Hindustan Media Ventures Limted (HMVL)

Stock Opportunities
41

Though the growth story remains intact, the q1 results are below expectations largely on the account of sharp increase in employee cost by 38% and cost towards consumption of raw material by 27% both of which are expected to remain normal going forward. The stock price might react negatively to this, giving serious investors opportunity to load it up.

Rise in employee cost is due to new hiring, increments and regulatory charges while rise in consumption of raw material is due to increase in newsprint price and consumption.

The company is growing rapidly in UP where, being second largest daily now, it’s very likely to see better ad. revenue by volumes and margins going forward which will boost the earnings without incurring much additional cost.

As Dhwanil rightly pointed out, the company is getting ready for expansion/acquisition by seeking approvals to raise debt.

Disc: Invested and may add on dips

42

For whatever its worth, Motilal Oswal has come up with a buy recommendation today with target of 210 -

(I increased my allocation @ 155.x today)

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Vivek Khanna, CEO of the co addressed the call.Highlights by Capital Mkt:

Total revenue grew 18% to Rs 222.6 crore. PAT grew 12% to Rs 33.88 crore.

Advertising revenues grew 17% to Rs Rs 155.5 crore on the back of increasing yields.Advertisement market share is very strong in Bihar or Patna.

It saw 17% increase in circulation revenues to Rs 49.3 primarily due to higher circulation and realization per copy. Circulation grew 10%. The circulation growth was across markets.

EBITDA increased 16% to Rs 55.4 crore largely due to growth in advertising and circulation revenues.However, raw material cost grew 27% to Rs 86.80 crore, due to increase in news print and consumption.

The company also suffered 38% increase in employee costs to Rs 29.6 crore from Rs 21.5 crore due to impact of new hiring, increments and a onetime charge for regulatory compliance which is included in employee cost.

The management refused to quantify the one time impact but ensured that the wage bill would be in the range of 12-12.5% going forward. .

Performance in UP continues to be strong even as it maintains dominating position in Jharkhand.The company has virtually increased cover price in one or the other market every quarter.

Margin trend in last 3 years have been increasing 100 basis points. Had it not been because of wage board OPM would have been higher.

The growth in advertising, driven by strong performance in Uttar Pradesh and Uttarakhand, and supported by continuing dominance in Bihar and Jharkand.

With a strong brand, growing readership, and a healthy balance sheet, the management is confident of continuing to deliver good performance.

As per the recent 2013 IRS results, Hindustan is now the second largest Hindi Daily in the country with a readership of 14.25 million.It is difficult to quantify the government spending due to election. But roughly the company benefited 4-5%.

It enjoys a leadership position in Bihar, Jharkhand and Uttarakhand whilst consolidating its 2ndposition in Delhi and Uttar Pradesh. The company also operates the website www.livehindustan.com, which complements the newspaper and focuses on providing news in Hindi with regional content.

Newsprint price rose 13% or Rs 4000 per ton y-o-y and same for q-o-q. The management expects newsprint price reduction of 5-6% in next two quarters.

The management hopes for a strong growth in advertising revenues due to improving market sentiment, a stable Central Government, increasing prosperity and rise in consumption in rural regions.The company has net cash balance of Rs 419.80 crore.

It is looking at funding expansion/inorganic growth. Work on evaluation of new market and business is going on and more announcement will come by the year end.Capex in FY 2015 would be Rs 45-50 crore mostly for maintenance capex, debottlenecking and a bit of expansion.The company is not planning to raise debt.

The company is looking at digital space and lots of work is going in that area. It will see more of it in the quarters to come.
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Dhvanil, The resolution to borrow in excess of reserves, is based on new companies act requirements. Google the section number and you will find that many companies are going to take this approval from shareholders. Also, mgmt, on concall, re-confirmed that they will decide on cash utilization by end of this year.

45

Hello,

Can anybody explain to me how HMVL increased it’s reserves from 18 cr to 305 cr from 2010 to 2011 without any significant increase in net profit? I am just seeking explanation as I couldn’t figure out how did the company increase its reserves within the span of 1 year. (Source: screener.in)

Thanks,

Dhruv

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@Dhruv,

Kindly go through the initial post by Dhwanil to get answer of your query. I would suggest you to go through the entire thread before you post your queries, most probably you will get your answers there itself :slight_smile:

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:))

@Aksh,

I did go through the initial post (again) but I did not find the answer to my problem specifically. I am new to this so maybe a little lost on the terminology. Can you quote the exact answer from his post?

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@Dhruv,

Comments from Dhwanil’s initial post…

“As a part of restructuring exercise, the “hindi” print media business was spun off and sold to HMVL on slump sale basis along with all the assets and liabilites in 2009. The idea of spinning of “hindi” print media business was to charter a well defined growth path for the business and provide sufficient management bandwidth. In 2010, HMVL came out with IPO to raise 270 crore to fund the expansion and pre payment of loan. The shares were issued to investors in IPO @ Rs.166.”

I hope you have answers for your queries now :slight_smile:

49

I recently read an article by Michael Mauboussin and Dan Callahan titled “What does Price Earning multiple mean”. I highly recommend this to fellow investors. The authors try to decode the PE multiple, which is the most widely used multiple by analysts worldwide. As per the authors the value of the firm can be defined as

Value of the firm = Steady state value + future value creation

Steady state value = NOPAT/Cost of capital +excess cash.

The key assumption in using the above is that NOPAT is sustainable indefinitely and any incremental investments do not add or subtract value. NOPAT is constant in nominal terms.

Future value creation = Invested capital*(ROIC â Cost of capital) competitive advantage period /cost of capital(1+cost of capital)

The key to future value creation is the spread, difference between the return and cost of capital, the magnitude of the investments and period for which the company can find such value adding opportunities. If the spread between the return and cost of capital is zero, then the second term in the equation falls to zero and does not add any value. These firms should then trade at their steady state value. The authors translate the steady state value into a steady state PE, steady state PE is

Steady state PE = 1/Cost of equity

I have used this method to value HMVL. Figures are taken from FY14. All figures are in Cr

Steady state value= 115.2/13%+394.6 = 1280.76

The NOPAT for year ending FY14 was 115.2 Cr. The company does not have any debt at the end of FY14, hence the cost of capital and cost of equity are the same. I have assumed that the cost of equity is 13%. The excess cash and cash equivalents at the end of FY14 stood at 394.6 Cr. The value of the firm comes to 1280 Cr, the current market capitalization of the firm is 1144 Crs. The stock is trading at less than the steady state value. The CAGR earnings growth for the company is 27% in the period from FY11-FY14. Earnings growth over FY13 is at a healthy 31%. Operating margins have grown at a CAGR growth of 26% over the same period and 34% over FY13. The market is ignoring the earnings growth and pricing the stock at less than the steady state value. The primary reason for this as everyone knows cash of 396 Crs. The company also scores on the ROIIC, which is defined as NOPAT1-NOPAT0/Investment0. The figures are greater than 35%. Investments in the above equation is the change in WCR and Fixed assets. I feel if the management walks the talk on the cash, the stock has huge potential.

Regards,

Chetan Chhabria

Disc : Invested at average price of 150

1 Like
50

This should mean positive for HMVL… advertisers can now use the IRS survey as the currency…

Disc: Invested at 133

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A bulk deal of 3.50 lakh shares was executed on the Hindustan Media Ventures counter at Rs 163 per share in opening trade on BSE today, 27 August 2014.

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Vivek Khanna, CEO of the Co addressed the call****Highlights of the call by Capital Mkt;

For the quarter ended September 2014, HMVL registered a 13% growth in sales to Rs 199.54 crore.The company has registered steady revenue growth and coped with the challenge posed by rising input costs.Raw material grew 20% Rs 84.8 crore due to increase in newsprint price and consumption.Employee cost grew 20% to Rs 25.8 crore due to impact of new hiring, increments and a charge for regulatory compliance.

Advertising revenues grew 12% to Rs Rs 142.2 crore primarily due to increase in advertising yields and volumes.Circulation revenues grew 11% increase in to Rs 49.6 crore primarily due to higher circulation and realization per copy.

Growth in both advertising and circulation revenue was driven by its strong performance in Uttar Pradesh and Uttarakhand, and continuing dominance in Bihar and Jharkhand.With a strong brand, growing readership, and a healthy balance sheet the management is confident of continuing to deliver value to shareholders.

As per the recent 2013 IRS results, Hindustan is now the second largest Hindi Daily in the country with a readership of 14.25 million.The company enjoys strong balance sheet (net cash of Rs 436.8 crore) capable of funding its expansion.The ratio of national to local advertisement is 50:50.The management is confident that the advertisement business will continue to grow in double digits for the next couple of quarters.Yield improvement was highest in UP at 16%.The management will continue to drive copy improvement in UP.Going forward EBITDA is likely to increase as most of the cost increases are in place. For full year the management in confident of increase in EBITDA margins

The quarter has seen peaking of raw material cost. This will come down. Also employee cost may have peaked in September 2014 quarter.Capex was Rs 5.70 crore in first half. This is likely to increase in the second half.Two years ago Hindustan was around 25% of Dainik jagran. Now it is around 40%.Hindustan is around 70-80% of Amar Ujala but the gap is fast reducing.

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Thanks, Hemant for the posting the conference call updates diligently. Highly appreciate it. Adding few more points from my notes

)- Total circulation currently is around 26 lakh copies out of which 95% is based on cover price and only 5% is based on subscription

)- Advertising rate- price increase was taken sometime after 2013 IRS results. However, it takes few quarters to reflect the full effect of such price increase. Hence, the benefits of such price increased will be realized and reflected over time.

)- Newsprint prices have peaked and are likely to decline going forward. Management expects correction of Rs.2000/ton. It is likely to decrease further in Q4 from Q3 levels.

)- Management is actively working on both expansion plans in new markets (of the 2 shortlisted ones) and acquisition opportunities. Some concrete news is expected by Q4 FY 15 or Q1 FY 16.

-Total net cash is 435 Crores

)- Average cover price is Rs 3.5

-Ad revenues have seen good growth in all segments except education. HMVL has gained market share from competitors across all segments. Governemnt, Education, Auto, Retail are top 4 segments for company

-Current National-Local mix tilts in favour of National with national ads contributing more than 50%, however, it is likely to stabilize at 50-50 in near future

-HMVL feels that it’s advertisement yield is significantly lower than it deserves in UP//UT. Hence there is enough room for yield improvement in these markets. Ad yields increased across all markets except for Delhi where there was no yield increase.

)- Kanpur is one of the largest market for national-local advertiser and company had re-launched its edition in this market last quarter. HMVL has achieved significant increase in copies in this market.

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Thanks, Hemant for the posting the conference call updates diligently. Highly appreciate it. Adding few more points from my notes

)- Total circulation currently is around 26 lakh copies out of which 95% is based on cover price and only 5% is based on subscription

)- Advertising rate- price increase was taken sometime after 2013 IRS results. However, it takes few quarters to reflect the full effect of such price increase. Hence, the benefits of such price increased will be realized and reflected over time.

)- Newsprint prices have peaked and are likely to decline going forward. Management expects correction of Rs.2000/ton. It is likely to decrease further in Q4 from Q3 levels.

)- Management is actively working on both expansion plans in new markets (of the 2 shortlisted ones) and acquisition opportunities. Some concrete news is expected by Q4 FY 15 or Q1 FY 16.

-Total net cash is 435 Crores

)- Average cover price is Rs 3.5

-Ad revenues have seen good growth in all segments except education. HMVL has gained market share from competitors across all segments. Governemnt, Education, Auto, Retail are top 4 segments for company

-Current National-Local mix tilts in favour of National with national ads contributing more than 50%, however, it is likely to stabilize at 50-50 in near future

-HMVL feels that it’s advertisement yield is significantly lower than it deserves in UP//UT. Hence there is enough room for yield improvement in these markets. Ad yields increased across all markets except for Delhi where there was no yield increase.

)- Kanpur is one of the largest market for national-local advertiser and company had re-launched its edition in this market last quarter. HMVL has achieved significant increase in copies in this market.

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Hi

Did the management mention on the utilization of cash this time? They had mentioned an announcement by the end of this year a multiple times before

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Kotak Securities is bullish on Hindustan Media Ventures and has recommended buy rating on the stock with a target price of Rs 358, in its research report dated January 8, 2015.

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Vivek Khanna, CEO of the Co. add the call.Highlights by Capital Mkt;

For the quarter ended December 2014, HMVL registered a 10% growth in sales to Rs 206.87 crore. Net profit grew 27% to Rs 36.58 crore.The company saw 14% increase in employee costs to Rs 24.9 crore due to impact of new hiring, increments and a charge for regulatory compliance.News print price is on the downturn. It fell 3% in this quarter and is expected to fall another 3% in Q4.

It is expected to remain soft early next FY also. Thus in the medium term it is expected to be soft.As expansion gets over and operation leverage sets in OPM will increase.This quarter and for nine months year print order has grown roughly by 10%.

The quarter saw 11% increase in advertising revenue to Rs 152.2 crore from Rs 137.5 crore primarily due to increase in advertising yields and volumes.

Advertisement revenues had grown by 14-15% last year and have grown 13-14% this year so far. With all initiatives taken, IRS numbers and company increasing print sin UP, it expects to grow in double digits in FY 2016 also. Also tailwinds will be from higher GDP growth.Circulation revenue grew 11% to Rs 51 crore from Rs 45.9 crore primarily due to higher circulation and realization per copy.No significant impact from the Jharkhand election.

As far as radio is concerned it will continue to be part of HT. HMVL will be dedicated vernacular newspaper.The company is looking at acquisition but will do it only if the price is right.About 15% of ad revenue comes from Delhi.

For the future focus will be to strengthen Hindustan brand and consolidate its position in the geographies it is present in by increasing reach and coverage.News print consumption rate was Rs 35,434 in Q3 against 36463 in Q2 and this is expected to drop by at least 3-4% in Q4 and it is in downward trend.

By the end of quarter the company will decide where it will expand. The company has already studied the market. The company doing a business case and once it is finalized it will make public the details. The company is looking at vernacular print.

With the economy in a revival mode, the management expects the markets to improve in the coming months.The company is well positioned to take advantage of that.The company was interested in acquisitions which Jagran Prakashan had done but the deal could not go through.

The management is now focusing on operational efficiencies to ensure revenue growth as also accompanied by profit growth in Uttar Pradesh, Uttarakhand, Bihar and JharkhandThe growth rates have gone up in Bihar.The company is number 1 player in Uttarakhand and Bihar. In UP it is the second largest and fastest growing player.In Jharkhand the company is number one in readership.

Other expense comprise of travel and various other overheads. The company had doubtful debts was of around Rs 1.5 crore.Average realization per copy this quarter was Rs 2.15.Employee cost this year was high due to statutory compliances which is already built in. Next year it will be normal growth. So rise will be around 10-12% on year basis next year.Capex in Q3 was Rs 7-8 crore. And will be another 4-5 in next quarter.

In FY 2016 it is still under planning phase. Normal capex would be around 20 crore not factoring in the expansion.

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Thanks Hemant. Doesn’t look like they’ve much of a plan for the cash for the near term- I do hope that the dividend payout increases this year.

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Hi Karan,

Just curious to know, what makes you say that they don’t have any plan to deploy cash? Thanks.

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Well, from their earlier con calls, they’ve mentioned often that they’d have a plan ready by the second half of FY15, so my reaction is just a response to those statements :slight_smile:

I really hope they declare higher dividends once they cross the threshold which they want to maintain - which in the con calls earlier they’ve indicated as around INR 400 crores. As of 31.12.2014, it seems they have cash reserves of INR 488 crores.