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A DuPont filter for Print media companies- II

Sep 27, 2011

In our earlier article we discussed the first component of DuPont analysis - Net profit margins for the three media companies - Jagran Prakashan, HT Media and DB Corp. DB Corp as per our analysis, emerged to be the best among these based on this and other related parameters. Now, we will focus on the other two components- Asset Turnover and Equity Multiplier. The conclusion of this analysis will help us decide what has lead to a higher return ratio (return on equity, ROE) for DB Corp and Jagran Prakashan and whether the same is sustainable in the long run.

Asset Turnover ratio = Sales/ Total Assets

This ratio stood at 1.27 times, 0.84 times and 1.15 times at the end of FY11 for Jagran Prakashan, HT Media and DB Corp respectively. Asset turnover can be high for a company only when it has the capability to generate a higher quantum of sales with lesser value of assets. Jagran Prakashan has the lowest sales (in absolute terms) among the 3. Despite this, it has the highest asset turnover implying that it is most efficient in utilizing its assets. We may note here that both Jagran Prakashan and DB Corp do not have substantial contribution from their subsidiaries. But, Hindustan Media Venture Limited is an important subsidiary of HT Media. Thus, even when we look at the consolidated numbers to arrive at the asset turnover, we find that it is 1.0 times.

The last component to arrive at RoE is the Equity Multiplier. This gives an indication about how is the company funded. Is it more thorough equity or debt?

Equity Multiplier = Total Assets/ Equity

Equity Multiplier for the above print media companies were 1.26, 1.24 and 1.28 respectively at the end of FY11. We see that for all companies in consideration, equity is more or less the same proportion of total assets. DB Corp with a debt to equity of 0.28 times is slightly more leveraged than the others. This means more fixed obligation in the form of higher interest charges thereby putting pressure on margins.

Thus in terms of RoE, DB Corp is currently the best performer followed closely by Jagran Prakashan. But Jagran Prakashan clearly has in it what it takes to be an outperformer. Higher efficiency reflected in better asset turnover ratio and low interest outgo can keep shareholder returns growing in the long run. Also, it is able to contain its operating expenses in the same manner as DB Corp. Thus, we conclude that DB Corp is fetching higher RoE because of its better operating performance based on economies of scale. However, Jagran Prakashan may catch up with it soon.

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