Why did Jagran Prakashan buy Nai Dunia, and at such a price?

On 2 April, Jagran Prakashan (JPL), the publishers of Dainik Jagran announced the acquisition of Nai Dunia. 

The deal was concluded at an effective price of 150crs (thanks to a tax shield due to accumulated losses of 250crs in the books of Nai Dunia) for a brand that had revenues of 100crs and EBITDA of -25crs (FY11).

ICICI Securities in its report on 3 Apr 12 calls this an ‘inexpensive deal’. This is indeed strange, as by any standards, this looks an expensive deal. 

Nai Dunia

Today, Nai Dunia a pale shadow of what was once a ‘Indore paper with a national reputation[1]’. A pioneer in bringing Rotary Offset Printing for Newspapers to India, the newspaper was renowned for its editorial quality, under Editor Rajendra Mathur (who later became Editor of NBT).

Nai Dunia missed the bus in the mid to late 80s, ‘self-absorbed with internal changes’[2], as the three founding partners died in the ‘80s to early 90s and their progeny entered the business. Dainik Bhaskar mustered up the courage to enter Indore and gradually wrested leadership by the early 90s[3].

Today Nai Dunia is printed across 7 sites in MP/CG, has a print run of 500,000 copies and readership of 1.5mn approximately (across MP/CG). Against this Dainik Bhaskar has a readership of 4.8mn and Patrika 1.8 mn.

However this 1.5mn readership of Nai Dunia is not concentrated in any one city or region (like Amar Ujala). Rather it is thinly spread (a la Indian Express) across MP/CG. A ‘Thin Spread’ readership pattern is often correlated with financial difficulties, as is seen here (250crs accumulated losses, -25crs EBITDA etc).

Against Nai Dunia’s Rs 100crs revenue (FY11), Dainik Bhaskar makes Rs 370crs[4] (35% of its ad revenues revenues) from MP/CG (hearsay).

Interestingly, the brand Nai Dunia operates as Nav Dunia in Bhopal, as one of the founding partners, the Tiwari family owns the rights for Nai Dunia to this city. This is analogous to the Jagran ownership pattern where the rights to publishing Dainik Jagran in MP is with a different faction of the family, who don’t see eye to eye with the Guptas of JPL.

The Acquisition

The previous paragraph holds clues to why JPL would pay Rs 225 crs (in reality, Rs 150 crs given tax benefits) for a ‘sub-scale’ brand (in the words of Vinay Chajlani, owner of Nai Dunia). With an entry into the 550cr MP/CG ad market stymied due to a legal dispute – “currently, Jagran Prakashan Ltd, the Kanpur-based newspaper group, is battling part of the family that owns the newspaper title in Madhya Pradesh and prints the paper in that state” (Mint, 3 Apr 12) – the only option to enter MP/CG was through an acquisition, and there possibly were not many choices on the table.

This is confirmed from the transcripts of the conference call where RK Agarwal the CFO of Jagran Prakashan states “…Keeping in view the potential of these markets the company invested in Jagran Publication Private Limited and Jagran Prakashan (MPC) Private Limited way back in 2005. But unfortunately due to initiation of litigation since June 2007 by other set of shareholders in these companies, the brand Dainik Jagran could not be expanded and the available opportunities could not be capitalized.” (underlined by me – sajith)

He further goes on to say “Under the circumstances only option left with the company was to either start a new brand or to acquire a powerful brand like Nai Dunia. Clearly, establishing a fourth brand is an uphill task given the competitive scenario that would not only need a long gestation period but also a huge investment maybe exceeding Rs. 500 crores with no certainty about the return on capital which is one of our biggest focus. As against the option of going Greenfield, opportunity of having Nai Dunia which is very well-entrenched into these markets and accepted by the readers, is far more lucrative.”

So JPL gets for its 150crs, an ailing brand – the 250crs of accumulated losses would likely mean underinvestment in talent, infrastructure and product and a very defeatist spirit amongst its employees – without the rights for the key Bhopal market. In Bhopal due to the dispute between the Chajlanis and Tiwaris, the paper has to be published as Nav Dunia.

According to the Mint story (3 Apr 12) ‘Gupta isn’t perturbed by the title ownership in Bhopal. “Nai Dunia has a very marginal presence in Bhopal. We have Nav Dunia in that city,” he said.

In Conclusion

By any acquisition standards, this is an unlikely deal –
1. It is expensive
2. You get a brand which does not have the rights to enter one of the biggest markets in MP (Bhopal), where you have to continue publishing under a different name
3. You get a product, talent and infrastructure reeling under years of underinvestment
4. Questionable scope for synergies – some opportunities do exist at the top level, especially the sales force as well as on newsprint, but given that JPL has no presence in MP/CG the scope for synergies seem restricted.

One can only surmise that the overwhelming need to show growth to the stock market (JPL lost 20% vs BSE’s 10% drop in the past year) through a backdoor entry into the otherwise blocked MP/CG market, and the underwhelming lack of acquisition choices led to this deal.

JPL has a history of overpaying though – in May 2010 it paid 20x earnings for Mid-day (Rs 200 crs for a 95cr Rev, 10cr PAT business). What’s more they paid for this with a share swap, thus sharing the ‘perpetual benefits of a growing regional business with a matured English print business’ (Namrata Sharma, Dolat Capital).