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HT Media: Ad driven revenues - Views on News from Equitymaster

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HT Media: Ad driven revenues

Aug 4, 2008

Performance summary
  • Topline grows 19% YoY led by higher advertising rates and expansion into new geographies. Advertisement revenues grow 19% YoY
  • Operating margins remain stable at 20.4% in 1QFY09.
  • Bottomline grows by 10% YoY, albeit at a slower pace than the topline. Lower other income and higher interest costs restrict growth

Financial picture
(Rs m) 1QFY08 1QFY09 (%) Change
Net sales 2,733 3,247 18.8%
Expenditure 2,176 2,584 18.7%
Operating profit (EBDITA) 557 663 19.0%
EBDITA margin (%) 20.4% 20.4%  
Other income 103 82 -20.8%
Interest 43 51 18.1%
Depreciation 106 129 20.9%
Profit before tax 511 565 10.7%
Tax 169 188 11.2%
Profit after tax/(loss) 342 377 10.4%
Net profit margin (%) 12.5% 11.6%  
No. of shares (m) 234.2 234.2  
Diluted earnings per share (Rs)*   6.32  
Price to earnings ratio (x)*   17.7  
* 12 month trailing

What has driven performance in 1QFY09?
  • HT Media reported a topline growth of 18.8% YoY led by higher advertising rates and expansion into new geographies. The advertisement revenues grew by 19% YoY, while circulation revenues were higher by 8% YoY. The 19% YoY growth in ad revenues was on account of 10% YoY price hikes taken in June 2008 and 8% YoY jump in volumes. The company expects to take further hikes in ad rates in September this fiscal. While Hindi ad revenues amounted to Rs 600 m this quarter, it is growing at 40% to 45%. The western regions witnessed a 12% YoY growth while 18% YoY growth was seen in the northern region. The company is introducing new editions in the Hindi segment in the coming quarter. The management has indicated the advertisement revenues to remain strong on account of its wide offerings.

  • HT Media has joined hands with German media group Hubert Burda to tap growing media platforms in Asian countries. The 51:49 joint venture (JV) leverages HT Media's expertise in printing and publishing and Burda's global multimedia operation. It would help the company to capture opportunities in the high-end magazine and catalogue printing space in India and the Asia-Pacific region. The company has invested about Rs 200 m. It expects the commercial operations to commence in the near future. The radio business though still in losses, earned revenues of about Rs 225 m in the quarter. In the internet venture, backed by successful launch of ‘shine.com’ in 1QFY09 and of the social networking website ‘desimartini.com’ in 3QFY08, the company plans to expand and grow its social networking and jobs portals and also leverage its print business in these segments.

    Cost break-up
    as a % of net sales 1QFY08 1QFY09
    Total Cost of goods 39.7% 36.7%
    Staff Cost 14.7% 13.9%
    Advertising 5.3% 8.2%
    Other Expenditure 19.9% 20.8%

  • Operating margins remained stable at 20.4% in 1QFY09. While the raw material costs increased 10% YoY on account of higher newsprint prices, HT Media’s sourcing efficiency from varied geographies enabled better-cost control. The ad spends and other expenses were higher on account of increased investments in re-launch of ‘HT City’ and higher advertisement and promotion spends on brand building of ‘Hindustan’. For the coming quarter, the company expects the margins to decline on account of sourcing at higher newsprint prices.

  • Bottomline grew by 10% YoY, albeit at a slower pace than the topline. Lower other income and higher interest costs restricted the growth. Interest cost increased by 18% in 1QFY09 driven by higher interest rate environment.

What to expect?
At the current price of Rs 112, the stock is trading at a price to earnings multiple of 9.6 times our estimated FY11 earnings. While the margins would be under pressure on account of newsprint costs and investment in the new ventures, the management is confident on the growth front. With it capturing market share in the Hindi space and launching new editions, the company is bullish on this segment. Also ‘Mint’ is performing as per expectations and would breakeven in the next year. Though execution, competition and high raw material price risks remains, HT Media, on account of its diverse offerings, sector potential and proposed forays in high growth segments, remains a formidable player. Overall we are positive on its growth prospects.

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