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HT Media: Slowdown in ads continues - Views on News from Equitymaster

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HT Media: Slowdown in ads continues
Oct 22, 2012

HT Media announced the second quarter results of financial year 2012-2013.The company has reported a 4.5% YoY increase in top line and 24% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Top line increased by 4.5% YoY during the quarter. Advertising registered a fall of 1% YoY in revenues while subscriptions grew by 11% YoY during the quarter.
  • Operating expenditure was up by 8.5% YoY during the quarter owing mainly to the jump in employee expenses by 21% YoY. For the 6 months period, the expenditure increased by 6.6% YoY.
  • Operating profits were thus down by 19.5% YoY and operating profit margins shrank by 3.3% during the quarter. For the half year period, operating profit margins shrank by nearly 4%.
  • Interest expenses increased by 8.8% YoY in September quarter. The same witnessed a rise of 31.7% for the 6 month period.
  • A dismal performance in the topline resulted in a fall in net profit of 24% YoY during the quarter and 22.4% YoY during the half year.

Financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 4,889 5,107 4.5% 9,834 10,006 1.7%
Expenditure 4,187 4,542 8.5% 8,233 8,773 6.6%
Operating profit (EBDITA) 702 565 -19.5% 1,602 1,234 -23.0%
EBDITA margin (%) 14.4% 11.1% -3.3% 16.3% 12.3% -4.0%
Other income 230 244 6.0% 389 453 16.4%
Interest 90 98 8.8% 153 201 31.7%
Depreciation & amortisation 233 242 4.0% 447 462 3.5%
Profit before tax 609 469 -23.1% 1,392 1,023 -26.5%
Profit before tax margin (%) 12.5% 9.2%   14.2% 10.2%  
Exceptional items - -   - -  
Tax 141 107 -24.2% 383 235 -38.7%
Profit after tax before moinority 469 362 -22.7% 1,009 788 -21.8%
Share of minority 31 29   55 49  
Profit after tax 438 333 -24.0% 953 740 -22.4%
Net profit margin (%) 9.0% 6.5% -2.4% 9.7% 7.4% -2.3%
No. of shares (m)           235.02
Diluted earnings per share (Rs)*     6.13
P/E (x)           16.31
* On a trailing 12-months basis

What has driven performance in 2QFY13?
  • Top line increased by 4.5% YoY during the quarter. Advertising registered a fall of 1% YoY in revenues amidst unfavourable macroeconomic environment. Subscriptions grew by 11% YoY during the quarter. This was largely driven by hiking of cover prices across HT Media publications.

  • Operating expenditure was up by 8.5% YoY during the quarter owing mainly to the jump in employee expenses by 21% YoY. The rise in employee expenses was due to payment of variable component of employees' salaries during the quarter. For the 6 months period, the expenditure increased by 6.6% YoY.

  • Despite the company's focus on minimization of costs, operating expenditure continued to be high thereby resulting in operating profits falling by 19.5% YoY. Operating profit margins shrank by 3.3% during the quarter. For the half year period, operating profit margins shrank by nearly 4%.

    Cost break-up
    (% of sales) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Raw materials consumed 1,824 1,949 6.8% 3,550 3,727 5.0%
    % sales 37.3% 38.2%   36.1% 37.2%  
    Staff cost 849 1,034 21.8% 1,729 1,951 12.8%
    % sales 17.4% 20.2%   17.6% 19.5%  
    Other expenses 1,513 1,559 3.0% 2,954 3,095 4.8%
    % sales 31.0% 30.5%   30.0% 30.9%  
    Total expenditure 4,187 4,542   8,233 8,773  

  • Depreciation charges were up by 4% YoY during the quarter as well as during the 6 month period.

  • Interest expenses increased by 8.8% YoY in September quarter. The same witnessed a rise of 31.7% for the 6 month period.

  • The readership for the flagship English daily 'Hindustan Times' was up by 10% over Indian Readership Survey (IRS) Q2 2011. Hindustan, the Hindi daily registered an increase of 2% in readership numbers.

  • A dismal performance in the topline resulted in a fall in net profit of 24% YoY during the quarter and 22.4% YoY during the half year. The net profit margins were down by nearly 2.5% during the September quarter and the half year.

What to expect?
At the current price of Rs 94, the stock is trading at a high multiple of 16 times its trailing twelve month earnings. HT Media's revenues from the digital segment continued to grow at a robust pace. Shine.com has registered a growth in revenue of 61% YoY as compared to the previous quarter.

HT Media recently announced the merger of its job portal and job fairs business of Shine.com into itself after de- merging the former from its subsidiary FireFly e-Ventures. The same was by way of share swap in the ratio of 2:31; which has led to dilution of earnings and return ratios. Shine is still making losses and with more investments planned, it is expected to continue making losses for some more time to come. In our opinion, this merger will not be value accretive for minority shareholders of HT Media. The stock of HT Media has fallen nearly 33% since we last recommended a Sell on it. However, given our concerns over lack of long term visibility on profitability and shareholder returns, we maintain Sell view on the stock.

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