HT Media - Slightly below estimates- HOLD : Emkay

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HT Media

Slightly below estimates, retain HOLD

HOLD

CMP: Rs 165                                       Target Price: Rs 175

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n     Q2FY11 headline profit growth although strong at 61% yoy to Rs388mn, is slightly below our estimate of Rs431mn

n     Cons. ad-revenues grew by 17% yoy with Hindi ad-revenue growth of 30% yoy and English at 13% yoy

n     EBIDTA margins increased by 310bps yoy to 17.8% v/s our estimate of 21.8% due to higher revenue contribution from Burda, which registered EBIDTA loss

n     Estimates maintained. Retain HOLD rating with revised target price of Rs175 (v/s Rs159 earlier)

Q2FY11 profits below estimates

Although HT Media’s Q2FY11 headline profit growth of 61% appears strong, the same

is below our estimate of Rs431mn due to lower than estimated ad-revenue growth. Net

sales grew by 27.3% yoy to Rs4.45bn, ahead of our estimate of Rs4.3bn due to higher

revenue contribution from Burda JV. The EBIDTA grew by 54.5% yoy to Rs791bn with

margin improving by 310bps to 17.8% v/s our estimate of 21.8%. Despite increased

minority interest (on dilution in HMVL) the net profit grew by 61% yoy due to lower tax

rate (28% v/s run rate of 33%) and higher other income.

Hindi business (HMVL) profitability under pressure

The recently listed Hindi business subsidiary HMVL reported 22.5% yoy revenue growth

led by 30% ad-revenue growth. However the revenues are down 5.3% sequentially due

to ad-revenue decline of 5% QoQ and fall in circulation revenue on cover price cuts

owing to competitive pressures. HMVL’s EBIDTA fell by 12.5% yoy due to increased

employee and promotional expenses. While HMVL continues to witness strong adrevenue

growth on its lower base, it also is facing healthy competitive pressures

resulting in margin pressure for the company.

Burda begins operations

HT Media’s 51:49 JV with Hubert Burda for outsourced printing has begun operations in

Q2FY11. In the first quarter of its operations it recorded revenues of Rs280mn with

Gross margins of Rs40mn. However, since the operations are yet to stabilize and also

scale up, the JV recorded EBIDTA loss of Rs30mn. Management commentary indicated

for EBIDTA margins of 15-20% from the JV going forward.

Retain HOLD rating with target price Rs175

We maintain our cons. EPS estimates of Rs7.8 and Rs9.7 for FY11E and FY12E

implying EPS CAGR of 26.3% over FY10-12E. While the Hindi business of HMVL is

witnessing significant competitive pressures, we believe that the buoyancy in the

economy provides large opportunity for healthy growth in ad-revenues that would drive

the profit growth going forward.

We have revised the target price on the stock to Rs175 (v/s Rs159 earlier) valuing the

stock at 18x FY12E EPS v/s SOTP based valuation (with hold-co discount to HMVL). At

CMP of Rs165, stock trades at 21.1x and 16.9x our estimated EPS of Rs7.8 and Rs9.7

for FY11E and FY12E, respectively. Retain HOLD rating on the stock.