HT Media (HTMED) 79. Cash deployment strategy key for re-rating... Result Update. ICICI Securities Ltd Retail Equity Research.

Transcription

1 Result Update Rating matrix Rating : Hold Target : 86 Target Period : 12 months Potential Upside : 8% What s changed? Target Unchanged EPS FY16E Changed from 5.5 to 6.7 EPS FY17E Changed from 7.9 to 7.3 EPS FY18E Introduced at 8.6 Rating Unchanged Quarterly performance Q3FY16 Q3FY15 YoY (%) Q2FY16 QoQ (%) Revenue EBITDA EBITDA (%) bps bps PAT Key financials Crore FY15 FY16E FY17E FY18E Net Sales 2, , , ,964.7 EBITDA PAT EPS Valuation summary FY15 FY16E FY17E FY18E P/E Target P/E EV / EBITDA P/BV RoNW RoCE Stock data Particular Amount Market Capitalization 1,855.5 Total Debt (FY15) Crore Cash (FY15) Crore EV 1, week H/L 145 / 87 Equity capital 46.1 Face value 2.0 Price performance 1M 3M 6M 12M HT Media DB Corp Jagran Prakashan Research Analyst Bhupendra Tiwary bhupendra.tiwary@icicisecurities.com Sneha Agarwal sneha.agarwal@icicisecurities.com January 28, 2016 HT Media (HTMED) 79 Cash deployment strategy key for re-rating... Hindi ad revenues continued to remain above industry with 19.1% YoY growth to crore, aided by elections in Bihar and the festive rich quarter. English ad revenues grew 3.2% YoY to 329 crore vs. expectations of 5.0% YoY growth. Radio advertisement continued to remain robust with 25.2% YoY growth to 32.3 crore. Circulation revenues came in at 76.9 crore (4.8% YoY growth) EBITDA came in at crore, higher than our expectations of crore, owing to lower-than-expected administrative expenses. Hence, EBITDA margins came in higher-than-expected at 17.4%, up 318 bps YoY PAT came in at 68.8 crore (vs. expectation of 40.3 crore), higher owing to lower taxes Robust Hindi ad growth; English continues to be tepid amid Mint losses HT Media, which owns the third largest Hindi daily Hindustan with readership of 12.2 million as per IRS December, 2012, reported ad growth at 12% CAGR (FY12-15) in its Hindi segment. During Q3FY16, Hindi ad revenues grew at 19.1% to crore on the back of elections in Bihar and festive season. We believe the performance in Hindi dailies would remain robust and expect Hindi ad revenues to grow at 14.5% CAGR in FY15-18E to crore by FY18E. English segment ad revenues, however, continued to remain subdued with 3.2% growth in Q3FY16, as Mint remained unprofitable. With the gradual revival in the economy, we expect English ads to grow at 4.9% CAGR (FY15-18E) to crore. Radio segment posts strong growth; one-off mars margins The radio segment posted strong revenue growth of 25.2% YoY to 32.3 crore, given the festive season. Radio margins were at 31.2% in Q3FY16 vs. 47.8% in Q3FY15 as the company incurred Chennai launch ( 2 crore) and higher licence fees ( 3.8 crore). The company also indicated that it is looking to operationalise couple of newly acquired channels in FY16E. We expect the radio business to grow at 16.1% CAGR in FY15-18E to crore. We have, however, not factored in any incremental revenue and costs from newly acquired channels as the launch remains uncertain. Digital business revenues up; Guidance for lower losses, going ahead... HT Media s digital business revenues grew 43% YoY to 38.2 crore in Q3FY16 vs crore in Q3FY15. Though losses in 9MFY16 amounted to 53.3 crore, the company guided for losses of ~ 55 crore in FY16E and 35 crore in FY17E given the traction in Shine and HT Mobile. While we have slightly revised upward our digital segment revenues estimates, we believe the margin improvement will be gradual. Awaiting company s stance on cash deployment; maintain HOLD We note that HT Media remains a key player in the Indian print media industry, available at inexpensive valuations of 9.2x FY18E earnings. The major spoiler, though, has been absence of cash deployment strategy (net cash & equivalents of ~ 800 crore as on Q3FY16), which also has a bearing on the return ratios, which are suppressed. We await clarity on the company s strategy of optimising its capital structure and deployment of cash through acquisition/dividend, etc. Furthermore, the English print segment is yet to gain traction in a tepid economic environment and continuing Mint losses. We continue to maintain HOLD recommendation, valuing it at 10x FY18E EPS of 8.6, with a target price of 86. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY16 Q3FY16E Q3FY15 Q2FY16 YoY (%) QoQ (%) Comment s Revenue The Hindi ad revenue growth remained robust with traction owing to the Bihar elections and festive rich quarter Other Income Raw Material Expenses Employee Expenses The company incurred higher employee costs due to annual increments impact and hiring Administrative Expenses (Increase)/Decrease in inventories Other expenses NA NA EBITDA Higher reveneus led to higher-than-expected EBITDA EBITDA Margin (%) bps 700 bps Margins came in higher owing to the lower-than-expected administrative expenses Depreciation Interest Total Tax PAT PAT came in higher owing to lower taxes Key Metrics English Ad Growth (%) Hindi Ad Growth (%) Hindi ad reveneus were buoyed by the Bihar elections and traction seen due to the festive season Circulation Revenue (%) Change in estimates FY16E FY17E FY18E Comments ( Crore) Old New % Change Old New % Change Introduced Revenue 2, , , , ,990.7 English print ad growth for the future has been slightly toned down EBITDA Rupee depreciation would slightly reduce the benefits from newsprint, going ahead. In addition, spends towards digital businesses will remain EBITDA Margin (%) bps bps 13.8 PAT EPS ( ) Assumptions Current Earlier FY14 FY15 FY16E FY17E FY18E FY16E FY17E Comments English Ad Growth (%) English ad growth has been slightly toned down Hindi Ad Growth (%) The traction seen in the UP and Bihar markets led to the revision in ad growth estimates ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Consistent ad growth better than industry The company runs a Hindi daily Hindustan and enjoys leadership positions in the markets of Bihar, Jharkhand, Delhi, etc. Hence, it has reached a tally of 597 crore in FY15 (12% CAGR over FY12-15) from Hindi ad revenues. The company continued to see an increase in ad volumes in its leadership markets with strong growth emanating from the UP markets. In terms of segmental ad growth, DAVP was up 13% YoY, automobiles increased 10% YoY while BFSI was up 12% YoY in Q3FY16. Ecommerce and FMCG ad spends increased 5-7% YoY in Q3FY16. We believe the performance in Hindi dailies would remain robust and expect Hindi ad revenues to grow at 14.5% CAGR in FY15-18E to crore by FY18E. Exhibit 1: Ranks of Hindi dailies in some Hindi speaking states States Top three Hindi newspaper with Average Issue Readership ( in thousand) Bihar Hindustan (4814) Dainik Jagran (2913) Aj (245) Chandigarh Dainik Bhaskar (170) Amar Ujala (73) Punjab Kesari (38) Chhattisgarh Dainik Bhaskar (899) Nava Bharat (Mah/Chh) (617) Hari Bhoomi (895) Delhi Navbharat Times (1808) Hindustan (1028) Punjab Kesari (608) Haryana Dainik Bhaskar (1282) Dainik Jagran (1006) Punjab Kesari (975) HP Amar Ujala (445) Punjab Kesari (371) Divya Himachal (211) J&K Amar Ujala (114) Punjab Kesari (40) Dainik Jagran (27) Jharkhand Hindustan (1678) Prabhat Khabar (1322) Dainik Jagran (869) MP Dainik Bhaskar Group (4124) Nai Dunia (1055) Nava Bharat (MP) (131) Rajasthan Rajasthan Patrika (6733) Dainik Bhaskar Group (6234) Dainik Navjyoti (490) UP Dainik Jagran (8900) Amar Ujala (6646) Hindustan (4233) Uttaranchal Amar Ujala (829) Dainik Jagran (710) Hindustan (388) Exhibit 2: Total advertisement revenues and growth (%) ( Crore) ,665 1,752 1, , ,230 FY14 FY15 FY16E FY17E FY18E (%) Advertisement Revenue Hindi Ad Growth English Ad Growth English ad remains subdued National advertisers have curtailed their ad spends due to the economic slowdown and made a shift to cheaper vernacular advertising, which negatively impacted the English print business. HT Media, which runs the second largest English daily Hindustan Times with a readership of 3.8 million as per IRS December 2012, posted only 2.0% CAGR in FY12-15 in its English ad revenues. The English segment ad revenues, though in the positive territory, continue to remain in low single digits with 3.2% growth ICICI Securities Ltd Retail Equity Research Page 3

4 in Q3FY16, as Mint remained unprofitable. With the gradual revival in the economy, we expect English ad to grow at 4.9% CAGR (FY15-18E) to crore. Circulation revenues to remain in single digits The growth in readership of the company is visible in circulation revenues, which have grown at 13.0% CAGR in FY13-15 from crore to crore. During Q3FY16, circulation revenues grew 4.8% YoY to 76.9 crore. Circulation copies were at 28 million for Hindi dailies and ~17 million for English dailies. As the increase in cover price hike of copies would remain range-bound, circulation revenues are expected to grow at 3.6% CAGR in FY15-18E to crore. Exhibit 3: Circulation revenues and growth trend ( Crore) FY14 FY15 FY16E FY17E FY18E (%) Circulation Revenues Circulation Growth Radio segment posts strong growth; one-off mars margins The radio segment posted strong revenue growth of 25.2% YoY to 32.3 crore, given the festive season. Radio margins came in at 31.2% in Q3FY16 vs. 47.8% in Q3FY15 as the company incurred the Chennai launch ( 2 crore) and higher licence fees ( 3.8 crore). We expect the radio business to grow at 16.1% CAGR in FY15-18E to crore and would be margin accretive for the company as overall radio margins remain higher than print margins. We have, however, not factored in any incremental revenues and costs from newly acquired channels as the launch remains uncertain. Digital business revenues up; guidance for lower losses, going ahead... HT Media s digital business revenues grew 43% YoY to 38.2 crore in Q3FY16 vs crore in Q3FY15. Though losses in 9MFY16 amounted to 53.3 crore, the company guided for losses of ~ 55 crore in FY16 and 35 crore in FY17 given the traction in Shine and HT Mobile. While we have slightly increased our digital segment revenues estimates, we believe the margin improvement will be gradual. ICICI Securities Ltd Retail Equity Research Page 4

5 Valuation We note that HT Media remains a key player in the Indian print media industry, available at inexpensive valuations of 9.2x FY18E earnings. The major spoiler, though, has been absence of cash deployment strategy (net cash & equivalents of ~ 800 crore as on Q3FY16), which also has a bearing on the return ratios, which are suppressed. We await clarity on the company s strategy of optimising its capital structure and deployment of cash through acquisition/dividend etc. Furthermore, the English print segment is yet to gain traction in a tepid economic environment and continuing Mint losses. We continue to maintain HOLD, valuing the stock at 10x FY18E EPS of 8.6, at a target price of 86. Exhibit 4: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY FY16E FY17E FY18E ICICI Securities Ltd Retail Equity Research Page 5

6 Company snapshot Target Price Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jan-09 Acquires radio business of HT Music and Entertainment Company engaged in the business of providing entertainment, radio broadcast and all other related activities through its radio stations operating under the brand name 'Fever 104' in Delhi, Mumbai, Kolkata and Bangalore Jun-09 Advertisement growth in the English print segment starts underperforming peers due to subdued macro situations Jul-09 HT Media launches Mint in Chennai after launching it in Kolkata a few months back. This launch leads Mint to have a national footprint Dec-09 Sells the Hindi business comprising Hindi daily newspapers, Hindustan including Ravivasriya Hindustan ; magazines Nandan and Kadambini ; and internet portals of the said publications on a slump sale to Hindustan Media Ventures, a subsidiary company with effect from December, 2009 Sep-13 Divests its stake in its Burda operations, which contributed about 38.2 crore to the company's other income Apr-12 Reports negative ad growth of 3.1% on account of a 6.5% decline in English ad revenue Apr-13 Ad growth for the year remains subdued at -0.4%, on back of economic slump Mar-14 Completes share buy-back of 25 crore for a consideration of about 18.8 crore Sep-15 HT Media buys 10 frequencies in phase III radio auctions with a payout of crore Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m)n Change ( m) 1 K. K. Birla Group 30-Sep Norges Bank Investment Management (NBIM) 30-Sep Reliance Capital Asset Management Ltd. 30-Sep Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Sep APG Asset Management 30-Sep Bajaj Allianz Life Insurance Company Limited 30-Sep Kuwait Investment Authority 30-Sep DSP BlackRock Investment Managers Pvt. Ltd. 31-Dec DNB Asset Management (Asia) Limited 30-Sep Mirae Asset Global Investments (India) Pvt. Ltd. 30-Nov Shareholding Pattern (in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Promoter FII DII Others w Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor Name Value Shares Investor Name Value Shares Franklin Templeton Asset Management (India) Pvt. Ltd M +0.60M Mellon Capital Management Corporation -0.63M -0.51M Mirae Asset Global Investments (India) Pvt. Ltd M +0.50M Reliance Capital Asset Management Ltd M -0.31M Sundaram Asset Management Company Limited +0.15M +0.12M DNB Asset Management (Asia) Limited -0.20M -0.16M Canara Robeco Asset Management Company Ltd M +0.00M HSBC Global Asset Management (India) Private Limited -0.13M -0.11M FIL Investment Management (Singapore) Ltd M +0.00M Ashmore Equities Investment Management (US) LLC -0.02M -0.01M Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

7 Financial summary Profit and loss statement Crore (Year-end March) FY15 FY16E FY17E FY18E Total operating Income 2, , , ,990.7 Growth (% ) Raw Material Expenses Employee Expenses Other Expenses ,069.8 Total Operating Expenditure 2, , , ,578.1 EBITDA Growth (%) Depreciation Interest Other Income Exceptional Items PBT MI/PAT from associates Total Tax PAT Growth (%) EPS ( ) Cash flow statement Crore (Year-end March) FY15 FY16E FY17E FY18E Profit af ter Tax Add: Depreciation Add: Interest Paid (Inc) /dec in Current Assets 11.0 (69.6) (61.1) (104.6) Inc/(dec) in CL and P rovisions Ot hers CF from operating activities (Inc) /dec in Investments (Inc) /dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Interest paid Others CF from financing activities Net Cash flow Opening Cash Closing Cash Balance sheet Crore (Year-end March) FY15 FY16E FY17E FY18E Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Ot hers Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Goodwill on Consolidation Investments Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets Cr edit or s Provisions Other Current Liabilities Total Current Liabilities Net Current Assets Other non current assets Application of Funds Key ratios (Year-end March) FY15 FY16E FY17E FY18E Per share data ( ) EPS Cash EPS BV DP S Cash Per Share Operating Ratios (%) EBITDA Margin EBIT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 7

8 ICICIdirect.com coverage universe (Media) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E DB Corp (DBCORP) Hold 5, DISH TV (DISHTV) Hold 9, NA NM NM ENIL (ENTNET) Hold 3, Eros (EROINT) Buy 1, Hathway Cables (HATCAB) Sell 3, NM NM NM NM NM NM NM HT Media (HTMED) Hold 1, Inox Leisure (INOX) Buy 1, Jagran Prakashan (JAGPRA) Buy 5, PVR (PVRLIM) 738 1,017 Buy 3, Sun TV (SUNTV) Hold 14, TV Today (TVTNET) Buy 1, ZEE Ent. (ZEETEL) Hold 39, *FY18E numbers for Zee Entertainment, HT Media & DB Corp are rolled forward from this quarter onwards. Those numbers for Zee Entertainment HT Media & DB Corp can be accessed through the financial summary in their respective reports. ICICI Securities Ltd Retail Equity Research Page 8

9 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 9

10 ANALYST CERTIFICATION We /I, Bhupendra Tiwary MBA, Sneha Agarwal, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Bhupendra Tiwary MBA, MBA Sneha Agarwal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Bhupendra Tiwary MBA, MBA Sneha Agarwal, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 10