We would like to bring to your attention a Special situation opportunity on the buy-back of shares in Jagran Prakashan (NSE – JAGRAN).
We initiated this opportunity for our Alpha + members in Jan’17 around 177 odd levels and recently closed the same in Apr’17 around average price of 193 (weighted average price of shares tendered in buy-back and remaining sold in open market); thereby generating more than 35% annualized return on the opportunity.
Basically, acceptance ratio in the small shareholders category was 42.3% and since the stock price was hovering around buy-back price of 195, we recommended members to tender their entitled quantity @ 195/- per share and sell the remaining shares in the open market @ 192/- per share.
Besides investing in high quality small/mid cap companies for long term wealth creation, we also like to participate in slightly shorter duration Special situation opportunities arising out of corporate actions like de-merger, de-listing, buy-back, etc
Currently, liquid funds, FDs etc are offering 7-9% annualized return and thereby Special situation opportunities offer good temporary parking places for surplus cash; though obviously the risks are higher.
Don’t miss out on 3 New Reports: 1 new long term investment report and 2 Special Situation opportunities:
- Apr’17 – An opportunity to create shares at 26% lower than CMP
- Mar’17 – A very good company with Promoters aggressively buying stake in their own company around CMP
- Feb’17 – Creation of shares at 21% lower than CMP
Jagran Prakashan (NSE – JAGRAN)
(Alpha + note as on 10th Jan’17)
Jagran Prakashan Ltd (JPL) is a leading media house with interests spanning newspapers, magazines, outdoor advertising, promotional marketing, event management, on‐ground activities, digital and radio business.
In the Print segment, the company has an established presence with 11 publications in 5 languages across 13 states. Its key publications include ‘Dainik Jagran’, ‘Inquilab’ (an Urdu daily), I-Next. The company acquired ‘Midday’ & ‘Nai Dunia’ in 2010 and 2012 respectively.
As per various reports, ‘Dainik Jagran’ (DJ) is the highest-read daily in India with pan-India Hindi readership share of ~21%
Radio is expected to be the next growth driver for Jagran. The company completed acquisition of ‘Radio City’ 91.1 FM in June 2015. It has a total of 31 stations (20 existing stations, 11 stations acquired in Phase III auction), with reach in key cities – Mumbai, Bengaluru, Lucknow, Pune, Baroda, Chennai, Hyderabad, Delhi etc.
Over the last few years the company has tried to diversify its revenue streams by preferring the inorganic route of acquisitions. As per the management, by going for the acquisition strategy, they have been able to avoid failures and large losses inherent in any new business. While Nai Dunia strengthened Jagran’s footprint in Madhya Pradesh & Chhattisgarh; Mid-day and Radio City acquisitions have helped the company expand its footprint into Metro cities.
As per various estimates, company is expected to record 10-12% CAGR over the next 2-3 years on the back of strong growth in radio segment and 8-10% growth in advertising and circulation revenue. Further, brokerages have revised their target price of the stock in the range of 200-220.
Proposed Buy-back offer
The Board of Directors of the Company at their meeting held on 5th Jan’17 approved a buyback for an aggregate amount not exceeding Rs. 302.25 crores at a price of Rs. 195 per equity share from all existing shareholders of the Company on the record date to be determined by Board, on a proportionate basis through “Tender Offer” route.
At the Buyback Price of Rs. 195/- per equity share and for the Buyback Size not exceeding Rs. 302.25 crores, the indicative number of Equity Shares that can be bought back would be 15,500,000 shares representing 4.74% of the total issued and paid up equity capital of the Company.
Rationale behind this opportunity
It is important to note here that Buy-Back through tender offer route is similar to Open Offer in many respects as against Buy-back through open market purchases.
In buy-back through tender offer route all the shareholders can participate (including the promoters) and the buy-back is on proportionate basis from all the shareholders of the company.
So, in the above case, theoretically only 5 shares out of 100 shares shall be accepted at 195/- per share if all the shareholders participate in the tender offer and 95 shares will be returned back.
However, there are a few important regulations regarding buy-back through tender offer route which increases the acceptance ratio to ~50-60% in the case of JPL. They are:
15% of the number of Equity Shares which the Company proposes to buyback or number of Equity Shares entitled as per the shareholding of small shareholders, whichever is higher, shall be reserved for the small shareholders as part of this Buyback.
Small Shareholder is a shareholder who holds equity shares having market value, on the basis of closing price on recognized exchanges as on Record Date of buy-back, of not more than Rs 200,000 (2 lakhs).
Applying above regulations in the case of Jagran Prakashan
As the company has proposed to buy-back 1.55 crore shares, 15% of the same will be reserved for small shareholders i.e. ~23.25 lakh shares.
In case of Jagran Prakashan, shareholders with less than 5000 shares hold about 43-45 lakh shares in the company (based on 31st Mar’16 figure of 43.42 lakh shares), so theoretically the acceptance in small shareholder category should be around 50% or even more as the small shareholder will be the one with less than ~1150 shares.
However, considering the fact that most of the small shareholders do not participate in such offers, we believe the acceptance ratio for those who participate in tender offer in the small shareholders category could move up to around 60% or more.
Another factor that may contribute to higher acceptance is the fact that the proposed buy-back price is lower than the 52 week high price of 210.
Cost of 1000 shares – 177 *1000 = 177,000
Cost of remaining 500 shares on 50% acceptance @ 195 – Rs 159
Cost of remaining 400 shares on 60% acceptance @ 195 – Rs 150
Cost of remaining 300 shares on 70% acceptance @ 195 – Rs 135
As mentioned above brokerages have revised their target price of the stock in the range of 200-220.
So, as we see it the downside seems limited at theoretical 50% acceptance while there’s reasonable opportunity of gain if the acceptance increases to 60-70% or even more.
For all practical reasons there’s very remote possibility of 100% acceptance but we are not considering that.
The actual ratio will be known only once the entire process is over and in case of lower acceptance ratio our returns will diminish.
In case of deterioration in performance of Jagran Prakashan, the exit price for unaccepted/remaining shares can get impacted.
The time line for this opportunity is around 3 months and therefore in the interim if the market corrects in major way the exit price for unaccepted shares will get impacted.
Disclosure: I don’t have any investment in Jagran Prakashan and the opportunity stands closed.
Positive – Expected return of ~15% + on annualized basis in medium to long term
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: firstname.lastname@example.org Ph: +91 727 5050062
Analyst ownership of the stock: No
Details of Associates: Not Applicable
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