Hindustan Media Ventures Limted (HMVL)

It’s nice that you’ve done this digging on your own but had you gone through the entire thread from the beginning, you would have easily known this and it would have saved you some time. If not already done, I would highly recommend it the first thing to do for all members, not because things could be repetitive, and that’s not much of an issue at all, but because it will help you better grasp the business.

Though these things are not discussed in this forum, the background of promoters is well known. Before investing in any company one has to study a lot about promoters and understand how they operate since they are the ones who are going to steer the ship.

Shobhana Bhartia daughter of KK Birla heads HTML & HMVL. While Sham Shyam Sunder Bhartia her husband heads the Jubilant group. Jubilant group operates Domino Pizza brand in India and Jubilant has done very well for its shareholders. Although both husband & wife have good business credentials, there are certain issues that are common to both these businesses. That is hoarding of money. While it is not so much of an issue in the case of Jubilant as it is a fast growing business in India and moreover Domino’s growth is organic. Cash generated is easily deployed.

In the case of HMVL the organic growth is limited and finding opportunities to grow inorganically is very limited and hence the management is left with no option but to buy back shares or increase dividends. This is where it gets interesting.

  • Management cannot buy back shares as they hold 70% shares of the company. SEBI guidelines will not allow them to buy back shares as management cannot increase their holdings by more than 70%
  • Secondly, promoters being billionaires, will not opt for higher dividend payouts as these payouts will have implications on their personal taxes. This could be the key reason as to why most family businesses do not increase dividend payouts.
  • Both the above issues impact small time shareholders adversely.

Hence, the only way out of this rigmarole is to find opportunities to grow and deploy capital effectively. Whilst having cash is a nice kind of problem, it could lead to disasters such as paying more for acquisition, business becoming less competitive, not realising market changes quick enough… etc.

Therefore management has a huge role to play in increasing EPS and ensuring the ordinary shareholders are benefitted

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Are you sure buyback is not at all a possibility? As per q4fy16 concall, there seems some technical arrangement possibility if there is a will:

whats a proportionate buyback?

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I was going to write about proportional buyback option when I saw your reply.

Basically, the promoters will also tender shares for buyback in proportion to their holdings. Net effect, the promoters % holdings do not change after the buyback in the simplest case.

Disclosure: Small position

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It will be very unlikely that management will do proportionate buyback. The question from management’s perspective will still remain the same. What will they do with the capital returned from proportionate buy back? They will have to deploy it in some form or the other.

Proportional buyback is the right step. It will help reduce cash on the companies book, decrease the number of stocks outstanding, increase the EPS and ROE.

What the promoters do with cash so returned to their personal pocket should not be our concern.

Basic Query from me
The roic and roe of hmvl is similar or better than peers db corp/jagran, give or take a few points. (From screener)
So why are we saying the capital allocation skills of hmvl is poor ? My understanding was that Roic was a indicator of capital allocation.
This is similar to apple and Infosys hoarding cash- people are more forgiving of them ?

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As Buyback at HMVL would pass the cash to the promoter company HT Media and not the promoters.If Promoters want to pocket the cash, buyback must be done at HT Media as well.
As probability of a buyback is 50% (Yes or No has an equal chance) at each company level, combined probability would be just 25% which implies that odds are not in favour of a buyback.
As usual sooner or later cash finds a way out, all questions should be focused on whether it will be value accretive for business as well as minority shareholders.
Please read the HT Media QyFY2017, Concall @
http://www.htmedia.in/HTMLCorpImages/HTMediaCorpSite/pdf/Reports/Q1%20FY2017%20Concall%20Transcript.pdf
Worth reading as it lists few other options ( Spin-off and Amalgamation) beside Buyback as analysts raised various questions for HMVL’s cash usage.

I live in Gurgaon and in last 3 -4 years have seen a significant maturing of the english dailies on local news. Earlier, the Hindi newspaper used to be the with local content and now english newspaper also has local content.

Imagine a situation where I’m an independent reporter focused on a particular area or a “citizen reporter” for that matter, I can sell content to someone like HMVL. So, content is not a concern. Why historically people didn’t print is probably because of lack of business case. Now, with local adverstising on rise (I see even full page, local ads) , the business case may exist and therefore, the argument (to me) doesn’t hold good.

Moreover, I guess we are hugely underestimating the smartphone wave. So far, smartphones have grown but with very poor internet connectivity - that woudl change in next 2 -3 years. And then, I guess the business would come under severe stress.

Hitesh Ji,
To an extent, this is also a bit of personal choice. I stopped buying english newspaper because my father reads only Hindi and I read my news on my mobile now. I reckon, the reason why this is not a widespread practice for most is internet connectivity and habit … but that could change?


Internet and digital media disruption causing pain to print media

So, I’m seeing this chart which shows newspapers circulation is on downward spiral. But it’s decreasing at the different rate in different countries. In Australia, fall is steeper, whereas in Japan (having better literacy rate than Australia/US) the fall is gradual.
Therefore it can easily be said that we cannot know how effect of digital media will play out in India. Also, as someone mentioned above, cost of daily newspapers is quite low as compared to other countries, and that’s a major factor in decision whether to buy a newspaper subscription or not. For example its above 4700 Yen per month in Japan.

While the discussion on impact of digital media on newspaper circulation is going on, I looked up for the figures on the website of Audit Bureau of Circulations for the last year. The interesting fact is that most Hindi Newspapers have positive shown growth in their Circulations but concerning fact is that out of top 5 Hindi Newspapers only HMVL has shown negative growth. It would be interesting to wait for figures of First half of current calendar year
.

Source: Audit Bureau of Circulations.

Any opinions on why circulation figures of only HMVL dropped in the second half?

Just wondering if there will be this Digital Media overhang on HMVL. With growing internet penetration in India, the digital media advertising will also increase. Lets assume If Flikpart has 100 cr budget for advertisement, some portion will go towards spending on digital platform and there is high chance of digital eating into print media share.

With Reliance Jio, the importance of digital media will only increase going forward.

There is no sector tailwind. The only major factor for investing into HMVL is its relatively cheap valuation. And yes lot of cash on book which we don’t know when and how it will be used.

Looking for a comparatively better opportunity?

Disclosure - 2.5% of my holding

Results are out EPS 7.45 (June qtr was 6.64)
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/D7E5239A_C161_43B8_AB93_FEA53483DD92_132509.pdf

“Other Income” saved the day for HMVL or else the numbers would have looked bad…

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Starting to look interesting at this price
Downside may be limited
Next couple if quarters will be muted considering all the issues with demonetising
Real estate and educational ads will likely be affected
Not sure if lack of change and small denomination will affect sale of paper at shops;
Not a huge growth story or a coffee can candidate, but for a year or two at this price may be interesting

While we should look for similarities with western market and account for the threat of digital news to newspaper industry we should also keep in mind the unique advantage of Indian landscape.

If I am correct, the average newspaper in west cost about $2-3 per day. This is primarily because the delivery is very expensive due to high labor cost and lower population density. In india newspapers cost about INR 4-5 per day.

Hence, the total monthly cost is $60-90, which is significant amount for most people. Just to put this into perspective, you can use it for 6-10 meals at Mcdonalds and 2-3 fine dining meals at good places.

In india, monthly cost of a newspaper is INR 100 which is hardly enough for one meal at McDonalds or a local Dhaba and hence people have no incentive to discontinue newspaper.

Another perspective is relative labor cost - In relative terms, In west people spend about 20 mins of labor income (assuming hourly income of $8-10 at the bottom) while in India they only spend only 5-6 mins of income (assuming INR 30 per hour income at the bottom)

Hence, even in the local context newspaper in India are much cheaper as compared to west (real currency basis 1/25 and PPP basis 1/2)

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Very well said @kapildhaka. There’s a recent KPMG report that corroborates the idea that newspapers - particularly vernacular - would continue to grow in India. The demographics (new middle class) and other factors are quite different from west.

for your reference -

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very good perspective @kapildhaka.

As per last concall, FMCG, durable and retail was lifting the ad volumes for the company. And this sector is heavily affected by demonetization and couple of companies have hinted towards softening their ad budget and spend more on dealer/trade discounts to promote sales, which got verified from a discussion with a delhi sales head of an MNC in FMCG space (household, personal care). Coming 1-2 quarters might see pressure on ad volume for the sector but HMVL and Jagran will see political sector contributing heavy volume because of upcoming election. Net effect on ad volumes is anybody’s guess but i believe company wont be able to post numbers in line with its own expectations as expressed by management tin latest concall.