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Hindustan Media Ventures (HMVL)
Media
Weak 1QFY12 on expected lines. HMVL reported weak 1QFY12 EBITDA at Rs260
mn (-19% yoy, +30% qoq), largely in line with expectations, on account of (1) weak
education advertising and (2) unfavorable base (1QFY11 was FY2011’s best quarter
before cover price decline in Jharkhand). Reiterate BUY with TP of Rs220 on HMVL led
by (1) strong leadership position in Bihar (industry-leading advertising growth), (2) UPU
expansion in its final stages and (3) attractive valuations at 11X FY2013E EPS estimates
but more important, ~70% EV/reader discount versus peers; the streak of weak
earnings momentum has likely ended with 1QFY12.
1QFY12 results analysis: Optically weak due to soft advertising environment, unfavorable base
�� HMVL reported optically weak 1QFY12 EBITDA at Rs260 mn (-19% yoy, +30% yoy), in line with
expectation on account of (1) soft advertising environment (weak education advertising in
UP/Bihar) and (2) unfavorable base (1QFY12 was the FY2011’s best quarter before cover price
decline in Jharkhand result in weak financials; see Exhibit 2). 1QFY11 financials are not
comparable below the EBITDA line due to HMVL’s IPO in 3QFY11.
�� HMVL reported weak 1QFY12 advertising revenue at Rs1.11 bn (+15% yoy) versus average
27% yoy growth due to (1) generally soft advertising environment (economic slowdown) but
also (2) weak education sector advertising (spend bias in 1Q).
Reiterate BUY: Leadership position in Bihar market with UPU expansion in the final stage
HMVL’s weak 1QFY12 must be seen in the context of large investments in UPU market (larger
than the size of its existing markets combined). We view the weakness in advertising environment
as cyclical led by the slowdown in the Indian economy, likely to rebound with renewed economic
growth. The fundamentals of advertising growth remain unchanged led by (1) continued high
competitive intensity across advertising sectors (auto, telecom, BFSI, retail), (2) robust traction in
new brands turning to advertising (SMEs/foreign companies/expanded portfolio of existing players)
as well as (3) expanding Hindi print readership.
Hindustan witnessed a 19% yoy growth in readership in IRS Q1 2011 led by (1) strong growth in
UPU market (expansion/new editions) as well as (2) consolidation of its position in the BJH market
(re-launch of Patna edition in March 2010). HMVL’s leadership position in BJH holds it in good
stead as the economic transformation underway in the market will likely result in industry-leading
advertising growth. HMVL’s expansion in UPU market, the largest Hindi print market in India, will
get completed in FY2012E and benefits will start accruing from FY2013E given it achieves a strong
market position. Reiterate BUY on attractive valuations at 11X FY2013E EPS estimates but more
important, ~70% EV/reader discount to peers.
1QFY12 results analysis (continued)
�� Hindustan has started to derive some benefit of strong reported readership growth (in IRS
Q1 2011 recently but steady growth previously as well) with rate hikes taken at start-
CY2011 finding some traction with advertisers. However, volume growth has been weak
due to challenging advertising environment.
�� Circulation revenues increased 8% qoq even as increase in circulation was marginal
during 1QFY12; the growth in circulation revenues was on account of increased cover
price across markets (on particular days) led by increased content (new supplement
Anokhi, for women) across its markets.
�� Raw material costs and employee expenses increased 4% qoq and 9% qoq led by modest
investments in new editions as well as annual wage increases (effective 1Q). However,
20% qoq increase in other expenditure was on account of one Rs35 mn provision for
diminution in value of investments in ad-for-equity model.
�� We highlight that below-EBITDA 1QFY12 results are not comparable to 1QFY11 given
HMVL’s IPO in 3QFY11. 1QFY12 net interest income of Rs50 mn was sharp change from
net interest expense of Rs13 mn in 1QFY11. HMVL has Rs1.9 bn of net cash in its books,
supporting its expansion in UPU and core markets.
�� HMVL reported 1QFY12 PAT at Rs186 (+2% yoy, +44% qoq) largely on account of sharp
change in net interest income. However, 1QFY12 EPS at Rs2.5 (-21% yoy), taking into
account the share dilution due to HMVL’s IPO, was broadly in line with weak EBITDA
growth in 1QFY12 (-19% yoy) given an unfavorable base.
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