Bull market or bear market, HMVL will always appear attractive because the market doesn’t value the company. At a time when the bluest of blue chips have fallen like ninepins - for no fault of theirs, I am not sure why anyone would want to buy HMVL, of all the things.
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Even after 12-16 quarters, not sure if management has any clue on what to do about cash . Poor capital allocation n looks like don’t want to give due share to minority shareholders. I was very skeptic when they floated some digital company . Hope they ve not started playing with cash through these related party transactions
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The reason of I thought I should be buying this is on account of value of assets… In the current scenario, market has fallen and growth has been anticipated to reduce… while in HMVL, the growth is not what I am looking at…
What I am looking at is asset… The quotes (I don’t remember who said this) " You should buy rupee for 25 paise in bear run". This is what I am trying to do… Its a Value buy against Growth…
We buy businesses where we just predict the future… which is almost impossible… but in Value investing… .you value the asset… which is present…
This is the business where value of assets is high, predictable… and mostly liquid… and it is also the leader in Indias few largest states in their business…
Thats why I was thinking to add this along with the other stocks which has fallen like ninepins…
Would invite your views on this…
My limited experience suggests that lot of value investing quotes have originated from US. US has a strict penalties on manipulation of books, active shareholders can throw out bad management. India is a different market and the quotes need to be used in right context. Even if HMVL is available at 25 cents to a dollar and the management has history of not sharing the gains with minority shareholders, even 10 cents to a dollar can be expensive. Better would be to buy holding companies that also trade at 25 cents to a dollar (ones that have promoters friendly to minority shareholders).
Look at TBZ…It trades at mcap lower than gold inventory…But price crashed from 150 to 50 in 6-9 months owing to promoters that do not care for minority shareholders. Such companies will also trade at low valuations.
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Cash on book is now almost equal to mkt cap. The stock is trading at least 50% discount. But the fact is when such a huge cash is not delievered to the minority shareholders through dividend or buyback in the past 7 years, i presume this to continue in future and i suspect management has already got an idea in mind to erode all this cash and not to share with minority shareholders. I have learnt this when i bought Claris life science which also got huge cash out of sale of business but not shared the same with minority share holders.
Better to buy high dividend yield companies that are available at cheap valuation today.
Remember the quote - A cow for her milk, A hen for her eggs and a stock, by heck, for her dividends.
we can also add “a property for her rent”.
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If you are sure that one fine day will come when these asset will belong to minority shareholders in some realized monetary terms and you have a strong reason to feel why this will happen 
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I think HMVL management is simply not interested in either running the company efficiently or managing their cash well. The only kicker for this company was potential monetization of shift to digital which they have given away at pittance. And in all likelihood, the cash that we all got interested in will wipe out because they now have to pay for content to the same company that they sold!!!
Disclosure - I made the mistake and have booked losses partially…
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Appears that other news paper companies like Jagran prakshan as well did bad due to raw material cost. For HMVL does any body knows if there is a way to figure out how much money they are paying to digital content now (To the one that they transferred to promoter).
@valuehunt - They paid about 68 crs to the digital company in FY18. It’s disclosed in the Annual report as “News Content Sourcing Fees”
I find the employee cost bit most perplexing.
Company has reduced ~1000 employees (43% of workforce), but employee cost is down only ~10% from peak.
I wonder what % of the copy is created within HMVL vs HT Digital Streams.
Trying to figure out what happened wrt employees & content creation, but prima facie looks like there are plenty of good reasons for this stock to trade below cash.
@yashkj : Thanks for checking it. But I see this line item in previous year as well (An amount of 71 cr). Wouldn’t this include the payments other than the money paid for digital content creation as well? Sorry for my ignorance, still trying to catch up in reading ARs and terminology. Also, the transaction of separation HTDSL was done in Dec 2017, so trying to find out how much exactly they are transferring after that transaction , year on year basis. I have two motivations:
- Considering there is a huge cash pile, it is of academic interest as well for me to watch how would this get utilised or vanish.
- I also have a small investment that I made around 250 levels, where I need to cut losses. I am not in hurry since negative sentiments already seem to be priced in. But once convinced that it is a evil play, makes sense to book out at 50% loss also. At this point cash still seems to be in books. Seems like madcap/small caps have lot of incidents where minority holders are kept at disadvantage, today there was another where I came out without much losses fortunately (megmani, there is a VP thread on it). So if I book out at these valuations here and put in another, no guarantee that I won’t loose
Some thoughts I have are
- If it is 68 crores of payment and considering there is also related expenses that HTDSL need to incur, this would not help in moving larger chunk of cash pile out of HMVL? (at least immediately) . They will probably need to come up with more innovative ways
- Is the management/promoter integrity really questionable or is it just that they are unable utilise the cash well? My feeling is that if management/promoter integrity is questionable, they would not allow cash to pile up in the first place like this, they would probably find better ways to manage it low in ongoing basis.
- There is this education venture where they invested recently. Unrelated business, but can that be because of lack of opportunities in newspaper business? Other companies like jagran prakashan seem to be giving dividends or buyback for the same reason of no investment opportunity.
- There are also many other companies where there appear to be similar issue, not a great utilisation of cash, but retaining earnings on an ongoing basis. Unless there is enough pressure (like in case of Infosys) it remains there without good utilisation.
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Its there since FY17 because -
The annual payments are not just for digital content. In fact I think HMVL doesn’t even own the site https://www.livehindustan.com/ anymore. And the 68-70 crs payment is an annual recurring cost (not sure about the exact arrangement). It does not affect the existing cash pile but it does affect future cash generation in a fairly substantial way IMO. It also puts a big question mark on the intentions of management. Can’t see how HMVL has gained from these series of transactions
To your questions on promoter integrity / how they will use the cash pile etc -What they have done in the last year (selling HTDSL, the education acquisition) is definitely not shareholder friendly. And if the education acquisition goes through the fear is they would invest substantial capital in it. I am unable to see any merit in the education venture for HMVL. Maybe it will all turn out well in the end, but based on what has happened it seems unlikely.
Disclosure - I bought the stock at 300. So don’t take me seriously.
@yashkj: Thanks for the explanation.
I studied little more on this thread today, learnt more (and got confused a lot more ) and thought of sharing some more observations to rest of community here. Feedbacks welcome, pardon me if there are mistakes.
- @nirajshah85 shared a link above on HMVL : Strategic fit or bailing out promoters. I went through same. I am not sure if some statements made there are fully right. For example, in conclusion it says “The promoters of HMVL have managed to increase their stake without spending a penny for a completely unrelated business, which also doesn’t seem to be strategically important for the company.” . Is this correct statement? Promoter holds approx 74% in HMVL. Accordingly if the cash in HMVL is distributed, promoter would get 74%? If a rupee is paid from HVML for anything, isn’t it like promoter paid 74% and rest is paid by minority shareholders? So even in this transaction, isn’t it like promoter paid 74% and the statement about not spending a penny is incorrect?
- There is no clarity on how the business model of B2C works and how it can turnaround or how it cannot in that article. I could not locate this information anywhere else either, not sure if somebody has it. But without that clarity how a conclusion can be made in that article about “Instead of buying B2C business had HMVL invested in other securities its opportunity cost would be higher than the returns on B2C business.”? Probably author has more details on what kind of courses they offer and what kind of returns it can generate in longer run. But it is not shared. IESPL when searched on google shows BRIDGE education details which is part of B2B.
- Assuming my argument above in point 1 is correct, spending more money from HMVL on it if it is making losses actually incurs loss of 70% for promoter on that more money they spend, isn’t it? I doubt if a promoter in right mind will do it. He will invest more money only if he is convinced about profitability. We may disagree with his judgement, but that is not same as a fraud.
- Other chances are if promoters integrity is questionable, he may manipulate book of IESPL and siphon out money. What prevents him in doing same in HMVL today? So I feel that possibility is low as well.
- Another possibility is this is one time bailout. It has incurred losses. Lets say they want to merge it with HMVL and right off at some point saying it is loss making, but without investing a lot more. By moving it to HMVL he may save 25%+ (paid by minority share) and also savings on dividend distribution tax (If otherwise promoter has to utilise money will he be able to participate in buyback with current stake at 74%? I think no. So other option is dividend which will attract dividend distribution tax). In this case, minority shareholders would loose some money. I think we cannot know if this is the case now.
- FPIs and DIIs shareholding seems to be almost intact at around 15% while all these turmoil is on, as per September shareholding. Are they stuck like retail investors too because they can’t find buyers for large chunk with all these issues on? Not sure about this, in many other cases where serious issues were uncovered I think institutions ruthlessly sold them. I think if they consider this to be serious issue, they would have exited. My understanding is that retail churn is causing price decline, am I making any mistake?
BTW, I am not trying to justify HMVL management here. Certainly lot of information missing/could have been handled better. My investment here is 0.5% of my portfolio and I don’t intend to stay on with this one only if I get positive clarity in next year or so. However more as a case study and learning, this looks very interesting about if I should sell immediately by booking losses or wait for clarity to emerge. At this point seems like I would follow queue from FPIs, either some seasoned gurus here or time has to tell if that is right
I deal with HT group and they run the business pretty well atleast in areas of cost reduction, supply chain, etc. Used to hold HMVL in my earlier days of value investing, but moved out owing to reasons everyone talks about. Just wanted to pitch in with the fact that HT is professionally managed and the managers I interact with do a good job.
But keen to understand why Kotak and the other insti investors continue to hold the business.
Don’t fit in either of the baskets. Not a screaming undervalued stock neither a value buy. Let’s talk about both of them
- Undervalued stock: The company is currently trading at a price to book of 0.6 which looks cheap in one look. Let’s go deep…
Valuation: Company has an investment Rs. 1000 Cr. in marketable bonds and a cash balance of Rs. 37 Cr. So the total cash balance itself is more than Rs. 1000 Cr. and the market cap is Rs. 780 Cr. It means the whole business and 220 cr. cash is for free. But the catch here is the catalyst. I won’t able to find any catalyst which can unlock this value as the market sentiment and the capital allocation done by the excess cash is extremely poor.
The company is not willing to distribute the majority of its cash as a dividend (dividend payout ratio is 5% from the past so many years) because of the DDT (Dividend Distribution Tax). Also, almost 75% of HMVT is held by HT Media limited. According to SEBI guidelines, HT Media cannot hold shares of more than 75% of HMVT. So the company can’t do buybacks.
As the options of buyback and dividend are not on the table, then how will they use that money to increase shareholders value - Mergers and Acquisition. They will probably deploy the money on rubbish acquisitions, buying other companies expanding its presence and unnecessarily diversifying. Past is the evidence that the company had taken a few financial decisions that lead to the destruction of value.
What is needed to unlock this value?
Buffett does it by purchasing the majority of shares of a company and then…liquidated it. But we can’t do that not because we don’t have that much money buy because the HT Media holds the majority of shares in this company and it a quite obvious that HT Media is not selling its holdings or liquidating the company.
Then the only thing that we can do is to wait…Wait for the company to give hints on the revision of its dividend distribution policy or the initiation of a share buyback plan.
- Value buy: I think the industry is unviable. As the newspaper industry is shrinking. The west has witnessed it earlier but in case of India, we can see an increasing market for both in terms of no. of copies sold or read as well as the advertisement spending. There a few prominent reasons for that:
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Literacy Rate & Location: Literacy rate in India is poor especially in EAG states (where the company operates). With the increase in no. of literate population and the no. of people consuming news is also increasing.
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Rural-Urban Outlook: Readership growth on pan-India basis is around 10%. But on observing the distribution of rural-urban growth rates, one can find that rural consumption growth is more than 10% and urban consumption is declining (-ve growth). The key driver is the internet - free and accessible media.
But there are other factors that one has to look:
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Cost Involved: For us, a monthly subscription of newspaper cost us Rs. 200 per month (less than $3) and been delivered to our door. But in US newspaper costs you $3 per day and you have to buy it from a newspaper stand. So there is a huge cost disparity in these two figures, so one might think that the business can survive in India because of the low cost, I doubt. One thing you are getting for free (indirectly) and it is accessible to you anytime, anywhere and one you have to pay a little and is less accessible. Who do you prefer? If one has doubt then you can refer to - “The Nuances of the free, Predictably Irrational” by Dan Ariely
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Lost brand value: In the 80s and the 90s people used to be very particular about the editors and the publishing house. One wanted to read only statesman, not the Bombay Herald even if the person is shifted from Kolkata to Bombay or if a famous editor was shifted from one publishing house to another then readers also shifted. But this habit is gone from the majority of the readers.
So the whole industry is now on the same level playing ground, Who knows who will. If HTVL will able to retain its market share and increase its penetration and grow into new geographies or the Jagran or any other news paper house will pull him down.
Disclaimer: Not invested
By the way this is my first post and very first company that I am analyzing so a constructive feedback is appreciated.
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Link to tweet is given below
Real estate Startup Zvesta Raises $5.5 Mn from Hindustan Media Ventures
Not sure if this is brand equity or they are actually deploying cash here.
HT Media and HMVL continue to operate the physical print versions, so the upside of lower raw material will accrue to the. Digicontent sells content to these 2 cos, apart from owning the digitatal verisons. The rationale apparently was to create a focused vertical without being overshawdowed by the big brother effect of physical copy. However, difficult to say how much of a silo is it inside, but they seem to be doing a decent job on digital.
Hi Friends,
If any of you are following HMVL, can you please share your views regarding the sheer undervaluation of HMVL. I used to own and follow this co. but off late hasn’t been following it so just wanted to understand what’s been going on recently with this one.
I can see that even peers in print media are having depressed valuations. But anything specific to HMVL?
Thanks
Its the growing cash on books which has never been distributed to the minority shareholders a big concern. There is that fear that this cash may be siphoned or badly allocated. The market cap of this company is almost 1/4th the cash it has which tells a story. Any good management would have offered a buy back price atleast 4 times the current price and bought the stock with the cash they have. But HMVL will not do and that is why its a value trap
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