citi forecasts a 28% CAGR (FY07-10E) in advertising revenues driven by a strong macro environment, shift in advertising from black and white to color, and increasing demand for regional advertising.

Citi recommends with a target price of Rs810 (30x FY09E EPS). Target is at a multiple premium to those its peers DCHL and HTML[Hindustan Times] owing to Jagran’s higher earnings CAGR of 45% in FY07-10E, clean balance sheet and strong leadership positions in key markets.

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