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India print revenue to grow at an average 10% YoY in 2010-15F
India’s print media segment differs from its global peers because of its larger scale, the
greater relevance of regionalisation in India, and minimal competition from digital
(online) platforms. We expect India print media revenue to rise in the next five years,
led by favourable demographics, rising income and literacy levels, and increasing print
penetration. However, the contribution of print media to India’s advertising revenue fell
from 50% in 2005 to 47% in 2010, and will further decrease to 44% by 2014,
according to FICCI-KPMG estimates. Within the print space, FICCI-KPMG estimates
the Hindi print revenue CAGR to be 11% in 2011-15 versus 7% for English print.
Hindi print has a higher penetration in non-metropolitan urban markets, while English
print is more prevalent in metropolitan cities.
We prefer DB to Jagran in the regional print space; DB is our top pick
We believe DB Corp (DB) is the best exposure to India’s fast-growing regional
print media market, due to its well-diversified geographical reach, strong
management vision and superior execution track record. It is also our top pick in
the overall print media segment. We initiate coverage of DB and Jagran Prakashan
(Jagran) with Buy ratings and price targets of Rs310.00 and Rs145.00,
respectively.
We like HT Media for the improving outlook of its English print business
English print media, which contributes 74% of HT Media’s print advertising
revenue, was worse affected by the macro-economic slowdown than regional print
but has now started to recover. We expect strong revenue growth and margin
improvement to come from the monetisation of the National Capital Region edition
of the Hindustan Times and improving advertising yields on a turnaround at this
newspaper’s Mumbai edition and Mint. We initiate coverage of HT Media with a
Buy rating and Rs180.00 price target.
Summary and investment case
How does the India print sub-sector compare with its
global peers
Globally, print’s share of advertising spending has declined gradually from
35.0% in 1997 to 23.0% in 2010, while television’s share has increased
marginally from 37.9% in 1997 to 39.7% in 2010 and internet advertising’s
contribution has increased from 0.2% in 1997 to 15.3% in 2010. The trend has
been similar in India where the contribution of print media to advertising
revenue declined from 50.2% in 2005 to 47.4% in 2010 and KPMG-FICCI
expects it to further decline to 44.5% by 2014.
However, India’s print segment differs from its counterparts in developed
markets due to:
The relevance of regionalisation—India is a culturally diverse nation with a
large number of spoken languages. As the localisation and regionalisation of
content is easier in print media than other media forms, such as television,
we believe the print media sector could continue to grow in India, unlike
developed markets, as advertisers’ preference for consumers in smaller
towns is increasing.
Higher scale in terms of number of copies circulated—Large print media
companies in India have a daily circulation of around 3-4m with minimal
competition from the internet, while the New York Times print edition has a
daily circulation of less than 1m and the Wall Street Journal a daily
circulation of around 2m. This gap could further expand as print media
penetration in Tier 2 and Tier 3 cities is likely to increase. As the cost of
generating content is fixed, having a higher circulation helps as the cost
reduces on a per newspaper copy basis.
Minimal competition from online media platforms given low internet
penetration—The consumption of news on the internet has picked up in
developed countries, which has led to a decline in print media readership.
While internet could be a threat to Indian newspapers in the long term, it
could also be very profitable for some print media companies if they adopt
the appropriate internet strategy (such as charging customers to view online
content, by means of a paywall, early, such as in Japan). The newspaper
industry has experienced significant consolidation in some of the developed
markets. For example, more people read the New York Times today than in
pre-internet times, and a large number of small newspapers have disappeared
(except for those with truly local content). In other words, if the internet
strategy is managed appropriately, it could be beneficial for the larger
companies at the expense of smaller newspapers.
India print revenue to grow
According to the Federation of Indian Chambers of Commerce and Industry
(FICCI)-KPMG Indian Media and Entertainment Industry 2011 report, the print
media industry in India is likely expand at a 9.9% CAGR in 2010-15, led by an
average 13.4% growth in print advertising revenue due to strong economic
growth, an increase in print media penetration and improving literacy levels.
The newspaper industry is extremely fragmented in India as there are 77,600
newspapers, of which around 8% are in English and the remainder in Hindi and
other regional languages. Regional newspapers have a much higher readership
share than English newspapers; however, English newspapers contribute around
45% of total print advertising revenue.
English print market in India in a recovery mode…
The English print advertising market had been growing quickly before the macroeconomic
downturn. The contribution from Delhi to India’s print advertising
revenue increased from 11.1% in 2007 to 15.7% in 2009. It was badly hit by the
macro economic weakness as both advertising rates and volumes came under
pressure. The English print market has now started to recover.
However, advertising spends to grow faster in non metros
According to an Ernst & Young report: The new market shehers (cities),
published in May 2010, non-metropolitan cities account for 73% of India’s
urban consumption and there is an increasing shift in advertising spending
towards non-metro urban markets. India’s six largest cities constitute 40-45% of
India’s total advertising spending.
English print media continues to command premium advertising rates, as
compared to that in Hindi or regional languages, as most English newspapers are
largely circulated in metropolitan cities (metros) where per capita income is
higher than elsewhere. Hindi daily newspapers have a higher penetration than
English dailies in non metropolitan markets, but we expect this premium to
decline as advertisers’ preference for consumers in Tier 2 and Tier 3 cities has
been picking up due to the increasing affluence of consumers in these cities.
Table 1: Print media penetration in 2009
Metros Key urban towns Rest of urban India Rural
Any Hindi daily 17.5% 27.6% 23.5% 12.1%
Any English daily 24.1% 8.8% 5.3% 0.8%
Source: Ernst & Young report
Print media companies in India have traded at an average 17-18x one year
forward PE in the past two years. Within the India print media space, we believe
the valuation gap between regional print and English should narrow as Hindi
newspapers are likely to grow faster than English newspapers in the medium
term. Also, the adoption of digital media (news consumption online) is likely to
have an impact on readership in metros before the small towns.
Competition intensifying in Hindi, stable in English print
There has been no increase in competition among English newspapers in Delhi
and Mumbai in the last two years. However, competition in the Hindi print
market has become more intense, as large companies such as DB Corp expand
into new markets. Competition increased in Jharkhand with DB Corp’s launch in
August 2010 as Prabhat Khabar, the second-largest print operator in Jharkhand,
reduced its prices from Rs4 per copy to Rs2. Both Jagran and HT Media reacted
to Prabhat Khabar’s price reduction. Unlike Jharkhand, Prabhat Khabar does not
have meaningful market share in Bihar and both Jagran and HT Media have
indicated they do not intend to cut cover prices in Bihar (Rs4 at present in Bihar).
Print trading at a discount to TV—valuation gap justified
Table 2: Newspapers versus broadcasters in India
Newspapers Broadcasters
Competition High, 62,000 newspapers registered; most
states have 3-4 large companies
High, more than 500 television channels
broadcast; 5-6 large broadcaster groups
Near-term profitability Higher; regional newspapers generate
stronger ROE
Lower (except for Sun TV, due to its strong
dominant position in the South)
Long-term growth Lower as advertising spending could shift
from newspapers to other media forms
Regional print to grow faster than English
in the near-to-medium term
Higher, contribution of television to ad
spends should remain stable
Play on subscription revenue growth
Valuation Trading at a discount to broadcasters Trading at a premium to newspapers
Source: UBS estimates
The large print companies in India generate strong EBITDA margins, report
higher ROE as compared to most large broadcasters (except Sun TV) and record
strong free cash flow. However, in the long term (say 10-15 years from now),
advertising revenue growth for print media could to come under pressure
(similar to developed markets) as news consumption on the internet could
increase in the metros. We therefore believe print media should trade at a
discount to broadcasters.
Stock recommendations
We initiate coverage on India’s print media sub-sector with a positive view and
Buy ratings on DB Corp, Jagran Prakashan and HT Media.
DB Corp: We have a Buy rating on DB Corp and price target of Rs310.00.
We base our valuation on 18.0x FY13E PE, in line with the stock’s average
one year forward PE since its listing in January 2010. DB Corp is the largest
print media company in India in terms of the total average daily readership of
its newspapers. We believe DB Corp is the best exposure to India’s fastgrowing
regional print media market. We like the company for its well
diversified geographical reach, strong management vision and superior
execution track record, with multiple new edition launches in the past. We
view DB Corp’s plan to launch a newspaper in Maharashtra to be a positive
in the medium term.
Jagran Prakashan: We have a Buy rating on Jagran Prakashan with a 12-
month price target of Rs145.00. We base our valuation on 16.5x FY13E PE
in line with the company’s average forward PE of the past two years. Its
flagship newspaper. Dainik Jagran, has had the highest readership in India
since 2003. Jagran Prakashan has a strong leadership position in print media
in Uttar Pradesh, which enables it to charge premium advertising rates. We
expect the company to generate a strong free cash flow yield of 4.9% and
dividend yield of 3.9% in FY12E. We expect it to report ROCE and ROE at
30.3% and 31.8%, respectively, in FY12E.
HT Media: We have a Buy rating on HT Media with a one-year forward
price target of Rs180.00. We base our valuation on 16.5x FY13E PE, at a
10% discount to its average forward PE of the past two years, and a 20%
discount to India broadcasters. HT Media has exposure to the English print
market, which has now started to recover. Competition is relatively stable for
English print in Delhi and Mumbai. We expect revenue growth and margin
improvement to come from improving advertising yields as HT Media aims
to increase the readership of the Mumbai edition of the Hindustan Times and
Mint, which should reduce the readership gap between HT Media and the
respective newspapers with the highest readership. HT Media has also
launched separate editions of Hindustan Times in the National Capital
Region (Noida and Gurgaon) and plans to monetise them.
What could change our view?
Newsprint price could increase beyond expectations—Factors that affect
the newsprint price for India print media companies are: international
newsprint prices, the mix of domestic and imported newsprint used
(international newsprint prices are typically 15-20% higher than domestic
prices), oil prices (as these impact freight rates) and currency fluctuations
(20-50% of newsprint is imported). UBS’s US paper products analyst, Gail
S. Glazerman, estimates US newsprint prices to increase 6.5% YoY in FY12.
We assume an 8.0% increase in newsprint prices for India print media
companies in FY12.
Macro economic slowdown—Advertising revenue typically constituted 68-
81% of FY10 revenue for print media companies. In a macro economic
slowdown, we would expect advertising spending to be affected more in
metros than in small towns. The proportion of local advertisements is higher
for Hindi or regional newspapers than English newspapers, which helps them
during a downturn.
Statement of Risk
The key risks for India publishing sector are: 1) currency fluctuations and
increase in newsprint prices could impact profitability; 2) macroeconomic
slowdown could impact advertising revenues; 3) intense competition; and
4) threat from online usage in the long term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India print revenue to grow at an average 10% YoY in 2010-15F
India’s print media segment differs from its global peers because of its larger scale, the
greater relevance of regionalisation in India, and minimal competition from digital
(online) platforms. We expect India print media revenue to rise in the next five years,
led by favourable demographics, rising income and literacy levels, and increasing print
penetration. However, the contribution of print media to India’s advertising revenue fell
from 50% in 2005 to 47% in 2010, and will further decrease to 44% by 2014,
according to FICCI-KPMG estimates. Within the print space, FICCI-KPMG estimates
the Hindi print revenue CAGR to be 11% in 2011-15 versus 7% for English print.
Hindi print has a higher penetration in non-metropolitan urban markets, while English
print is more prevalent in metropolitan cities.
We prefer DB to Jagran in the regional print space; DB is our top pick
We believe DB Corp (DB) is the best exposure to India’s fast-growing regional
print media market, due to its well-diversified geographical reach, strong
management vision and superior execution track record. It is also our top pick in
the overall print media segment. We initiate coverage of DB and Jagran Prakashan
(Jagran) with Buy ratings and price targets of Rs310.00 and Rs145.00,
respectively.
We like HT Media for the improving outlook of its English print business
English print media, which contributes 74% of HT Media’s print advertising
revenue, was worse affected by the macro-economic slowdown than regional print
but has now started to recover. We expect strong revenue growth and margin
improvement to come from the monetisation of the National Capital Region edition
of the Hindustan Times and improving advertising yields on a turnaround at this
newspaper’s Mumbai edition and Mint. We initiate coverage of HT Media with a
Buy rating and Rs180.00 price target.
Summary and investment case
How does the India print sub-sector compare with its
global peers
Globally, print’s share of advertising spending has declined gradually from
35.0% in 1997 to 23.0% in 2010, while television’s share has increased
marginally from 37.9% in 1997 to 39.7% in 2010 and internet advertising’s
contribution has increased from 0.2% in 1997 to 15.3% in 2010. The trend has
been similar in India where the contribution of print media to advertising
revenue declined from 50.2% in 2005 to 47.4% in 2010 and KPMG-FICCI
expects it to further decline to 44.5% by 2014.
However, India’s print segment differs from its counterparts in developed
markets due to:
The relevance of regionalisation—India is a culturally diverse nation with a
large number of spoken languages. As the localisation and regionalisation of
content is easier in print media than other media forms, such as television,
we believe the print media sector could continue to grow in India, unlike
developed markets, as advertisers’ preference for consumers in smaller
towns is increasing.
Higher scale in terms of number of copies circulated—Large print media
companies in India have a daily circulation of around 3-4m with minimal
competition from the internet, while the New York Times print edition has a
daily circulation of less than 1m and the Wall Street Journal a daily
circulation of around 2m. This gap could further expand as print media
penetration in Tier 2 and Tier 3 cities is likely to increase. As the cost of
generating content is fixed, having a higher circulation helps as the cost
reduces on a per newspaper copy basis.
Minimal competition from online media platforms given low internet
penetration—The consumption of news on the internet has picked up in
developed countries, which has led to a decline in print media readership.
While internet could be a threat to Indian newspapers in the long term, it
could also be very profitable for some print media companies if they adopt
the appropriate internet strategy (such as charging customers to view online
content, by means of a paywall, early, such as in Japan). The newspaper
industry has experienced significant consolidation in some of the developed
markets. For example, more people read the New York Times today than in
pre-internet times, and a large number of small newspapers have disappeared
(except for those with truly local content). In other words, if the internet
strategy is managed appropriately, it could be beneficial for the larger
companies at the expense of smaller newspapers.
India print revenue to grow
According to the Federation of Indian Chambers of Commerce and Industry
(FICCI)-KPMG Indian Media and Entertainment Industry 2011 report, the print
media industry in India is likely expand at a 9.9% CAGR in 2010-15, led by an
average 13.4% growth in print advertising revenue due to strong economic
growth, an increase in print media penetration and improving literacy levels.
The newspaper industry is extremely fragmented in India as there are 77,600
newspapers, of which around 8% are in English and the remainder in Hindi and
other regional languages. Regional newspapers have a much higher readership
share than English newspapers; however, English newspapers contribute around
45% of total print advertising revenue.
English print market in India in a recovery mode…
The English print advertising market had been growing quickly before the macroeconomic
downturn. The contribution from Delhi to India’s print advertising
revenue increased from 11.1% in 2007 to 15.7% in 2009. It was badly hit by the
macro economic weakness as both advertising rates and volumes came under
pressure. The English print market has now started to recover.
However, advertising spends to grow faster in non metros
According to an Ernst & Young report: The new market shehers (cities),
published in May 2010, non-metropolitan cities account for 73% of India’s
urban consumption and there is an increasing shift in advertising spending
towards non-metro urban markets. India’s six largest cities constitute 40-45% of
India’s total advertising spending.
English print media continues to command premium advertising rates, as
compared to that in Hindi or regional languages, as most English newspapers are
largely circulated in metropolitan cities (metros) where per capita income is
higher than elsewhere. Hindi daily newspapers have a higher penetration than
English dailies in non metropolitan markets, but we expect this premium to
decline as advertisers’ preference for consumers in Tier 2 and Tier 3 cities has
been picking up due to the increasing affluence of consumers in these cities.
Table 1: Print media penetration in 2009
Metros Key urban towns Rest of urban India Rural
Any Hindi daily 17.5% 27.6% 23.5% 12.1%
Any English daily 24.1% 8.8% 5.3% 0.8%
Source: Ernst & Young report
Print media companies in India have traded at an average 17-18x one year
forward PE in the past two years. Within the India print media space, we believe
the valuation gap between regional print and English should narrow as Hindi
newspapers are likely to grow faster than English newspapers in the medium
term. Also, the adoption of digital media (news consumption online) is likely to
have an impact on readership in metros before the small towns.
Competition intensifying in Hindi, stable in English print
There has been no increase in competition among English newspapers in Delhi
and Mumbai in the last two years. However, competition in the Hindi print
market has become more intense, as large companies such as DB Corp expand
into new markets. Competition increased in Jharkhand with DB Corp’s launch in
August 2010 as Prabhat Khabar, the second-largest print operator in Jharkhand,
reduced its prices from Rs4 per copy to Rs2. Both Jagran and HT Media reacted
to Prabhat Khabar’s price reduction. Unlike Jharkhand, Prabhat Khabar does not
have meaningful market share in Bihar and both Jagran and HT Media have
indicated they do not intend to cut cover prices in Bihar (Rs4 at present in Bihar).
Print trading at a discount to TV—valuation gap justified
Table 2: Newspapers versus broadcasters in India
Newspapers Broadcasters
Competition High, 62,000 newspapers registered; most
states have 3-4 large companies
High, more than 500 television channels
broadcast; 5-6 large broadcaster groups
Near-term profitability Higher; regional newspapers generate
stronger ROE
Lower (except for Sun TV, due to its strong
dominant position in the South)
Long-term growth Lower as advertising spending could shift
from newspapers to other media forms
Regional print to grow faster than English
in the near-to-medium term
Higher, contribution of television to ad
spends should remain stable
Play on subscription revenue growth
Valuation Trading at a discount to broadcasters Trading at a premium to newspapers
Source: UBS estimates
The large print companies in India generate strong EBITDA margins, report
higher ROE as compared to most large broadcasters (except Sun TV) and record
strong free cash flow. However, in the long term (say 10-15 years from now),
advertising revenue growth for print media could to come under pressure
(similar to developed markets) as news consumption on the internet could
increase in the metros. We therefore believe print media should trade at a
discount to broadcasters.
Stock recommendations
We initiate coverage on India’s print media sub-sector with a positive view and
Buy ratings on DB Corp, Jagran Prakashan and HT Media.
DB Corp: We have a Buy rating on DB Corp and price target of Rs310.00.
We base our valuation on 18.0x FY13E PE, in line with the stock’s average
one year forward PE since its listing in January 2010. DB Corp is the largest
print media company in India in terms of the total average daily readership of
its newspapers. We believe DB Corp is the best exposure to India’s fastgrowing
regional print media market. We like the company for its well
diversified geographical reach, strong management vision and superior
execution track record, with multiple new edition launches in the past. We
view DB Corp’s plan to launch a newspaper in Maharashtra to be a positive
in the medium term.
Jagran Prakashan: We have a Buy rating on Jagran Prakashan with a 12-
month price target of Rs145.00. We base our valuation on 16.5x FY13E PE
in line with the company’s average forward PE of the past two years. Its
flagship newspaper. Dainik Jagran, has had the highest readership in India
since 2003. Jagran Prakashan has a strong leadership position in print media
in Uttar Pradesh, which enables it to charge premium advertising rates. We
expect the company to generate a strong free cash flow yield of 4.9% and
dividend yield of 3.9% in FY12E. We expect it to report ROCE and ROE at
30.3% and 31.8%, respectively, in FY12E.
HT Media: We have a Buy rating on HT Media with a one-year forward
price target of Rs180.00. We base our valuation on 16.5x FY13E PE, at a
10% discount to its average forward PE of the past two years, and a 20%
discount to India broadcasters. HT Media has exposure to the English print
market, which has now started to recover. Competition is relatively stable for
English print in Delhi and Mumbai. We expect revenue growth and margin
improvement to come from improving advertising yields as HT Media aims
to increase the readership of the Mumbai edition of the Hindustan Times and
Mint, which should reduce the readership gap between HT Media and the
respective newspapers with the highest readership. HT Media has also
launched separate editions of Hindustan Times in the National Capital
Region (Noida and Gurgaon) and plans to monetise them.
What could change our view?
Newsprint price could increase beyond expectations—Factors that affect
the newsprint price for India print media companies are: international
newsprint prices, the mix of domestic and imported newsprint used
(international newsprint prices are typically 15-20% higher than domestic
prices), oil prices (as these impact freight rates) and currency fluctuations
(20-50% of newsprint is imported). UBS’s US paper products analyst, Gail
S. Glazerman, estimates US newsprint prices to increase 6.5% YoY in FY12.
We assume an 8.0% increase in newsprint prices for India print media
companies in FY12.
Macro economic slowdown—Advertising revenue typically constituted 68-
81% of FY10 revenue for print media companies. In a macro economic
slowdown, we would expect advertising spending to be affected more in
metros than in small towns. The proportion of local advertisements is higher
for Hindi or regional newspapers than English newspapers, which helps them
during a downturn.
Statement of Risk
The key risks for India publishing sector are: 1) currency fluctuations and
increase in newsprint prices could impact profitability; 2) macroeconomic
slowdown could impact advertising revenues; 3) intense competition; and
4) threat from online usage in the long term.
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