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Bleak outlook; dropping coverage!
Sandesh Ltd, which runs a leading Gujarati daily Sandesh (leader in rural Gujarat), has witnessed a dwindling financial performance similar to its peers over the last year. Post a 20% decline in earnings in FY19, the H1FY20 performance was also uninspiring with PBT decline of 12% YoY. We highlight that print players continue to face the challenges of a weak macroeconomic environment and lower government ad spends. Moreover, the company’s investments to the tune of ~| 233 crore, parked in the entity Applewoods Estate Pvt Ltd, which is a promoter group entity engaged in real estate, has also not yielded significant return. Therefore, we drop coverage on the stock and advise investors to switch to our preferred segment viz. multiplexes.
Print faces challenges in ad growth…
Sandesh has witnessed a muted print segment in the last year and a half. While FY20 print revenues declined 1%, the H1FY20 overall revenues declined ~17%. We also highlight that print, as a segment, has witnessed challenging times with weak ad growth. During FY19, key players like DB Corp and Jagran Prakashan reported print revenues (ad + subscription) growth of 6% and 1%, respectively, which for H1FY20 has been a decline of ~6% and 3%, respectively. The segment is likely to continue its declining trend at least in the medium term with key categories like government and auto cutting on overall ad spends.
Valuation & Outlook
At the CMP, the stock is trading at an attractive valuation of ~6.9x FY19 EPS and ~7.1x FY20 annualised earning. While valuations appear to be cheap optically, it is largely on account of a weak print growth outlook coupled with inefficient capital allocation in the promoter group real estate company with no meaningful returns. Therefore, we drop coverage on the stock and advise investors to switch to our preferred segment viz. multiplexes.
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