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Mid–day: Should one apply? - Views on News from Equitymaster
 
 
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  • Feb 12, 2001

    Mid–day: Should one apply?

    Mumbai’s best known and top selling tabloid Mid–day’s initial public offering opens for subscription today. Should one subscribe for the issue? We take a look at the pros and cons.

    The pros are quite clear. For one the company’s flagship product is second only to ‘The Times of India’ in terms of circulation in Mumbai. While Times’ circulation is over 600,000 copies, Mid–Day sells approx. 435,000 copies. (The figures are inclusive of Sunday Mid–Day’s circulation figures of 160,000 copies daily.) It claims a readership of almost 5.9 readers for every copy as compared to ‘The Times’ 2.7 readers per copy. The advertisement rates for Mid–Day are still only around a fifth that of ‘The Times’ despite a 22% hike that Mid–Day effected in August 2000. Over the last decade, it is Mid–day which has gained the entire increase in the market share of the afternoon dailies. It currently has a market share of 87% among the afternoon dailies and 28% among all English dailies (including financial dailies).

    There are basically three concerns: first, the fact that Mid–day’s biggest competitor ‘The Times of India’ is reportedly taking over its erstwhile competitor ‘The Afternoon Dispatch and Courier.’ While the Afternoon currently controls around 13% of the market share among afternoon dailies, the fact is that ‘’The Times’ marketing machine could very well cross sell ad spots and infact offer a package deal to its advertisers comprising its morning daily and its afternoon tabloid. It is the company’s publishing business, which at present is subsiding its other businesses viz. outdoor, internet and radio and a threat to this business would hurt Mid–day Multimedia.

    The management however says that it has a put in place a strategy to face competition though it refused to talk about it.

    The second concern pertains to Midday’s radio venture. The license fees that Mid–day has had to commit to the Mumbai, Delhi and Chennai licenses alone amounts is Rs 205 m (the company’s fees would have to be paid when the broadcasting starts). Compare that to the fact that the company’s profits for the first nine months of the current year amounts to Rs 74.3 m and the risk is obvious. Has the company bitten of more than it can chew?

    The management however, disagrees. It believes that for a company such as Mid–day not being in the radio business would be suicidal. The main attraction for the advertisers is the relatively lower advertisement rates (anywhere between Rs 400 to Rs 500 per ten seconds) vis-ŕ-vis television. And these rates will open up a huge market for even smaller local advertisers, which Mid–day wants to tap. Even for the bigger advertisers, despite the fact that television has a wider reach, radio reaches a much more focused audience, which is also what the advertisers would look for. The management is also hopeful that the government would re–look at the license fees issue a lot more favourably.

    The fact remains that apart from the bid amount which companies pay as license fees for the first year, they will have to pay 15% more every year from the second year onwards. This does not include the cost of base stations, towers and other transmission infrastructure apart from the cost of programming. (The company however already has a studio in place since they were a part of All India Radio’s FM broadcasters earlier.)

    The third concern pertains to the company’s plan for starting a Marathi newspaper on the lines of Gujarati Mid–day. The concern here is that the product faces a strong competitor in ‘Loksatta’ from the Express stable. Though ‘Loksatta’ is a morning newspaper, one is doubtful about whether the target market would be as receptive to the type of content that Midday offers. (The Gujarati Mid–day is slated to break even next year.)

    Rs. Sandesh Mid–day Tribune
    (International)
    Market Price 118 70 1,814
    52–week high 498 NA 2,173
    52–week low 110 NA 1,302
    FY01 (E) EPS 36.84 3.67 32.73
    PE 3.21 18.9 55.4
    Market Cap 896 1,890 11,732
    M cap/sales 0.77 2.32 2.39

    Market Cap is in Rs m
    The Tribune figures have been converted into
    Indian currency at an exchange rate of $1 = Rs 46.75
    The Tribune figures are for the year ending December 2000.

    And finally a word on the minimum offer price: Rs 70 per share. The market capitalisation of the company works out to almost Rs 1.90 bn, which is more than double that of the only listed newspaper ‘Sandesh’ at Rs 900 m. We have compared the valuations of Mid–day with those of ‘Sandesh’ and an international newspaper ‘The Tribune’. Mid–day doesn’t seem to be dramatically undervalued. However, considering the strength of the brand and the management team that the company has, the stock could give decent returns on listing.

     

     

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