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HT Media: Macroeco concerns loom large - Views on News from Equitymaster

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HT Media: Macroeco concerns loom large

Jul 31, 2012

HT Media announced the first quarter results of financial year 2012-2013.The company has reported a -1% YoY decrease in top line and 21% fall in net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line decreased by 1% YoY during the quarter. There was a 3% YoY decline in advertising revenue in the print segment mainly due to a decline in pricing. Circulation revenues increased by 8% YoY on the back of rise in cover prices.
  • Owing to the fall in topline and 5% rise in operating expenditure, operating profits registered a fall of 25.7% YoY during the quarter. Operating margins were down by 4.5%.
  • Interest expenses jumped by 64.6% to Rs 103 m in the quarter ended June 2012.
  • Net profits fell by 21.1% YoY as compared to the same quarter last year. Net profit margin also reduced by 2%.

Financial performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Net sales 4,945 4,899 -0.9%
Expenditure 4,046 4,230 4.6%
Operating profit (EBDITA) 899 669 -25.7%
EBDITA margin (%) 18.2% 13.6% 4.5%
Other income 159 209 31.3%
Interest 63 103 64.6%
Depreciation & amortisation 214 220 3.0%
Profit before tax 782 555 -29.1%
Profit before tax margin (%) 15.8% 11.3%  
Exceptional items - -  
Tax 243 129 -47.1%
Profit after tax before moinority 539 426 -21.0%
Share of minority 25 20  
Profit after tax 515 407 -21.1%
Net profit margin (%) 10.4% 8.3%  
No. of shares (m)     235.02
Diluted earnings per share (Rs)*     6.58
P/E (x)     13.94
*12 months trailing earning

What has driven performance in 1QFY13?
  • Topline fell marginally by 1% YoY during the quarter. Lower revenues from advertising segment that de grew by 3% YoY lead to this fall. Fall in advertising was on account of the company having to lower its advertisement pricing due to competitive pressures in a slowing economy. The circulation revenue increased by 8% YoY on the back of rise in cover prices. Revenue from digital segment recorded 40% YoY growth in June quarter.

  • HT Media uses large quantity of imported newsprint whose effective prices increased as a result of weakening rupee. To deal with the twin problems of slowing economy and high prices of imported newsprint, the company resorted to cost cutting measures. This helped HT Media contain increase in operating expenditure within 5% YoY.

  • However, because of fall in topline, even stringent cost minimization could not help the company post growth in operating profit for the quarter. Operating profits fell by 25.7% YoY during the quarter. Operating margins were down by 4.5%.

    Cost breakup
    (% of sales) 1QFY12 1QFY13 Change
    Raw materials consumed 1,726 1,778 3.0%
    % sales 34.9% 36.3%  
    Staff cost 880 917 4.1%
    % sales 17.8% 18.7%  
    Other expenses 1,440 1,536 6.6%
    % sales 29.1% 31.4%  
    Total expenditure 4,046 4,230  

  • Interest expenses jumped by 64.6% to Rs 103 m in the quarter ended June 2012.The company's debt to equity ratio was 0.22 times in March 2012.

  • The readership for the flagship English daily 'Hindustan Times' was up by 3% YoY as per Indian Readership Survey (IRS) Q12011. Hindustan, the Hindi daily registered an increase of 3% YoY in readership numbers.

  • Net profits fell by 21.1% YoY as compared to the same quarter last year. Net profit margin also reduced by 2%.

What to expect?
HT Media has been whole heartedly focusing on its digital businesses. The company foresees huge opportunity in this segment and feels that they will benefit once advertisers get serious about this mode of advertising. In the print business, like all its peers, HT Media too suffered on account of economic slowdown and resultant lowering of advertising rates. However, the media company also suffered huge forex losses to the tune of Rs 30 m mainly because of high cost of imported newsprint. HT Media's flagship newspaper is an English newspaper "Hindustan Times" and thus the company uses more of imported newsprint which became costlier due to rupee depreciation. Its focus on digital business will entail more investments form the company in this fiscal and going forward. We feel that this will have an adverse impact on profit margins for some time to come. At the current price of Rs 92, the stock is trading at a multiple of 14 times its trailing twelve month earnings. We are in the process of reviewing our estimates for the stock and shall soon update subscribers on the same.

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