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India: Media - Publishing & Printing
Print media dead? ...Not in India!
• New Initiations: We initiate coverage on Indian print media stocks 1)
HTML: Initiate with Overweight, with a Sep-11 PT of Rs235 based on 20x
Sep12E P/E. 2) DBCL: Initiate with Overweight with a Sep-11 PT of
Rs290 based on 18x Sep12E P/E. 3) JAGP: Initiate with Neutral with a
Sep-11 PT of Rs140 based on 18x Sep12E P/E.
• Indian print media on a strong footing: Favorable demographics – rising
incomes & literacy rates coupled with low penetration are driving strong
growth for Indian print media. Indian print media industry has grown at a
CAGR of 10% over 2005-10 and is estimated to grow at CAGR of 9% over
FY10-FY14E (source: KPMG). We do not see internet emerging as a
threat over the next few years – broadband penetration in India is only
~0.7%, and despite its rapid growth, overall penetration level is unlikely to
scale up to pose a threat to the print media.
• Non metro print markets growing faster: Over the last few years, print
advertising budgets have been shifting towards local language print in nonmetro
markets, driven by rapidly rising incomes and consumption levels in
these markets. Share of advertising of local language dailies has increased
from 40% to 54% over the last 6 years.
• … But we prefer metro market (English) exposure: English print
advertising in metro markets (46% of total advertising) is recovering after a
3-year slowdown. Competitive intensity in metro markets has eased over the
last 2 years, while entry barriers have remained high. In contrast, rising
competitive intensity in regional markets is driving down cover prices and is
pressurizing margins for incumbents. HTML is well positioned – it derives
85% of EBITDA from its flagship English paper in Delhi, which is seeing a
revival in ad growth. This, we believe, will more than mitigate margin
pressures that HTML faces in its local language markets.
• DBCL our preferred regional pick: DBCL’s revenues and profits are
evenly spread out across multiple markets and its low cover price strategy
cushions its margins from competitive pressures. While we like JAGP’s
positioning in the Hindi markets, driven by its strong foothold in UP (largest
market for Hindi advertising), we see risk to its margins from impending
competition in context of its high cover price strategy.
• Key Risks: Key risks to our thesis emerge from a potential economic
slowdown, higher-than-expected increase in newsprint prices and increase in
competitive intensity.
Investment Summary
Favorable demographics – rising incomes & literacy rates coupled with low
penetration are driving strong growth for the Indian print media. The industry has
grown at a CAGR of 10% over 2005-10 and is estimated to grow at CAGR of 9%
over FY10-FY14E (source: KPMG). Internet is unlikely to emerge as a threat to the
Indian print media over the next few years. Broadband penetration in India is very
low at 0.7% of the total population and we don’t see it gaining meaningful
penetration (despite a very high growth rate) over the next 8-10 years. We expect
print media to continue to be the preferred vehicle for segmented advertising over the
next few years.
Non metro locations are witnessing stronger growth in print media in relation to the
larger metro cities. Traditionally, the metro markets, which have high percentage of
English newspaper readership, have commanded a higher share of print advertising
on account of relatively higher per capita incomes and consumption levels. While
combined readership of English language newspapers in metros is much lower
compared to local language newspaper readership, English newspapers command a
significant advertising rate premium over non-metro newspapers. However, this
trend is changing and over the last few years the share of advertising in non-metro
based newspapers has increased, driven by rising incomes in non-metro locations.
While regional print markets are growing at a faster rate compared to the metro
markets, we prefer players with exposure to English print over regional print. English
print advertising in metro markets is recovering after going through a slowdown over
past 3 years. In addition, competitive intensity and entry barriers in metro markets
are high compared to regional markets owing to low cover prices, higher page count
and concentration of top 1-1 players. Regional markets, on the other hand, are seeing
increasing competitive intensity, with entry strategies driven by cut in cover prices
and high circulation, forcing incumbents to follow suit.
We initiate coverage on 3 print media stocks: stocks 1) HTML: Initiate with
Overweight, with a Sep-11 PT of Rs235 based on 20x Sep12E P/E 2) DBCL: Initiate
with Overweight with a PT of Rs290 based on 18x Sep12E P/E and 3) JAGP: Initiate
with Neutral with a PT of Rs140 based on 18x Sep12E P/E.
HTML is our top pick given our preference for metro markets. We estimate that
HTML derives ~85% of its EBITDA from its flagship English language paper HT
Delhi. Print advertising in Delhi is seeing strong revival in growth after a 3-year
period of low growth. Incremental profitability from the Delhi market is likely to
more than mitigate the margin pressures that HTML faces in its Hindi markets on
account of rising competitive intensity. We see further tailwind for HTML as HT
Mumbai and its business newspaper ‘Mint’ are on the cusp of a turnaround.
In the regional space, we prefer DBCL, which has its revenues and profits evenly
spread out across multiple markets and its low cover price strategy makes its margins
less amendable to competitive pressures. While we like JAGP’s positioning in the
Hindi markets, driven by its strong foothold in UP (largest market for Hindi
advertising), we see risk to its margins from impending competition, especially in
context of its high cover price strategy.
New Initiations
We initiate coverage on HT Media Ltd., D.B.Corp Ltd. and Jagran Prakashan Ltd.
1. HT Media Ltd. We initiate coverage on HT Media (HTML) with an
Overweight rating and Sep-11 price target of Rs235 based on 20x Sep-12E P/E.
HTML offers exposure to a fast growing diversified Indian media pool,
encompassing English and Hindi print media, radio, event management and
digital media. HTML is benefiting from its large exposure to English
advertising, which is reviving following a 3-year slowdown and cushions the
margin pressure being faced in the Hindi markets on account of rising
competitive intensity.
2. D.B.Corp Ltd. We initiate coverage on D.B. Corp (DBCL) with an Overweight
rating and Sep-11 price target of Rs290 based on 18x Sep-12E P/E. DB Corp is
our preferred local language play, with strong presence across 12 states across
North, West and Central India in Hindi and Gujarati languages. Print media
advertising in tier II markets is growing faster than the national average driven
by strong growth in income and consumption levels, driving increasing focus of
national advertisers on these markets.
3. Jagran Prakashan Ltd. We initiate coverage on Jagran Prakashan (JAGP) with
a Neutral rating and Sep-11 price target of Rs140 based on 18x Sep-12E P/E.
While we like Jagran Prakashan’s dominant Hindi print positioning in faster
growing tier II markets, we believe that in the near term, its margins are exposed
to rising competitive intensity, driving reduction in cover prices and forcing
JAGP to print more copies to increase circulation. We believe that current
valuations at 17.1x FY12E P/E do not leave much room for a meaningful upside
in context of the impending margin pressures and a below-par 3-year EPS
CAGR of 14.8%. We would advise investors consider buying the stock closer to
Rs100-Rs110 levels.
Valuations and Stock Performance
Indian print media stocks have underperformed the Sensex by 0.1%-9.9% YTD
FY11. While the pick up in economic growth has driven strong advertising growth
for print media players, rising competitive intensity in the local language markets and
high newsprint prices have remained the key overhang on stock performance.
However, we see selective value following the recent correction in stock prices.
HTML is trading at 14.4x FY12E P/E, at a 28% discount to its historic average
trading multiple, while DBCL and JAGP are trading at 8% and 5% discount to
historic averages.
Indian Print Stocks Trading at Premium to Global Peers
Indian print media stocks are trading at 44% premium to Asian peer group and 43%
premium on FY12E P/Es to global peer group respectively. We believe that this
premium is justified given the relatively faster earnings growth for Indian print media
stocks compared to global peers. In addition, Indian market is still under-penetrated
and offers tremendous growth potential for print media, in contrast to most
developed world markets, where print is de-growing.
Key Risks to Our Thesis
Rising competitive intensity in Hindi newspaper markets
Hindi print markets are facing rising competitive intensity. DBCL has recently
launched its Hindi newspaper in Jharkhand and is looking to enter Bihar in FY12E.
JAGP is looking at expanding its footprint in UP, while Rajasthan Patrika has
launched in MP markets. This has forced a reduction in cover prices and has put
margins for incumbents under pressure. We believe that if competitive intensity were
to increase, it could have an adverse impact on our earnings estimates for Indian
publishing players.
Increase in newsprint costs
Newsprint costs account for 35%-70%% of total costs for publishers under our
coverage. We estimate that every 1% increase in newsprint cost in FY12E has an
adverse impact of 1%-2%% on profits. We are currently assuming 3%-5%% increase
in newsprint prices in FY12E – any further increase will have an adverse impact on
our earnings estimates.
Slowdown in economic growth
Advertising revenue growth is linked to general economic activity and growth. Any
sharp slowdown in economic growth is likely to lead to a slowdown in advertising
market and have an adverse impact on profit growth.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Media - Publishing & Printing
Print media dead? ...Not in India!
• New Initiations: We initiate coverage on Indian print media stocks 1)
HTML: Initiate with Overweight, with a Sep-11 PT of Rs235 based on 20x
Sep12E P/E. 2) DBCL: Initiate with Overweight with a Sep-11 PT of
Rs290 based on 18x Sep12E P/E. 3) JAGP: Initiate with Neutral with a
Sep-11 PT of Rs140 based on 18x Sep12E P/E.
• Indian print media on a strong footing: Favorable demographics – rising
incomes & literacy rates coupled with low penetration are driving strong
growth for Indian print media. Indian print media industry has grown at a
CAGR of 10% over 2005-10 and is estimated to grow at CAGR of 9% over
FY10-FY14E (source: KPMG). We do not see internet emerging as a
threat over the next few years – broadband penetration in India is only
~0.7%, and despite its rapid growth, overall penetration level is unlikely to
scale up to pose a threat to the print media.
• Non metro print markets growing faster: Over the last few years, print
advertising budgets have been shifting towards local language print in nonmetro
markets, driven by rapidly rising incomes and consumption levels in
these markets. Share of advertising of local language dailies has increased
from 40% to 54% over the last 6 years.
• … But we prefer metro market (English) exposure: English print
advertising in metro markets (46% of total advertising) is recovering after a
3-year slowdown. Competitive intensity in metro markets has eased over the
last 2 years, while entry barriers have remained high. In contrast, rising
competitive intensity in regional markets is driving down cover prices and is
pressurizing margins for incumbents. HTML is well positioned – it derives
85% of EBITDA from its flagship English paper in Delhi, which is seeing a
revival in ad growth. This, we believe, will more than mitigate margin
pressures that HTML faces in its local language markets.
• DBCL our preferred regional pick: DBCL’s revenues and profits are
evenly spread out across multiple markets and its low cover price strategy
cushions its margins from competitive pressures. While we like JAGP’s
positioning in the Hindi markets, driven by its strong foothold in UP (largest
market for Hindi advertising), we see risk to its margins from impending
competition in context of its high cover price strategy.
• Key Risks: Key risks to our thesis emerge from a potential economic
slowdown, higher-than-expected increase in newsprint prices and increase in
competitive intensity.
Investment Summary
Favorable demographics – rising incomes & literacy rates coupled with low
penetration are driving strong growth for the Indian print media. The industry has
grown at a CAGR of 10% over 2005-10 and is estimated to grow at CAGR of 9%
over FY10-FY14E (source: KPMG). Internet is unlikely to emerge as a threat to the
Indian print media over the next few years. Broadband penetration in India is very
low at 0.7% of the total population and we don’t see it gaining meaningful
penetration (despite a very high growth rate) over the next 8-10 years. We expect
print media to continue to be the preferred vehicle for segmented advertising over the
next few years.
Non metro locations are witnessing stronger growth in print media in relation to the
larger metro cities. Traditionally, the metro markets, which have high percentage of
English newspaper readership, have commanded a higher share of print advertising
on account of relatively higher per capita incomes and consumption levels. While
combined readership of English language newspapers in metros is much lower
compared to local language newspaper readership, English newspapers command a
significant advertising rate premium over non-metro newspapers. However, this
trend is changing and over the last few years the share of advertising in non-metro
based newspapers has increased, driven by rising incomes in non-metro locations.
While regional print markets are growing at a faster rate compared to the metro
markets, we prefer players with exposure to English print over regional print. English
print advertising in metro markets is recovering after going through a slowdown over
past 3 years. In addition, competitive intensity and entry barriers in metro markets
are high compared to regional markets owing to low cover prices, higher page count
and concentration of top 1-1 players. Regional markets, on the other hand, are seeing
increasing competitive intensity, with entry strategies driven by cut in cover prices
and high circulation, forcing incumbents to follow suit.
We initiate coverage on 3 print media stocks: stocks 1) HTML: Initiate with
Overweight, with a Sep-11 PT of Rs235 based on 20x Sep12E P/E 2) DBCL: Initiate
with Overweight with a PT of Rs290 based on 18x Sep12E P/E and 3) JAGP: Initiate
with Neutral with a PT of Rs140 based on 18x Sep12E P/E.
HTML is our top pick given our preference for metro markets. We estimate that
HTML derives ~85% of its EBITDA from its flagship English language paper HT
Delhi. Print advertising in Delhi is seeing strong revival in growth after a 3-year
period of low growth. Incremental profitability from the Delhi market is likely to
more than mitigate the margin pressures that HTML faces in its Hindi markets on
account of rising competitive intensity. We see further tailwind for HTML as HT
Mumbai and its business newspaper ‘Mint’ are on the cusp of a turnaround.
In the regional space, we prefer DBCL, which has its revenues and profits evenly
spread out across multiple markets and its low cover price strategy makes its margins
less amendable to competitive pressures. While we like JAGP’s positioning in the
Hindi markets, driven by its strong foothold in UP (largest market for Hindi
advertising), we see risk to its margins from impending competition, especially in
context of its high cover price strategy.
New Initiations
We initiate coverage on HT Media Ltd., D.B.Corp Ltd. and Jagran Prakashan Ltd.
1. HT Media Ltd. We initiate coverage on HT Media (HTML) with an
Overweight rating and Sep-11 price target of Rs235 based on 20x Sep-12E P/E.
HTML offers exposure to a fast growing diversified Indian media pool,
encompassing English and Hindi print media, radio, event management and
digital media. HTML is benefiting from its large exposure to English
advertising, which is reviving following a 3-year slowdown and cushions the
margin pressure being faced in the Hindi markets on account of rising
competitive intensity.
2. D.B.Corp Ltd. We initiate coverage on D.B. Corp (DBCL) with an Overweight
rating and Sep-11 price target of Rs290 based on 18x Sep-12E P/E. DB Corp is
our preferred local language play, with strong presence across 12 states across
North, West and Central India in Hindi and Gujarati languages. Print media
advertising in tier II markets is growing faster than the national average driven
by strong growth in income and consumption levels, driving increasing focus of
national advertisers on these markets.
3. Jagran Prakashan Ltd. We initiate coverage on Jagran Prakashan (JAGP) with
a Neutral rating and Sep-11 price target of Rs140 based on 18x Sep-12E P/E.
While we like Jagran Prakashan’s dominant Hindi print positioning in faster
growing tier II markets, we believe that in the near term, its margins are exposed
to rising competitive intensity, driving reduction in cover prices and forcing
JAGP to print more copies to increase circulation. We believe that current
valuations at 17.1x FY12E P/E do not leave much room for a meaningful upside
in context of the impending margin pressures and a below-par 3-year EPS
CAGR of 14.8%. We would advise investors consider buying the stock closer to
Rs100-Rs110 levels.
Valuations and Stock Performance
Indian print media stocks have underperformed the Sensex by 0.1%-9.9% YTD
FY11. While the pick up in economic growth has driven strong advertising growth
for print media players, rising competitive intensity in the local language markets and
high newsprint prices have remained the key overhang on stock performance.
However, we see selective value following the recent correction in stock prices.
HTML is trading at 14.4x FY12E P/E, at a 28% discount to its historic average
trading multiple, while DBCL and JAGP are trading at 8% and 5% discount to
historic averages.
Indian Print Stocks Trading at Premium to Global Peers
Indian print media stocks are trading at 44% premium to Asian peer group and 43%
premium on FY12E P/Es to global peer group respectively. We believe that this
premium is justified given the relatively faster earnings growth for Indian print media
stocks compared to global peers. In addition, Indian market is still under-penetrated
and offers tremendous growth potential for print media, in contrast to most
developed world markets, where print is de-growing.
Key Risks to Our Thesis
Rising competitive intensity in Hindi newspaper markets
Hindi print markets are facing rising competitive intensity. DBCL has recently
launched its Hindi newspaper in Jharkhand and is looking to enter Bihar in FY12E.
JAGP is looking at expanding its footprint in UP, while Rajasthan Patrika has
launched in MP markets. This has forced a reduction in cover prices and has put
margins for incumbents under pressure. We believe that if competitive intensity were
to increase, it could have an adverse impact on our earnings estimates for Indian
publishing players.
Increase in newsprint costs
Newsprint costs account for 35%-70%% of total costs for publishers under our
coverage. We estimate that every 1% increase in newsprint cost in FY12E has an
adverse impact of 1%-2%% on profits. We are currently assuming 3%-5%% increase
in newsprint prices in FY12E – any further increase will have an adverse impact on
our earnings estimates.
Slowdown in economic growth
Advertising revenue growth is linked to general economic activity and growth. Any
sharp slowdown in economic growth is likely to lead to a slowdown in advertising
market and have an adverse impact on profit growth.
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