• JULY 24, 2001

Midday: Net drops 50%

Mid-Day Multimedia Ltd.(MML) has posted a drop of 50% in net profit for 1QFY02. While income from operations has remained flat, operating margins took a severe beating from 20.3% to 8.5%. Other Income showed a sharp rise as the company temporarily deployed its IPO proceeds in debt mutual funds. Excluding other income, profit before tax dropped by around 80%.

(Rs m)1QFY011QFY02% ChangeFY01
Sales2142150.5% 950
Other Income211377.3% 13
Expenditure17119715.4% 794
Operating Profit (EBDIT)4418-57.9% 156
Operating Profit Margin (%)20.3%8.5%-58.1%16.4%
Interest 2465.2% 10
Depreciation4791.7% 29
Profit before Tax4018-54.5% 130
Extraordinary Income0 -
Tax103-68.0% 44
Profit after Tax/(Loss)3015-50.2% 86
Net profit margin (%)07.0% 9.1%
No. of Shares (eoy) (m)27.034.0 34
Diluted Earnings per share*4.51.8 2.5
P/E (at current price)614 12.7
(*- annualised)

The drop in operating margins can be attributed to high newsprints cost coupled with higher fixed charges in outdoor and internet initiatives. Income from operations remained more or less flat due to sharp drop in advertising income reflecting gloomy economic scenario. Though newsprint prices have softened in the last quarter, the effective international newsprint prices for the company showed an increase of around 23% due to old stocking.

The business model of the company is built around four business divisions viz, publishing, outdoor advertising, radio and interactive/IT enabled services. The publishing division of MML has four newspapers and a magazine. The prominent newspapers are Mid-Day in english (which comes out with three editions daily) and Gujarati Mid-Day. MML now plans to launch Mid-Day Marathi. Venturing into multi-lingual tabloids helps the company in leveraging the content creation costs.

However, the publication business of the company is prone to fluctuations depending on two factors. viz, newsprint prices and the economic scenario in general which reflects in advertising revenues for the company. Newspaper advertising is expected to grow 7% in the current year as against 17% growth last year. A major chunk of advertising revenue growth last year was fuelled by dotcoms. Dotcom advertising revenues contributed around 16% of total advertising revenues for Midday last year.

In the Outdoor advertising business the fixed rentals payable to BEST increased by around 13%, income from advertisments on the other hand didn't match up this increase in fixed cost. Midday currently has over 1 m sq. foot of outdoor space covering over 35,000 sites and has exclusive rights for advertisements on 2,038 bus shelters, 33,000 electric pole kiosks and certain railway stations for varying periods. The company's initiatives in internet domain also contributed to increase in fixed costs. Midday runs a city centric portal viz, Chalomumbai.com. A Geographic information service (GIS) project exclusively for Mumbai is also in the offing.

At the current market price of Rs 25, the stock trades at 14 x its annualised earnings for 1QFY02. Midday is expected to benefit from softening newsprint prices in the coming quarters. However, the advertising spend is not likely to improve. The company is trying to find other industry domains to compensate for loss in advertising revenues from dotcoms. The RoCE of the company is likely to be impacted further, as the internet and radio business initiatives are unlikely to pay off immediately. The valuations of the company going forward would depend on the payback period of this new ventures and recovery in advertisement space.

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