Buy Hindustan Media Ventures Limited::: Kotak Sec

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Ab Hindustan ki baari hai...
BUY Hindustan Media Ventures Ltd (HMVL), with a price target of Rs 358,
as: 1/ HMVL's readership as well as operating profits growth have outperformed
peers over FY11-FY14, and profit growth is set to outperform
peers through FY14-FY16E, on readership gains, 2/ the stock is likely to
overcome erstwhile earnings uncertainty via readership growth and election
advertising (three of four of HMVL's key geographies go to polls between
3QFY15-4QFY16), 3/ at 9.8 PER FY16E, HMVL is the most attractively
priced stock in our media coverage universe, 4/ our fair value estimate (Rs
358/ share) indicates that the market may be over-prepared for HMVL making
an expensive acquisition (deviation from fair value implies value destruction
of Rs 10Bn factored in).
 Fastest growing, in readership and profitability: Hindustan, the Hindi
daily of HMVL, is the second-largest daily in India (IRS-2013), growing by 25%
through 2010-2013. HMVL's EBITDA has grown 20% CAGR through FY11-
FY14, significantly outperforming peers. HMVL has also registered significant
gains in the UP market in IRS-2013, which provide for a strong long-term
growth engine for the company. We note that UP market is the largest Hindi
advertising market, and management expects that readership growth can enable
growth of 2-3x in revenues from Uttar Pradesh over the next few years.
We expect EBITDA growth of 20% over FY14-FY16E.
 Attractively valued, at 9.8x PER FY16E: 1/ At 9.8x PER FY16E, HMVL is the
most attractively valued stock in our coverage universe, and trades at a discount
of 45% to DB Corp. 2/ We also examine the readership distribution of
HMVL relative to peers, and conclude that on a "justified EV/ Reader" (EV/
reader adjusted for income, urban readership) basis, (computation on page 4)
HMVL should trade at par with EV/ Reader of Jagran Prakashan, over the long
- term. CMP offers ~60% discount to HMVL (relative to Jagran) on an EV/
reader basis. 3/ Our fair value (DCF based) for HMVL stock is Rs 358/ share.
 Way to valuation convergence - growth, visibility, easy base to beat:
We believe HMVL shall register industry-beating revenue growth in the coming
quarters enabled by strong growth in readership. Also, competitive intensity
has begun to reduce in Jharkhand (strong growth in realization/ copy of Dainik
Bhaskar). Lastly, on account of high employee expenses (Majithia Wage board)
and promotional activity in Bihar (Patna launch of Dainik Bhaskar in 3QFY14),
3QFY14-2QFY15 have set up an easy to beat base. HMVL is set to register
35% growth in EBITDA in FY15-FY16 period, which will ensure earnings
growth looks attractive in the coming quarters.
 Near-term, earnings are likely to be well- supported by elections in key
geographies further improving visibility: HMVL will see elections in all of
its key geographies in the next 24 months, starting with Jharkhand (just concluded),
and Delhi (4QFY15), followed by Bihar (3QFY16), and Uttar Pradesh.
The company's earnings growth visibility, as well as industry - outperformance,
is bolstered by these events. We project 18% CAGR in earnings through FY14-
FY16E.
 Initiate with BUY, with a price target of Rs 358: Our DCF valuation of
HMVL indicates a fair value of Rs 358/ share. We believe the market is aggressively
pricing in risks of an expensive acquisition (deviation from our fair value
estimates indicate factoring in risks of value destruction of over Rs 10Bn), diversion
to non-core operations, or risks from new operations. We see significant
upside for the stock, and recommend BUY. Risks include: 1/ utilization of
cash, 2/ loss of competitive position, 3/ raw material risks, 4/ related with
advertising environment.

LINK
http://www.kotaksecurities.com/pdf/pdfs/FUNDHMVL08012015144428.pdf