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HT Media: A look at the financials - Views on News from Equitymaster

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HT Media: A look at the financials
Apr 9, 2008

In the previous articles we had a look at the business model, the presence and reach of HT Media. In this article, we shall highlight the company’s financials over the last three years. Topline view: HT Media’s topline has witnessed a CAGR growth of 36% in the period from FY03 to FY07. For 9mFY08, HT Media has already garnered more than Rs 8,700 m of revenues. While 85% of its revenues come from advertisements, circulation forms 13% of the total revenues, while the contribution from new segments was negligible as they are still in the investment phase.

Ad revenue: The company’s ad revenues grew at a CAGR of 39% between FY03 and FY07 driven by growth in volumes and ad rates. The company’s multi segment and multi regional offerings have helped it garner higher ad rates. HT Media provides its existing clients a complete package in advertising and caters to local needs thereby deriving synergies with current operations. Mumbai and Delhi, which are saturated markets, are witnessing single digit growth, but Hindustan Times in Mumbai and Mint coupled with higher ad rates are aiding growth. We expect the ad revenues to grow at a 22% CAGR over the next 3 years.

Circulation revenue: The company’s circulation revenues have grown at a CAGR of 18% over the last 3 years. However, the share of the same has fallen from 20% of total sales to 13% in FY07. On account of competitive pressures and entry into new regions, the company had to reduce the cover prices. Therefore, the growth in circulation revenues has stagnated, while advertising revenues has been forming a growing portion of overall revenues. It is however, growing at a faster rate than its peers, on account of its entry (Hindustan Times) in Mumbai and the Mint newspaper. It is planning to target major metros for its business newspaper. Further there are around 360 m untapped people who currently do not subscribe to newspapers, out of which two-third comprises of Hindi readers. With literacy levels expected to go up, the circulation revenues would grow.

Other segments: The company’s internet and radio segments, though currently in investment phase, are expected to witness robust growth in the coming quarters. Currently, while their contribution is negligible, going forward we expect it to be around 3%. With the company acquiring internet sites and spreading its wings in metros for its radio business, the management is positive about the growth prospects of these segments.

Expenses: Like all print companies, newsprint accounts for majority of the total costs. It forms around 42% of the total sales and 50% of the total costs. In the last three months, domestic and global newsprint prices have witnessed a rising trend. The prices have touched US$ 740/MT from US$ 600/MT. HT Media would be hit owing to aggressive expansion plans with respect to Hindustan Times (Hindi daily) and Mint (business daily) and is likely to witness high cost pressure. Though the company has taken ad price hikes, with nearly 60% of newsprint being imported, a further rise in newsprint prices would affect its performance. HT Media’s advertising and other expenses are high too, but this is on account of its new ventures. Once these ventures gain momentum and witness higher revenues, the expenses are likely to fall.

Expansion in margins: The company has done well to expand its margins from a mere 3% in FY04 to 16.2% in FY07 and to 18.5% in 9mFY08. The achievement is commendable, as HT Media has ventured into newer regions and newer segments in the last 2 years, which are in the investment phase. Mint and the radio segment would take sometime before they breakeven. Also, the company’s Mumbai editions would breakeven in the next couple of quarters. This would help HT Media garner higher margins. We expect the margins to touch about 22% in the next 2 years.

Bottomline view: After a loss of Rs 24 m in FY04, HT Media’s profits have jumped 88% between FY05 to FY07. For 9mFY08, the company has already achieved profits of Rs 1 bn. We expect better operating margins to drive earnings going forward and consequently the net margins to improve from 9% in FY07 to 15% in FY10.

Going forward…
HT Media’s ability to cross sell its space by giving advertisers access to specific audiences via the choice of English, Hindi and business daily would help it to earn higher ad revenues. Further, its business daily would aid its circulation earnings. Though margins would face pressure in the near future on account of higher raw material prices and investments in new ventures, in the longer term they are expected to improve.

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