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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., 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.

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