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Thursday, August 04, 2005
Hindustan Times - (Unknown Analysis)
IPO & Size
HTM, one of India's leading print media company, is making public offer of 76,91,000 equity shares (FV Rs.10), comprising Fresh Issue of 46,40,000 equity shares, offer for sale of 23,55,000 shares by HPC, Mauritius and 6,96,000 shares by Hindustan Times by way of Green Shoe option. At Price Band of Rs.445-Rs.530, HTM is garnering Rs.206.48 crore–Rs.245.92 crore. Post Issue equity will rise to Rs.47.09 crore fully diluted and promoters' holding will come down to 68.37% (77.11%). Proceeds of issue will be deployed for expansion of printing operations at Noida and Mumbai, augmenting of sales and marketing especially for establishing brand in Mumbai and entering into providing FM radio services subject to regulatory approvals.
About HTM
HTM is India's second largest print media company in terms of circulation of daily newspapers. It publishes two daily newspapers – Hindustan Times in English and Hindustan in Hindi, apart from a couple of magazines. As part of its strategy to grow the newspaper' national presence, company has launched Hindustan Times in Mumbai.
Investment Positives
Ø "Hindustan Times" has the largest circulation among English dailies in Delhi (25% lead over its nearest competitor) and neighbouring areas of Chandigarh, Ludhiana etc. Being one of the leading media brands in India, "Hindustan Times" attracts higher ad-spend, better rates and more attractive business arrangements than many of its competitors. On the other hand, HTM's Hindi publishing is also going to be one of the growth drivers as company's earlier investments in high growth markets in Hindi belt will now add to sales and profitability as these markets have turned around.
Ø HMT's foray into Mumbai market, which has the largest share of print media advertising expenditure in India, is a key step to grow company's national footprint and exploit the most lucrative advertising market in India. Entry of "Hindustan Times" in Mumbai (which is currently dominated only by a single newspaper) will provide advertisers and readers with greater visibility and a compelling alternative. Moreover, attractive subscription offers from the new entrant may bring it a significant number of readers leading to expansion of Mumbai market. Company is investing a substantial amount for launching and sustained visibility of its brand in Mumbai. Thus, by combining its leading presence in Delhi and other key markets with its Mumbai edition, HTM has an opportunity to capture a greater share of national ad-spend.
Ø The Indian economic scenario presents promising growth opportunity for the industry. Out of advertising pie of Rs.11,800 crore (In 2004), Print media contributed 46% of ad spend, while TV media contributed 41%. With increase in GDP, literacy, purchasing power and ad-spend., advertisement pie continues to experience double digit growth. While print segment is growing at 15%, TV segment is growing at 13%. Readership of print media is growing at 18% in Hindi and 14% in English.
Ø HTM is improving its operating efficiency through enhancement of revenue generation efficiency, streamlining its manpower over past two years, and reducing newsprint cost (constitutes 50% revenue) through better sourcing and lowering of waste. Moreover, for better asset utilization, company will be undertaking third party printing jobs from Q3 FY06.
Ø Company is selectively considering entering into complementary newspaper and print media businesses, where it can either leverage its brands, its existing advertising customer base or both. It is also considering launching business/financial newspaper and other English editions in key high-growth markets in southern India. In addition, to further its goal to develop into a leading media business, HTM is exploring other opportunities in Indian media sector, such as FM radio, internet etc.
Ø In Q1 FY2006, company has reported total revenue of Rs.181.77 crore. There has been improvement in advertisement revenue to Rs.147.38 crore due to increase in advertisement rates in May 2005. Reduction in competitive pressure in Delhi market has enabled HTM to reduce its sales and marketing expenditure. Operating margins stand at 21.4%. Company's PAT for the quarter stood at Rs.9.8 crore.
Investment Negatives
Ø Mumbai venture will have a negative impact for at least next two years and till then it could act as a drag on HT Media's earnings. Market scenario in Mumbai remains challenging owing to aggressive competition.
Ø Business is heavily dependant on advertising revenue and a downturn in the economy may adversely affect company's revenues.
Ø A spurt in newsprint cost in near term is another cause of concern.
Valuation
At IPO band of Rs 445-530 per share, stock is offered at 61-73 times its FY 2005 fully diluted adjusted earnings of Rs.7.25 and at 51-61 times FY 2006 expected fully diluted earnings of Rs.8.7. Not withstanding positives, though there may be moderate listing gains, we recommend "AVOIDING" the issue, in view of very steep pricing.
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