Media: Hindi papers to outperform - DB Corp, Hindustan Media Ventures top picks - BRICS Research

Media: Hindi papers to outperform

DB Corp, Hindustan Media Ventures top picks

We initiate coverage on the print sector with a positive outlook based on enough headroom for expansion into new cities, limited alternative to newspapers in tier-2/3 cities (58% of print ad volume), and a still distant threat from digital media. We favor Hindi/regional newspapers (DB Corp, Hindustan Media Ventures) over English ones (HT Media) as the ad-rate difference between both (English currently higher) is likely to narrow with rising income levels in Hindi/regional markets. English newspapers will be affected first by the rise of digital media - there is already higher media clutter for this audience. We initiate coverage with Buy ratings on HT Media (18% upside), DB Corp (22%), and Hindustan Media Ventures (42%).

Advertising growth to taper off over FY12 and FY13: We expect overall advertising growth to slow down to 11.5% in FY12 and 10% in FY13 from 15.6% in FY11 due to falling consumer demand and pressure to preserve margins. Print ad revenue growth is likely to be 9.1% in FY12 and 7.7% in FY13 - it is more volatile than for TV due to higher dependence on cyclical sectors such as auto, BFSI, real-estate, and retailers. We expect ad-spend in telecom, autos and social sectors to improve in 2012 led by (respectively) launch of broadband services, new vehicle models, and number of state elections.

Structural changes favour Hindi newspapers over English ones: Besides factors such as improving literacy and low cover prices, the government's focus on rural-centric social spending and increasing diversity in local economic activity from rising income levels and aspirations are likely to drive media consumption and ad-spend in tier-2/3 cities. This will favour Hindi/regional players. However, print media may face competition and cannibalization with the phase-3 radio rollout. Hindi papers enjoy better margins than English peers.

Buy DB Corp with target price of Rs250: We initiate coverage on DB Corp with a Buy rating and target price of Rs250 (using 16x average FY13-14E EPS) based on stronger growth expectation in Hindi advertising, leadership position in key Hindi states and urban centers, and track record of successful entry into new markets.

Buy HT Media with target price of Rs145: We initiate coverage on HT Media with a Buy rating and target price of Rs145 (12.5x average FY13-14E EPS) based on HT Mumbai and Mint becoming profitable by H1FY13, diversified presence across newspaper segments (Hindi, English, business), and foray into online media to hedge possible slowdown in some markets.

Buy Hindustan Media Ventures with target price of Rs180: We initiate coverage on HMVL with a Buy rating and target price of Rs180 (13.5x average FY13-14E EPS) based on economic growth revival in its core Hindi markets, possible improvement in ad-yield in UP, and expenditure that is tapering off. Our target maintains a 15% discount to DB Corp to factors in a relatively smaller addressable market compared with other Hindi players and threat of increased competition from new entrants in its core markets.

Source : Equity Bulls

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