Hindustan Media Ventures IPO

Long-term investors should weigh the option of investing in Hindustan Media Ventures only in the secondary market

IPO details:

Company Name: Hindustan Media Ventures

Issue Size: Rs 270 crore

Price Band: Rs 162-175

Issue Date: July 05 to July 17

HINDUSTAN Media Ventures, the company that publishes Hindi daily Hindustan, is entering the capital market to raise around Rs 270 crore. Hindustan is the third-largest newspaper in India in terms of readership with an estimated readership of around 9.9 million. The newspaper has a dominant presence in Bihar and Jharkhand. It is also increasing its presence in the National Capital Region, Uttar Pradesh and Uttarakhand.

   The company also publishes two Hindi magazines — Nandan, a children's magazine, and Kadambini, a general interest magazine. Of the total proceeds of Rs 270 crore, the company will utilise around Rs 66 crore for setting up new publishing units, Rs 55 crore for upgrading existing plant and Rs 135 crore for prepayment of its loans.

INDUSTRY & FINANCIALS:

The media industry, in the past few quarters, has benefitted from falling newsprint cost and a revival in advertisements. Newsprint cost has nearly halved in the past 18 months. Hindustan Media Ventures was one of the beneficiaries of these trends. Further, the acquisition of Hindi business from HT Media enhanced its topline significantly. In recent quarters, regional language newspapers have scored an edge over their English peers in terms of revenues. Hindustan Media Ventures continues to benefit from this trend. Going forward, local advertising will be crucial for its revenue growth. Also, the company is not dependent on international newsprint as over 80% of its newsprint comes from the domestic market. Hence, it is not exposed to the vagaries of foreign exchange fluctuations unlike its peers. The company's total income, which includes advertising, sale of newspapers and other source of income from operations, shot up from Rs 17 crore in FY09 to Rs 166 crore in FY10. Around Rs 144 crore came from the acquisition itself. Before the acquisition, the company derived revenues primarily from printing its parent company, HT Media's publications. Also, the company's net profit rose from around Rs 14 crore in FY09 to Rs 31 crore in FY10.

GOING FORWARD:

Besides, consolidating its presence in Bihar and Jharkhand, the company intends to gain the market share in the Delhi National Capital Region. Moreover in Uttar Pradesh, the company intends to provide stiff competition to formidable players such as Dainik Jagran and Amar Ujala. It looks to set up eight new publishing units for printing and publishing new editions of Hindustan. Over the past three years, the company has made significant investments by opening five printing locations each at Agra, Meerut, Allahbad, Kanpur and Bareilly in Uttar Pradesh.

VALUATION:

On the valuation front, on a post-issue fully-diluted equity, the company demands a price-to-earnings multiple of 28 at the higher end of the price band. Its peers such as Jagran Prakashan and DB Corp (standalone basis) at present trading at a price-to-earnings of 20 times and 22 times, respectively. This makes the offer price a bit expensive, given the fact that companies such as Jagran Prakashan, DB Corp and also Deccan Chronicle Holdings are bigger and well established.

   Though the company has shown good growth recently in advertising revenue, much of this can be attributed to the acquisition of Hindi business from its parent company HT Media. Hence, this wouldn't be a true barometer to judge the company's performance. It needs to be seen how well the company can grow given the stiff competition from its bigger peers. Hence, it is advisable for long-term investors to weigh options of investing in the company at a lower price in the secondary market.