Hindustan Media Ventures IPO Analysis

Hindustan Media Ventures (HMVL) is promoted by the HT Media, an integrated multimedia company. HMVL publishes and prints ‘Hindustan', the third largest daily newspaper in India by readership (9.9 million readers, according to IRS, Q1 2010). The company also publishes two Hindi magazines, ‘Nandan‘, a children‘s magazine, and ‘Kadambini‘, a general interest magazine. In addition to its Hindi print publications, it also operates the website, www.livehindustan.com, which focuses on providing news in Hindi with regional content. Further, HMVL recently forayed into event management and customized event solutions.



From December 1, 2009, pursuant to the business purchase agreement dated November 16, 2009, HMVL acquired as a going concern the Hindi business including ‘Hindustan', 'Nandan' and ‘Kadambini' publications, certain printing facilities and personnel from HT Media, its promoter, on a slump sale basis and on an ‘as is where is' basis.

‘Hindustan‘ began publication in 1936, owing its origins to and serving as a medium for the freedom movement, and has been one of India‘s eminent Hindi newspaper dailies for over 70 years. ‘Hindustan‘ has the largest readership in key Hindi-speaking markets of Bihar and Jharkhand, with a strong and growing presence in Delhi NCR, Uttar Pradesh and Uttarakhand. ‘Hindustan‘ was one of the fastest growing Hindi daily newspapers in India with a growth in readership of 15.9% between July 2006 and December 2009 (Source: IRS, R2 2007 to Q1 2010).

‘Hindustan‘ is published in four editions and 113 sub-editions. It is presently printed at 17 locations in Uttar Pradesh, Bihar, Jharkhand, Uttarakhand, Punjab and Delhi NCR with a total installed rated capacity approximately 0.78 million copies per hour. These printing facilities are located at Agra, Allahabad, Bareilly, Bhagalpur, Dehradun, Delhi NCR, Dhanbad, Jamshedpur, Kanpur, Lucknow, Meerut, Mohali, Muzaffarpur, Patna, Ranchi, Danapur and Varanasi. The company distributes its newspapers through a multi-tiered network of agents and vendors.

HMVL sells advertisement space for its publications through advertising agencies as well as directly to clients. Further, the company leverages on the HT group‘s relationships with various advertising agencies to facilitate sale of advertising space in its publications. As of May 31, 2010, the HT group had transacted with 845 accredited agencies and 6496 non-accredited agencies.

The company plans to raise Rs 270 crore through fresh issue of equity shares. Of the funds raised, Rs 66 crore would be utilized for setting up new production facilities adding about 40,000 copies per hour to be operational by end FY 2012 in UP, Bihar and Jharkhand, Rs 55 crore towards upgradation of existing facilities, and Rs 135 crore towards prepayment of loan.

The company's current printing capacity is 7.8 lakh copies per hour, which it plans to increase by 40,000 copies to 8.2 lakh copies.

Strengths

* As per FICCI-KPMG Report 2010, the Indian print media segment is estimated to have grown by 2% in 2009 to Rs 175 billion from Rs 172 billion in 2008. In 2010, the overall print market size is expected to grow at 8% to Rs 190 billion on the back of advertisement led recovery supported by partial economic recovery and release of pent-up demand and advertisement budgets. Over the next 5 years, the overall print market is expected to grow at CAGR of 9%.

* With a readership base of over 350 million, India is the second largest print market in the world. However, this market is still under-penetrated in comparison to its population. With a 42% reach in the urban markets and a low 21% reach in rural markets, major growth opportunity lies in the vernacular markets.

* There is a significant mismatch between the readership numbers and advertising revenues for English and Hindi newspapers due to the rate of advertising in Hindi dailies being much lower than in English dailies. Though the reach of Hindi print is higher, it has not been able to monetize that reach. The premium of English over Hindi is estimated to be 6.4 times. With growth picking up outside the metros, as can be seen by the growth in Tier II and Tier III cities, the rates are expected to move in favour of Hindi and regional print. E.g. Bihar & Jharkhand have been the two leading states in terms of GDP growth faster than the national average.

* HMVL has a strong parentage in the HT group, an integrated multimedia company. ‘Hindustan' has a strong foothold in the Bihar & Jharkhand market. Its share of readership is increasing in the biggest Hindi region of Uttar Pradesh. The funds raised would be utilized to set up more printing facilities in Uttar Pradesh, thereby increasing its penetration in the state. Also, ‘Hindustan' has been one of the fastest growing Hindi daily in the country, with 6% increase in readership to 99.14 lakh, as per the latest readership survey.

Weaknesses

* Competition within the segment and from other media platforms. The Hindi print segment is highly fragmented and competition is intense with the entry of leading players in newer geographies. D B Corp, the Dainik Bhaskar group, has planned entry into Bihar & Jharkhand a stronghold of ‘Hindustan'. This has prompted ‘Hindustan' to reduce cover price in Ranchi from Rs 4 to Rs 2 in June 2010.
* Newsprint cost constitutes about 40-50% of the costs of print media companies. Newsprint prices had been very volatile in 2009, hitting highs of US$ 900 per tonne. They have cooled down to US$ 450 per tonne and are now moving at US$ 575 per tonne currently. The volatility in newsprint prices would have an impact on the profit margins of print media companies.

Valuation

On a pro forma basis i.e., adding the eight months of carved out Hindi business of HT Media (April 2009 – November 2009) to the four months of HMVL financial (December 2009 – March 2010), FY2010, was the first significantly profitable year for the Hindi business with operating margins of 18.5% and net margins of 10.3%. Over FY2007 – 2010, the advertising revenues have grown at CAGR of 32.5% and circulation revenues have grown at CAGR of 11% and readership has grown at CAGR of 5% at 99.14 lakh.

At the price band of Rs 162 – 175 and at the EPS band of Rs 6.1 – 6.2, the PE on the lower band works out to 26.4 – 28.6 and the upper band works out to 26 – 28.1 times. The debt repayment of Rs 135 crore from the issue proceeds would lead to savings on interest costs, which would be EPS accretive for the company. HT Media, the promoter company, which includes the English print business, radio business and internet business, is trading at 24.8 times.

Jagran Prakashan, the leader in the Hindi print space with readership of 163.1 lakh, is trading at TTM PE of 21.4 times. D B Corp, the second largest player in the print space with readership of 133.2 lakh, is trading at TTM PE of 21.8 times. The advertising revenues for both companies have grown at CAGR of 18% over FY2007 – 2010 in spite of their size being double the size of HMVL..