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HT Media (HTML)
Media
Robust 3QFY11 driven by strong English print performance (finally!). HT Media
reported robust 3QFY11 consolidated EBITDA of Rs868 mn (+28% yoy, +35% qoq),
ahead of estimates; the stock has under-performed in the past few days due to weak
3QFY11 of HMVL (Hindi print subsidiary) but HTML’s English print business more than
made up for the disappointment. Additionally, Fever FM radio’s performance was
notable with 79% yoy revenue growth. Internet, HT-Burda JV and HMVL (surprising
given festival season in 3QFY11) were subdued, thus precluding a more positive view.
Retain ADD with SOTP-based valuation of Rs170.
Robust 3QFY11 reflects strong advertising performance of English print, Fever FM radio
Exhibit 1 presents the consolidated 3QFY11 financials of HT Media. We highlight that they are
not exactly comparable yoy on account of (1) demerger of Hindi Hindustan business to
Hindustan Media Ventures (effective 3QFY10) and subsequent listing of the company (effective
2QFY11; HT Media retains 78% share in the business) and (2) operationalization of HT-Burda JV
for high-end outsourced printing (effective 4QFY10).
HT Media reported robust 3QFY11 EBITDA of Rs868 mn (+28% yoy, +35% qoq) led by robust
25% yoy advertising growth in English print business. HT Delhi with relatively stable cost
structure and 20%+ yoy advertising growth was likely the key driver of sharp EBITDA growth.
Strong advertising growth also resulted from a favorable base (complete Indian festival season
in 3QFY11 versus only partial occurrence in 3QFY10).
Though advertising growth in HT Mint and HT Mumbai outperformed Delhi (30%+), they are
unlikely to have contributed positively to EBITDA being in investment phase still. We remain
positive on value-accretion potential from Mint (see our previous note “Too much broth, too
few cooks” dated January 10, 2011). However, the uptick in advertising growth in HT Mumbai
(20-25% yoy growth previously) surprised positively; HT Mumbai is well-positioned for
improved monetization, which has been a legacy issue.
Besides English print, Fever FM radio performed admirably with 79% yoy revenue and EBITDA
contribution of Rs39 mn in 3QFY11 (versus EBITDA loss in 3QFY10). 3QFY11 circulation
revenues at Rs471 mn (-2% yoy, +13% qoq) were in line with expectations (driven by new
launches in Hindi business even as realizations remain under pressure). Besides Fever FM radio,
the operationalization of HT-Burda JV contributed to 127% yoy growth in other operating
income; however, (1) HT-Burda’s revenues declined sequentially (Rs280 mn in 2QFY11) resulting
in (2) continued operating losses (also in Internet business).
HTML reported 29% yoy growth in operating expenses led by 45% yoy growth in raw
material costs. However, the sharp yoy increase in raw material costs is on account of
incremental consumption due to start of operations of HT-Burda JV. Similarly, qoq flat
raw material costs present a confusing picture (newsprint prices have been rising) on
account of reduced utilization levels in HT-Burda. Newsprint costs increased by ~7% qoq
for the core print business, as per our estimates.
HTML reported 6% yoy growth in overheads (SG&A and other expenses) and 3% qoq
growth in employee expenses. 3QFY11 was the peak of the advertising cycle in FY2011E
on account of (1) complete festival season and (2) favorable base in 3QFY10 (partial
festival season, marginal 4% yoy advertising growth over 3QFY09).
The robust growth in overheads is a bit disconcerting since it has proven to be sticky in
the past versus the cyclicality and base effects in advertising revenues (see Exhibit 2).
HTML operates at ~18-20% operating margins versus >30% for peers JAGP and DBCL,
leaving it open to volatility on cost side (newsprint, for example).
3QFY11 results of the Hindi print (Hindustan) have already been covered in our note
“Near-term pains overshadow potential gains” dated January 17, 2010.
One hand giveth, and the other taketh away
Exhibit 3 presents the SOTP-based valuation of HT Media, where the underlying business
valuations are largely DCF-based. We have increased the valuation of the HT Delhi-NCR
business, given stronger-than-expected advertising growth and improved FCF dynamics
given stable cost structure. However, the decline in our valuation of Hindi Hindustan
business (HMVL) negates the increase in HT Delhi-NCR valuation. Similarly, the increase in
valuation of HT Mint, HT Mumbai and Fever FM is largely negated by continued underperformance
of HT-Burda JV. We retain our ADD rating with SOTP-based target price of
Rs170 (unchanged). However, our earnings estimates for FY2011E and FY2012E have
increased to Rs7.0 (Rs6.8) and Rs8.5 (Rs8.4).
However, the rapid turnaround in HT Mint, HT-Others (largely CPH market but increasing
presence in UPU and BJH markets) or HT Mumbai as well as value-accretive expansion in
Fever FM radio (only 4 metro stations currently but value-destructive in Phase II FM licensing
for nearly all FM players) has the potential to add significant value to the business.
Additionally, with the completion of the large part of capex plan (except Hindustan, which is
self-funded now), increased dividend payout by HT Media may result in a re-assessment of
its risk potential (currently high due to large portfolio).
Key drivers and risks—stretch, don’t break
Our positive view on HT Media is grounded on two legacy businesses (1) strength of English
franchise in HT Delhi, which is reaping the benefits of advertising revenue recovery in the
near term and expansion in NCR (National Capital Region) later, and (2) potential valueaccretion
in Hindustan. We note that HT Media invested in a state-of-the-art printing facility
for HT Delhi (larger print capacity, faster printing speed, improved print output and flexibility
for potential advertising innovations) in FY2007-08, which further results in strong FCF
dynamics for the leading English daily in Delhi (joint leader with TOI). HT’s plans to expand
the franchise in NCR market with hyper-local editions makes imminent sense given faster
population growth and under-penetration currently.
Historically, the Hindi/regional print market in India (centered on the Tier-II/III towns) has
been under the shadow of big brother English print, which dominated the Metro markets
with the highest consumption potential of population. The growth in the Indian economy is
now percolating down to the Tier-II/III towns and their population, resulting in higher percapita
income and consumption. Key advertisers are following the trend with incremental
advertising spends going to Hindi/regional print. Hindustan’s legacy leadership presence in
Delhi-NCR and BJH markets provides an ideal platform for capturing the growth, which will
be strengthened by expansion in the largest Hindi print market in India (UPU); we highlight
that Hindustan is already closer to top players in the UPU urban centers versus HT in the
Mumbai market. We discuss the investment case for HMVL in detail in our report “The Heart
of Hindi Heartland” dated December 20, 2010.
We present the various fronts where HT Media has been active below. We are not averse to
HT’s various initiatives and investments but believe the overall portfolio has become very
large and potentially hard to manage. We believe that with a significant part of capex plan
already completed, the potential financial risk has been considerably reduced; we also
highlight that HT Media’s balance sheet has been strengthened (Rs3 bn net cash with HTML
and Rs1.7 bn with HMVL). However, the threat of reaching breaking point while trying to
stretch in multiple directions remains a risk. We would be more comfortable once HT Media
has achieved full monetization and profitability potential in at least a couple of these
business lines (HT Delhi is the only one currently), which will provide greater stability and a
formidable base for further expansion. Exhibit 7 presents the sensitivity to newsprint prices
for FY2012E and FY2013E earnings for HT Media and peers.
HT Edge – Youth-oriented publication in Delhi
HT NCR – Expansion of HT Delhi franchise with hyper-local editions
HT Mumbai – Expansion of HT franchise in Mumbai
HT CPH – Expansion of HT franchise in CPH market
HT UPU – Expansion of HT franchise in UPU market
HT BJH – Expansion of HT franchise in BJH market
HH NCR – Expansion of Hindustan Delhi franchise with hyper-local editions
HH BJH – Competition with entry of DBCL/Dainik Bhaskar
HH UPU – Expansion of Hindustan franchise to UPU market
HT Mint – English business publication
Magazines – Expansion of print franchise
Fever FM radio – in 4 metros of India
HT-Burda high-end outsourced printing solutions
HT-Velti mobile marketing solutions
Internet – Shine.com career website
Internet – HT Campus education website
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