Hindustan Media Ventures Limted (HMVL)

This article I came across in the Caravan Magazine talks about the death of a HMVL editor at a tier 3 city. It has nothing to do with finances, but does provide an interesting insight into the goings on of the newspaper industry in small towns.

updates from the company regarding HT Digital streams limited http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/00350347_84FE_4194_B5D6_5745F2F817DD_185428.pdf

Results http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/A2E07DEB_AC0C_4A00_A37F_2B5EBA39BE6A_132707.pdf

Poor results. Flattish YoY.

Apart from UP elections are there any triggers?

No, I dont see any triggers apart from UP elections, maybe the ad revenues will pick up as cash levels in economy has become better. Unless they have a solid call on the cash in hand the stock will be under pressure. Investors are worried about how they will utilize the cash.

Hi has anyone attended the latest conference call ?or anyone has details on it please share

HMVL Q3 Concall Short Summary

we have also prepared few other summaries. Sharing here: https://goo.gl/5RTk0o

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Motilal Oswal has put out a buy reco @ 267 on 18th January 2017 with target price of Rs 355/- Report can be read here http://ftp.motilaloswal.com/emailer/Research/HMVL-20170119-RU-MOSL-PG010.pdf

Short Summary of Q3 conference call:


we have also prepared few other summaries. Sharing here: https://goo.gl/5RTk0o

Read disclaimer for summaries here: https://goo.gl/HELov8

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HMVL re-appointing Shamit Bhartia as Managing Director from Non executive Director( Subject to sharehodler’s approval)…Looks like he was playing director role from 2012. Can any one through light on how can we get his credentials and past experience, exceptional performances etc anywhere?

http://www.bseindia.com/corporates/ann.aspx?scrip=533217&dur=A&expandable=0

Upon going through the AR 2016 following concerns raised in my view.

  1. Two times increase in STB and is nearly equal to fixed assets.
  2. Increase in intangibles assets to nearly half of fixed assets by brand addition from HT media (holding company). Doubtful on the numbers.
  3. High allocation to bonds and MFs through both NCI and CI (increased nearly equal to revenue increase)
  4. High amount of doubtful debt written off from 167 (2015) to 437(2016)
  5. 90% of revenue increase is due to advertisement revenue only.
  6. More newsprint is being imported rather than indigenous supplies.
  7. 90% increase in auditor payment fees.

Anyone having any views are most welcome.

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In this forum of investing giants, a Lilliputian attempt at analyzing the HMVL business from an investing perspective.

Industry Overview

HMVL is part of the print media industry, which in turn is part of the larger Media & Entertainment (M&E) industry consisting of Television, Radio, Films, Digital, OOH, Gaming and Music companies.

Indian Print Industry

In contrast to de-growth seen in the developed markets like USA & UK, the Indian print industry grew at a CAGR of 7.8% in the last 5 years with growth across all the segments. The India “growth story” aside there are some interesting reasons for this.

First and foremost is the price point. The newspaper cost is heavily subsidized by the advertising revenue with a daily costing less than 5 INR. Also worth mentioning is the well-oiled and efficient delivery system where the daily newspaper is delivered at home in time to read with the morning cup of coffee.
Contrary to what we generally read about the industry prospects of print media, as per the same KPMG report reference above, it is expected to grow at 7%-8% over the next 5 years.

Top 10 Indian Daily newspapers

[Source: Audit Bureau of Circulation (ABC), May 2017)

Thoughts on the HMVL business
Positives

Increasing literacy
As per the 2011 Census, the average literacy increased in both urban and rural centres. The literacy stands at 74% with a rural literacy of 68.9% and an urban literacy of 84.9%. Increased literacy is found to have positive impact on the demand for newspapers and there is still a long way to go before achieving 100% literacy. This augurs well for HMVL as the potential readership base has further headway to grow.

Growth in Language papers
Non-English papers in Hindi, Telugu, Kannada, and Malayalam have seen higher growth than English newspapers. There are multiple reasons for this including growth in rural India, demand for regional localized news and the general desire to read news in mother tongue.
The last 10 years data from ABC indicate that with an 8.76 % CAGR, Hindi dailies grew 3 times than the English newspapers.
Growth by Language 2006 to 2016 (10 years, Source - ABC)

All this augurs well for HMVL as it is in a sweet spot being in the largest and fastest growing segment of the newspaper industry.

Market Leadership
HMVL enjoys market leadership in the Hindi heartland of Bihar, Jharkhand and Uttarakhand and a strong No.2 in the largest state of Uttar Pradesh along with presence in NCR region and Punjab.
Print media is one such industry where market leadership is a virtuous cycle giving it significant advantages. Market leadership means larger readership base. Larger readership means better bargaining power with advertisers and the power to charge a leadership premium rates for ad rates. This in turn brings in larger revenue which further strengthens the leader.
HMVL’s market leadership gives it a competitive advantage or edge against other players as the readership base cannot be increased overnight.

Significant Cash Pile
HMVL has a strong balance sheet, minimum debt, decent ROIC in the region of 17%. The icing on the cake however is the share of cash and bank equivalents of around 1000 crores (greater than 50% of market cap). This significant cash position provides it a great safety net to withstand adversities and business downturns as well as plan for inorganic growth through acquisitions.

Virtually Zero debt
HMVL has very healthy cash generation from its core business adding to the fact that the underlying business is not so capital intensive. The debt equity ratio of 0.1 is very healthy from a financial leverage perspective. It is another story that given the enormous cash pile, the company still has debt in its balance sheet.

Excellent profit margins
HMVL enjoys around 20% net margin (Refer Key financial data table). The margin is greatly dependent on the price of news print, 50% of which is imported. A softening of newsprint price directly leads to better margins. The excellent margins is also a reflection of the tight ship the management runs with a strong focus on cost reduction.

Concerns

Low single digit growth
Various long term reasons like rise of the digital media as well as short term reasons like Demonetization, GST and passing of Real Estate bill (RERA) etc. has all led to an insipid growth for HMVL. The last 3 years CAGR (Refer table) comes at an uninspiring 8.54% and the trailing 12 month growth comes at -0.22% (de-growth).
The latest quarterly results also follow the same pattern with total revenue increase of 1% and a decrease in circulation revenue of 2.5%.

Spectacular growth of Digital Advertising
Advertising is the primary source of revenue and there is intense competition for a share of marketer’s advertising budget. The traditional avenues of television, print, films, Out of Home (OOH) ads are facing the heat due to the spectacular growth of digital advertising. Digital advertising grew 28% last year and as per a KPMG study, it is expected to grow at 30% CAGR over the next 5 years.

This huge growth can be attributed to an increased broadband penetration, rapid rise of mobiles (smart phones), rollout of 4G services and cheaper data charges (thanks JIO). All these factors have led to an increased adoption of digital channels by the consumer especially video content like YouTube and Facebook thereby affecting print players like HMVL.

Newer Digital technologies
Digital has disrupted every industry and print media is no exception. The traditional players like the print media are now competing with newer channels and players like Live streaming (Facebook live) and Over The Top Video on demand players ( Amazon Prime, Netflix, Hotstar etc.).
Along with this, they also have to face newer technologies like Augmented Reality (AR), Virtual Reality (VR). All these are a threat and competition to print media companies like HMVL. This is also reflected in the subdued expected growth rate of 8% for the industry as a whole.
Market loves a growth story and gives rich valuations for business which are expected to have a spectacular growth. Sadly in HMVL’s case a scenario of spectacular growth is very hard to envisage currently.

Cash accumulation
The cash and bank equivalents have swelled to over 1000 crores (over 50% of Market Cap). The stated purpose for this is a war chest for acquisition in the vernacular / regional space. Having gone through the earnings transcript call for the last few years it is quite apparent that the management has been trying in vain for few years now with no end in sight.
The irony is that a significant acquisition may not even actually materialize. A Kotak analyst report has put this brilliantly:

Blockquote

HMVL would ideally be looking for a company: i/ the vernacular space, which is ii/ in the top 3 newspapers in the geography, and iii/with a likely payback period of 4-5 years. With these in mind, and imposing the conditions that: a/ no major listed newspaper publishers are willing to sell, and the possibility of sales from newspapers with political affiliations is low, b/ no #1 in geographies will be willing to sell at reasonable valuations, and c/ valuations paid will not be higher than Rs 1500/ reader (HMVL’s own valuation is closer to Rs.1000/reader), we believe that the possibility of HMVL making a significant acquisition, say that involves an outlay of over Rs 5Bn- Rs 6Bn, becomes very slim

Blockquote

Low Dividend payout
The investors have received a constant dividend of INR 1.20 per share with no increase for the last 5 years. With acquisition not materializing and cash piling up, keeping the dividend per share constant for 5 years is slightly puzzling.

Short term borrowings for interest arbitrage
Given the comfortable cash and cash equivalents of INR 1000 crores, one would assume HMVL is a zero debt company. Interestingly its current debt equity ratio is at 0.1 which while in itself is not alarming, it is definitely worth probing deeper. The last year annual report states that the company has availed Buyer’s credit facility and vendor financing from a handful of banks.
A little digging around and I found the management reasoning to an earnings call transcript for Q4 2015-16:

Blockquote

The borrowings are mainly for the buyer’s credit that we take for the imported newsprint. As you know the cost of buyers credit is much lower than the return that we get on our own investment by the cash we have. So basically, we get arbitrage borrowing money at a cheaper rate and investing money at the higher rate. The other thing is that our investments are in securities and lot of them qualify as long-term investment and gains, therefore are also tax exempt. So, it makes more sense to take the working capital from wherever it is available and that too at a lower cost.

Blockquote

Arbitrage operations are treasury functions and investments in securities can be left to investment management companies. I am not sure if these are the core competencies of HMVL’s management. Today’s challenging environment demand total focus and an undivided attention from the management.

Political affiliation
Personally, I prefer business which are apolitical or politically neutral. In HMVL’s case, Shobhana Bhartia is a known Congress loyalist and has also been nominated to Rajya Sabha (MP term 2006-2012) on a congress ticket. If you guess which way the political winds are currently blowing then please connect the dots.

Web of Subsidiaries
A cross holding structure and operations through a web of subsidiaries generally increases the responsibility on minority shareholders to be ever vigilant that their interests are protected always.
In the case of HMVL, the parent company HT Media operates through a network of subsidiaries.

As of last year, HT Media had stake in 8 subsidiaries: HMVL, HT Music and Entertainment, HT Digital Media Holdings, HT Education (a non-profit), HT Global Education, Ed World Pvt Ltd, Topmovies Entertainment, and HT Digital Streams.
HT Digital Media Holdings in turn held a 100 per cent stake in three subsidiaries - Firefly e-ventures, HT Mobile Solutions and HT Overseas. This subsidiary was created as part of another restructuring exercise last year to supply digital content to both the HT group and also to third parties. It is part owned by HT Media (57.2%) and HMVL (42.8%). Phew!

Do not wish to make this post any more longer. If you are interested in checking the financial data, business model, possible triggers etc. then please check it out here:

https://www.stockandladder.com/stock-analysis-the-curious-case-of-hmvl/

Just my two cents. Please let me know if anything important has been missed out.

Ravichand

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@Ravichand08 Excellent Analysis on HMVL.
It’s very clear that the dead end answers (board is aware of it and will look for all possible options) regarding cash usage is tugging the share price. Below are few monitorables in current year:
1- YoY Growth as last year was an aberration due to Demon event.
2- Digital subsidiary losses in comparison to last year.
Valuation is the only element which is missing from your superb note. Your thoughts, if possible. My workout is shown below:

Hindustan Media_Valuation.xlsx (135.3 KB)

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@Surender @Ravichand08 - Good analysis! Market values growth, prospects of which aren’t very bright in the print media. On the other hand, as you mentioned, prospects for digital ad spending is amazingly high and supposed to be consistent (30% CAGR for next 5 years). I am trying to find out some good companies in that space. Went through Shemaroo and Balaji Telefilms threads. Can you think of any other companies in digital space worth pondering?

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Digital is a concept with multiple aspects . As technology, as channel , as last mile delivery , as platform. There might be some worthy ideas if you see word digital with 360 view .repro,persistent etc. You can check respective threads .disc :views r biased

Hi Saurabh - I am looking more in terms of digital ad spending rather than digital enablers such as Persistent (which is a very good company) and Repro (a family den with a subsidiary web). In fact i have already checked the complete threads for both companies.

I researched Alt Balaji, but i seriously doubt this can compete with the likes of Netflix and Amazon. My strong belief is that Alt would have been much better just developing content and distributing it on YouTube channel. Shemaroo thread is pretty detailed, but i don’t like the whole idea of the retro content.

Anyways, as this thread is for HMVL, i shouldn’t digress. Was just looking for some ideas which we can delve into in this growing space. Thx!

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Sure buddy, get your point .I had taken a position in HMVL 1.5 years back but soon realized that capital allocation is an issue without cure.infact qoq, 80 percent of concall questions were around same topic. Exited .

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I agree with Capital allocation concerns.
With growth slowing down on one hand due to some temporary issues such as de-demonetization and GST, there are some long term issues like capital allocation concerns and moderate growth prospects.
I have invested about 1.5 years back and after some initial movement to 300, stock price is stagnant which is a concern for some time.

I will still give some time to it since de-demonetization effects are taking more time to settle as I anticipated (in spite of some people still talking positively about it!!) and hence more time is required for stock price and earnings growth to show positive movement.

This stock is not a growth stock. At most, this is defensive story with moderate dividend yield.

Philip Fisher describes aptly in his book Common Stocks and Uncommon Profits in the below shown snapshot…I was reading this and HMVL came to mind.

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HMVL sells off its stake in HTDSL for Rs.77 crores cash, which will now be listed separately as a HT Media subsidiary. If I have understood correctly, HMVL is now a newspaper without a website or reporters of its own. For both of these, HMVL will pay HTDSL under a transfer pricing mechanism, reducing HMVL to a printing & distribution company. Meanwhile, HMVL buys the retail (“B2C”) business of a group education company which runs business schools and calls it a “strategic fit”.

(Disc.: No position)

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