IIFL: HT Media: Buy target 193

Multiple upsides, yet few priced in
Our recent meeting with the management of HT Media has reinforced our confidence in the stock. Here
are the key takeaways from the meeting: 1) management has increased ad-revenue growth
expectations for FY11 to c20%; 2) HT Mumbai is nearing the inflection point, with the #2 position in
striking distance; and 3) margins should improve, as losses in investment ventures (Mumbai, Uttar
Pradesh and the portal business) have peaked. We maintain that HT’s improving traction in readership
in its growth markets will increase revenues and earnings going forward. We re-iterate BUY.
Investment in Mumbai readership not to go unrewarded: HT Mumbai’s readership has increased by
10% in the last six months. It has overtaken DNA as the #2 daily among SEC AB readers, the prime target
for urban print advertising. Another 10-15% increase in HT Mumbai’s readership is likely to result in nonlinear
growth in ad-revenues. Note that HT Mumbai’s ad-revenues are 1/12th of the Times of India’s (ToI)
Mumbai edition, although its readership is 1/3rd that of ToI. Moreover, the English print market is benefitting
from a strong comeback by advertisements from the Real Estate and Financial sectors. New launches in Auto
and Telecom are keeping advertisements buoyant.
Robust growth outlook for Hindi business: The management remains confident of achieving 25%
growth in Hindustan’s ad-revenues for FY11. The company is set to launch in Gorakhpur, which would mark
the last of its expansion initiatives in Uttar Pradesh (UP). Readership in this market continues to grow
strongly—it rose 25% in the last six months. If Hindustan’s readership continues to grow at this rate, its
revenues, and consequently margins, would increase over the next two years.
We upgrade earnings, re-iterate BUY: We upgrade our ad-revenue growth estimates for the print
business by ~2pps. This translates to an upward revision of our FY11 and FY12 earnings estimates by ~4%,
even after assuming a 3pps higher increase in newsprint prices for FY11. We believe that the 32% earnings
CAGR over FY10-12ii, possible positive surprises, and visibility on earnings growth beyond FY12 are not
priced in. We re-iterate BUY.