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HT Media: All round growth - Views on News from Equitymaster
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HT Media: All round growth
Jun 4, 2008

Performance summary
  • Revenues grow by 14% YoY led by 16% YoY growth in the ad revenues Circulation revenues witness a 2.8% YoY growth in FY08.

  • Operating margins improve by 40 basis points (0.4%) for the full year. This was mainly on account of lower raw material costs.

  • Net profits for the full year increase by 25.6% YoY owing to good performance at the operating level and lower tax expenses.

  • In 4QFY08, launches Shine.com, a job portal through its wholly owned subsidiary Firefly e-Ventures Limited.


Financial picture
(Rs m) 4QFY07 4QFY08 (%) Change FY07 FY08 (%) Change
Net sales 2,750 3,134 13.9% 10,393 11,862 14.1%
Expenditure 2,331 2,532 8.7% 8,482 9,633 13.6%
Operating profit (EBDITA) 420 601 43.3% 1,911 2,229 16.7%
EBDITA margin (%) 15.3% 19.2%   18.4% 18.8%  
Other income 91 123 35.7% 403 407 1.0%
Interest 36 43 20.0% 149 177 19.3%
Depreciation 107 117 9.0% 397 447 12.5%
Profit before tax 367 564 53.7% 1,768 2,012 13.8%
Extraordinary item - -   (3) -  
Tax 127 148 16.3% 615 567 -7.8%
Profit after tax/(loss) 240 416 73.6% 1,151 1,446 25.6%
Net profit margin (%) 8.7% 13.3%   11.1% 12.2%  
No. of shares (m) 234.2 234.2   234.2 234.2  
Diluted earnings per share (Rs)*         6.2  
Price to earnings ratio (x)*         20.3  
* 12 month trailing

What has driven performance in FY08?
  • For the full year, HT Media’s revenues grew 14% YoY led by a 16% YoY growth in the ad revenues. Hindustan’s ad revenues were up 35% YoY, while HT Mumbai recorded a 25% YoY growth. On account of Delhi being a saturated market, ad revenues grew by 6% YoY. Sales of ‘Hindustan’ rose sharply as a result of increased circulation and package selling. As per the latest Indian Readership Survey (IRS), ‘Hindustan’ has emerged as the 3rd largest Hindi daily in India. Circulation revenues witnessed a 2.8% YoY growth in FY08. Delhi market was subdued on account of slowdown in the real estate sector, which was the main advertiser in FY07. The company plans to increase the reach of ‘Hindustan’ in the UP market. While Delhi would be the cash cow, ‘Hindustan Times Mumbai’ and ‘Hindustan’ would be the growth drivers going forward.

  • ‘Mint’ contributed around Rs 250 to Rs 280 m in sales in FY08. ‘Mint’ has already established its position as the second largest business daily in the cities of Delhi, Mumbai and Bangalore. It plans to launch ‘Mint’ in Kolkata, Hyderabad and Chennai in the next two years.

  • HT Media (Fever 104 FM) has 4 radio stations operational. In January, through its subsidiary HT Music and Entertainment Company Limited, it launched its station in Kolkata. The radio segment had a loss at the EBDITA level to the tune of Rs 280 m in FY08 with net sales of Rs 250 m. HT Media expects this loss to reduce by 50% in FY09. Though currently a cash burner, the management expects the radio business to breakeven in 18 to 20 months. It also has plans of expanding into other cities both through the organic and the inorganic route.

  • The company during 3QFY08 had acquired Desimartini.com, a social networking website. In 4QFY08, through its wholly owned subsidiary Firefly e-Ventures Limited, the company launched Shine.com, a job portal. Further, it has made an additional investment of Rs 45 m in the equity share capital of Firefly e-Ventures Limited and have given an advance of Rs 30 m to another subsidiary company namely, Searchlight Publishing House Limited against allotment of equity shares. The move is in line with the company’s strategy to target the three C’s – content, community and classifieds to help them get the complete package of the Internet segment. It is also looking at entering the matrimonial and real estate segments. The event management segment earned net sales of Rs 350 m for the year and margins of around 15% to 20%.

    Consolidated cost break-up
    as a % of net sales 4QFY07 4QFY08 FY07 FY08
    Total Cost of goods 40.8% 35.8% 41.5% 38.5%
    Staff Cost 14.2% 15.9% 14.2% 14.8%
    Advertising 9.8% 8.3% 6.1% 7.8%
    Other Expenditure 20.0% 20.9% 19.7% 20.2%

  • Operating margins improved by 40 basis points (0.4%) for the full year. This was mainly on account of lower raw material costs. Newsprint accounts for about 45% of the total expenses and 90% of the total raw material cost of the company. The higher consumption of newsprint on account of increase in circulation was completely offset by reduction in newsprint prices and favorable foreign currency movement. However, in the last quarter, the newsprint prices were on the rise with domestic prices having risen nearly 30% in the past three months to US$ 800/MT from US$ 600/MT. However, because of a good forecast mechanism and seeing that the cyclicality of the commodity was going to kick in soon, the company had stocked up. This led to lower costs. Also, its inventories are going to last for a reasonably long period of time, at least for two more quarters after which HT Media expects some softening to happen. Hence, it would not be pressurised on the raw material front.

  • HT Media’s net profits for the full year increased by 25.6% YoY. Higher margins coupled with lower tax expenses led to this growth. The tax rates reduced from 35% in FY07 to 28% in FY08 because of the merger of ‘Go4i’ with itself. Hence, the tax losses were set off against the tax liability. Interest costs increased by 19% YoY due to the hardening of interest rates. On a consolidated basis, the topline was up 15.9% YoY, while profits increased by 4.4% YoY.

What to expect?
At the current price of Rs 125, the stock is trading at a price to earnings multiple of 20.3 times its 12-month trailing earnings, which is fairly valued from a medium term perspective. The management has plans to continue its geographic expansion plans for the long-term business development of the company. It is transferring ‘Hindustan’ into a separate subsidiary by the end of 1QFY09 through which the company plans to make investments worth Rs 1 bn in the Hindi business segment to expand into new geographies, scale up the existing editions and become a leader in the Hindi segment. It is also setting up a state of- the-art printing facility, which will increase the capacity in Mumbai from 0.35 m copies 0.7 m copies. Further, it is also expanding its presence in ‘Mint’ and the radio. Though it would face pressure in the short-term due to high newsprint prices and investment in new businesses, the long-term outlook looks good.

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