HT MEDIA : REDUCE TARGET PRICE: RS.115 : Kotak Sec PDF links

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight22052012.pdf


HT MEDIA
PRICE: RS.112 RECOMMENDATION: REDUCE
TARGET  PRICE: RS.115 FY13E P/E: 16.5X
 Weak 4QFY12 Results Underline HT Media Vulnerability: HT Media reported a weak set of 4QFY12 financials. Advertising and circulation revenues grew 3% each. Along with income from new operations of the
company, HT Media revenues grew 6%, versus our expectation of 10%
growth. EBITDA margins declined 8.7 percentage points y/y, leading to
58% decline in PAT reported by the company.
 The quarter is to worry for, environment is a bigger worry: HT Media
management said that the industry ran into a perfect storm in FY12 with
weakening adex growth, and higher newsprint prices. We believe weakening advertising revenue growth could be more than a passing phase,
given weaker GDP growth and consumption trends, and while newsprint
prices may have declined 7-8% in USD terms, rupee depreciation could
extend the storm, perhaps for the medium-term.
 Cutting Earnings Estimates for the short, medium-term: We cut our
growth and margin estimates for the near as well as the medium-term,
to account for weaker growth in advertising revenues, and higher expenses on newsprint. As a result of the changes, our FY13 estimates are
slashed 37%. In the medium-long term (FY16 onward), we expect HT
Media to register margins of 17% (compared with 9.7% in the current
quarter, and our 13% est for FY13), with a revenue growth of 8%. Our
DCF-based price target is Rs 115/ share (42.5% lower than prior target).
 Current environment more suitable to incombents than challengers: We
believe that the current environment shall benefit incumbents more than
challengers in the newspaper publishers, on account of the flexibility
that is afforded by passing higher costs to the consumer (raising cover
prices). Challenger brands that rely on subscribed copies (thereby fixing
circulation revenues at a low level) shall be forced to either forego the
ability to reduce prices (thereby improving volumes) to advertisers, or
suffer weaker margins. HT Media, which perhaps runs the largest subscribed - copies edition in the country (HT-Mumbai), faces a storm more
perfect than the industry does.
 The sharpness of declines has surprised management, little ability to cut
costs in loss-making divisions: HT Media runs several loss-making operations, the most notable of which is the digital division (FY12 losses of Rs
400 mn). Cost-management in these can yield the desired flexibility for
HT Media. However, we believe the sharpness of the decline in earnings
has surprised the management, and, in the near-term, there is little scope
to create visibility in earnings by cutting costs in these operations. We
believe, however, that the management should revisit the viability of
these operations (perhaps in a year, as discussed in the conference call)
in the context of the risks they pose to the company's ability to withstand losses in newspaper publishing, especially in trying times.
 Downgrade to REDUCE, will look for better entry point/ superior environment to buy into HT Media's readership story: We have been appreciative
of the strong readership trends of HT Media in the past, and continue to
think that the company has the ability to outperform competitors in the
longer-term. However, we think that a significant challenge has emerged
while several key editions have still to hit critical levels. We downgrade
HT Media to REDUCE, and would look for better entry points / superior
industry environment to buy into the stock.