Hindustan Media Ventures Limted (HMVL)

Also, summary report of some number crunching. This looks like a dream set of numbers to have from any business (the only issue i see business longivity, capital allocation, any negatives on corporate governance in case happens, have not come across till now):

Note : Thanks to @Donald and Dr. Vijay malik. This summarized financial analysis is a mix of work done and shared by Donald, Dr. Vijay Malik and some of my own frameworks.

Also, Please ignore 10 year numbers as, HMVL was separated in 2010 and numbers should be seen from that timeline and hence, 5 year based numbers make more sense.

Disc: Invested with 2.5% allocation to portfolio. This is not a recommendation by any means

Further, I am trying to do a neck to neck comparison with Jagran Prakashan. Numbers are very similar but though HMVL leads JP in most of the indicators (the reason being Jagran took some debt to set-up radio business and hence has been creating new businesses where as HMVL has not done), and hence, what seems to be a advantage is also the reason for being pain area. However, few points like accounts receivables , HMVL is better than jagaran and recently there has been spike in receivables for jagran. Also, due to high debt and similar margins, return ratios are better for HMVL. Further, SSGR (Self sustainable growth rate , Calculate Self Sustainable Growth Rate (SSGR) of a company - Dr Vijay Malik) of HMVL is very comfortable where as JP looks like catching up and reaching almost in comfort zone.

Bottomline is if we forget capital allocation issue, then, HMVL looks marginally better than JP but then the whole idea of capital allocation gives future growth comfort. Also, I see FY16 EPS as 13.61 which means PE of JP is 13.6 (consolidated) where as screener.in shows 29 PE. Am I missing something? Is this something to do with readjustment of financials due to radio business while consolidating?

Disc: Invested in both JP and HMVL. This is not for recommendation

One cannot forget capital allocation issue lightly. This is what differentiates good companies from the mediorce. Lets put it in perspective. Take the case of Amazon, it started as e-commerce company selling books online from a small Garage. Till date, it has not issued any dividends to its shareholders. Nonetheless, the stock price and the size of the company has skyrocketed. The reason being Jeff Bezos the founder worked first in the investing industry as a fund manager and then started Amazon. It is needless to say Jeff understands the importance of capital allocation. The key to Amazon’s success is because it reinvests its entire retained earnings on new products thereby growing EPS exponentially.

This video on Amazon is very impressive https://www.youtube.com/watch?v=bfFsqbIn_3E

During its early days, the management of Amazon realised they had to move to cloud computing to support their e-commerce business. Since there were no products available in the market at that point in time, they went and built there own cloud technology (AWS) which has now become a huge commercial success and mind you, has become larger than IBM and Microsoft in this space. This is a clear example of how an astute management identifies opportunities and allocates capital effectively rather than holding a war chest.

HMVL’s business has similarities to that of Amazon, that is the advertisers pay the company well in advance even before it goes to print. It is a business which requires less working capital compared to other businesses. While we see the increase in HMVL’s EPS, (which by the way is more to do with demographics than the skills of the company) it has not promoted its vision among shareholders as to how they intend to increase future revenues and returns to shareholders. They have mentioned that they will grow inorganically by acquiring other companies or through organic growth. Markets jitter, when they hear about inorganic growth primarily due to valuation risks.

It is mandatory to do number crunching and understand the business before investing. Nevertheless, one should not fail to envision the business acumen of the management.

P.S: The only point that interested me while reading transcripts of the recent conference call was, the mention of Rohit Radha Krishnan from Rare Enterprises. I also understand from the web that Rakesh Jhunjhunwala holds a small stake in HTML.

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I differ from your views on business longivity of Newspaper businesses. It is true the mainstream English newspapers world over have come under stress due to digital media. The reasons being

  • Competition
  • English readers having ease and ability to switch to digital media
  • Online advertising
  • Television advertising

This is not so the case with regional and vernacular papers. As mentioned at the start of this thread by Desaidhwanil, Warren Buffett and Charlie Munger have bought many regional newspapers. The reason being, people in regional areas would like to know about their local news which is not catered by large papers nor by online media. People in regional areas are more affiliated with their local newspapers. I reckon this trend will continue for decades and more so with vernacular papers as our rural population is behind the literacy curve. Added to it, there is a strong urge by our rural population in improving their literacy skills.

Small time investors, cannot emulate the results of Buffett & Munger. The reason being these great investors are able to buy the entire local papers at low prices and are able to deploy the capital generated from these businesses into better ventures and at the same time ensuring these businesses are sustainable.

It is a widely known fact that, although newspaper costs are subsidised to its readers, it is a cash generating business from advertising. The business gets paid upfront even before it delivers. The trick of a successful Newspaper business comes with how it manages this cash flow and grows its business. Management of such a business should have the ability to think outside the square.

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In the context of business longevity, refer the attached image for few nuggets from AR 2015-2016.

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This might be true in context of Indian local news readers but America is witnessing a big change because of digital shift. It might take time but surely it will impact Indian industry too. Watch this video of John Oliver

Thanks Surender

I agree with the views the company has expressed and as reported in AR 2015-2016. However, the issue of growth and increase of revenue with HMVL has nothing to do with business it is to do with management.

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Please read my earlier comment. It is true that mainstream papers have many challenges. However, world’s best investors Buffett & Munger have invested in 28 regional papers of America. Astute investors invest when uncertainty increases and that is where opportunities are found. The cash flow these regional papers in America are going to generate even assuming they have a life of 5 years is far greater than their share price. More so, it has been found that regional readership in America have great allegiance to their Local Newspapers which so far has not been replaced by digital media.

Counter argument for no terminal value/poor longevity for newspaper industry

As Indian literacy rates rise the number of people who read the newspapers will also rise. In India especially in rural areas, it is a statement when you are reading a newspaper especially when you have crossed the chasm from being illiterate to being a literate. Apparently there is a trend in Indian of reducing the communal reading and buying Individual papers. This should also be good news for Indian newspaper industry. (ref below) It makes sense to me- if I am slowly coming out of poverty and getting into the often used middle class bracket, I would want to make a statement by going and purchasing my own paper, make sure everyone sees me/my son/family reading.

Before we say that the death of newspaper industry is here, we need to look at where the reasoning comes from and whether Indian market is similar to the other. Although the broadstrokes are similar, there are distinct differences. The often cited reason that internet use will cause the print media to disappear might be an oversimplification. The major contribution to the decline in western newspaper industry may be due to the financial crisis rather than the internet itself. Also there is a decline in the number of newspapers in the west, covering local issues and hyperlocal issues- while in India the reverse is happening. There is a significant increase of the regional language newspapers and there local editions. The local editions, reduce the time taken to reach the customer making the news still relevant unlike before where the dak editions were considered sub par. The very local regional newspaper has different clientele, priorities, and meaning than lets say TOI, Hindu. They cover local issues, local advocacy, people are eager to read the local issues, see their photos in the paper, see photos of local events, read about conditions of roads, advice on farming, health queries and local ads from business who cannot afford ads in big newspapers.

As major political news, national news has become a commodity and can be sourced from the net without any money, I am not sure if the local news is yet to be commoditised. And the often cited reason that internet connectivity India is poor is still relevant for rural India.

For instance, Malayala Manorama - which I have at home: - I have already seen the major news that’s there the previous night on TV or on the net. But the family reads it for local news, death notices (that a big reason- I am not sure if it’s a Kerala thing or its there all over India; getting obituary in paper, death anniversary notices in papers is a big deal. Earlier alliances used to be a big reason for newspaper subscription, but the websites have come in now. I have not seen any reduction in the matrimony ads in the newspaper though. Ads for marriage anniversaries is a new thing- placing an ad for your 25 wedding anniversary or the kids paying for their parents 40- 50 th anniversaries). It has multiple editions covering every couple of districts. This phenomena is happening in Northern state regional Hindi media as well (multiple editions). A big media house running a local edition can get journalists easy, pay them better, reduce time for delivering, command more in ad rate and displace any existing local players. Along with this there are issues of tradition, habit, generational transmission of reading the particular paper.

After a critical point the newspapers dictate the general discussion; for you to have meaningful discussion you need to have read the paper other wise you are out of it. You cannot have a discussion without reading NewYork times./FT, - because they set the tone and if you haven’t read it you cannot discuss. I don’t know if any Indian paper has reached that stage. But its an interesting idea.

http://knowledge.wharton.upenn.edu/article/medium-for-the-masses-how-indias-local-newspapers-are-winning-rural-readers/

http://ejournalist.com.au/v12n1/Hooke.pdf

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I think the post was taken too strongly :grinning: The intent was not to highlight that this business wont last long but considering technology can be a possible disruption (imagine, AI and machine learning driving what people want to read , already happening, fast paced life slowly shifting print to digital though it will never go off completely. There are people who love the flavor of a newspaper in hand with tea whatever technology you bring). The key point was even if i consider the worst to worst case scenario and give 0 terminal value, still, the business with average growth rate estimates for next 10 years is worth Rs 330+ which means there is good 20% margin of safety available. I agree that print will not vanish and being in vernacular the shift cycles would be longer and it will not be total shift. At the same time, what buffet did for last 20 years, i will not consider that as blind truth because we see the rate of disruptions have fastened a lot in last few years (you can see across industries, data, AI, machine learning, robotics changing things how content is being consumed). So, it can even be an enabler to print media or disrupt also, I would like to give it more thought before totally accepting or rejecting what has been done in the past. This is what i had got in worst case (0 terminal value) and average case(if things go okaish) and had arrived at an average price in between both. However, i agree, at the end these are calculations and how much lack of capital allocation can be penalized is to be taken into consideration (or even think if such a company worth investment),nevertheless, such quantified exercise helps in taking the final calls.

Disc: this is just an analysis for discussion and not a recommendation. Holding both HMVL and JP in print media space

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Also, for me this study of longivity is a relative study as allocation of money to companies is a relative choice. So, will dsiruption happen in FMCG, very less, people have been eating food, they will be eating food (food habits rarely change in drastic manner). Pharma, may be , i do not know. Print, compared to FMCG and pharma, more likely. Banks, again , yes more likely. How long is a question to me and i do not know how to find answers. Plus, intelligent managements make use of these disruptions to their disadvantage. So, even if an industry is getting disrupted, its not a simple 1 or 0 situation and should vary company to company. However, nothing wrong in doing some stress testing and scenario analysis of numbers.:slight_smile:

These links may give some food for thought on what can be right terminal value for print media in country like India. In developed nations, there is a de growth in print circulation as well as print ads, however, it looks like still in single digit which means India has long way to go.

“Statistics and facts about the Print Media Industry in the United States
The print media crisis is hitting U.S. newspapers significantly harder than magazines. The number of daily newspapers published in the United States has been falling steadily. In 2011, there were 1,382 dailies on the market, down from 1,676 in 1985. Investment in newspaper advertising is also dwindling. According to eMarketer, it will amount to 16.4 billion U.S. dollars in 2016, over 4 billion less than it did in 2011”

Source : Mckinsey global report2015 UK 2015

I found the book ‘Headlines from heartland’ Reinventing the Hindi Public Sphere- Sevanti Ninan
very useful about the evolution of Hindi regional newspapers, issues, the effect it has- is a great read
highly recommended for an overview of the dynamics of regional newspaper industry. Its on amazon.

Thanks for the valuation and figures.
Good to have figures and valuation to back up the qualitative investing thesis.

Chart: Newspapers are Dying

Need to understand if this a big risk for HMVL too in medium to long term,if yes how soon would it start to realize- 2020/25/30/40…

Discl. Invested

One aspect one needs to think about while comparing the newspaper biz fate in US and other countries vs India is newspaper prices. And how they compare to per capita income in all the countries compared.

e.g In india, I think a monthly sum of Rs 100 per newspaper (assuming Rs 3 per copy for one month) is not a significantly big amount for most people.

And besides all these financial considerations it is the ease of use in case of newspapers which is keeping them afloat.

Just to give u an example, I have various devices at home for accessing internet but still every morning I do look out for my daily newspaper. For instant news, TV is the the easiest source of getting info.

I personally feel that the impact of disruptions are almost always over or under emphasised. We need to think which applies to Hindi newspaper industry. Both DB corp and Jagran have been projecting healthy growth in readership in vernacular newspapers in their presentations.

Besides all these things one has to consider how much of these concerns are priced in for these companies.

My contention is that as a biz, this is a fantastic biz with nearly negative working capital situation and reasonably satisfactory level of growth shown by these companies. And to add to that Jagran and DB Corp have shown exemplary capital allocation track record. (Zero marks for HMVL and I think markets also think similarly otherwise a biz like newspaper available at the kind of EV/EBIDTA at which HMVL is available will be lapped up in no time.)

Personally I think the vernacular newspapers are here to stay and will continue to prosper despite the digital threat.

disc: invested in all three, jagran, hmvl and dbcorp. (hmvl as a parking space)

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Very good analysis by all of you. There are a couple of more points in favour of the investment thesis that seem to have been missed. Firstly, death due to digital if it comes will come to English media first. So far, there is no sign of that happening in India. Secondly, India is the only country where there is home delivery of newspaper every morning. This creates a powerful stickiness with the reader. So, I have no doubt Hindi newspapers are here to stay.

Hi Kumar Saurabh

I think you have done the right thing with your calculations and assumptions about the business. It is always better to be on the cautious side when going through DCF calculations. I also appreciate the contributions by so many members in this thread.

We all agree HMVL has good business and is generating positive cash flows. Once the management clarifies its intention of hoarding money and gives a clear direction the stock price will improve. At this point in time, it has become hard to judge if the management is really concerned of ordinary shareholders nor has it displayed its skills in deploying cash.

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By the way as management capability on capital allocation has become key issue, I was trying to dig further on management history in public media. Few things were new to me. The promoters have root to KK Birla group and are pro congress. Also, the promoters have family relation with jubiliant group (jubiliant life, jubiliant foodworks etc.) which has also resulted in their print media being favorable to news publishing in certain negative circumstances. However, i dont consider currently these things as significant risks (political affiliations and media branding due to face saving of linked companies), would be great to know what you and other members think?



Note : Sorry, if these things are already discussed earlier, trying to catch up fast what has been discussed on thread but might have missed this

Hitesh Jee,
I too second your thought. Had some concerns on HMVL inter party transactions(had discussed on your page) but that was more because i was not updated and going through concalls and annual reports and reply of forum members helped a lot. I am invested in Jagran Prakashan too but not in DB corp. Do you see any other differentiated advantaged of buying DB Corp vs JP or HMVL? Is it yield improvement? And apart of higher valuation, what are relative negatives? Will read on DB corp soon.