HT Media

It is one of the oldest and most venerable names in Indian media space. The HT Media (HTM)has a foothold in all the media and entertainment segments, be it virtual or real and has managed to create a large and captive audience. In the print media, its flagship product Hindustan Times newspaper is arguably the most read daily in the national capital region (NCR) region and in the financial capital, Mumbai it is among the top three -- growing at close to 4 per cent. Its recent venture Mint, a joint venture with the US-based Wall Street Journal, is the second-largest business daily in India and is still growing at a rapid pace of 25 per cent.
Despite the downturn, the company has done well to increase its revenue in the last quarter of FY09. Its revenue rose to Rs 337 crore i.e. a 6.4 per cent jump y-o-y. For the financial year FY09, the revenues were up by 12 per cent. But the profits for FY09 were down to Rs 85.2 crore on the back of higher newsprint prices, slow-down in the advertising revenue and adverse foreign currency movement. Though on the positive side its radio business has turned around in Q4 FY09, which would now be able to contribute to profits in FY10. Moreover, with newsprint prices going down by almost 35 per cent and the recent cost-cutting exercise on the manpower and overheads fronts will certainly bear fruit FY10 onwards. Brics Securities is of the view that HTM will grow at 52 per cent CAGR through FY11.

But tough competition from India’s number one newspaper, the Times of India, owned by Bennet & Coleman, HT is having trouble managing its expansion activities. With its inability to grow its market in the English language space, its historically high market share (30% of the revenue) in the Hindi-dominated region has consistently pulled it out of the woods. But this kind of lop-sided revenue stream has its benefits. Looking forward, vernacular advertising, according to Brics Securities will grow at over 30 per cent, which will contribute to a 7 per cent rise in total ad sales and 5 per cent growth in overall revenue.

However, the management has to come up with something spectacular to fill the gap between itself and the Times of India, which now has a very vibrant TV entity in the form of Times Now, a general news joint venture with Reuters, to really come into the reckoning as an overachiever that investors should be interested in.

Valuations

Even with a question mark on the ability of the management to have compelling strategy to compete with the Times of India, still the current valuation of the company makes it a very attractive buy. At a price-to-earnings ratio (PE) 6.5 times its forward earnings, it discounts historical 3-year range of PE by over 55 per cent. Jagran Prakashan, another competitor with expansionary intent, is trading at a higher PE (7.9x) than HTM. The stock’s price has already factored in the strategic gap that exists in the company’s future. According to a Brics Securities report. If HT is able to increase its margins in the next 12 to 18 months, then it will be able to grow its bottomline (52%) despite a slowdown in the topline.