HT Media -Top-line sustaining investment efforts – BUY says IIFL

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Top-line sustaining investment efforts
HT Media’s 2QFY11 PAT at Rs388m (up 23.5% YoY) stood ahead of our estimates on higher adrevenues
and profit on sale of private treaty investments. The strong growth in the ad-revenue stream
was neutralised by higher costs from the circulation push by the company. Going forward- 1)the
festive season 2)election spends in Bihar and 3)abatement of the circulation drive in Jharkhand should
see EBIDTA and earnings seeing a sharp uptick in 2HFY11. Note that the company’s push on
circulation, though has been eating into margins, has resulted in a definite improvement in readership
in Mumbai and Uttar Pradesh which augurs well for revenues and earnings going forward.
Top-line impresses again; possible upside to revenue estimates: Ad-revenue growth of 17% in the
seasonally weakest quarter of the year was underpinned by 30% growth in Hindi ad-revenues and healthy
growth in the English segment. Given the festive season (last year in 2Q) and elections spurring government
spends again in Bihar, 2HFY11 ad-revenue growth at 25-30% is likely to easily surpass 1H growth of 19%.
This and higher than expected revenues from Burda could lead to an upgrade in revenue estimates post 3Q.
Margins weighed down by circulation; look ahead for investments to yield results: The robust adrevenue
growth has not resulted in commensurate increase in profitability. Increased circulation (up 23%
YoY), competition forcing cover price reduction in Jharkhand and higher newsprint prices, have kept margins
flat which is a pertinent cause for concern. However the company’s circulation drive has resulted in a secular
10% and 24% increase in readership in Mumbai and UP respectively. A possible consequent inflection of adrevenues
in these markets is not captured in our and street estimates.
Valuations moderate; retain BUY: We look forward to an uptick in margins in 2H sustaining into FY12
which underpins our estimate of 29% EPS CAGR over FY10-12ii. The stock remains attractively priced at a
PER of 20.1x on FY11ii and 16.0x on FY12ii. Retain BUY.