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Research
Hindustan Media Ventures - Strong advertising growth on UP elections; maintain Buy - BRICS
Posted On : 2012-05-22 10:49:24( TIMEZONE : IST )
Hindustan Media Ventures (HMVL) reported better than expected(19%) revenue growth backed by strong advertising growth (22%). However, EBITDA margins declined to 13.7% due to increase in scale of operations and provision for the 'Ad for Equity' business. Earnings were up 7% at Rs137mn and HMVL currently has a net cash of Rs2.34bn. We tweak our estimates and keep our target at Rs170. Reiterate Buy on expanding margins and harvesting of the UP rollout.
Strong advertising growth on UP elections: HMVL reported a 22% increase in advertising revenue to Rs1.6bn on pricing improvements and UP elections-management estimates 8% bump-up in advertisement revenue due to the elections. Circulation revenue also increased 13% to Rs346mn led by higher circulation and better realisation per copy.
Ad-for-Equity provision dents margins: HMVL made a provision of Rs20mn for diminution in value of investments relating to its Ad-for-Equity business resulting in contraction in EBITDA margins to 13.7%. Adjusting for this, EBITDA margins were in line with expectations at 15%. The company has rationalized its policy of investing in the Ad-for-Equity business and has started liquidating assets to match the cash flows to the revenues. Also, every deal involves some portion of cash and it is avoiding pure equity/asset deals.
Maintain estimates: We fine tuned our estimates for FY13 and FY14 - forecast revenue CAGR of 13% over FY12-14 led by yield improvement driving margins to 20.5% by FY14 from 16% in FY12. Slowdown in economic activity remains the key risk to our estimates.
Outlook and valuation: The stock trades at 13x FY13 and 9x FY14 P/E. We maintain target at Rs170 using P/E multiple of 13.5x on our average FY13-14 EPS. Strong advertising growth in Q4FY12 was a one-off led by UP elections, but the overall advertising market remains weak. We maintain our Buy rating due to ad-yield improvement from expanding readership in UP and Uttaranchal and the fact that leadership in the fast-growing core market of Bihar and Jharkhand is intact.
