HT Media: Tough quarter

Jan 21, 2009

Performance summary

• Topline grows by 5% YoY during the quarter. 5% YoY growth was seen in ad revenues inspite of tough macro environment.
• Operating margins decline in quarter as well as nine month ended December 2008 on account of higher operating costs.
• Excluding extraordinary items, the net profits decline by 44% YoY and 28% YoY respectively for both the period under consideration

Financial picture

(Rs m)	3QFY08	3QFY09	(%) Change	9mFY08	9mFY09	(%) Change
Net sales	3,220	3,371	4.7%	8,802	9,985	13.4%
Expenditure	2,600	2,914	12.1%	7,101	8,441	18.9%
Operating profit (EBDITA)	619	457	-26.2%	1,701	1,544	-9.2%
EBDITA margin (%)	19.2%	13.6%		19.3%	15.5%
Other income	62	46	-26.2%	211	154	-27.1%
Interest	46	101	119.5%	134	226	68.5%
Depreciation	114	138	21.5%	330	395	19.8%
Profit before tax	521	263	-49.5%	1,448	1,077	-25.7%
Tax	153	57	-62.6%	419	331	-21.0%
Extraordinary item		(128)			(128)
Profit after tax/(loss)	369	78	-78.8%	1,030	618	-40.0%
Net profit margin (%)	11.4%	2.3%		11.7%	6.2%
No. of shares (m)	234.2	234.2		234.2	234.2
Diluted earnings per share (Rs)*					4.42
Price to earnings ratio (x)*					13.1

* 12 month trailing

What has driven performance in 3QFY09?

• HT Media reported a topline growth of 5% YoY during the quarter. 5% YoY growth was seen in the ad revenues inspite of tough macro environment. ‘Hindustan Times’ increased its share of readership in Delhi NCR region vis a vis its peer by 8 % at 2.3 m. The Mumbai edition readership increased by 38% YoY to 5.3 m. Its Hindi paper, Hindustan became the fastest growing Hindi daily across the country, reporting an increase in its readership by 5%. Further, Mint has also become the second largest business daily. The company’s investment in brand building is paying off.

• HT Media has entered into a 65:35 joint venture with Velti Plc to deliver mobile marketing and advertising services throughout India. Velti Plc is one of the world’s leading providers of mobile advertising solutions. It expects to start providing these services by end of the current fiscal. Shine.com, its job portal has got 1.6 m registered users since its launch in June 2008. It is also in the process of demerging the radio business from its subsidiary HT Music and Entertainment Company and merge it with itself. This would enable HT Media to reach advertisers with offerings of bundled advertising options in the print, internet and FM Radio in order to attain larger share of advertising spend and derive the benefit of operational synergies.
  Cost break-up

  as a % of net sales	3QFY08	3QFY09	9mFY08	9mFY09
  Total Cost of goods	38.1%	43.4%	39.1%	41.2%
  Staff Cost	13.4%	14.7%	14.3%	14.4%
  Advertising	9.9%	8.1%	7.5%	8.6%
  Other Expenditure	19.4%	20.2%	19.8%	20.3%

• Operating margins declined by 570 basis points (5.7%) during the quarter. All operating expenses (other than advertisement) were higher as a percent of sales. Higher newsprint prices and adverse foreign currency movements affected the performance. During the nine month period, the margins declined from 19.3% to 15.5%, led by higher expenses. HT Media continues to make significant investments in brand building.

• Excluding the extraordinary items ( provision of Rs 52.6 m for diminution in long term investment and Rs 75.3 m towards consultancy charges paid for strategic plans ) , the net profits declined by 44% YoY and 28% YoY respectively for both the period under consideration. Lower operating margins, lower other income coupled with higher interest costs caused the bad performance.

What to expect?

At the current price of Rs 58, the stock is trading at a price to earnings multiple of 5 times our estimated FY11 earnings. We shall provide more details post the conference call scheduled today evening.