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UBS Investment Research
India Publishing Sector
2 Q results: forex losses hurt profitability
Event: 2QFY11 results, takeaways from conference call with management
Print media companies reported double-digit revenue growth (10-18% YoY) led by
strong growth in advertising (10-16% YoY) as well as circulation revenue (12-21%
YoY). Newsprint costs increased 170-300bps QoQ. EBITDA margin and net profit
growth were impacted by forex losses due to the rupee’s depreciation against USD.
Impact: maintain earnings estimates
DB Corp has achieved 43% of our full-year FY12 net profit estimate during 1H,
while Jagran and HT Media have achieved 44% of our FY12 net profit estimates.
We expect 3Q to be strong, led by a pick-up in advertising in October 2011. Jagran
and HT Media will also benefit from a pick-up in advertising in the state of Uttar
Pradesh due to state assembly elections in 1H12, in our view.
Action: maintain positive view on India print media sector
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
online platforms. We expect India print media revenue to continue to grow in the
next five years, led by favourable demographics, rising income and literacy levels,
and increasing print penetration.
Valuation: DB is our preferred pick
We maintain a Buy rating on DB Corp, HT Media, and Jagran with FY13E PE
multiple-based price targets of Rs300, Rs195, and Rs145, respectively. We believe
DB Corp is the best exposure to India’s fast-growing regional print media, given its
diversified geographical reach, strong vision, and superior execution track record.
Conference call takeaways
DB Corp
DB Corp launched four new editions in Maharashtra in FY12 – Aurangabad,
Nashik, Jalgaon and Ahmednagar. It announced that it will not launch any
new edition (including Maharashtra) in the next six months. DB Corp is
likely to take a decision on the launch of a Hindi newspaper in Bihar in FY13.
This is driven by weak advertising outlook from national advertisers.
Advertising revenue from local / retail advertisers continued to register more
than 20% growth in 2Q. DB Corp expects this trend to continue in 3Q. DB
Corp expects approx 18% revenue growth in FY12.
DB Corp’s flagship newspaper’s (Dainik Bhaskar) circulation has now
stabilised in Jharkhand, at c0.35m copies per day.
DB Corp expects newsprint prices to decrease in the next two quarters.
DB Corp highlighted that the funding for its key sponsor’s (promoter) power
business is complete. DB Corp’s promoters have pledged 34.11% stake in
DB Corp (was 33.73% in 1QFY12).
HT Media
HT Media reported 15% advertising revenue growth in Mumbai led by yield
improvements, 24% in Hindustan (HMVL) and 5% in Delhi.
— The advertising yields for HT Mumbai have improved led by an increase
in readership share. Advertising yields for HT Mumbai have increased
from Rs350/sq cm last year to Rs450/sq cm.
— The growth is Hindustan’s advertising revenue is driven by Uttar Pradesh
where it is gaining market share.
— HT Delhi reported lower advertising revenue growth, due to decline in
advertising from the real estate sector, which was a one-off and was led
by some issues faced in Noida.
HT Media expects a significant uptick in Internet segment revenues in the
next six months. It expects the internet business to achieve EBITDA
breakeven in the next 2-3 years.
Jagran Prakashan
Jagran achieved 8.6% advertising revenue growth in 1HFY12. It expects
FY12 advertising revenues to grow 12% (versus earlier guidance of 14-15%)
led by a pick-up in advertising during the festive season (+25% in October
2011) and election advertising in Uttar Pradesh in 4QFY12.
Jagran maintained its capex guidance at Rs1.2bn for FY12; it spent Rs380m
in 1HFY12.
Raw material costs increased 34.1% YoY for Jagran in 2QFY12. This was
driven by an 18.5% increase in newsprint prices; the remainder was due to an
increase in newsprint volume consumption (led by increase in circulation).
Jagran expects newsprint prices to decline starting 3QFY12.
The increase in interest cost was led by increase in working capital loans and
an additional borrowing of $12m at around 3% interest rate. Jagran does not
hedge its forex exposure.
Statement of Risk
We believe the key risks for the India publishing sector are: 1) currency
fluctuations and increase in newsprint prices’ potential impact profitability; 2) a
potential macroeconomic slowdown’s impact on 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 �� ��
UBS Investment Research
India Publishing Sector
2 Q results: forex losses hurt profitability
Event: 2QFY11 results, takeaways from conference call with management
Print media companies reported double-digit revenue growth (10-18% YoY) led by
strong growth in advertising (10-16% YoY) as well as circulation revenue (12-21%
YoY). Newsprint costs increased 170-300bps QoQ. EBITDA margin and net profit
growth were impacted by forex losses due to the rupee’s depreciation against USD.
Impact: maintain earnings estimates
DB Corp has achieved 43% of our full-year FY12 net profit estimate during 1H,
while Jagran and HT Media have achieved 44% of our FY12 net profit estimates.
We expect 3Q to be strong, led by a pick-up in advertising in October 2011. Jagran
and HT Media will also benefit from a pick-up in advertising in the state of Uttar
Pradesh due to state assembly elections in 1H12, in our view.
Action: maintain positive view on India print media sector
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
online platforms. We expect India print media revenue to continue to grow in the
next five years, led by favourable demographics, rising income and literacy levels,
and increasing print penetration.
Valuation: DB is our preferred pick
We maintain a Buy rating on DB Corp, HT Media, and Jagran with FY13E PE
multiple-based price targets of Rs300, Rs195, and Rs145, respectively. We believe
DB Corp is the best exposure to India’s fast-growing regional print media, given its
diversified geographical reach, strong vision, and superior execution track record.
Conference call takeaways
DB Corp
DB Corp launched four new editions in Maharashtra in FY12 – Aurangabad,
Nashik, Jalgaon and Ahmednagar. It announced that it will not launch any
new edition (including Maharashtra) in the next six months. DB Corp is
likely to take a decision on the launch of a Hindi newspaper in Bihar in FY13.
This is driven by weak advertising outlook from national advertisers.
Advertising revenue from local / retail advertisers continued to register more
than 20% growth in 2Q. DB Corp expects this trend to continue in 3Q. DB
Corp expects approx 18% revenue growth in FY12.
DB Corp’s flagship newspaper’s (Dainik Bhaskar) circulation has now
stabilised in Jharkhand, at c0.35m copies per day.
DB Corp expects newsprint prices to decrease in the next two quarters.
DB Corp highlighted that the funding for its key sponsor’s (promoter) power
business is complete. DB Corp’s promoters have pledged 34.11% stake in
DB Corp (was 33.73% in 1QFY12).
HT Media
HT Media reported 15% advertising revenue growth in Mumbai led by yield
improvements, 24% in Hindustan (HMVL) and 5% in Delhi.
— The advertising yields for HT Mumbai have improved led by an increase
in readership share. Advertising yields for HT Mumbai have increased
from Rs350/sq cm last year to Rs450/sq cm.
— The growth is Hindustan’s advertising revenue is driven by Uttar Pradesh
where it is gaining market share.
— HT Delhi reported lower advertising revenue growth, due to decline in
advertising from the real estate sector, which was a one-off and was led
by some issues faced in Noida.
HT Media expects a significant uptick in Internet segment revenues in the
next six months. It expects the internet business to achieve EBITDA
breakeven in the next 2-3 years.
Jagran Prakashan
Jagran achieved 8.6% advertising revenue growth in 1HFY12. It expects
FY12 advertising revenues to grow 12% (versus earlier guidance of 14-15%)
led by a pick-up in advertising during the festive season (+25% in October
2011) and election advertising in Uttar Pradesh in 4QFY12.
Jagran maintained its capex guidance at Rs1.2bn for FY12; it spent Rs380m
in 1HFY12.
Raw material costs increased 34.1% YoY for Jagran in 2QFY12. This was
driven by an 18.5% increase in newsprint prices; the remainder was due to an
increase in newsprint volume consumption (led by increase in circulation).
Jagran expects newsprint prices to decline starting 3QFY12.
The increase in interest cost was led by increase in working capital loans and
an additional borrowing of $12m at around 3% interest rate. Jagran does not
hedge its forex exposure.
Statement of Risk
We believe the key risks for the India publishing sector are: 1) currency
fluctuations and increase in newsprint prices’ potential impact profitability; 2) a
potential macroeconomic slowdown’s impact on advertising revenues; 3) intense
competition; and 4) threat from online usage in the long term.
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