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HT Media: Higher expenditure dents profits - Views on News from Equitymaster
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HT Media: Higher expenditure dents profits
Feb 8, 2012

HT Media announced the third quarter results of financial year 2011-2012.The company has reported a 13.6% YoY and 1% YoY increase in top line and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line increased by 13.6% YoY during the quarter and 15.4% during the 9 month period.
  • Operating margins fell by 4.3% on account of higher operating expenditure. For the 9 month period, operating margins were down by 3.1%.
  • Net profits grew by 1% during the December quarter.


Consolidated financial performance snap shot
(Rs m) 3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
Net sales 4,637 5,266 13.6% 13,116 15,143 15.4%
Expenditure 3,753 4,489 19.6% 10,635 12,751 19.9%
Operating profit (EBDITA) 883 777 -12.1% 2,482 2,392 -3.6%
EBDITA margin (%) 19.1% 14.7% 4.3% 18.9% 15.8% 3.1%
Other income 64 168 162.9% 175 518 196.7%
Interest 46 83 80.1% 165 210 27.5%
Depreciation & amortisation 217 220 1.2% 622 666 7.1%
Profit before tax 684 642 -6.2% 1,869 2,033 8.8%
Profit before tax margin (%) 14.7% 12.2%   14.2% 13.4%  
Exceptional items - -   - -  
Tax 184 161 -12.3% 546 544 -0.4%
Profit after tax before moinority 500 481 -3.9% 1,322 1,489 12.6%
Share of minority 22 (1)   43 54  
Profit after tax 478 482 0.8% 1,280 1,435 12.1%
Net profit margin (%) 10.3% 9.1%   9.8% 9.5%  
No. of shares (m)         235.0  
Diluted earnings per share (Rs)*         8.4  
P/E (x)         15.6  

What has driven performance in 3QFY12?
  • Topline rose by 13.6% YoY during the quarter and by 15.4% YoY during the year so far. Advertising revenues increased by 11% YoY while subscription revenue was up by 7%. The rise in subscription was due to both increased number of copies as well as improved realizations.

  • On the cost front, raw material expenditure was up by 13% YoY during the quarter. This was largely because of volatility in foreign exchange rates as the company uses imported newsprint. Employee costs were up by 23% YoY and the other expenses by 25% YoY.

    Cost breakup
    (% of sales) 3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
    Raw materials consumed 1,648 1,874 13.7% 4,600 5,460 18.7%
    % sales 35.5% 35.6%   35.1% 36.1%  
    Staff cost 760 936 23.2% 2,243 2,665 18.8%
    % sales 16.4% 17.8%   17.1% 17.6%  
    Other expenses 1,346 1,680 24.8% 3,792 4,626 22.0%
    % sales 29.0% 31.9%   28.9% 30.5%  
    Total expenditure 3,753 4,489   10,635 12,751  

  • Raw material costs as a percentage of sales remained steady at 36% levels. However, employee costs went up as a percentage of sales and so did other expenses. Employee costs now form 18% of total sales of the company and other expenses account for 32% of the same.

  • The readership for the flagship English daily 'Hindustan Times' was up by 0.4% QoQ and by 11% YoY as against the same quarter in 2011.

  • HT Media’s continued focus on digital business is yielding returns in the form of increased revenues. Revenues from the digital business were up by 41% YoY as compared to December 2011.

  • Interest was up by 80% during the quarter. Despite an increase of 162% in other income, the media company could not earn profits. It just about managed to stay above last year’s profit figure registering an increase of 1% in net profits YoY.

What to expect?
At the current price of Rs 130, the stock is trading at a multiple of 13 times our estimated FY14 earnings. HT Media is exploring other avenues of generating revenues apsrt from print media. In particular, the media company is focussing on digital business in the form of "shine.com", "ht mobile" and "htcampus.com". It recently forayed into the education space too in the form of a joint venture with Mahesh Tutorials and another with Apollo Global of the US. Although revenue is being generated from new ventures, the company has not been able to control its operating expenditure thereby hurting profit margins. We have a negative view on the stock.

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