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Research
HT Media - Below expectations; downgrade to Add - BRICS Securities
Posted On : 2012-05-22 10:51:11( TIMEZONE : IST )
HTML's revenue growth of 5% yoy at Rs4.9bn underperformed expectations, led by a 3.6% decline in English newspapers' ad revenue. EBITDA margin also disappointed, falling to 9.8% on higher raw material costs and provision for 'Ad for Equity' business loss(Rs57mn). We cut our FY13 and FY14 earnings estimates by 9% and 14%, respectively, to factor in lower advertisement growth and higher newsprint prices. Downgrade the stock to Add (from Buy) with revised price target of Rs125 (from Rs145).
Weak revenue growth: HTML reported 5% revenue growth to Rs4.9bn with advertising revenue growing 3% to Rs3.7bn driven by Hindustan's22% growth. English newspaper ad revenue fell 3.6% to Rs2.6bn due to slowdown in real estate, telecom and financial services segments. Circulation revenue grew 3% to Rs483mn driven by Hindustan's 13% growth; English newspapers reported a 15% fall.
Margins decline: EBITDA margin fell 9.8% on higher newsprint prices due to rupee depreciation (while international prices are stable), and a Rs57mn provision for diminution in value of investments in its Ad-for-Equity business. HTML has rationalised its policy of investing in the 'Ad-for-Equity' business and started liquidating assets to match cash flows to revenues. Also, every deal involves some portion of cash and it is avoiding pure equity/asset deals.
Cut estimates: We have cut our FY13 and FY14 revenue estimates to factor the Q4FY12 underperformance and weak advertising outlook; cut margin estimates by 160bps and 270bps on higher raw material costs-resulting in an 8.8% and 14% drop in earnings.
Outlook and valuation: The stock trades at a P/E of 12x FY13 and 11xFY14 P/E on our estimates. We downgrade the stock to Add and reduce target to Rs125 (12.5x (unchanged) our average EPS for FY13-14) from Rs145 as we believe earnings growth will face multiple headwinds from weaker ad growth in Delhi and Mumbai, input costs will be higher due to circulation growth and rupee depreciation, and delays in Mint and HTMumbai breakeven will persist.
