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UBS Investment Research
HT Media
Improving business outlook
Initiate coverage with a Buy rating
HT Media is the third-largest print media company in India in terms of readership
share, with presence in English and Hindi print. Its flagship newspaper, Hindustan
Times (HT), is the second-largest English daily, while Hindustan (HH) is the thirdlargest
Hindi daily in India in terms of readership. English print contributed around
74% to its total advertising revenue in FY10. We expect strong revenue growth and
better EBITDA margins to come from advertising yield improvements in English
print and strong growth in Hindi print.
Expect HT Mumbai & Mint turnaround; yields to improve for HT Delhi
HT has surpassed DNA in readership share and is now the second-largest
newspaper in Mumbai (Q410 IRS survey). We expect ad yields to improve for both
HT Mumbai and Mint as they gain greater readership. Mint and HT Mumbai’s
EBITDA should break even in FY12 and FY13, respectively. Ad yields should
improve for HT Delhi as the company plans to monetise the National Capital
Region (NCR) editions. Losses for its Internet business should fall in FY12.
Hindi print’s advertising revenue—20% CAGR for FY10-14E
We expect strong revenue growth for HH to come from Bihar and Uttar Pradesh
(UP). HH is a dominant newspaper in Bihar and Jharkhand with an around 74%
readership share. In UP, HH recently launched an edition in Gorakhpur, which
completes its UP coverage to a large extent. Revenue growth in UP should come
from better advertising yields led by an increase in readership.
Valuation: Rs180.00 price target
We derive our price target from FY13E EPS of Rs10.79 and 16.5x PE, at a 10%
discount to its historical trading average as we believe the valuation gap between
regional print and English will narrow.
Investment Thesis
HT Media is the third-largest print media company in India in terms of
readership share, with presence in both English and Hindi print. It publishes HT
(second-largest English daily in India in terms of readership share), HH (thirdlargest
Hindi daily), and Mint (second-largest business daily). We initiate
coverage of HT Media with a Buy rating and a price target of Rs180.00 as we
expect strong revenue and EBITDA growth over the next four years. We
forecast revenue CAGR of 15.2% in FY10-14 to be led by the following.
(1) Improving advertising yields as the readership gap between HT Mumbai
and Daily News & Analysis widens, and HT Mumbai becomes a strong
number two newspaper.
(2) An increase in Mint’s readership, which attains critical mass.
(3) An increase in advertising rates for its other editions—HT Media raised its
ad rate by 10-15% starting on 15 January 2011.
(4) HT plans to monetise its Delhi NCR editions (Noida and Gurgaon), which
should help further improve yields.
(5) We forecast a 20% CAGR for its Hindi print advertising revenue over
FY10-14, primarily led by strong growth in UP as readership improves.
We expect EBITDA margins to improve in FY12 and FY13, mainly led by
strong revenue growth and lower losses for its new businesses. EBITDA for
Mint and HT Mumbai should break even in FY12 and FY13, respectively.
Losses for its Internet business should decline, while its radio business margins
could improve further in FY12 and FY13.
We believe the key risks for HT Media are intense competition, weakness in the
macroeconomic environment, delays in HT Mumbai’s and Mint’s turnaround,
and raw material cost pressures.
Key catalysts
Strong financial performance in the next few quarters. We think a
catalyst could come from quarterly results that show improving financial
performance in terms of strong ad revenue growth (led by an increase in card
rates and improving advertising yields as readership expands for HT Mumbai
and Mint). HT Media raised its ad rates by 10-15% starting on 15 January
2011; the full effect of which is likely to be seen in its FY12 financials in a
phased manner, which could also act as a catalyst.
IRS readership data. IRS readership data is released quarterly. We believe
IRS readership data showing the following could act as a catalyst:
— An increase in readership for HT Mumbai
— An increase in readership for Mint
— An increase in readership for HH in UP
More clarity on Radio Phase 3 auctions. The third phase of radio licensing
is expected to be announced in 2011. We believe the profitability of its radio
business could improve significantly after Phase 3 licensing, as it might look
to address some issues currently faced by the radio companies.
Stable newsprint prices. Data points showing newsprint prices are stable
could act as a catalyst as HT Media imports around 50% of its newsprint.
Risks
Newsprint prices could increase. Newsprint constituted around 38% of HT
Media’s total costs in FY10. We believe a significant increase in newsprint
prices could impact its EBITDA margins going forward. We assume an
around 9% increase in newsprint prices for FY12.
However, should newsprint prices increase significantly, we believe HT
Media could reduce pagination and increase the advertising-edit ratio to
manage its margins to some extent.
Currency fluctuations. As HT Media imports around 50% of its consumed
newsprint, this exposes it to currency fluctuation risk, primarily through the
Rs/US$ exchange rate.
Competition in Bihar could intensify after DB Corp’s entry. DB Corp has
announced plans to enter the Bihar market by end-FY12 (after its planned
launch in Maharashtra). Should DB Corp gain meaningful readership share
in a short span, this could impact HT Media’s subscription and advertising
revenue to some extent.
However, unlike in Jharkhand, we believe print media operators in Bihar are
unlikely to cut cover prices in anticipation of DB Corp’s launch. In
Jharkhand, the cover price cut was initiated by Prabhat Khabar, the secondlargest
print operator in Jharkhand in terms of readership. The Bihar market
is dominated by HH and Dainik Jagran—both have expressed no intention to
initiate cover prices cuts in Bihar.
Ad revenue is also unlikely be significantly impacted in the near term as
government spending forms a large portion of ad revenue in Bihar. The
government could need more time before it switches to a new newspaper for
its advertising spend.
An economic downturn could impact advertising volume more in metros
than in the tier 2 and 3 cities. Advertising revenue constituted around 81%
of HT Media’s FY10 revenue. In a macroeconomic slowdown, this could
impact profitability as advertising rates would be affected. Given its urban
focus, we believe HT Media’s advertising revenue could be affected more
than Hindi print media during a macroeconomic downturn. HT Media has
significant presence in Delhi and Mumbai. English print—which has an
urban focus for HT Media—contributed 74% to its total advertising revenue
in FY10.
Valuation and basis for our price target
We have a Buy rating and a price target of Rs180.00. Our price target is 20.8%
above its current share price. We value HT Media at 16.5x FY13E PE, a 10%
discount to its average one-year forward PE for the past two years as we believe
the valuation gap between regional print and English will narrow.
HT Media is a well-covered stock with 28 brokers covering it, of which 17 have
Buy ratings, eight have Hold ratings and three have Sell ratings. Our FY12 net
profit estimate is 3% below Bloomberg consensus.
Sensitivity analysis
We conduct a sensitivity analysis of our valuation using the following
parameters.
Advertising revenue growth. A 1% increase in our advertising revenue
growth base assumption for FY13 would lead to a 2.7% increase in FY13E
EPS.
EBITDA margin. A 1% increase in our FY13 EBITDA margin base
assumption would lead to a 6.7% decrease in our valuation.
Newsprint prices. A 1% increase in our FY13 newsprint base assumption
would lead to a 2.0% decrease in our valuation.
Competitive advantage
Figure 1: HT Media—SWOT analysis
WEAKNESSES
1. Heavy reliance on advertising revenue
could impact profitability during a
macroeconomic slowdown
2. Losses in Mumbai, Mint and its
Internet business could continue for
longer than expected
THREATS
1. Competition from other newspapers
and media platforms
2. Newsprint prices could increase
3. Increasing penetration of digital media
could affect newspaper readership in the
in the long term
STRENGTHS
1. Leadership position in Delhi
(Hindustan Times ), Bihar and
Jharkhand (Hindustan )
2. Strategic partnerships
3. Experienced management
4. Strong balance sheet
5. Presence across English and Hindi
OPPORTUNITIES
1. Growth in ad spend led by strong
GDP growth
2. Increasing print media penetration in
tier 2 and 3 cities (Hindustan )
3. Improving literacy levels
Source: UBS
National brand and leadership position. HT Media’s newspapers have a
significant presence in North India. HH has strong leadership in terms of its
readership share in Bihar and Jharkhand. HT is the most widely-read
newspaper in Delhi, marginally ahead of Times of India. In Q2 FY10, HT
Media re-launched HT to target youths and urban populations (primarily
SEC-A).
HT Media is the only listed print media company in India with significant
presence in both English and Hindi print. In the event of a macroeconomic
downturn, this should help diversify its risk to some extent.
Strategic partnerships. HT Media’s business newspaper (Mint) has an
exclusive agreement with the Wall Street Journal for content. In December
2009, it collaborated with The Washington Post to further enhance content
for its international section of HT. It has also entered into a strategic
partnership with Virgin for its radio business.
HT Media entered into a joint venture with Burda Druck as HT-Burda,
wherein HT Media has a 51% stake. Burda Druck, part of the Hubert Burda
Media Group, is engaged in high-quality Rotogravure printing and prints
catalogues, brochures and magazines such as Elle and Playboy. HT Burda
has set up two Rotogravure printing presses in Noida. Rotogravure printing
provides high-quality prints at fast speeds for magazines.
Experienced management. HT Media’s management team has been with
the company for 5-10 years and has more than 10-15 years of previous
relevant industry experience.
Management strategy
Maintain leadership position in its existing markets. HT Media plans to
grow readership and revenue in Delhi (HT), Bihar and Jharkhand (HH), and
maintain its leadership position.
Expand readership for HT Mumbai and Mint. HT Mumbai has become
the second-most widely-read newspaper in Mumbai, with an average daily
readership base of 613,000 (ahead of DNA’s 572,000) according to the Q410
IRS survey. However, Times of India continued to have a significant lead in
terms of readership share. HT Media aims to increase its readership in
Mumbai to around 900,000 in the next two years to widen its lead to DNA
and become a strong number two newspaper company in Mumbai. This
should help HT Mumbai charge higher ad rates and improve profitability.
HT Media has been implementing on-ground initiatives and promotional
campaigns to connect with youths in Mumbai and to improve content by
strengthening its local ties.
HT Media currently offers Mint in eight cities including Delhi, Mumbai and
Bangalore. It aims to launch Mint in one to two more cities in FY12. Like its
Mumbai strategy, HT Media plans to increase its readership of Mint to
benefit from higher yields. Mint currently has an around 24% readership
share in Delhi, Mumbai, Bangalore and Kolkata combined, while the
Economic Times has a 63% share. Business Standard is the third largest in
the business newspaper segment, with an around 6% readership share in
Delhi, Mumbai, Bangalore and Kolkata combined.
Expand readership in UP. HH aims to expand its readership and
advertising revenue in UP. It recently entered Gorakhpur, which now
completes its geographical coverage in UP to a large extent. The following
table shows HH’s readership in UP has increased by 1.21m since the 2009
R1 IRS survey.
Expand its radio and Internet businesses. HT Media wants to invest in the
expansion of its Internet business. However, the company will follow a
disciplined approach and plans to cap losses from its Internet business to
FY10 levels (Rs250-300m) for the next two years. HT Media plans to
participate in Phase III auctions of radio frequency and might look to acquire
around seven to eight new licences in areas where it already has presence in
the print media space.
Expand into new markets. HT Media plans to enter markets that could
potentially derive synergies from its existing ones for HH and HT. It also
aims to expand gradually in North India. The company’s evaluation criteria
to enter a new market will involve an analysis of the advertising potential in
the new market, revenue per copy, competitive intensity and infrastructure
costs.
HT Media is likely to expand in the Hindi and local language segments
through a merger or acquisition. However, it would look to acquire only
among the top two to three operators in terms of readership in its target market.
HT Media
HT Media is one the largest print media companies in India with presence in the
English and Hindi print media segments. It publishes the Hindustan Times, an
English daily, and Mint, a business daily newspaper. Hindustan Times is the
second-largest English newspaper in India with an average daily readership of
3.6m (Q410 IRS survey). HT Media has radio licences in four cities and
operates under the brand ‘Fever104'. It also has presence in the Internet business
through various portals such as www.hindustantimes.com, www.livemint.com,
www.shine.com (a job portal) and www.desimartini.com.
Statement of Risk
We believe the key risks for HT Media are intensifying competition, weakness
in the macroeconomic environment, a delay in HT Mumbai's and Mint's
turnaround, and raw material cost pressures.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
HT Media
Improving business outlook
Initiate coverage with a Buy rating
HT Media is the third-largest print media company in India in terms of readership
share, with presence in English and Hindi print. Its flagship newspaper, Hindustan
Times (HT), is the second-largest English daily, while Hindustan (HH) is the thirdlargest
Hindi daily in India in terms of readership. English print contributed around
74% to its total advertising revenue in FY10. We expect strong revenue growth and
better EBITDA margins to come from advertising yield improvements in English
print and strong growth in Hindi print.
Expect HT Mumbai & Mint turnaround; yields to improve for HT Delhi
HT has surpassed DNA in readership share and is now the second-largest
newspaper in Mumbai (Q410 IRS survey). We expect ad yields to improve for both
HT Mumbai and Mint as they gain greater readership. Mint and HT Mumbai’s
EBITDA should break even in FY12 and FY13, respectively. Ad yields should
improve for HT Delhi as the company plans to monetise the National Capital
Region (NCR) editions. Losses for its Internet business should fall in FY12.
Hindi print’s advertising revenue—20% CAGR for FY10-14E
We expect strong revenue growth for HH to come from Bihar and Uttar Pradesh
(UP). HH is a dominant newspaper in Bihar and Jharkhand with an around 74%
readership share. In UP, HH recently launched an edition in Gorakhpur, which
completes its UP coverage to a large extent. Revenue growth in UP should come
from better advertising yields led by an increase in readership.
Valuation: Rs180.00 price target
We derive our price target from FY13E EPS of Rs10.79 and 16.5x PE, at a 10%
discount to its historical trading average as we believe the valuation gap between
regional print and English will narrow.
HT Media is the third-largest print media company in India in terms of
readership share, with presence in both English and Hindi print. It publishes HT
(second-largest English daily in India in terms of readership share), HH (thirdlargest
Hindi daily), and Mint (second-largest business daily). We initiate
coverage of HT Media with a Buy rating and a price target of Rs180.00 as we
expect strong revenue and EBITDA growth over the next four years. We
forecast revenue CAGR of 15.2% in FY10-14 to be led by the following.
(1) Improving advertising yields as the readership gap between HT Mumbai
and Daily News & Analysis widens, and HT Mumbai becomes a strong
number two newspaper.
(2) An increase in Mint’s readership, which attains critical mass.
(3) An increase in advertising rates for its other editions—HT Media raised its
ad rate by 10-15% starting on 15 January 2011.
(4) HT plans to monetise its Delhi NCR editions (Noida and Gurgaon), which
should help further improve yields.
(5) We forecast a 20% CAGR for its Hindi print advertising revenue over
FY10-14, primarily led by strong growth in UP as readership improves.
We expect EBITDA margins to improve in FY12 and FY13, mainly led by
strong revenue growth and lower losses for its new businesses. EBITDA for
Mint and HT Mumbai should break even in FY12 and FY13, respectively.
Losses for its Internet business should decline, while its radio business margins
could improve further in FY12 and FY13.
We believe the key risks for HT Media are intense competition, weakness in the
macroeconomic environment, delays in HT Mumbai’s and Mint’s turnaround,
and raw material cost pressures.
Key catalysts
Strong financial performance in the next few quarters. We think a
catalyst could come from quarterly results that show improving financial
performance in terms of strong ad revenue growth (led by an increase in card
rates and improving advertising yields as readership expands for HT Mumbai
and Mint). HT Media raised its ad rates by 10-15% starting on 15 January
2011; the full effect of which is likely to be seen in its FY12 financials in a
phased manner, which could also act as a catalyst.
IRS readership data. IRS readership data is released quarterly. We believe
IRS readership data showing the following could act as a catalyst:
— An increase in readership for HT Mumbai
— An increase in readership for Mint
— An increase in readership for HH in UP
More clarity on Radio Phase 3 auctions. The third phase of radio licensing
is expected to be announced in 2011. We believe the profitability of its radio
business could improve significantly after Phase 3 licensing, as it might look
to address some issues currently faced by the radio companies.
Stable newsprint prices. Data points showing newsprint prices are stable
could act as a catalyst as HT Media imports around 50% of its newsprint.
Risks
Newsprint prices could increase. Newsprint constituted around 38% of HT
Media’s total costs in FY10. We believe a significant increase in newsprint
prices could impact its EBITDA margins going forward. We assume an
around 9% increase in newsprint prices for FY12.
However, should newsprint prices increase significantly, we believe HT
Media could reduce pagination and increase the advertising-edit ratio to
manage its margins to some extent.
Currency fluctuations. As HT Media imports around 50% of its consumed
newsprint, this exposes it to currency fluctuation risk, primarily through the
Rs/US$ exchange rate.
Competition in Bihar could intensify after DB Corp’s entry. DB Corp has
announced plans to enter the Bihar market by end-FY12 (after its planned
launch in Maharashtra). Should DB Corp gain meaningful readership share
in a short span, this could impact HT Media’s subscription and advertising
revenue to some extent.
However, unlike in Jharkhand, we believe print media operators in Bihar are
unlikely to cut cover prices in anticipation of DB Corp’s launch. In
Jharkhand, the cover price cut was initiated by Prabhat Khabar, the secondlargest
print operator in Jharkhand in terms of readership. The Bihar market
is dominated by HH and Dainik Jagran—both have expressed no intention to
initiate cover prices cuts in Bihar.
Ad revenue is also unlikely be significantly impacted in the near term as
government spending forms a large portion of ad revenue in Bihar. The
government could need more time before it switches to a new newspaper for
its advertising spend.
An economic downturn could impact advertising volume more in metros
than in the tier 2 and 3 cities. Advertising revenue constituted around 81%
of HT Media’s FY10 revenue. In a macroeconomic slowdown, this could
impact profitability as advertising rates would be affected. Given its urban
focus, we believe HT Media’s advertising revenue could be affected more
than Hindi print media during a macroeconomic downturn. HT Media has
significant presence in Delhi and Mumbai. English print—which has an
urban focus for HT Media—contributed 74% to its total advertising revenue
in FY10.
Valuation and basis for our price target
We have a Buy rating and a price target of Rs180.00. Our price target is 20.8%
above its current share price. We value HT Media at 16.5x FY13E PE, a 10%
discount to its average one-year forward PE for the past two years as we believe
the valuation gap between regional print and English will narrow.
HT Media is a well-covered stock with 28 brokers covering it, of which 17 have
Buy ratings, eight have Hold ratings and three have Sell ratings. Our FY12 net
profit estimate is 3% below Bloomberg consensus.
Sensitivity analysis
We conduct a sensitivity analysis of our valuation using the following
parameters.
Advertising revenue growth. A 1% increase in our advertising revenue
growth base assumption for FY13 would lead to a 2.7% increase in FY13E
EPS.
EBITDA margin. A 1% increase in our FY13 EBITDA margin base
assumption would lead to a 6.7% decrease in our valuation.
Newsprint prices. A 1% increase in our FY13 newsprint base assumption
would lead to a 2.0% decrease in our valuation.
Competitive advantage
Figure 1: HT Media—SWOT analysis
WEAKNESSES
1. Heavy reliance on advertising revenue
could impact profitability during a
macroeconomic slowdown
2. Losses in Mumbai, Mint and its
Internet business could continue for
longer than expected
THREATS
1. Competition from other newspapers
and media platforms
2. Newsprint prices could increase
3. Increasing penetration of digital media
could affect newspaper readership in the
in the long term
STRENGTHS
1. Leadership position in Delhi
(Hindustan Times ), Bihar and
Jharkhand (Hindustan )
2. Strategic partnerships
3. Experienced management
4. Strong balance sheet
5. Presence across English and Hindi
OPPORTUNITIES
1. Growth in ad spend led by strong
GDP growth
2. Increasing print media penetration in
tier 2 and 3 cities (Hindustan )
3. Improving literacy levels
Source: UBS
National brand and leadership position. HT Media’s newspapers have a
significant presence in North India. HH has strong leadership in terms of its
readership share in Bihar and Jharkhand. HT is the most widely-read
newspaper in Delhi, marginally ahead of Times of India. In Q2 FY10, HT
Media re-launched HT to target youths and urban populations (primarily
SEC-A).
HT Media is the only listed print media company in India with significant
presence in both English and Hindi print. In the event of a macroeconomic
downturn, this should help diversify its risk to some extent.
Strategic partnerships. HT Media’s business newspaper (Mint) has an
exclusive agreement with the Wall Street Journal for content. In December
2009, it collaborated with The Washington Post to further enhance content
for its international section of HT. It has also entered into a strategic
partnership with Virgin for its radio business.
HT Media entered into a joint venture with Burda Druck as HT-Burda,
wherein HT Media has a 51% stake. Burda Druck, part of the Hubert Burda
Media Group, is engaged in high-quality Rotogravure printing and prints
catalogues, brochures and magazines such as Elle and Playboy. HT Burda
has set up two Rotogravure printing presses in Noida. Rotogravure printing
provides high-quality prints at fast speeds for magazines.
Experienced management. HT Media’s management team has been with
the company for 5-10 years and has more than 10-15 years of previous
relevant industry experience.
Management strategy
Maintain leadership position in its existing markets. HT Media plans to
grow readership and revenue in Delhi (HT), Bihar and Jharkhand (HH), and
maintain its leadership position.
Expand readership for HT Mumbai and Mint. HT Mumbai has become
the second-most widely-read newspaper in Mumbai, with an average daily
readership base of 613,000 (ahead of DNA’s 572,000) according to the Q410
IRS survey. However, Times of India continued to have a significant lead in
terms of readership share. HT Media aims to increase its readership in
Mumbai to around 900,000 in the next two years to widen its lead to DNA
and become a strong number two newspaper company in Mumbai. This
should help HT Mumbai charge higher ad rates and improve profitability.
HT Media has been implementing on-ground initiatives and promotional
campaigns to connect with youths in Mumbai and to improve content by
strengthening its local ties.
HT Media currently offers Mint in eight cities including Delhi, Mumbai and
Bangalore. It aims to launch Mint in one to two more cities in FY12. Like its
Mumbai strategy, HT Media plans to increase its readership of Mint to
benefit from higher yields. Mint currently has an around 24% readership
share in Delhi, Mumbai, Bangalore and Kolkata combined, while the
Economic Times has a 63% share. Business Standard is the third largest in
the business newspaper segment, with an around 6% readership share in
Delhi, Mumbai, Bangalore and Kolkata combined.
Expand readership in UP. HH aims to expand its readership and
advertising revenue in UP. It recently entered Gorakhpur, which now
completes its geographical coverage in UP to a large extent. The following
table shows HH’s readership in UP has increased by 1.21m since the 2009
R1 IRS survey.
Expand its radio and Internet businesses. HT Media wants to invest in the
expansion of its Internet business. However, the company will follow a
disciplined approach and plans to cap losses from its Internet business to
FY10 levels (Rs250-300m) for the next two years. HT Media plans to
participate in Phase III auctions of radio frequency and might look to acquire
around seven to eight new licences in areas where it already has presence in
the print media space.
Expand into new markets. HT Media plans to enter markets that could
potentially derive synergies from its existing ones for HH and HT. It also
aims to expand gradually in North India. The company’s evaluation criteria
to enter a new market will involve an analysis of the advertising potential in
the new market, revenue per copy, competitive intensity and infrastructure
costs.
HT Media is likely to expand in the Hindi and local language segments
through a merger or acquisition. However, it would look to acquire only
among the top two to three operators in terms of readership in its target market.
HT Media
HT Media is one the largest print media companies in India with presence in the
English and Hindi print media segments. It publishes the Hindustan Times, an
English daily, and Mint, a business daily newspaper. Hindustan Times is the
second-largest English newspaper in India with an average daily readership of
3.6m (Q410 IRS survey). HT Media has radio licences in four cities and
operates under the brand ‘Fever104'. It also has presence in the Internet business
through various portals such as www.hindustantimes.com, www.livemint.com,
www.shine.com (a job portal) and www.desimartini.com.
Statement of Risk
We believe the key risks for HT Media are intensifying competition, weakness
in the macroeconomic environment, a delay in HT Mumbai's and Mint's
turnaround, and raw material cost pressures.
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