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HT Media – in a sweet spot
Executive Summary
HT Media is a media conglomerate with a presence in both the English and
Hindi newspaper segment. It is the leader in Delhi, Bihar and Jharkhand. HT
Media is currently in a sweet spot with its core businesses exiting expansion
phase. Both English and Hindi are set to see steady revenue growth and
margin expansion. Its other businesses in Radio and Printing are turning
profitable. We expect HT’s consol EPS to grow at 27% over FY11-FY14.
However, HT’s plans to foray into new ventures such as Education and TV
content are a worry. We initiate the stock with a Buy rating and target price
of Rs 176 implying 27% upside.
Core business in a sweet spot
HT Media has a presence in both the English and Hindi segments. In addition, it also has a
presence in radio, Internet and printing. Its core newspaper business is currently in a
sweet spot with the expansions completed and focus on monetization. HT is the leader in
Delhi’s English market and No 2 in Mumbai. Its financial paper Mint is No 2 in its
segment. We expect Mumbai and Mint to slightly increase their market share from the
current low levels. Delhi is seeing a coordinated effort to push yield increase. Its Hindi
business, Hindustan, is under its 76% owned subsidiary HMVL. It is the leader in the Bihar
/ Jharkhand (BJH) market and No 3 in UP. It has increased its readership over the past year
despite rising competition and has maintained its lead in BJH while closing the gap in UP.
Steady growth ahead
Both HT’s English and Hindi businesses are at the turn of the revenue and margin cycle.
This will allow it to grow at a faster pace with more diversity in its portfolio. Costs should
remain in check due to lack of any new expansions and peaking competition. With both
the English and Hindi segment growing, margins will see a sharp improvement and will
rise above historical levels, in our view. We expect HT’s consol EPS to grow at 23% over
FY11-FY14 and standalone to grow at 17% reflecting slower growth in English segment.
Burda will help FY12 profitability as it reduces its losses from a Rs 450mn EBITDA loss in
FY11. Radio will see growth slowing as inventory utilization reaches its peak. The balance
sheet remains strong with high cash and equivalents in anticipation of new business
ventures.
Capex plans a worry
While HT’s core businesses are in a sweet spot with strong growth and rising cash flows,
the new capex plans are worrisome. Our three main concerns are 1) the education space,
where HT has plans for a large entry and 2) Phase III auctions and 3) Content generation
for TV. Education the main focus of the company will be a high risk, high reward venture.
Valuation
HT Media has been the best performing stock in the sector this year and is up 2% YTD.
Despite the current outperformance, the stock is trading at 13.5x FY13 PE, one standard
deviation below its historical 12m fwd PE. Given the strong performance of the core
business and the strong 23% EPS CAGR over the next three years, we believe there is still
value in the stock. We value the firm on an SOTP basis. We value the standalone business
at an average of 15.4x FY13 PE and DCF-based target value. We value HMVL at a 25%
holding company discount to our target value. We initiate the firm with a Buy with a
target price of Rs 176 implying a potential upside of 27%. We use a higher risk factor for
the firm as we remain cautious on the new ventures. Clarity on new ventures and their
size will provide us more comfort on the stock.
Risks
The main risks to our valuation are 1) High capex intensity in new business with long
gestation, 2) Overbidding in radio Phase III auctions, 3) slower GDP growth, 4) Increase of
competition, 5) Fluctuations in newsprint prices and 6) Slowdown in literacy rates
improvement from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HT Media – in a sweet spot
Executive Summary
HT Media is a media conglomerate with a presence in both the English and
Hindi newspaper segment. It is the leader in Delhi, Bihar and Jharkhand. HT
Media is currently in a sweet spot with its core businesses exiting expansion
phase. Both English and Hindi are set to see steady revenue growth and
margin expansion. Its other businesses in Radio and Printing are turning
profitable. We expect HT’s consol EPS to grow at 27% over FY11-FY14.
However, HT’s plans to foray into new ventures such as Education and TV
content are a worry. We initiate the stock with a Buy rating and target price
of Rs 176 implying 27% upside.
Core business in a sweet spot
HT Media has a presence in both the English and Hindi segments. In addition, it also has a
presence in radio, Internet and printing. Its core newspaper business is currently in a
sweet spot with the expansions completed and focus on monetization. HT is the leader in
Delhi’s English market and No 2 in Mumbai. Its financial paper Mint is No 2 in its
segment. We expect Mumbai and Mint to slightly increase their market share from the
current low levels. Delhi is seeing a coordinated effort to push yield increase. Its Hindi
business, Hindustan, is under its 76% owned subsidiary HMVL. It is the leader in the Bihar
/ Jharkhand (BJH) market and No 3 in UP. It has increased its readership over the past year
despite rising competition and has maintained its lead in BJH while closing the gap in UP.
Steady growth ahead
Both HT’s English and Hindi businesses are at the turn of the revenue and margin cycle.
This will allow it to grow at a faster pace with more diversity in its portfolio. Costs should
remain in check due to lack of any new expansions and peaking competition. With both
the English and Hindi segment growing, margins will see a sharp improvement and will
rise above historical levels, in our view. We expect HT’s consol EPS to grow at 23% over
FY11-FY14 and standalone to grow at 17% reflecting slower growth in English segment.
Burda will help FY12 profitability as it reduces its losses from a Rs 450mn EBITDA loss in
FY11. Radio will see growth slowing as inventory utilization reaches its peak. The balance
sheet remains strong with high cash and equivalents in anticipation of new business
ventures.
Capex plans a worry
While HT’s core businesses are in a sweet spot with strong growth and rising cash flows,
the new capex plans are worrisome. Our three main concerns are 1) the education space,
where HT has plans for a large entry and 2) Phase III auctions and 3) Content generation
for TV. Education the main focus of the company will be a high risk, high reward venture.
Valuation
HT Media has been the best performing stock in the sector this year and is up 2% YTD.
Despite the current outperformance, the stock is trading at 13.5x FY13 PE, one standard
deviation below its historical 12m fwd PE. Given the strong performance of the core
business and the strong 23% EPS CAGR over the next three years, we believe there is still
value in the stock. We value the firm on an SOTP basis. We value the standalone business
at an average of 15.4x FY13 PE and DCF-based target value. We value HMVL at a 25%
holding company discount to our target value. We initiate the firm with a Buy with a
target price of Rs 176 implying a potential upside of 27%. We use a higher risk factor for
the firm as we remain cautious on the new ventures. Clarity on new ventures and their
size will provide us more comfort on the stock.
Risks
The main risks to our valuation are 1) High capex intensity in new business with long
gestation, 2) Overbidding in radio Phase III auctions, 3) slower GDP growth, 4) Increase of
competition, 5) Fluctuations in newsprint prices and 6) Slowdown in literacy rates
improvement from current levels.
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