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HT Media Limited BUY
A ‘fine’ print
HT Media, a leading print media conglomerate, boasts of a
strong product portfolio catering to the lucrative English and
Hindi print markets. Well-entrenched leadership of its flagship
dailies, Hindustan Times in English and Hindustan in Hindi in
their respective legacy markets would enable it to capitalise on
ad-spend strength. In the new markets, namely Hindustan
Times in Mumbai and Hindustan in Uttar Pradesh we expect,
its ad-revenues to surge, as its readership market share is
nearing inflection. Having made peak investments in these
markets, a strong operating leverage would come into play,
leading to 34% earnings CAGR over FY11-13ii.
English - Mumbai at inflection point, while Delhi reaps
tailwinds: On the strength of a continued recovery in English print
media ad spends, we expect ~10% growth in FY12. HT Mumbai’s
readership has risen 18% since the paper’s re-launch in July 2009,
and it is now the second-most-popular daily in Mumbai. HT is now
better-placed to tap the lucrative Mumbai market, with strong adspend
growth in Delhi and funding needs in the Hindi markets being
met by proceeds of the recent IPO. At margin, competition has also
reduced. As HT’s readership has already reached 40% of that of the
leader, Times of India, further gains in readership would lead to
disproportionate gains in advertising revenues in Mumbai.
Hindi - strong growth ahead: Regional print media remain on a
stronger footing, driven by consumption growth in Tier II and Tier III
cities and the large contribution of local advertisements. Hindustan,
with its well-entrenched leadership in Bihar and Jharkhand, is wellplaced
to benefit from the same. The daily is making rapid progress in
UP and has seen a 47% increase in readership over the past 18
months. Sustenance of trend in readership could result in a
disproportionate increase in ad revenues from UP.
Attractive valuations, robust earnings growth; BUY: We
forecast HT’s ad revenue stream to report 12% CAGR over FY11-
13ii. As operating leverage comes into play in the new markets,
margins are set to improve, translating into a 24% EPS CAGR
Successful ramp-ups in the two key markets of Mumbai and UP could
drive substantial earnings growth beyond FY12. The stock is
attractive at 14.1x FY12ii P/E, in our view. We reiterate BUY.
English: Inflection ahead in Mumbai; Delhi
riding on tailwinds
Hindustan Times (HT), HT Media’s flagship daily, enjoys an average
issue readership (AIR) of 3.5m, making it the second-largest English
daily in India. It has six editions selling in nine Indian cities. The
company, which has enjoyed a strong franchise in Delhi for several
years, launched its Mumbai edition in 2005, and has till date
garnered a readership of ~0.6m. HT, which accounts for ~60% of HT
Media’s consolidated revenues, is primarily dependent on the Delhi
market. As per the most recent Indian Readership Survey (IRS), it
has gained number 2 position in Delhi, dislodging DNA. Its large
readership base in Delhi gives it a formidable competitive advantage
that is difficult to replicate and also enables it to cross–sell
advertising space for its Mumbai edition.
Delhi: strong readership base; market to remain a duopoly
HT is the second most-read daily newspaper in Delhi NCR. The fight
for leadership in the Delhi market has been close—readership of the
leading daily, The Times of India, is just ~0.1% ahead of that of HT.
The market is essentially a duopoly, with leadership remaining with
either of these dailies. Presence of two strong incumbents, coupled
with huge initial cash-burn for launch, would prevent any new
launches, and the market is likely to remain a duopoly.
Delhi business expected to grow at low double-digit rates
Delhi’s English print market size is estimated at Rs13bn (as of FY10),
growing at ~10% annually. The company has initiated efforts to
separately monetise its readership in the NCR region, which now
accounts for 12% of total readership in the Delhi NCR market. Over
the medium term, these efforts are likely to give a fillip to adrevenue
growth in the market. However, HT, with ~50% revenue
market share, is expected to grow in-line with the market in the near
term. We expect the competitive landscape to remain stable, so
revenue growth will further improve the profitability of the franchise.
Mumbai: highly competitive; HT gained number 2 position
HT Media launched the Mumbai edition of HT in July 2005. Mumbai is
the largest English print media market in India, with an estimated
size of ~Rs14bn per annum. This market has always been ToI’s
stronghold. The other main competitor to HT in this market is DNA, a
joint venture between DB Corp and Subhash Chandra’s Essel Group.
In the Mumbai market, broadsheets also compete with two key
tabloids, Mumbai Mirror and Mid-Day, for local advertisements.
Additionally, Mumbai has a large proportion of English business news
readers. As per the most recent IRS, the company has already
overtaken DNA and has attained number two position.
Is Mumbai at an inflection point?
Since the launch of HT in Mumbai, the paper has remained in an
incubation phase. Of late, the company has had some success in
building a readership base in Mumbai, but its market share by
revenue remains low. We believe the company is set to see a surge
in its ad revenues in Mumbai in the next couple of years, driven by
the following two factors
• Best-placed to focus on building Mumbai property: HT’s
launch in Mumbai coincided with that of DNA. To ward off
competition from these two papers, TOI launched the tabloid
Mumbai Mirror and distributed it free with the broadsheet ToI,
making the Mumbai market very competitive. At the same time,
HT Media was building its Hindi business in Uttar Pradesh, and
this made it difficult to put in large upfront investments in both
the markets. This period also coincided with a sharp rise in prices
of newsprint, followed by a sharp drop in ad spend for two years
(2008 and 2009). This confluence of adverse factors compelled
HT to put all expansion plans on the backburner.
Now, HT is much better-placed to focus on building Mumbai
property, as: 1) post IPO of the Hindi business, it is well-placed
to meet its funding requirements; 2) losses in Mumbai can be
easily absorbed, as the Delhi business enjoys continued strong
momentum in ad spend; 3) competitive intensity is easing.
• Competition is reducing at margin: Meanwhile, readership of
DNA, the third player, is declining. It has incurred significant
losses since its launch and its ability to increase circulation is
limited. Unlike HT and ToI, DNA is not a national newspaper,
which further limits its ability to make investments.
Investments starting to pay off
HT Mumbai was re-launched in July 2009 and its readership has
grown 18% since then. In the previous readership survey it
surpassed DNA in terms of readership though the lead is marginal at
present.
Mumbai - a large opportunity, if traction continues
HT’s readership in Mumbai is already more than a third of that of
ToI. HT has continued to aggressively push circulation, and results of
this will be visible in the forthcoming readership surveys. With its
readership at ~40% of that of the market leader, HT has already
attained critical mass, in our view. Its revenues, on the other hand,
are less than 10% of those of ToI despite ~40% of TOI’s readership.
In our view, monetisation of readership will improve significantly if
HT can take its readership to 50–60% of TOI’s readership. As it
happens, revenues of HT’s Mumbai edition have been growing at
over 30% YoY in recent quarters. The growth in HT’s readership is
likely to continue as push in circulation over the past year translates
into readership in forthcoming readership surveys.
Peak investments done; Mumbai set to breakeven in FY12-13
HT’s Mumbai circulation has increased from 280,000 copies a year
ago to 365,000 currently, and the company aims to increase it to
400,000 copies in the next six months. This will take its circulation to
75% of that of the leader. An increase in circulation from thereon is
unlikely, and the company would wait for readership per copy (RPC)
to increase to ~2-2.25x (1.6x at present) before further increasing
the print order. Annual revenues of HT’s Mumbai edition are
estimated at Rs1bn and growing at 25% annually. Growth in
revenues will more than offset the expected increase in cost on
higher circulation. In this scenario, the Mumbai edition may well
breakeven in FY12-13, as per management’s projection.
Expansion in other markets unlikely in the near term
HT has no meaningful presence in the other large English daily
markets—Kolkata, Chennai and Bangalore. We believe it might
eventually expand in these markets, especially Chennai (Tamil
Nadu). However, we do not expect any such expansion initiatives in
the near term, given: 1) presence of a strong incumbent in each of
these markets; 2) higher start-up costs involved in starting an
English edition; and 3) management’s current focus on gaining
market share in Mumbai. This, along with the fact that the English
print market is likely to remain confined to the top 20 cities in the
medium term, shows that HT has few avenues left for expansion in
the English print-media business.
Hindi: Strong growth ahead
Hindustan the third-largest newspaper in India
HT Media enjoys a significant presence in the Hindi belt through its
Hindi daily, Hindustan. Hindustan is the leader by far in Bihar and
Jharkhand, and is a close second in Delhi/ NCR. Hindustan is also
present in the important UP market, where it made its entry in 2004
and subsequently ramped up presence in 2006. The Hindi-daily
business currently contributes 31% of HT Media’s overall ad
revenues, but is gradually assuming greater importance, thanks to
the overall buoyancy in the regional print-media space. Hindustan
will be the key driver for the company’s print business in the
foreseeable future.
Bihar, Jharkhand: HT’s papers lead in readership, by far
The Bihar and Jharkhand (BJH) markets together have an aggregate
readership of ~9.5m and an estimated print advertisement market of
Rs2.7bn (FY10 estimate). Hindustan is the most popular Hindi daily
in Bihar and Jharkhand, being read by ~65% and ~50% of readers,
respectively. In Bihar, Hindustan enjoys a lead of 78% over its
nearest competitor, Jagran. The smaller Jharkhand market remains
more competitive, with Hindustan more closely contested by Jagran
and a local newspaper, Prabhat Khabar. Jharkhand also witnessed
entry of new player, Dainik Bhaskar, in the recent past
Dainik Bhaskar enters Jharkhand; Bihar launch deferred
DB Corp completed its launch in the state of Jharkhand in December.
According to DB Corp’s management, its paper has been well
received in the market, though its numbers are yet to be reflected in
the readership survey. The company has deferred its entry in the
Bihar market by at least a year, which is positive for Hindustan.
Deferment of the Bihar launch will significantly dilute the impact of
the Jharkhand launch as national advertisers (accounting for ~50%
of total ad-spend in state) buy ad-space for both Bihar and
Jharkhand together. We do not expect DB’s expansion in Jharkhand
to have any material impact on the market till the time it is
complemented with a launch in Bihar.
No major threat from DB’s entry into Hindustan’s stronghold
DB has established a formidable record of success in new launches,
but we are not overly worried about its impact on Hindustan, for two
reasons. Firstly, print-media penetration in these markets is pretty
low, and has tremendous scope for growth. This, we believe, gives
ample scope to accommodate one more player in the market. DB’s
previous launches have resulted in expansion of the relevant
markets. Secondly, Hindustan enjoys a strong lead over its
competitors in both the markets. DB’s primary goal would be to gain
second position in the market, which in our view will have limited
impact on Hindustan’s revenues.
We see no major downside to subscription revenues from hereon, as
cover price in Jharkhand was cut just a few months ago. Cover
prices of Prabhat Khabar were also cut in a few cities in Bihar.
UP — a significant opportunity; time to reap benefits
UP is the largest Hindi print-media market, with a readership that is
more than 50% larger than that of any other Hindi market. The
combined UP and Uttarakhand ad revenue market is estimated at
Rs7bn. Hindustan had a minor presence in the important UP market
for a long time, but the company enhanced its presence with three
new editions in 2006. Jagran Prakashan has traditionally been the
most popular daily in this market, and enjoys a comfortable lead,
with its readership at ~1.5x and ~3x as much as those of its closest
competitors, Amar Ujala and Hindustan, respectively. Management’s
first priority after the IPO would be to use the proceeds to ramp up
circulation and readership in UP.
Hindustan at an inflection point in UP; ad revenues could
surprise positively
Hindustan’s presence in UP presents an immense opportunity, not
only in terms of the number of readers, but also ad rates. Here, the
company’s first target would be to displace the No. 2 player in the
market, Amar Ujala. The recently-concluded IPO of the Hindi
business will lend ammunition to increase circulation as well as
readership in the UP market. Success on this front, we believe,
would lead to a substantial improvement in Hindustan’s ad rates,
which at present are about a fifth of Jagran’s in this market.
Figure120: HindustanneedstoscaleupmanifoldtodisplaceJagraninUP
Hindustan Jagran Rampuptobeachieved
Readership(‘000readers) 3,411 9,531 2.7x
Yields 0.2x x 5x
Source:Company,IIFLResearch
UP the focus—becoming No. 2 is the first priority
As we highlighted earlier, Hindustan’s climb in UP remains a steep
one. The company has invested over Rs1bn in the UP market over
the past six years. It continues to increase its circulation, which has
increased from less than 600,000 to ~1m over the past 18 months.
This is aptly reflected in its readership, which grew by ~60% in the
same period. The full impact of the circulation push in the past six
months will be evident in forthcoming readership surveys. We reckon
the company’s immediate target for Hindustan in UP would be to
displace Amar Ujala as the second-most-read daily in the state. We
expect Hindustan’s improved readership momentum in UP to sustain,
which we believe will strengthen investors’ conviction on Hindustan’s
potential in the Hindi market.
Opportunity in Hindi remains significant: several markets
untouched
Among the major Hindi dailies, Hindustan has the greatest potential
for expansion in terms of untapped markets. The company’s top
priority will be to ramp-up in Uttar Pradesh, while at the same time
defend its traditional strongholds. In addition, there are several large
markets—Madhya Pradesh, Rajasthan, Punjab and Haryana—where
Hindustan has no presence and might look to enter over a period of
time. Successful execution in these markets could enable Hindustan
to graduate to the next level of growth and achieve scale comparable
to that of DB Corp or Jagran.
Attractive valuations, robust earnings
growth
Multiple drivers for earnings growth
Hindi ad revenues to benefit from continued buoyancy;
improved traction in UP
Hindustan’s ad revenue stream has grown at ~37% annually over
FY08-10, benefitting from the regional focus of national advertisers
and Hindustan’s strong franchise in the important Bihar and
Jharkhand markets. We expect ad spends in regional markets to
remain buoyant, driven by further localisation of advertisements.
Hindustan’s improving traction in the important UP market is also
likely to sustain. Further market share gains in this market in the
coming quarters could result in a disproportionate increase in ad
revenues from this market. This lends a possible upside to our ad
revenue CAGR assumptions of 15% over FY10-13ii for Hindustan
Improving ad spends in English print; market share gain in
Mumbai to drive HT’s ad revenues
Ad spends in English print media have seen an uptick in ad volumes
after a sharp decline during the financial crisis of 2008. HT, by virtue
of its leadership position in the Delhi market, is well-poised to benefit
from this uptick. Moreover, its Mumbai edition has seen improved
traction following a re-launch in Mumbai. Further improvement in
readership in this market will accelerate growth in the Mumbai
business, creating potential upsides to our CAGR assumption of 15%
over FY10-13ii in HT’s ad revenues.
Hindustan’s margins inferior to other Hindi print majors;
significant room for upside
A successful ramp-up in UP would not only translate into a re-rating
in Hindustan’s ad revenues, but also act as a trigger for Hindustan to
achieve scale similar to that of DB Corp or Dainik Jagran. This is
likely to translate into a significant improvement in Hindustan’s
EBITDA margin, which at the present level of ~20% is around
800bps lower than those of leaders in the Hindi print space.
Valuations attractive—BUY
We expect HT’s earnings to register a CAGR of 34% over FY11-13ii.
A faster-than-expected ramp-up in readership in UP and Mumbai
would result in substantial earnings growth beyond FY12, and also
offer upside to our earnings estimates. The stock is currently trading
at a PER of 18.6x and 14.1x on FY11ii and FY12ii, respectively. Given
the industry-leading growth outlook and earnings visibility beyond
two years, we expect multiples to re-rate in the quarters ahead. Our
target multiple of 18x on FY12ii EPS, which translates into a target
price of Rs171, is conservative, in our view. At the current market
price, the stock offers upside of 27%. We reiterate BUY.
Key issues
Competition resorting to excessively aggressive price
competition: Competition in the Hindi print media space is likely to
escalate, as incumbent players expand beyond their core markets.
The first casualty of this increasing competition would be cover
prices, with steep cuts hitting subscription revenues. In a bid to
retain their share of readership, incumbents may increase print
orders, which would mean higher costs. If a new entrant manages to
raise its readership close to that of the leader in its respective
market, it could put pressure on advertising rates in that market. On
the other hand, we think steep cuts in advertising rates are unlikely
in the medium term.
Widening losses in the portal business: HT Media’s portal
business registered EBITDA-level losses of Rs350m in FY10. The
company plans to expand its job-search portal platform to other
verticals. Expansion along these lines would make it difficult for the
management to contain the portal business’s losses at
management’s guidance of FY10 levels.
Newsprint mix improving, but expect marginal uptick in
newsprint costs
Newsprint cost remains a key margin lever for HT Media, as for all
other publishing companies. We estimate that a US$50/tonne
increase in blended newsprint costs will adversely affect HT Media’s
FY11 EPS by ~10%. Newsprint prices have cooled significantly from
their highs in FY09, and this has been an important driver for
margins improving by 1,200bps over FY09-10. Margins have also
been aided by an increase in proportion of domestically produced
newsprint, which costs about US$100 less per tonne than imported
newsprint. Going forward, we expect a marginal uptick in HT Media’s
newsprint cost, but the adverse impact of this would be largely offset
by robust revenue growth. We forecast HT Media’s consolidated
margins will expand by ~170bps over FY10-12ii.
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HT Media Limited BUY
A ‘fine’ print
HT Media, a leading print media conglomerate, boasts of a
strong product portfolio catering to the lucrative English and
Hindi print markets. Well-entrenched leadership of its flagship
dailies, Hindustan Times in English and Hindustan in Hindi in
their respective legacy markets would enable it to capitalise on
ad-spend strength. In the new markets, namely Hindustan
Times in Mumbai and Hindustan in Uttar Pradesh we expect,
its ad-revenues to surge, as its readership market share is
nearing inflection. Having made peak investments in these
markets, a strong operating leverage would come into play,
leading to 34% earnings CAGR over FY11-13ii.
English - Mumbai at inflection point, while Delhi reaps
tailwinds: On the strength of a continued recovery in English print
media ad spends, we expect ~10% growth in FY12. HT Mumbai’s
readership has risen 18% since the paper’s re-launch in July 2009,
and it is now the second-most-popular daily in Mumbai. HT is now
better-placed to tap the lucrative Mumbai market, with strong adspend
growth in Delhi and funding needs in the Hindi markets being
met by proceeds of the recent IPO. At margin, competition has also
reduced. As HT’s readership has already reached 40% of that of the
leader, Times of India, further gains in readership would lead to
disproportionate gains in advertising revenues in Mumbai.
Hindi - strong growth ahead: Regional print media remain on a
stronger footing, driven by consumption growth in Tier II and Tier III
cities and the large contribution of local advertisements. Hindustan,
with its well-entrenched leadership in Bihar and Jharkhand, is wellplaced
to benefit from the same. The daily is making rapid progress in
UP and has seen a 47% increase in readership over the past 18
months. Sustenance of trend in readership could result in a
disproportionate increase in ad revenues from UP.
Attractive valuations, robust earnings growth; BUY: We
forecast HT’s ad revenue stream to report 12% CAGR over FY11-
13ii. As operating leverage comes into play in the new markets,
margins are set to improve, translating into a 24% EPS CAGR
Successful ramp-ups in the two key markets of Mumbai and UP could
drive substantial earnings growth beyond FY12. The stock is
attractive at 14.1x FY12ii P/E, in our view. We reiterate BUY.
English: Inflection ahead in Mumbai; Delhi
riding on tailwinds
Hindustan Times (HT), HT Media’s flagship daily, enjoys an average
issue readership (AIR) of 3.5m, making it the second-largest English
daily in India. It has six editions selling in nine Indian cities. The
company, which has enjoyed a strong franchise in Delhi for several
years, launched its Mumbai edition in 2005, and has till date
garnered a readership of ~0.6m. HT, which accounts for ~60% of HT
Media’s consolidated revenues, is primarily dependent on the Delhi
market. As per the most recent Indian Readership Survey (IRS), it
has gained number 2 position in Delhi, dislodging DNA. Its large
readership base in Delhi gives it a formidable competitive advantage
that is difficult to replicate and also enables it to cross–sell
advertising space for its Mumbai edition.
Delhi: strong readership base; market to remain a duopoly
HT is the second most-read daily newspaper in Delhi NCR. The fight
for leadership in the Delhi market has been close—readership of the
leading daily, The Times of India, is just ~0.1% ahead of that of HT.
The market is essentially a duopoly, with leadership remaining with
either of these dailies. Presence of two strong incumbents, coupled
with huge initial cash-burn for launch, would prevent any new
launches, and the market is likely to remain a duopoly.
Delhi business expected to grow at low double-digit rates
Delhi’s English print market size is estimated at Rs13bn (as of FY10),
growing at ~10% annually. The company has initiated efforts to
separately monetise its readership in the NCR region, which now
accounts for 12% of total readership in the Delhi NCR market. Over
the medium term, these efforts are likely to give a fillip to adrevenue
growth in the market. However, HT, with ~50% revenue
market share, is expected to grow in-line with the market in the near
term. We expect the competitive landscape to remain stable, so
revenue growth will further improve the profitability of the franchise.
Mumbai: highly competitive; HT gained number 2 position
HT Media launched the Mumbai edition of HT in July 2005. Mumbai is
the largest English print media market in India, with an estimated
size of ~Rs14bn per annum. This market has always been ToI’s
stronghold. The other main competitor to HT in this market is DNA, a
joint venture between DB Corp and Subhash Chandra’s Essel Group.
In the Mumbai market, broadsheets also compete with two key
tabloids, Mumbai Mirror and Mid-Day, for local advertisements.
Additionally, Mumbai has a large proportion of English business news
readers. As per the most recent IRS, the company has already
overtaken DNA and has attained number two position.
Is Mumbai at an inflection point?
Since the launch of HT in Mumbai, the paper has remained in an
incubation phase. Of late, the company has had some success in
building a readership base in Mumbai, but its market share by
revenue remains low. We believe the company is set to see a surge
in its ad revenues in Mumbai in the next couple of years, driven by
the following two factors
• Best-placed to focus on building Mumbai property: HT’s
launch in Mumbai coincided with that of DNA. To ward off
competition from these two papers, TOI launched the tabloid
Mumbai Mirror and distributed it free with the broadsheet ToI,
making the Mumbai market very competitive. At the same time,
HT Media was building its Hindi business in Uttar Pradesh, and
this made it difficult to put in large upfront investments in both
the markets. This period also coincided with a sharp rise in prices
of newsprint, followed by a sharp drop in ad spend for two years
(2008 and 2009). This confluence of adverse factors compelled
HT to put all expansion plans on the backburner.
Now, HT is much better-placed to focus on building Mumbai
property, as: 1) post IPO of the Hindi business, it is well-placed
to meet its funding requirements; 2) losses in Mumbai can be
easily absorbed, as the Delhi business enjoys continued strong
momentum in ad spend; 3) competitive intensity is easing.
• Competition is reducing at margin: Meanwhile, readership of
DNA, the third player, is declining. It has incurred significant
losses since its launch and its ability to increase circulation is
limited. Unlike HT and ToI, DNA is not a national newspaper,
which further limits its ability to make investments.
Investments starting to pay off
HT Mumbai was re-launched in July 2009 and its readership has
grown 18% since then. In the previous readership survey it
surpassed DNA in terms of readership though the lead is marginal at
present.
Mumbai - a large opportunity, if traction continues
HT’s readership in Mumbai is already more than a third of that of
ToI. HT has continued to aggressively push circulation, and results of
this will be visible in the forthcoming readership surveys. With its
readership at ~40% of that of the market leader, HT has already
attained critical mass, in our view. Its revenues, on the other hand,
are less than 10% of those of ToI despite ~40% of TOI’s readership.
In our view, monetisation of readership will improve significantly if
HT can take its readership to 50–60% of TOI’s readership. As it
happens, revenues of HT’s Mumbai edition have been growing at
over 30% YoY in recent quarters. The growth in HT’s readership is
likely to continue as push in circulation over the past year translates
into readership in forthcoming readership surveys.
Peak investments done; Mumbai set to breakeven in FY12-13
HT’s Mumbai circulation has increased from 280,000 copies a year
ago to 365,000 currently, and the company aims to increase it to
400,000 copies in the next six months. This will take its circulation to
75% of that of the leader. An increase in circulation from thereon is
unlikely, and the company would wait for readership per copy (RPC)
to increase to ~2-2.25x (1.6x at present) before further increasing
the print order. Annual revenues of HT’s Mumbai edition are
estimated at Rs1bn and growing at 25% annually. Growth in
revenues will more than offset the expected increase in cost on
higher circulation. In this scenario, the Mumbai edition may well
breakeven in FY12-13, as per management’s projection.
Expansion in other markets unlikely in the near term
HT has no meaningful presence in the other large English daily
markets—Kolkata, Chennai and Bangalore. We believe it might
eventually expand in these markets, especially Chennai (Tamil
Nadu). However, we do not expect any such expansion initiatives in
the near term, given: 1) presence of a strong incumbent in each of
these markets; 2) higher start-up costs involved in starting an
English edition; and 3) management’s current focus on gaining
market share in Mumbai. This, along with the fact that the English
print market is likely to remain confined to the top 20 cities in the
medium term, shows that HT has few avenues left for expansion in
the English print-media business.
Hindi: Strong growth ahead
Hindustan the third-largest newspaper in India
HT Media enjoys a significant presence in the Hindi belt through its
Hindi daily, Hindustan. Hindustan is the leader by far in Bihar and
Jharkhand, and is a close second in Delhi/ NCR. Hindustan is also
present in the important UP market, where it made its entry in 2004
and subsequently ramped up presence in 2006. The Hindi-daily
business currently contributes 31% of HT Media’s overall ad
revenues, but is gradually assuming greater importance, thanks to
the overall buoyancy in the regional print-media space. Hindustan
will be the key driver for the company’s print business in the
foreseeable future.
Bihar, Jharkhand: HT’s papers lead in readership, by far
The Bihar and Jharkhand (BJH) markets together have an aggregate
readership of ~9.5m and an estimated print advertisement market of
Rs2.7bn (FY10 estimate). Hindustan is the most popular Hindi daily
in Bihar and Jharkhand, being read by ~65% and ~50% of readers,
respectively. In Bihar, Hindustan enjoys a lead of 78% over its
nearest competitor, Jagran. The smaller Jharkhand market remains
more competitive, with Hindustan more closely contested by Jagran
and a local newspaper, Prabhat Khabar. Jharkhand also witnessed
entry of new player, Dainik Bhaskar, in the recent past
Dainik Bhaskar enters Jharkhand; Bihar launch deferred
DB Corp completed its launch in the state of Jharkhand in December.
According to DB Corp’s management, its paper has been well
received in the market, though its numbers are yet to be reflected in
the readership survey. The company has deferred its entry in the
Bihar market by at least a year, which is positive for Hindustan.
Deferment of the Bihar launch will significantly dilute the impact of
the Jharkhand launch as national advertisers (accounting for ~50%
of total ad-spend in state) buy ad-space for both Bihar and
Jharkhand together. We do not expect DB’s expansion in Jharkhand
to have any material impact on the market till the time it is
complemented with a launch in Bihar.
No major threat from DB’s entry into Hindustan’s stronghold
DB has established a formidable record of success in new launches,
but we are not overly worried about its impact on Hindustan, for two
reasons. Firstly, print-media penetration in these markets is pretty
low, and has tremendous scope for growth. This, we believe, gives
ample scope to accommodate one more player in the market. DB’s
previous launches have resulted in expansion of the relevant
markets. Secondly, Hindustan enjoys a strong lead over its
competitors in both the markets. DB’s primary goal would be to gain
second position in the market, which in our view will have limited
impact on Hindustan’s revenues.
We see no major downside to subscription revenues from hereon, as
cover price in Jharkhand was cut just a few months ago. Cover
prices of Prabhat Khabar were also cut in a few cities in Bihar.
UP — a significant opportunity; time to reap benefits
UP is the largest Hindi print-media market, with a readership that is
more than 50% larger than that of any other Hindi market. The
combined UP and Uttarakhand ad revenue market is estimated at
Rs7bn. Hindustan had a minor presence in the important UP market
for a long time, but the company enhanced its presence with three
new editions in 2006. Jagran Prakashan has traditionally been the
most popular daily in this market, and enjoys a comfortable lead,
with its readership at ~1.5x and ~3x as much as those of its closest
competitors, Amar Ujala and Hindustan, respectively. Management’s
first priority after the IPO would be to use the proceeds to ramp up
circulation and readership in UP.
Hindustan at an inflection point in UP; ad revenues could
surprise positively
Hindustan’s presence in UP presents an immense opportunity, not
only in terms of the number of readers, but also ad rates. Here, the
company’s first target would be to displace the No. 2 player in the
market, Amar Ujala. The recently-concluded IPO of the Hindi
business will lend ammunition to increase circulation as well as
readership in the UP market. Success on this front, we believe,
would lead to a substantial improvement in Hindustan’s ad rates,
which at present are about a fifth of Jagran’s in this market.
Figure120: HindustanneedstoscaleupmanifoldtodisplaceJagraninUP
Hindustan Jagran Rampuptobeachieved
Readership(‘000readers) 3,411 9,531 2.7x
Yields 0.2x x 5x
Source:Company,IIFLResearch
UP the focus—becoming No. 2 is the first priority
As we highlighted earlier, Hindustan’s climb in UP remains a steep
one. The company has invested over Rs1bn in the UP market over
the past six years. It continues to increase its circulation, which has
increased from less than 600,000 to ~1m over the past 18 months.
This is aptly reflected in its readership, which grew by ~60% in the
same period. The full impact of the circulation push in the past six
months will be evident in forthcoming readership surveys. We reckon
the company’s immediate target for Hindustan in UP would be to
displace Amar Ujala as the second-most-read daily in the state. We
expect Hindustan’s improved readership momentum in UP to sustain,
which we believe will strengthen investors’ conviction on Hindustan’s
potential in the Hindi market.
Opportunity in Hindi remains significant: several markets
untouched
Among the major Hindi dailies, Hindustan has the greatest potential
for expansion in terms of untapped markets. The company’s top
priority will be to ramp-up in Uttar Pradesh, while at the same time
defend its traditional strongholds. In addition, there are several large
markets—Madhya Pradesh, Rajasthan, Punjab and Haryana—where
Hindustan has no presence and might look to enter over a period of
time. Successful execution in these markets could enable Hindustan
to graduate to the next level of growth and achieve scale comparable
to that of DB Corp or Jagran.
Attractive valuations, robust earnings
growth
Multiple drivers for earnings growth
Hindi ad revenues to benefit from continued buoyancy;
improved traction in UP
Hindustan’s ad revenue stream has grown at ~37% annually over
FY08-10, benefitting from the regional focus of national advertisers
and Hindustan’s strong franchise in the important Bihar and
Jharkhand markets. We expect ad spends in regional markets to
remain buoyant, driven by further localisation of advertisements.
Hindustan’s improving traction in the important UP market is also
likely to sustain. Further market share gains in this market in the
coming quarters could result in a disproportionate increase in ad
revenues from this market. This lends a possible upside to our ad
revenue CAGR assumptions of 15% over FY10-13ii for Hindustan
Improving ad spends in English print; market share gain in
Mumbai to drive HT’s ad revenues
Ad spends in English print media have seen an uptick in ad volumes
after a sharp decline during the financial crisis of 2008. HT, by virtue
of its leadership position in the Delhi market, is well-poised to benefit
from this uptick. Moreover, its Mumbai edition has seen improved
traction following a re-launch in Mumbai. Further improvement in
readership in this market will accelerate growth in the Mumbai
business, creating potential upsides to our CAGR assumption of 15%
over FY10-13ii in HT’s ad revenues.
Hindustan’s margins inferior to other Hindi print majors;
significant room for upside
A successful ramp-up in UP would not only translate into a re-rating
in Hindustan’s ad revenues, but also act as a trigger for Hindustan to
achieve scale similar to that of DB Corp or Dainik Jagran. This is
likely to translate into a significant improvement in Hindustan’s
EBITDA margin, which at the present level of ~20% is around
800bps lower than those of leaders in the Hindi print space.
Valuations attractive—BUY
We expect HT’s earnings to register a CAGR of 34% over FY11-13ii.
A faster-than-expected ramp-up in readership in UP and Mumbai
would result in substantial earnings growth beyond FY12, and also
offer upside to our earnings estimates. The stock is currently trading
at a PER of 18.6x and 14.1x on FY11ii and FY12ii, respectively. Given
the industry-leading growth outlook and earnings visibility beyond
two years, we expect multiples to re-rate in the quarters ahead. Our
target multiple of 18x on FY12ii EPS, which translates into a target
price of Rs171, is conservative, in our view. At the current market
price, the stock offers upside of 27%. We reiterate BUY.
Key issues
Competition resorting to excessively aggressive price
competition: Competition in the Hindi print media space is likely to
escalate, as incumbent players expand beyond their core markets.
The first casualty of this increasing competition would be cover
prices, with steep cuts hitting subscription revenues. In a bid to
retain their share of readership, incumbents may increase print
orders, which would mean higher costs. If a new entrant manages to
raise its readership close to that of the leader in its respective
market, it could put pressure on advertising rates in that market. On
the other hand, we think steep cuts in advertising rates are unlikely
in the medium term.
Widening losses in the portal business: HT Media’s portal
business registered EBITDA-level losses of Rs350m in FY10. The
company plans to expand its job-search portal platform to other
verticals. Expansion along these lines would make it difficult for the
management to contain the portal business’s losses at
management’s guidance of FY10 levels.
Newsprint mix improving, but expect marginal uptick in
newsprint costs
other publishing companies. We estimate that a US$50/tonne
increase in blended newsprint costs will adversely affect HT Media’s
FY11 EPS by ~10%. Newsprint prices have cooled significantly from
their highs in FY09, and this has been an important driver for
margins improving by 1,200bps over FY09-10. Margins have also
been aided by an increase in proportion of domestically produced
newsprint, which costs about US$100 less per tonne than imported
newsprint. Going forward, we expect a marginal uptick in HT Media’s
newsprint cost, but the adverse impact of this would be largely offset
by robust revenue growth. We forecast HT Media’s consolidated
margins will expand by ~170bps over FY10-12ii.
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