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HT Media: Ad growth remains sluggish
Mar 3, 2014

HT Media announced the third quarter results of financial year 2013-2014.The company has reported a 6% YoY increase in top line and 33% YoY jump in net profits. Here is our analysis of the results.

Performance summary
  • Revenues increased by 6% YoY in 3QFY13. For 9mFY14. The topline growth was 7% YoY.
  • Operating margin increased by a slight 0.3% YoY backed by savings in raw material costs. For 9mFY14, the operating margin expanded by 0.7% YoY.
  • Riding on a 50% YoY jump in other income earned coupled with lower tax incidence and interest cost; net profits grew by a sharp 33% during the quarter. The net profits were up by 41% during 9mFY14.

Consolidated Financial performance snapshot
Rs(m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Revenues 5,470 5,813 6.3% 15479 16569 7.0%
Expenditure 4,596 4,865 5.9% 13370 14198 6.2%
Operating profit (EBDITA) 875 948 8.4% 2,108 2,371 12.5%
EBDITA margin (%) 16.0% 16.3% 0.3% 13.6% 14.3% 0.7%
Other income 238 357 49.9% 692 1,202 73.9%
Interest 110 164 50.0% 311 476 53.2%
Depreciation 220 200 -9.0% 682 642 -5.9%
Profit before tax 783 941 20.1% 1,807 2,456 35.9%
Extraordinary inc/(exp) - -   - -  
Tax 222 193 -12.9% 457 554 21.3%
Profit after tax/(loss) 562 747 33.1% 1,350 1,902 40.9%
Net profit margin (%) 10.3% 12.9% 2.6% 8.7% 11.5% 2.8%
No. of shares (m)         234.5  
Diluted earnings per share (Rs)*         9.06  
Price to earnings ratio (x)*         8.4  
*trailing twelve months

What has driven performance in 3QFY14?
  • Top line increased by 6% YoY during the quarter. After excluding revenues of HT Burda that got sold in 4QFY13, the revenue growth is a more benign 12% YoY. The company registered a muted 9% YoY growth in advertising mainly pulled down by a slow 4% rise in advertising in the Delhi zone. Circulation revenues grew by a strong 18% YoY during the quarter on higher realization per copy.

  • The readership for Hindustan was up by 18% YoY during the quarter. As per the Indian Readership Survey (IRS) 2013, the company has retained its leadership position in Delhi, Bihar and Jharkhand. The company is clear number two in the markets of Mumbai and Uttar Pradesh and number one in Uttarakhand market.

  • Despite a faster growth in employee costs and other expenses, the company has managed to improve operating margin by 0.3% on savings in input costs. The raw material cost to sales ratio fell by 1.3% YoY during the quarter. The operating margin increased slightly by 0.3% during the quarter. The largest business segment, Print & Publishing, saw its EBIT margin dip by 0.2% with Mint posting an operating loss of Rs 250 m during the quarter. However, EBIT margin of the Radio Broadcast & Entertainment segment rose to 29% from 11.8% in the year-ago quarter. The Digital segment remained in the red clocking a net loss of Rs 76 m.

    Consolidated Financial performance snapshot
      3QFY13 3QFY14
    Raw material 34.1% 32.8%
    Employee 17.9% 18.2%
    Other expenditure 32.0% 32.7%

  • Aided by 9% and 13% cut in depreciation and tax charges respectively along with a 50% jump in other income, the company's bottom line soared by 33% during the quarter. Resultantly, the net margin expanded by 2.6% YoY in 3QfY14.
What to expect?
At the current price of Rs 76, the stock is trading at a multiple of 8 times its trailing twelve month earnings. HT Media's operating margin has been impacted by slowdown in its English business particularly in the Delhi market, which is its largest market. While HT Mumbai saw an operational break-even during the quarter, Mint continued to remain in red and is expected to reach break-even in the 4QFY14. The company expects HT Mumbai to start contributing to operating profit in FY15. The company has launched Bridge School of Management in October 2013 to impart higher education to working professionals.

The stock of HT Media has seen a maximum slide of 52% since we last recommended a Sell on it. However, given our concerns over lack of long term visibility on profitability and shareholder returns, we recommend investors to not buy the stock at current levels. We will, however, review our estimates and update subscribers if the estimates warrant a change

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