Print Media Overweight Initiating coverage: India still ...ecrm.equirus.com/EquriusReports/Equirus...

January 8, 2017 Analyst: Depesh Kashyap,CFA [email protected] (+91-7228934327) Page 1 of 35

Before reading this report, you must refer to the disclaimer on the last page.

© 2017 Equirus All rights reserved

Print Media

Overweight

Initiating coverage: India still waking up to newspapers

S

Publishing companies’ trade at a discount to other media companies despite better

fundamentals: Despite having better profitability, stronger balance sheets and higher

cash flow generation, print media companies trade at a discount to other media

companies. Due to the decline of newspaper industry in the West, market doubts the

longevity of the business in India as well. The demonetisation of currency has hurt the

advertising revenues and rising newsprint costs has further added to the worries. We

contend that unlike West, print industry is still emerging in India and the newsprint costs

may not rise more than 5-6%, but if they do, companies are in a better position to handle

the costs. We initiate our coverage on print media stocks with Long rating on DB Corp,

Jagran Prakashan, HMVL and Trade rating on HT Media. DB Corp (on the back of dominant

position and strong election pipeline) and HMVL (most attractively valued) are our top

picks in the sector.

Structural headwinds pose no immediate threats; Print is still emerging in India: We

argue that print sector in India is at a different stage as compared to the West mainly

because:

1. Far from being mature, Print is still emerging: Print media is estimated to

grow at a CAGR (FY15-20E of ~8%) and Hindi/Vernacular media is estimated to

grow even better at a CAGR (FY15-20E) of ~10%.

2. Less dependence on classified advertisement: It forms only 8-10% of Indian

newspaper revenues as compared to the US where it was a major contributor to

ad revenues (~ 40%).

3. Cost advantage: In the US, daily cost of newspaper is around USD 3-5, which is

the monthly cost of newspapers in India.

4. Low internet penetration in India: Internet penetration in India currently

stands at only 27% whereas in US/UK, it is around 90%, which has given

Companies time to diversify into radio businesses and develop their digital

portfolios.

Exhibit 1: Initiating coverage on DB Corp, Jagran Prakashan, HMVL and HT Media

Question that matters: “Where are we in the cycle?” High dependence on advertising

revenues makes newspaper business highly dependent on economic cycles. We argue that

the advertisement cycle in India continues to remain favourable on the back of:

1. Increasing consumption in tier 2 & 3 cities

2. Implementation of 7th pay commission

3. Easing of policy rates

4. Pipeline of elections in the states of UP & Punjab in FY17, Gujarat in FY18, and

MP & Rajasthan elections expected in FY19

Newsprint costs may increase by 5-6% but not more: With declining demand of

newsprint from publishing companies in the West, we see a structural reason why

newsprint cost may not see its previous highs. Even if it rises, there are various tools in

the hands of publishing companies like reducing the pagination, using paper of lower

grammage, reducing subscription discounts, using more of domestic paper, increasing ad-

edit ratio, through which they can manage the costs. Higher growth in advertising

revenues will provide positive leverage which will support the margins.

Differentiating factors: Our comparative analysis of the business segments across

companies suggests that in Print segment: DB Corp is our marginal favourite over Jagran.

Radio segment: With the acquisition of Radio city, Jagran has leaped ahead of peers.

Digital segment: HT Media with much higher investments in the digital space is ahead of

the pack in our view.

Initiating coverage on print media sector with Long rating on DB Corp, Jagran

Prakashan, HMVL and trade rating on HT Media. DB Corp (on the back of dominant

position and strong election pipeline) and HMVL (most attractively valued) are our top

picks in the sector.

Company Rating Mkt cap (Rs

mn)

Current Price

(Rs)

Target Price

(Rs) Upside(%)

P/E

(FY18e)

EV/EBITDA

(FY18e)

P/B

(FY18e)

EBITDA CAGR

(FY16-19e)

RoE

(FY18e)

Core RoIC

(FY18e)

Div.Yield(%)

(FY18e)

FCF Yield(%)

(FY18e)

DB Corp Long 68,614 373 450 21% 16.8 9.6 4.3 14% 27% 28% 3.3% 6.1%

Jagran Long 57,340 175 220 25% 15.5 8.5 3.0 9% 20% 20% 2.6% 7.6%

HMVL Long 20,066 273 370 35% 9.4 6.3 1.5 11% 18% 46% 0.5% 7.4%

HTML Trade 17,596 76 80 6% 10.5 4.6 0.8 9% 8% 12% 0.5% 14.2%

Source: Equirus Research

Print media Sector Note Overweight


Contents

Structural downturn argument poses no immediate concerns ........................... 4

Threat of Digital: How are we placed vs. Developed world? ................................ 4 What led to decline of newspapers in developed world?: US Case study ....... 4 Why Indian print sector is different from the developed world? ..................... 6

Print media in India is still emerging ....................................................................... 8

Mind the language: Regional to outperform English on the back of large

untapped rural population .......................................................................................... 9

Future ready: Diversifying business ........................................................................ 12 Expanding the digital bouquet ............................................................................. 12 Emergence of radio as “Reach” platform .......................................................... 13

Question that matters: “Where are we in the cycle”? .......................................15

Business economics: How do newspapers make money? ...................................... 15

Print advertisement cycle: Remains favourable? ................................................. 17

Newsprint cycle: Rising costs a concern… .............................................................. 21

…but margins may not have much effect ............................................................... 22 1. Decreasing demand from the global publishing companies: ................. 22 2. Few tools in the hands of newspaper companies .................................... 23 3. Case of positive operating leverage .......................................................... 24

Differentiating factors: A bare comparison ...........................................................24

Dainik Bhaskar has the most diversified print business ................................... 25 Jagran clearly leads the pack with its Radio business ..................................... 27 HT media is way ahead with its Digital strategy .............................................. 29

Valuation: EV/EBITDA is our preferred methodology ..........................................31

Valuation summary ..................................................................................................... 31

Demonetisation: Curious case of 3QFY17 .............................................................34

Company Sections DB Corp: Diversified play on India’s print story....................................36

Jagran Prakashan: Tuning in to the right frequency................................50

HMVL: Watch out for ’Money in the Bank’...........................................64

HT Media: Still time before it Shines.................................................77



Exhibit 2: Publishing companies trade at a discount to media sector peers despite better fundamentals

Bloomberg Ticker Company name Mcap

(Rs mn) Price (Rs)

EV/EBITDA

T12M

EBITDA

Margin

(%)

Net Debt

to

EBITDA

ROE

Sales

Growth (%)

(3 yr Avg.)

P/E FCFF

Yield (%)

Div. Yield

(%)

Publishing

HMVL IN Equity HINDUSTAN MEDIA 20066 273.4 9.1 30 -0.2 22 13 13.1 6.6 0.4

JAGP IN Equity JAGRAN PRAKASHAN 57340 175.4 9.9 28 0.3 33 12 17.3 2.4 NA

DBCL IN Equity DB CORP LTD 68614 373.2 10.8 29 0.1 23 9 21.5 2.5 3.0

HTML IN Equity HT MEDIA LTD 17596 75.6 7.0 24 0.5 8 7 10.5 -15.6 0.5

NELI IN Equity NAVNEET EDUCATIO 29539 124.0 14.9 22 0.5 18 6 28.6 7.7 1.8

SDSH IN Equity SANDESH LTD 6654 879.1 5.4 28 -1.6 16 NA 8.2 37.4 0.6

Median

9.5 28 0.2 20 9 15.2 4.5 0.6

Broadcasting

TVTN IN Equity TV TODAY NETWORK 16447 275.7 NA 30 -1.0 19 20 17.4 2.1 0.6

Z IN Equity ZEE ENTERTAINMEN 444784 463.1 25.1 26 -1.1 23 17 50.5 1.4 0.5

TV18 IN Equity TV18 BROADCAST L 65146 38.0 39.3 10 1.4 5 15 35.8 -1.1 NA

NML IN Equity NEXT MEDIAWORKS 1219 18.7 10.6 19 NA NA 15 NA NA NA

ENIL IN Equity ENTERTAINMENT NE 36718 770.3 29.7 29 0.6 14 13 36.7 1.9 0.1

SUNTV IN Equity SUN TV NETWORK 209673 532.1 11.0 70 NA 26 10 23.4 10.0 1.8

RAJT IN Equity RAJ TELEVISION 3143 60.6 622.2 1 5.5 -4 7 NA NA 0.4

Median

27.4 26 0.6 17 15 35.8 1.9 0.5

Cable and Satellite

SITINET IN Equity SITI NETWORKS LT 29502 37.2 12.5 27 1.9 0 36 NA -8.6 NA

HATH IN Equity HATHWAY CABLE 29400 35.4 11.6 19 3.6 -14 24 NA NA NA

ORTEL IN Equity ORTEL COMMUNICAT 4239 139.6 11.8 NA 3.2 NA 16 35.5 -12.7 NA

DEN IN Equity DEN NETWORKS LTD 13980 72.1 NA 10 0.4 -16 12 NA NA NA

DITV IN Equity DISH TV INDIA 91667 86.0 9.0 34 0.8 NA 12 13.2 NA NA

Median

11.7 19 2.5 -13 18 24.4 -10.6 NA

Movies & Entertainment

BLJT IN Equity BALAJI TELEFILMS 6891 90.8 NA 2 -31.4 1 29 211.0 -19.2 1.3

SHEM IN Equity SHEMAROO ENTERTA 11698 430.4 11.2 29 1.8 15 20 22.4 -5.6 0.3

EROS IN Equity EROS INTL MEDIA 15917 169.9 6.6 61 0.4 13 14 7.4 57.2 NA

NETM IN Equity NETWORK 18 MED 36748 35.1 259.3 5 4.6 -2 13 NA -3.4 NA

SARE IN Equity SAREGAMA INDIA 3976 228.5 25.9 7 -1.5 4 6 58.1 6.2 0.7

DQE IN Equity DQ ENTERTAINMENT 1768 22.3 7.2 67 3.9 6 -7 5.9 20.3 NA

UFOM IN Equity UFO MOVIEZ INDIA 11474 415.7 5.8 NA 0.1 13 NA 17.2 5.3 1.9

Median

11.2 29 0.9 8 13 22.4 4.8 0.7

Source: Bloomberg, Equirus Research, prices as on close of 6th Jan’17



Structural downturn argument poses no immediate concerns There has been a long standing argument that the rise of digital media is taking

advertisers away from the print media players. On the contrary, the data suggests that

the Print media is still emerging in India and is growing at a healthy pace (~8% yoy).

Threat of Digital: How are we placed vs. Developed world?

The exponential growth in digital media has been argued as structural threat to the

newspaper industry as it is expected to cannibalise the advertisement revenues.

However, in contrast to western countries where digital media is already estimated to be

the second biggest destination for advertisers, the current size of digital media is very

small in India to pose any meaningful threat to print media in the short to medium term. Exhibit 3: Daily print newspaper circulation data suggests that while most of the developed world is seeing a decline, Asia is still seeing growth

Source: WAN IFRA, Equirus Research

Exhibit 4: Stark difference in advertising pie between US and India (2016e)

Source: emarketer, Equirus Research

What led to decline of newspapers in developed world? - US Case study

Though internet is argued as the major reason for fall of newspaper industry in the US,

we contend that the newspaper industry in US was already struggling and declining. Rise

of internet just accelerated its fall. Exhibit 5: Newspapers in US were already declining, Internet accelerated its fall

Source: Audit bureau of circulation, Statista, BLS, Equirus Research

-30%

-20%

-10%

0%

10%

20%

30%

40%

Europe Asia North America

Africa & MENA

Latin America

Australia & Oceania

5Y 1Y

37.3%

13.90%

14.8%

35.8%

0%

20%

40%

60%

80%

100%

India US

TV Print Radio Digital Others

160000

210000

260000

310000

360000

410000

460000

510000

1300

1350

1400

1450

1500

1550

1600

1650

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2011

2012

2013

2014

2015

No. of daily newspapers in US

Employment in US newspaper industry(RHS)

Print Media Sector Note Overweight


Some of the reasons why newspaper industry in US suffered more are as follows:

1. Decline in advertisement spend post-recession: Due to recession in 2008-09,

the entire advertisement spend of the companies had reduced which hit both

the print as well as digital ad revenues, the digital ad-revenues has seen some

pick up post that while print ad revenues continue to struggle.

Exhibit 6: Recession badly hit both print and online ad revenues of newspapers

Source: Newspaper association of America, Equirus Research

2. Limited growth in a saturated market: Literacy rate in US had been near 100%

for the past decade and the newspapers were already enjoying high readership

of 70-80%, which implies there was a limited potential (Exhibit 7) for the

market to grow as a whole. On the other hand, in the countries like India where

literacy rate is still around 70%, people still aspire to read a newspaper.

Exhibit 7: With near 100% literacy, US market was already saturated

Source: CIA world factbook, World Bank, Equirus research

Exhibit 8: Age-wise readership trends show that readership has been declining with the rise of internet

Source: Scarborough Research survey data, Equirus research

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Print ad revenues ($ mn) Online ad revenues ($ mn)

99% 99%

93%

71%

96%

0.78% 0.80% 0.85%

1.20%

0.50%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

60%

65%

70%

75%

80%

85%

90%

95%

100%

US UK Brazil India China

Adult literacy rate(%) Population growth rate(%) (RHS)

0

10

20

30

40

50

60

70

80

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

18-24 25-34 35-44 45-54 55-64 65+



3. High dependence on classified revenues: Revenues from classified

advertisements contributed nearly 40% to the total revenues of the newspaper

company, with main contributions from recruitment, real estate and auto

advertisements. With the rise of free classified sites like Craigslist.org,

Realtor.com, Monster.com etc all these advertisements shifted to various

job/housing portals which led to significant decline in revenues (see Exhibit 9).

Exhibit 9: Internet hurt classified revenues the most

Source: Newspaper association of America, Equirus Research

4. Limited number of large national players: Of the large number of US dailies,

there are only 3 major newspapers (The Wall Street Journal, The New York

Times and USA Today) which circulate at national level. Most of the other

newspapers serve local communities and generally have monopoly in their

localities. So, this was the main reason, why various newspapers were not able

to grow their circulation levels beyond a certain level and were heavily

dependent on the advertisement revenues.

Why Indian print sector is different from the developed world?

The major reason for difference in India and other western countries is low internet

penetration in India (see Exhibit 10). Exhibit 10: Internet penetration is very low in India as compared to rest of the world

Source: FICCI KPMG, Equirus Research

Though internet penetration is increasing rapidly, there are few structural factors which

give us confidence that digital media will not be able to disrupt Indian print media in the

medium term:

i) Classified ads have a very small share: Before the digital era, Classified

ads used to constitute 40% of total ad revenues in US which has depleted to

18% as most of the classified ads have shifted to digital media. In India,

however, classified ads constitute only 7-8% of total ad revenue, so even if

that shifts to digital, the impact will not be big. The diversion of the

revenues in India started with the job market when a lot of jobs classified

had moved to digital medium like Naukri.com, Shine.com etc. Housing and

matrimonial ads are also getting threatened by the new housing/matrimony

portals.

ii) Cost advantage: Newspapers in India are priced very low, which make them

very affordable. They cost no more than Rs. 200 per month (roughly USD 3)

which is close to the cost of a single newspaper per day in the US.

0.0

5.0

10.0

15.0

20.0

25.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total classified ad revenues ( $bn) Auto classifieds($bn)

Real estate classifieds ($bn) Recruitment classifieds ($bn)

Other classifieds ($ bn)

90% 87% 86%

60% 53%

46%

27%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

UK US Japan Russia Brazil China India

Internet penetration



Exhibit 11: Cover prices in India are very affordable as compared to other countries

Source: FICCI-KPMG, Equirus Research

iii) Easy availability: Most of the newspapers in India are delivered to

customer’s home every morning, which makes it very accessible whereas in

the West, people generally buy newspapers from the stands or the metro

stations.

iv) Readership habits of the people: Most of the people start their day reading

a newspaper (see Exhibit 12: Indians start their day by reading a

newspaperExhibit 12); it has become a habit which is not easy to break.

While the youth in a household might have shifted to digital media, but the

members aged 35 years and above still prefer a physical copy.

Exhibit 12: Indians start their day by reading a newspaper

Source: FICCI KPMG report, Equirus Research

v) Just like TV, Digital media may end up complementing Print: Few years

back, most of the people argued that TV will take away the revenues from

Print media, but in hindsight, TV news channels, especially in regional

languages, have had a positive impact on newspaper circulation, as people

often turn to newspapers for elaborate analysis of the facts they see on TV.

In a similar manner, we digital news websites may end up complementing

newspapers.

It remains to be seen how the future pans out but one thing is certain that due to low

internet penetration, unlike the West, the disruption of print media will not be a near

term event. In the following section, we will see how the existing players in the print

media are already making huge investments to build a strong online presence and are

getting ready for the future.

2-3

4-6

18-20

22-24 23-25

0

5

10

15

20

25

30

India Pakistan Malaysia Hong Kong Singapore

Average monthly cover price ( in USD)

0%

2%

4%

6%

8%

10%

12%

14%

16%

6am

to 7

am

7am

to 8

am

8am

to 9

am

9am

to 1

0am

10am

to 1

1am

11am

to 1

2pm

12pm

to 1

pm

1pm

to 2

pm

2pm

to 3

pm

3pm

to 4

pm

4pm

to 5

pm

5pm

to 6

pm

6pm

to 7

pm

7pm

to 8

pm

Avg. consumption of newspaper by hour (%)



Print media in India is still emerging

The total media and entertainment industry in India has grown at a CAGR 12% in the last

5 years, and according to FICCI estimates, the industry as a whole is expected to grow at

CAGR 14% for the next 5 years. Exhibit 14 suggests that the media spend as % of GDP is

one of the lowest in India at 0.3%, so there remains a huge potential to grow in the long

term. The gap between ‘can read’ and ‘do read’ categories in the regional markets also

remain supportive of the growth of newspapers.

Exhibit 13: Indian M&E industry has grown at a CAGR of 12% in the last 5 years and is expected to grow at faster pace in the next 5 years

Source: FICCI-KPMG report 2016, Equirus Research

Exhibit 14: Media spend in India has a huge upside potential

Source: Group M estimates, Equirus Research

Exhibit 15: Number of registered newspapers and periodicals (‘000s) are still rising

Source: The registrar of newspaper in India, Equirus Research

As Exhibit 16 depicts, print media is still the largest component of advertising as a % of

overall ad pie at 40%. According to FICCI-KPMG estimates, print media is likely to lose its

leadership position to TV in the next 5 years and closely followed by the Digital media.

We argue that digital media is most likely to disrupt the English print space the most

while the regional print is likely to see strong growth in the years to come. We discuss

this in detail in the following section.

Exhibit 16: Print media still has the largest share in the advertising pie

Rs. bn 2012 2013 2014 2015 2016e 2017e 2018e 2019e 2020e CAGR(12-

15)

CAGR(15-

20e)

TV 125 136 155 181 210 242 276 320 365 13.3% 15.0%

Print 150 163 176 189 204 222 242 263 286 8.2% 8.6%

Radio 13 15 17 20 23 28 33 38 43 16.0% 16.9%

OOH 18 19 22 24 28 32 35 40 45 10.3% 13.1%

Digital 22 30 44 60 81 114 153 199 255 40.4% 33.5%

Total 327 363 414 475 547 637 739 860 994 13.2% 15.9%


652 728 821 918

1026 1157

2228

0

500

1000

1500

2000

2500

2010 2011 2012 2013 2014 2015 2020p

M&E industry size ( Rs bn)

0.33%

0.85%

0.97%

0.76% 0.86%

0.76%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

India UK US China Japan World

Media spend as % of GDP

2%

3%

4%

5%

6%

7%

8%

9%

0

20

40

60

80

100

120

2005 2006 2007 2010 2011 2012 2013 2014

Dailies Periodicals YoY growth (%) (RHS)



Mind the language: Regional to outperform English on the back of large untapped rural population

Though both are newspaper businesses, there are structural differences between English

and Hindi/Vernacular newspapers. The English newspapers are arguably read by higher

socio-economic class of people, who use smartphones and have access to internet. Threat

of losing such readers to the digital media is higher which has been the key reason for

slower growth (CAGR of 5% in 2010-15) of English newspapers in the past few years. On

the other hand, Hindi and Vernacular newspapers have grown at a better rate of CAGR

10% in 2010-15 and are expected to grow at higher pace for the next 5 years as well (see

Exhibit 18).

Exhibit 17: Hindi/Vernacular dailies enjoy high readership (‘000s) and are still growing

Source: IRS 2014, Equirus Research

Exhibit 18: Hindi/Vernacular media to outgrow the English print


0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

Vernacular daily English daily Hindi daily

IRS 2013 IRS 2014

69 2015

English print: CAGR 5% in 2015-2020e vs. 5% in 2010-2015

2020e

86

59 2015

Hindi print: CAGR 10% in 2015-2020e vs. 10% in 2010-2015

2020e

95

62 2015

Vernacular print: CAGR 11% in 2015-2020e vs. 10% in 2010-2015

2020e

105



Exhibit 19: Circulation (copies in lakhs) of Hindi and Vernacular dailies is also growing

Source: Audit bureau of circulation, Equirus Research

Key drivers of growth for regional newspapers:

Improving literacy levels: It is no surprise that with the growing push on

education, the literacy levels in the Indian states are improving. And with

improving literacy, the readership is also expected to grow.

Exhibit 20: Improving literacy levels (%) across states in India

Source: Census India, Equirus Research

Exhibit 21: As the literacy levels improve and market expands, regional media is

gaining market share

Source: IRS 2014, Equirus Research

Focus on local and niche content: Most of the readers are becoming more

interested in knowing about the local news. Accordingly, the Companies are

increasingly focussing on local and regional events to increase readership. Also,

they add supplements or other add-ons within the newspaper to target

particular demographic or geographic group of readers. Apart from growing

readership, focus on local and niche content, helps advertisers as well to target

their customers in a more focussed manner.

Increasing penetration among rural literates: The readership as a percentage

of literate population in rural areas is low at 21% vs. 42% in urban areas. As the

readership levels improve in rural areas, it will provide further impetus to the

newspaper industry.

0

50

100

150

200

250

Hindi Malayalam Tamil Bengali Kannada Punjabi Gujarati English

Jan-June 2010 Jan-June 2015

6%

4%

4% 1%

8% 2%

(2)%

(5)%

0 10 20 30 40 50 60 70 80 90

100

Rural(2001) Rural(2011) Urban(2001) Urban(2011)

50% 63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2014

English Regional



Exhibit 22: The penetration remains very low among rural literates

Source: HMVL,IRS, Equirus Research

Improving consumption levels of rural households: The income levels of rural

households are improving at a faster rate than urban households which is also

resulting in more number of companies focussing on rural markets.

Exhibit 23: Number of middle and higher income households (in lakhs) is rising faster

in rural areas

Source: NCAER, Equirus Research

Exhibit 24: Leading companies in India are focussing on rural areas for growth

Source: Marketing Whitebook 2012-13, Equirus Research

83

62

69

42

21

29

10

20

30

40

50

60

70

80

90

Urban Rural Total

Literates (%) Readership as % of literates

80

46

111

59

0

20

40

60

80

100

120

Rural India Urban India

2001-02 2006-07

CAGR 7%

CAGR 5%

45%

60%

40%

33%

50%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

Hindustan Unilever

Hero Honda Dabur DishTV TVS

% of sales from rural markets



Future ready: Diversifying business

Being fully aware of the trends of the newspaper industry in the West, the Indian print

companies have been investing proactively and aggressively in the digital media and

already have a significant presence in online space. Though digital business models of the

companies are still evolving and the primary focus of the companies is mainly on

leveraging their brands in the online world. The companies are focussed on maximising

page views and unique visitors on their websites. Though the base remains very small but

all companies have seen exponential growth in the digital space in the last few years and

the trend is estimated to remain strong.

Exhibit 25: Digital advertisement revenues expected to grow at a CAGR (2015-20E) of 34%


Expanding the digital bouquet

Most of the Companies have been leveraging their brand in the print space to expand

their digital portfolio. Almost all the Companies have established their news websites,

and have also ventured into job, housing and education portals. Exhibit 28 lists websites

of various Companies in the sector. Though the total contribution of the digital segment

in the overall revenues of the Companies remains very low but it’s a high growth segment

and all the Companies are investing heavily in it.

Exhibit 26: High local language users in India will help in faster expansion of

Vernacular print companies


Exhibit 27: Digital revenue comparison of the Companies

Source: Company, Equirus Research

0

50

100

150

200

250

300

2012 2013 2014 2015 2016e 2017e 2018e 2019e 2020e

Digital advertisement revenues( Rs bn)

CAGR(2011-15) 41%

CAGR(2015-20E) 34%

47%

43%

57%

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

300

All India Urban India Rural India

Internet users Local language users

460

213

1403 65%

38%

2% 1% 6%

0%

10%

20%

30%

40%

50%

60%

70%

0

200

400

600

800

1000

1200

1400

1600

DB Corp Ltd Jagran HT Media

Revenues from Digital (FY16) ( Rs mn)

Revenue CAGR(FY13-16) (RHS)

Digital as % of total revenues (FY16) (RHS)



Exhibit 28: Print companies already have well-established digital brands (List may not

be exhaustive)

Companies Digital brands

HT Media

Daily news: hindustantimes.com, Livehindustan.com

Business and Politics: Livemint

Job Portal: Shine

Entertainment: Desimartini

Education: HT Campus

DB Corp

Daily news: DainikBhaskar, DivyaBhaskar,DivyaMarathi,

DailyBhaskar

Business news: Moneybhaskar

Cricket news: Dbcric

Entertainment: Bollywood Bhaskar

Real estate portal: Homeonline

The Times of India group

Daily news:Indiatimes

Cricket news: Cricbuzz

Matrimony portal: Simplemarry

Real estate portal: Magicbricks

Classifieds portal: TCNext

Job portal: Timesjobs

Professional networking website: Peerpower

E-commerce platform: Indiatimes shopping

Jagran Prakashan

Daily news: Jagran

Education: jagranJosh

Health portal: Onlymyhealth

Blogging platform: Jagranjunction

Reverse auction service website: Jeetle.in

Shopping portal: d2hshop.com

The Hindu

Daily news: The Hindu

Current affairs magazine: Frontline

Business news: Business Line

Sports news: Sportstar

Classifieds portal: thehinduclassifieds.in

Real estate portal: Roofandfloor

Source: Company websites, KPMG report, Equirus Research

Emergence of radio as “Reach” platform

Apart from focussing on increasing their print circulation and increasing online presence,

print companies have very aggressively diversified into radio business as well. The radio

industry in India grew at a healthy CAGR (2011-15) of 15% and is expected to grow at

CAGR (2015-20E) of 17%. In the past, the growth has been led by both increase in volumes

(expansion into tier 2 &3 cities) and increase in ad rates.

Exhibit 29: Radio industry to double in size by 2020, growing at CAGR 17%

Source: FICCI-KPMG 2016, Equirus Research

Huge interest by companies in Phase III auctions and increasing FDI limit for FM radio has

improved the growth outlook for the radio industry. Approximately, Rs. 11bn was spent

by the companies to acquire 91 new stations in the auctions, which is expected to expand

FM radio to smaller towns and cities. The release of additional inventory from launch of

new stations will stabilise ad rates but volumes should pick up with higher inventory.

Consumption of content on radio is independent of literacy level of audiences due to

which radio industry is expected to outpace the overall advertising industry (second only

to digital) in the next few years.

0

5

10

15

20

25

30

35

40

45

50

2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e 2020e

Radio advertising revenues (Rs bn)

CAGR(2011-15) 15%

CAGR(2015-20E) 17%



Exhibit 30: Radio businesses of the print media companies

Radio comparison DB Corp

Ltd Jagran HTML

Radio Brand MY FM (94.3

FM)

Radio City

(91.1 FM)

Radio Fever

(104 FM),

Radio Nasha

No. of cities (Total*) 30 39v(including Radio

Mantra) 12

New frequencies in Phase III 13 11 10

Amount spent (Rs. mn) 320 630 3400

Revenues from Radio (FY16) (Rs.

mn) 1076 2323 1170

Radio as % of total revenues (FY16) 5% 11% 5%

EBITDA margins (%) 37% 34% 25%

Source: FICCI-KPMG,Company, Equirus Research. *some cities are not operational yet

Exhibit 31: Aggressive bidding by existing players in phase III auctions highlights their bullish view on Radio industry


Exhibit 32: Pre and post auctions status of major players


10

17

3

14

11

13 14

8

0

2

4

6

8

10

12

14

16

18

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Fever 104 FM

(HT Media)

Radio Mirchi

Red FM 93.5

92.7 Big FM

Radio City 91.1 (Jagran)

94.3 MY FM (DB Corp)

95 FM Tadka

New entrants

Non-refundable One time entry fee (Rs bn) No. of frequencies (RHS)

59

30

49

31

50

14

100

0

20

40

60

80

100

120

0

20

40

60

80

100

120

Big 92.7 MY FM (DB Corp)

Radio Mirchi

Radio City (Jagran)

Red FM Fever 104 FM (HT Media)

Others

Existing New Total (RHS)



Question that matters: “Where are we in the cycle”?

On the revenue side, newspaper industry is highly dependent on the advertising revenues

and on the cost side it is mainly dependent on the newsprint prices. Both components

depend on various macro variables and hence earnings of the newspaper business are

highly cyclical. We briefly discuss the business economics of the newspaper industry to

understand these variables in a better way.

Business economics: How do newspapers make money?

Newspaper publishers mainly have 2 sources of revenue:

a) Circulation revenues (sale of newspapers) which is mainly a function of i) total

newspaper circulation (Volumes) and

ii) Average realisation per copy (Pricing)

b) Advertising revenues (sale of advertising space) which is generally a function of

i) Ad space sold commercially (sq cm) (Volumes) and

ii) Average yield (Rs per sq cm) (Pricing)

Exhibit 33: Advertising revenue contributes nearly 70% of total revenues


English newspapers are generally sold at lower prices (even lower than cost of

production) due to stiff competition in the market, on other hand Hindi/Vernacular

newspapers have higher cover prices. However, on the advertising side, English

newspaper generally command a premium on the ad-rates than Hindi/Vernacular

newspapers, mainly because higher income people whom advertisers are targeting read

English newspapers.

Exhibit 34: English newspaper revenues are more skewed towards advertising than Hindi


On the cost side, the main operating costs for a newspaper publisher are:

a) Production costs mainly newsprint costs

b) Employee costs

c) Marketing and distribution costs

d) Content cost if procured from other agencies

67% 67% 67% 67% 67% 67% 67% 68% 68% 69%

33% 33% 33% 33% 33% 33% 33% 32% 32% 31%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e 2020e

Advertising revenue (%) Circulation revenue(%)

68% 65%

32% 35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

English Hindi

Advertising Circulation



Exhibit 35: Operating costs break-up of HMVL (2016)

Source: Company filings, Equirus Research

As Exhibit 35 shows, production costs are the major component, contributing approximately 50% of total operating costs. The production costs are mainly a function of following factors:

a) Cost of the newsprint (varies with imported or domestic)

b) Number of pages printed

c) Colour schemes (Black/White or Coloured)

d) Quality of the newsprint used (varies with imported or domestic and also with

weight (grammage))

e) Printing facility owned or outsourced

The consumption of newsprint in India is more skewed towards imported which forms

around 53% of the total consumption. The cost of publishing an English newspaper is

generally higher than Hindi/Vernacular newspaper as it has more number of pages and

also it has better print quality (due to more consumption of imported newsprint).

Exhibit 36: Consumption of newsprint in India (million MT)

Source: FICCI-KPMG report, Equirus Research

49.4%

17.7%

32.9% Production costs

Employee costs

Other operating expenses

53% 57% 57% 54% 53% 49% 51% 50% 52% 49% 47%

1.44 1.59

1.82 1.93 2.09

1.95 2.14 2.13

2.66 2.91

2.64

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Domestic Imported Total (mn MT)



Print advertisement cycle: Remains favourable?

High dependence on advertising revenues makes the newspaper business highly

dependent on economic cycles. Exhibit 37 shows that cyclical sectors like Auto, Real

estate etc as among the top sectors which advertise heavily in the newspapers. Our

analysis of the past economic cycles shows that print advertising revenues closely lag the

Indian macroeconomic indicators like the real GDP growth rates (Exhibit 38), IIP index

(Exhibit 39) and the GDP per capita (Exhibit 40). The important point to note is that

even in the downturns, the print advertising growth rates had always stayed positive.

In our view, the advertising revenues are set to improve due to following key drivers:

1. Increasing media spend as % of GDP

2. Improving macroeconomic indicators

3. Easing of policy rates

4. Increase in discretionary spends by consumers

5. Rise of consumers in Tier 2 and 3 cities

6. Increase in ad-rates for Hindi/regional newspapers

7. Upcoming state elections and revised DAVP policy

8. Growth in emerging sectors like education, organised retail and

telecommunication

Exhibit 37: Top categories in the print advertising pie


Exhibit 38: Real GDP growth leads the advertising revenue growth

Source: Bloomberg, FICCI-KPMG report, Equirus Research

Exhibit 39: IIP and the advertising revenue growth


14.6%

12.8%

9.8%

7.0%

6.0%

4.3% 3.8%

5.6%

4.7% 0.0%

4.6% 1.9%

1.3%

1.0%

22.4%

FMCG

Auto

Education

Real estate

Clothing/fashion/jewellery

E-com

Telecom/DTH

Retail

BFSI

Election/political ads

HH Durables

Travel and tourism

Corporate

Media

Others

0%

5%

10%

15%

20%

25%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

GDP growth (%) Print advertising revenue (YoY %) (RHS)

0%

5%

10%

15%

20%

25%

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

IIP index Print advertising revenue (YoY %) (RHS)



Exhibit 40: GDP per capita and the advertising growth


Key drivers of growth for advertising revenues:

1. Decreasing gap with developed countries: Exhibit 41 depicts, the advertising

spend in India is minimal when compared to other major economies of the

world. The media spend to GDP ratio stands at only 0.3% in India, but as India

continues to evolve and continues to grow at the current (or better) GDP growth

rates, we expect the advertising spend to increase and the disparity with other

economies to reduce.

Exhibit 41: Media spend in India is at low levels

Source: Group M estimates, Equirus Research

2. Improving macro-economic indicators: The World Bank forecasts Indian GDP to

grow in the range of 7.5%-8.0% for the next 3 years. With strong correlation of

advertising revenues with the GDP growth rates, we expect the advertising

revenues to also pick up in the coming years.

Exhibit 42: India real GDP growth expected to improve further

Source: Worldbank, FICCI-KPMG report, Equirus Research

0%

5%

10%

15%

20%

25%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0% 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

GDP per capita at constant prices (YoY %)

Print advertising revenue (YoY %) (RHS)

4

251

491

27

343

0

100

200

300

400

500

600

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

India UK US China Japan

Media spend as % of GDP Media spend per capita(USD) (RHS)

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2013 2014 2015e 2016f 2017f 2018f

Real GDP growth rate (%) Print advertising growth (%)



3. Policy rates expected to ease further in the coming months: RBI has been

easing the policy rates in the past few years. We are not forecasting any rate

cuts, but if they happen, it shall be positive for the economy and the companies

will get more room to increase their advertising expenditure.

Exhibit 43: Policy rates in India are expected to ease further

Source: RBI, Equirus Research

4. Consumer spending evolving towards discretionary items: Exhibit 44 shows

the spending patterns of the major economies and it suggests that Indian

consumer still majorly spends on items of basic necessities like food and

apparel. But as Exhibit 45 suggests, the trend in India is shifting towards

discretionary items. With continued growth in GDP per capita, rising middle

class and high disposable income, it is expected that this trend will continue and

just like consumers in other major countries, the wallet share of the Indian

consumer will also evolve towards the discretionary items. The companies would

in turn, increase their advertising spends to gain the mind share of the evolving

Indian consumer.

Exhibit 44: Consumption basket in India is more inclined towards basic needs

US Western Europe Brazil China India

Food 9% 16% 17% 25% 31%

Housing 19% 23% 20% 15% 14%

Transport 10% 13% 15% 6% 18%

Education & leisure 18% 19% 17% 19% 7%

Durables & Households 4% 6% 7% 5% 4%

Communication 2% 3% 3% 3% 2%

Apparel 4% 5% 5% 8% 6%

Health 20% 4% 6% 7% 5%

Others 14% 11% 10% 12% 13%

Source: BCG India, Equirus Research

Exhibit 45: But the consumption pattern is shifting towards discretionary items

1995 2005 2015e 2025f

Food 56% 42% 34% 25%

Apparel 5% 6% 5% 5%

Housing/Utilities 14% 12% 12% 10%

Household products 2% 3% 3% 3%

Personal products 4% 8% 9% 11%

Transport 11% 17% 19% 20%

Communication 3% 2% 3% 6%

Education 1% 5% 6% 9%

Healthcare 4% 7% 9% 13%

Source: Marketing whitebook, EquirusResearch

5. Rise of consumers in Tier 2 and 3 cities: In the recent festive season, Amazon

and Snapdeal noted 60%-70% of their orders coming from tier 2 and 3 cities. With

rising literacy and income levels of the people there, most of the FMCG and Auto

companies are trying to expand their reach in that market. The regional

newspapers have been increasing their circulations in these cities but there still

exists a noteworthy gap between ‘can read’ and ‘do read’ categories. The

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Oct

-01

Jul-

02

Ap

r-03

Jan

-04

Oct

-04

Jul-

05

Ap

r-06

Jan

-07

Oct

-07

Jul-

08

Ap

r-09

Jan

-10

Oct

-10

Jul-

11

Ap

r-12

Jan

-13

Oct

-13

Jul-

14

Ap

r-15

Jan

-16

Oct

-16

Repo rate (%)



regional newspaper will be big beneficiary of the growth happening in these

cities.

Exhibit 46: Monthly expenditure of rural consumers is increasing

Source: Business Standard, Equirus Research

6. Increase in ad rates for the regional newspapers: Readership of regional

newspapers is significantly higher than the English newspapers in India. In spite

of that, advertisers still pay significant premium to the English dailies as they

are believed to focus on the higher income people in the metro cities. As Tier 2

and 3 cities continue to develop in India, and the focus of advertisers grows in

that market, the correction in the advertisement rates is bound to happen and

that will give significant push to revenues of regional newspapers.

Exhibit 47: English newspaper advertising revenue per reader is at a premium to

Hindi and Vernacular newspapers


7. Upcoming elections and new DAVP policy: Central government and various

state governments strongly focus on newspapers to communicate their

campaigns, ideologies and on-going work in the country. The upcoming elections

in the states of UP, Punjab and Gujarat are going to play a significant role in the

advertising growth.

The Directorate of Advertising and Visual Publicity (DAVP) is the government’s

nodal agency which does advertising on behalf of various ministries,

departments and public sector units. With its latest policy (effective from 7th

June 2016), the agency has ensured that different newspapers and periodicals

are treated fairly.

a) DAVP will classify newspapers and magazines into 3 categories: 1) Small

(under 25,000 copies per day) 2) Medium (25,001 to 75,000 copies per day)

and Big (over 75,000 copies per day)

b) DAVP will also score the newspapers based on six objective criteria with

maximum points allocated to the circulation figures. It will be great for

bigger newspapers as mid-sized newspapers scoring less than 45 marks will

not qualify for government ads.

1000

1500

2000

2500

3000

3500

4000

4500

Andhra

Pra

desh

Ass

am

Bih

ar

Chhatt

isgarh

Guja

rat

Hary

ana

HP

Jhark

hand

Karn

ata

ka

Kera

la

MP

Mahara

shtr

a

Odis

ha

Punja

b

Raja

sthan

Tam

il N

adu

UP

Utt

ara

khand

West

Bengal

India

(Avera

ge)

Monthly per capita expenditure of rural consumers (Rs)

10%

36%

54%

39%

30% 31%

0%

10%

20%

30%

40%

50%

60%

English Hindi Vernacular

AIR split Revenue split



c) Overall, English newspapers will receive 30% of spend, Hindi 35% and

regional will receive remaining 35%.

d) DAVP will offer premium for specific placement of ads in the dailies, earlier

there was no premium for the pages or placements. Now, it will pay 50%

premium above its normal rates for front page, 20% premium for third page,

10% premium for fifth page and 30% premium for back page.

e) It has also streamlined the procedure for quick and timely payment by

ministries to DAVP.

8. Growth in emerging sectors such as education, organised retail & telecom:

Real estate has historically been a big advertiser in the newspaper but due to

the structural problems in the real estate market, there has been a major

decline in their advertisement spends. But other emerging sectors like

education, organised retail and telecom which use newspapers as medium to run

their advertising campaigns are offsetting that decline. With rising competition

in the telecom and the launch of 4G services by the major players, the

advertising spend is expected to remain high.

Exhibit 48: Category break-up of print advertisers in India

Contribution 2013 2014 2015

FMCG 12.3% 13.5% 14.6%

Auto 11.7% 11.9% 12.8%

Education 9.7% 9.4% 9.8%

Real estate 8.7% 8.0% 7.0%

Clothing/fashion/jewellery 6.1% 6.1% 6.0%

E-com 1.0% 2.2% 4.3%

Telecom/DTH 3.6% 3.7% 3.8%

Retail 5.7% 5.3% 5.6%

BFSI 6.0% 4.8% 4.7%

Election/political ads 0.6% 1.7% 0.0%

HH Durables 3.9% 4.2% 4.6%

Travel and tourism 1.9% 1.7% 1.9%

Corporate 1.7% 1.4% 1.3%

Media 1.4% 1.1% 1.0%

Others 25.4% 24.9% 22.4%


Newsprint cycle: Rising cost a concern…

Newsprint costs form nearly 50% of the total operating costs for the newspaper

companies. Our analysis suggests that just like advertising revenues, newsprint costs are

also cyclical and depend on macroeconomic factors.

Crude oil prices are the major drivers of the newsprint prices (see Exhibit 49) as they

influence the shipping rates as well as the cost of production (newsprint production being

a highly energy intensive process).

Currently, the rising newsprint prices have been a source of worry for many investors as

they may affect the profitability of the newspaper companies. Additionally, depreciation

of Rupee vs. USD has added to the woes of the newspaper companies especially the

English newspaper business as major portion of the newsprint is imported.

Exhibit 49: Crude Oil has very high correlation with newsprint prices

Source: Bloomberg, Equirus Research

20

40

60

80

100

120

140

400

450

500

550

600

650

700

750

800

Jun-0

2

Jun-0

3

Jun-0

4

Jun-0

5

Jun-0

6

Jun-0

7

Jun-0

8

Jun-0

9

Jun-1

0

Jun-1

1

Jun-1

2

Jun-1

3

Jun-1

4

Jun-1

5

Jun-1

6

Newsprint in USD (YoY %) WTI Oil (USD) (RHS)



Exhibit 50: Snapshot of Newsprint industry in India

Source: INMA, Equirus Research

…but margins may not have much effect

However, we expect the newsprint prices to stabilise soon and it may not be able to

reach previous highs due to some structural reasons:

1. Decreasing demand from the global publishing companies: The demand for

newsprint is under stress as the newspapers companies in the developed world

are closing down. This trend is favourable for Indian companies as they can

negotiate the rates better.

Exhibit 51: The demand of newsprint in North America has been on decline

Source: Statista, Equirus Research

Capacity

Industry capacity ~2-3M.M.TPA

Current capacity utilisation 50-60%

Cheaper imports are the main reason for low utilisation

Key raw materials: Waste paper & wood pulp

More than 50% waste paper is imported

Market size

Demand in FY15 was 2.6 M.M.TPA, mainly met by imports (51%) and rest local

Industry expected to grow at 6% during next 5 years and likely to reach 5.5 M.M.TPA by 2025

End user: Newspapers and magazines

Leading indigenous manufacturers

Emami Paper Mills ltd, Orissa

Rama Newsprint & Papers Ltd, Gujarat

Hindustan Newsprint Ltd, Kerala

Khanna Paper Mills Ltd, Punjab

Prices

Current prices of indigenous newsprint ~Rs. 30,000-Rs. 35,000/MT

Imported standard newsprint ~USD 500-550/MT

International prices volatility, but more competitive than domestic due to better capacity utilisation

Newsprint industry in India

5.4

5.0 4.9

4.5

4.1

3.7

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2010 2011 2012 2013 2014 2015

Demand of newsprint paper in North America ( in million MT)



Exhibit 52: Historical data shows that Indian newspapers manage their newsprint

costs well

Source: Bloomberg, Company, Equirus Research

2. Few tools in the hands of newspaper companies: Newspaper companies can

take certain steps to protect their margins in the event of rising newsprint costs:

a) Decrease in pagination: Companies can reduce the number of pages to

protect the costs.

b) Reducing the paper weight (grams): Companies can mix thinner paper in

their printing i.e. use 43 gm per square metres (gsm) paper along with the

conventional 45gsm.

c) Change the mix towards domestic newsprint: English newspapers

generally use 70% of the imported newsprint to maintain quality, during

periods of high prices, they can change the mix to lower their costs.

Exhibit 53: Companies change the mix towards domestic to manage costs

Source: Bloomberg, Company, Equirus Research

d) Increase the ad-edit ratio: Ad-edit ratio is the ratio of advertisement and

editorial content in a newspaper. Generally, companies maintain the ratio

around 30-35%, but they can raise it up in favour of ads in a bid to increase

the revenues.

e) Reduction in subscription discounts: The average realisation for a

newspaper company is generally at a 30-40% discount to the cover prices.

This is mainly explained by the discounted subscription prices that

companies offer when competitive intensity increases or they enter new

markets. Historically, when the newsprint costs have risen, companies have

reduced their discounts and have improved their realisations.

Indian newspapers manage their costs

well

Reduction in imported

newsprint



Exhibit 54: Reduction in subscription discounts to counter newsprint costs


3. Case of positive operating leverage: Due to higher dependence on advertising

revenues, earnings are more sensitive to changes in advertising revenues than

changes in newsprint costs. We estimate that the earnings of the sector are

~1.2x more sensitive to changes in advertising than changes in newsprint costs.

So, even if newsprint costs rise more than expected, in our view the strong

advertising growth shall be able to drive the earnings forward.

Differentiating factors: A bare comparison

We compared the Print, Radio, Digital and overall business on some common parameters.

Following are our conclusions of the same:

1. Print business: In our view, if we look only at print businesses of these

Companies, Dainik Bhaskar looks marginal favourite. It has highest daily

circulation amongst the competitors and has more diversified readership across

various states whereas Jagran and Hindustan are more focussed on UP & Bihar.

The Company has proven track record of making strong entry in new markets

and becoming No.1 from Day1 of launch.

2. Radio business: On comparing radio businesses of these companies, Jagran is

clearly ahead of the rest. The upcoming IPO of Radio City (91.1 FM) will further

unlock value of its radio business. All Companies have different strategies with

their radio businesses; while some operate the business as complementary

platform to their print business, others operate it more independently.

3. Digital Business: Though digital is still a very small component of the overall

business, but all the companies have been proactively establishing their brands

in the digital space. In this space, HT media has clearly made the biggest

investments amongst its peers. Apart from working on the news daily websites

like other players, the Company has established Shine.com which has become

no.2 jobs portal in India after Naukri.com. It has also ventured into education

space which is seen as high growth industry. As far as only news websites/portals

are concerned, Dainik Bhaskar attracts the maximum traffic along with Times of

India.

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Newsprint cost per MT (Rs) Average realisation(Rs)



Exhibit 55: DB Corp stands out with its Print strategy, Jagran has the best Radio

business, and HT Media leads with its Digital investments

Ranking DB Corp Jagran HT Media/

HMVL Comments

Print 1 2 3

Well proven market entry

strategy, diversified

readership makes DB Corp

our top pick in terms as far

as Print is concerned

Radio 3 1 2

Radio City(Jagran) is our top

pick because of its reach

and popularity.

Digital 2 3 1

HT Media has diversified its

digital investments in News,

jobs and education portals.

In terms of brand recall, DB

Corp is getting maximum

traffic on its websites.


Below we look into detail all the three segments of these Companies.

DainikBhaskar has the most diversified print business

For the key Hindi print players in the industry, India can be broadly divided into 2 broad

categories as shown in Exhibit 56. 1) Focus markets- which include major Hindi speaking

states of UP, MP, Chattisgarh, Rajasthan, Bihar, Haryana, Punjab, Himachal Pradesh,

Uttarakhand, Jharkhand and J&K. The focus is also on regional markets where majority

understand Hindi like West Bengal, Orissa, Maharashtra and Gujarat. 2) Non Focus

markets- Rest of the markets like North-eastern states, Southern states of Tamil Nadu,

Karnataka, Kerala, AP& Telangana are not priority for the industry players at the

moment. Also the major metros are considered as majorly an English print market, with

Delhi being an exception as it is also a strong market for Hindi players.

Exhibit 56: Print media Landscape in India

Source: Company, Equirus Research * Delhi which is a metro is a also a strong market for

Hindi newspapers

In the print space, we rank DB Corp higher than others mainly due to following factors:

1. Diversified readership base: DB Corp is present in the highest number of states

(14) as compared to its peers and has the most diversified (see Exhibit 57)

readership base across various states whereas both Jagran and Hindustan are

more focussed on UP and Bihar. This diversification makes DB Corp more immune

to floods and other calamities which may disrupt any particular state. Though

UP, due to its large population is the largest market for advertisers in India, but

the states like Bihar, MP and Jharkhand are growing at faster rates. Also, having

a diverse readership like Dainik Bhaskar, makes a Company immune to slowdown

in any particular states.

2. Proven track record of entering new markets: Generally, newspaper

companies try to maintain their leadership in one or two states. But Dainik

Bhaskar has been able to grow beyond its MPCG market and expand into newer

territories like Gujarat and Rajasthan. From the day 1 of its launch, it was able

Print Media landscape

Focus markets

Remaining states

Hindi

UP, MP, Chattisgarh, Rajasthan, Haryana, Punjab, Himachal, Uttarakhand, Jharkhand, J&K, Bihar

Bengali/Oriya/Marathi/Gujarati

Non-focus markets

7 NE states 5 Southern

states

7 Metros (English

Play)



to displace the market leader of that particular state. This speaks a lot about

the strong brand recognition of Bhaskar.

Highest circulation growth driven by yield growth: DB Corp has been able to grow its

circulation revenues at a CAGR (FY11-16) of 15% vs. the industry which grew by 8% in the

same period (see

3. Exhibit 59). This is mainly due to continuous focus on increasing its circulation

volumes but more importantly the Company has consistently been able to

increase its cover prices in its core legacy markets without any loss of

readership. With continuous focus on improving editorial and quality of paper

(higher imported paper vs. the peers), DB Corp has got a sticky readership base.

Exhibit 57: Readership matrix shows that DainikBhaskar is more diversified while

Jagran and Hindustan are more focussed on UP and Bihar


Exhibit 58: State wise comparison of the key players

GDP (%)

Literacy

(%)

Readership

(%)

Readership (mn) Other Key players

DB JPL HMVL

Bihar 9.8% 62% 47%

2.9 4.8 Prabhat Khabar

Chattisgarh 6.6% 70% 49% 0.9 0.3

Navbharat times

Delhi 7.8% 86% 61%

0.6 1.0 Navbharat Times, Punjab Kesari

Gujarat 7.5% 78% 43%

Gujarat Samachar, Sandesh

Haryana 6.7% 76% 51% 1.3 1.0

Punjab Kesari

Jharkhand 8.3% 66% 58% 0.8 0.9 1.7 Prabhat Khabar

MP 9.5% 69% 43% 4.1 1.0

Navbharat times, Patrika

Maharashtra 6.9% 82% 64%

Punjab 5.2% 76% 49% 0.8 0.6

Punjab Kesari

Rajasthan 5.7% 66% 56%

Rajasthan Patrika

UP 5.6% 68% 51%

0.9 0.4 Amar Ujala

Source: IRS (4Q12), Equirus Research, Readership (%) suggests the percentage of literate

population who read any newspaper; Red colour indicates the absence from that

particular state

26%

32%

19%

12%

4% 7%

Dainik Bhaskar

MPCG

Rajasthan

Gujarat

Chd,Punjab, Haryana

Jharkhand

Maharashtra

51%

18%

5%

11%

7%

3%

3% 2%

Jagran

UP

Bihar

Jharkhand

MP&CG

Haryana & Punjab

Uttarakhand

Delhi

52%

4%

30%

9% 7%

HMVL

UP

Uttarakhand

Bihar

Jharkhand

Delhi NCR



Exhibit 59: DB Corp has led the industry in circulation growth and Hindustan has led

in advertising growth in the last 5 years

Source: Company, Equirus Research,*DB Corp had a lower advertising growth in FY16 as it

made a strategic choice of increasing its ad-rates due to which it lost some volumes

Exhibit 60: Print segment comparison of the four companies

DB Corp Jagran HTML HMVL

Presence in number of states 14 13 9 5

Readership of flagship product (mn) 13.8 16.6 4.5 14.7

Past ad revenue growth CAGR (FY13-16) 7% 10% 4% 14%

Average circulation per day (mn) 5.2 5.0 1.7 2.7

Avg. realisation per paper(Rs) 2.4 2.2 1.4 2.2

Past circulation revenue growth CAGR (FY13-16) 16% 9% 9% 11%

Source: Company, Equirus research

Jagran clearly leads the pack with its Radio business:

Radio industry is expected to grow at CAGR (15-20E) of 17%. All the print media

companies have been investing for the past few years to expand their radio segment.

Jagran clearly has the best radio brand among the print media companies due to its

presence in higher number of cities (39) and wide listenership base.

Exhibit 61: Card rate per second data suggests that Radio City competes with Mirchi

and Fever in metro cities, while non-metro cities, MY FM has strong presence

Source: Company, Equirus Research, Card rate for per second advertisement

Below we explore the Radio segments of these companies in detail:

Radio City 91.1FM (Jagran Prakashan): Prior to acquiring Radio city (91.1 FM) in FY16,

Jagran had a very minimum exposure in the Radio business through “Radio Mantra”.

Impressed by the future outlook of the Radio business, Company acquired Radio City

(91.1 FM) in 2015 for Rs. 6,450mn and got 20 new stations in a single deal. Now, in phase

III auctions, Company acquired 11 more stations and now has 39 stations in total

(including 8 Radio Mantra stations which have been merged with the company). Right

from Day1, Jagran has operated its Radio business independently from its Print business,

and has grown its revenue at CAGR (FY13-16) of 19%. It roughly contributes 11% to the

total consolidated revenues of the Company.

0%

2%

4%

6%

8%

10%

12%

14%

16%

Advertising revenue (CAGR(FY11-16)) Circulation revenue (CAGR(FY11-16))

DB Corp Jagran Hindustan HT Media Industry

0

500

1000

1500

2000

2500

3000

Delhi Mumbai Bengaluru Ahmedabad Bhopal Jaipur

Radio City (91.1) Radio Mirchi (98.3) My FM (94.3) Fever FM (104)



Radio City IPO update: Jagran has demerged its “Radio Mantra” business into “Music

Broadcast Limited” which operates “Radio City”. Music Broadcast limited has filed for an

IPO and plans to raise Rs. 4,000m from the issue.

Exhibit 62: Radio City (Jagran) is a much bigger player than Fever (HT Media) and MY

FM (DB Corp) in terms of reach…

Source: AZ research, Equirus Research

Exhibit 63: ...and also in terms of revenues


94.3 MY FM (DB Corp): DB Corp has operated its Radio business (94.3 MY FM) as an

additional medium to its print business and operates its Radio stations in the same non-

metro cities where it has print presence. Before the phase III auctions, the Company had

17 stations, now it has got 14 more stations which should be operational by the end of

FY17E.

Radio Fever 104FM (HT Media): Prior to Phase III auctions, HT Media was operating its

Radio business only in 4 metro Cities i.e. Delhi, Mumbai, Bangalore and Kolkata. It had

also acquired Radio Nasha in Chennai. The Company has bid very aggressively in the

Phase III auctions (approx. Rs. 3,400mn) and has got 10 more stations, 1 each in Delhi,

Mumbai and Hyderabad and 7 in major cities of UP. Once operational, the Company will

have 2 stations in Delhi and Mumbai, which are seen as the main market for advertising.

7 stations in UP have been taken to grow its presence in cities where it operates its Hindi

Newspaper through its subsidiary HMVL.

47288

39486

24080 22326

10112 7628 6649

3131 2949 1498 999

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

City Mirchi Big Red Fever One Suryan My FM Hello Indigo Oye

PAN india listenership trend ( in '000s)

17%

19%

14%

5%

11%

5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

500

700

900

1100

1300

1500

1700

1900

2100

2300

2500

DB Corp Ltd Jagran HTML

Revenues from Radio (FY16) ( Rs mn)


Radio as % of total revenues (FY16) (RHS)



Exhibit 64: Aggressive bidding by existing players in phase III auctions highlights their

bullish view on Radio industry


HT media is way ahead with its Digital strategy:

Though digital revenues form very small part of the overall revenues of the print media

companies, but they are investing heavily to expand their digital presence. The digital

businesses of all companies are currently loss making as the industry still trying to figure

out the best business model. All the Companies have developed several news

websites/apps, jobs website, housing websites etc. In terms of news websites, DB Corp

has been able to attract maximum traffic as it has been able to leverage its strong brand

in the print space. HT media has made large investments in terms of Jobs portal like

Shine.com and has also ventured into education portals. Jagran has been a late starter

but is catching up fast with the peers.

Exhibit 65: HT Media is way ahead of peers as far as Digital revenues are concerned


Exhibit 66: DB Corp leads in terms of attracting maximum traffic on its website

Source: Similarweb, Equirus Research

10

17

3

14

11

13 14

8

0

2

4

6

8

10

12

14

16

18

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Fever 104 FM

(HT Media)

Radio Mirchi

Red FM 93.5

92.7 Big FM

Radio City 91.1 (Jagran)

94.3 MY FM (DB Corp)

95 FM Tadka

New entrants

Non-refundable One time entry fee (Rs bn) No. of frequencies (RHS)

5.4 5.4

2.5

5.3

0

1

2

3

4

5

6

0

5

10

15

20

25

30

35

Bhask

ar.

com

Jagra

n.c

om

hin

dust

anti

mes.

com

Liv

ehin

dust

an.c

om

Average traffic in Nov'16 (mn) Average visit duration(mins) (RHS)

460

213

1403 65%

38%

2% 1% 6%

0%

10%

20%

30%

40%

50%

60%

70%

0

200

400

600

800

1000

1200

1400

1600

DB Corp Ltd Jagran HT Media

Revenues from Digital (FY16) ( Rs mn)


Digital as % of total revenues (FY16) (RHS)



Exhibit 67: Visitors spend more time on DB Corp’s website than others


Exhibit 68: Most of the traffic is routed through Social media or search engines


Exhibit 69: Standardised P&L (FY16) comparison of print companies

FY16, Rs. mn DB Corp Jagran HT Media HMVL

Revenues 100 100 100 100

RM Cost 30 30 29 38

Gross profit 70 70 71 62

Employee expenses 19 15 22 14

Other expenses 25 27 37 25

EBITDA 26 28 12 24

Conversion ratio (EBITDA/GP) 37% 40% 17% 38%

Depreciation 4 5 4 2

EBIT 22 23 8 21

Other Income/Expenses 1 -1 4 5

PBT 23 22 12 27

Tax 8 7 3 7

Tax rate(%) 36% 30% 28% 26%

Net Income 14 16 9 20

EBITDA margins (%) for FY16 26% 28% 12% 24%

PAT margins (%) for FY16 14% 16% 7% 20%

RoE(%) in FY16 23% 24% 8% 22%

Core RoIC (%) in FY16 21% 24% 12% 33%

Net debt/Equity in FY16 0.02x 0.04x 0.13x -0.06x


32.9%

45.0%

69.8%

50.5%

20%

30%

40%

50%

60%

70%

80%

0 1 2 3 4 5 6 7 8 9

10 Bhask

ar.

com

Jagra

n.c

om

hin

dust

anti

mes.

com

Liv

ehin

dust

an.c

om

Pages per visit Bounce rate(RHS)

0%

10%

20%

30%

40%

50%

60%

70%

Social website

Search engines

Direct Referrals Mail Display

Bhaskar.com Jagran.com hindustantimes.com Livehindustan.com



Valuation: EV/EBITDA is our preferred methodology

Out of the various valuations methodologies available, we prefer EV/EBITDA methodology

over P/E and DCF and have valued the sector using it.

EV/EBITDA preferred over P/E mainly because:

1. The Companies in the sector have very strong balance sheet but have varied

amounts of Cash & current investments which leads to large differences in the

‘Other Income’ component in the P&L.

2. Companies in the sector follow different accounting policies for depreciation

and amortisation. For e.g. Jagran follows WDV method while others follow

straight line method.

EV/EBITDA preferred over DCF mainly because of the cyclicality of the business. Though

the business generates high operating cash flows and pay high dividends but the high

dependence of the business on advertisements makes it very cyclical and can lead to

various forecasting biases. We have done Sum of the Parts (SoTP) valuation for the

Companies which generate more than 10% revenues from different segments. This is

mainly true for Jagran Prakashan whose main segment is its print and publishing business

but its radio segment has also grown to a size (generating >11% of the consolidated

revenues) that it should be valued separately. Similarly, in case of HT Media, we have

done a SoTP valuation of both its Standalone and Hindi businesses(through its subsidiary

HMVL). The Company has also been growing its radio and digital businesses but in our

view, they still have to grow bigger, before the market values them independtly.

Exhibit 70 : EV/EBITDA trading range in the last 6 years


Valuation summary

DB Corp: We initiate our coverage with Long rating and have arrived at our Mar’18 TP of

Rs. 450 using 11x EV/EBITDA multiple on our FY18 EBITDA estimates. The company has

always traded at a premium to its peers for its strong brand recognition and diversified

presence across various states. Our target EBITDA multiple of 11x, apart from being the

last 6 year average multiple, also underlines our estimated EBITDA CAGR (FY16-19E) of

14%, strong RoE (FY18E) of 28% and solid FCF yield (FY18E) of 6%.

Exhibit 71 : Valuation summary of the print media companies

Company Rating Mkt cap (Rs

mn)

Current Price

(Rs)

Target Price

(Rs) Upside(%)

P/E

(FY18e)

EV/EBITDA

(FY18e)

P/B

(FY18e)

EBITDA CAGR

(FY16-19e)

RoE

(FY18e)

Core RoIC

(FY18e)

Div.Yield(%)

(FY18e)

FCF Yield(%)

(FY18e)

DB Corp Long 68,614 373 450 21% 16.8 9.6 4.3 14% 27% 28% 3.3% 6.1%

Jagran Long 57,340 175 220 25% 15.5 8.5 3.0 9% 20% 20% 2.6% 7.6%

HMVL Long 20,066 273 370 35% 9.4 6.3 1.5 11% 18% 46% 0.5% 7.4%

HTML Trade 17,596 76 80 6% 10.5 4.6 0.8 9% 8% 12% 0.5% 14.2%


9x

7x

5x 6x

11x

10x

7x

8x

14x 13x

8x

11x

3

5

7

9

11

13

15

DB Corp Jagran HMVL HTML

min average max



JagranPrakashan: We initiate our coverage with Long rating and have arrived at our

Mar’18 TP of Rs. 220 using SoTP valuation. We have valued the radio business separately

as Jagran has always run its radio business independently and it contributes ~11% to its

overall consolidated revenues. Jagran has also filed a DRHP for its radio business which

will unlock the value. We have valued its print business at 10x EBITDA multiple (average

multiple of the Company in the last 6 years) and the radio business at 14x EBITDA

multiple (~30% discount to ENIL due its smaller size and further holding company

discount) on our FY18E EBITDA estimates. We estimate EBITDA CAGR (FY16-19E) of 9%,

strong RoE (FY18E) of 20% and solid FCF yield (FY18E) of 8%.

HMVL: We initiate our coverage with Long rating and have arrived at our Mar’18 TP of Rs.

370 using 7x EV/EBITDA multiple on our FY18E EBITDA estimates. Due to its smaller size

and lower dividend payout ratio, HMVL has always traded at a discount to its larger

peers. Our target EBITDA multiple of 7x implies ~30% discount to its peers and is also the

average multiple at which the company has traded in the last 6 years. In our view, HMVL

can re-rate closer to its peers if it improves its dividend policy. We estimate EBITDA

CAGR (FY16-19E) of 11%, strong RoE (FY18E) of 18% and solid FCF yield (FY18E) of 7%.

HT Media: We initiate our coverage with Trade rating and have arrived at our Mar’18 TP

of Rs. 80 using SoTP valuation. We have valued the standalone business of HT Media and

its Hindi business (subsidiary HMVL) separately as both have different growth potential in

our view. We have valued its standalone business at 6x EV/EBITDA multiple (mix of lower

growth expectations from its English business and higher growth expected of Radio

business) and the Hindi business at 7x EV/EBITDA multiple (explained in HMVL above) on

our FY18 EBITDA estimates. We estimate EBITDA CAGR (FY16-19E) of 12%, strong RoE

(FY18E) of 7% and solid FCF yield (FY18E) of 14%.

Investment risks

1. Economic slowdown can result in lower than expected growth in advertising

revenues.

2. Higher than expected increase in newsprint costs will have negative impact on

earnings.

3. Floods or any other natural calamity in any particular state can affect the

growth of the leading player in those states.

Exhibit 72: EV/EBITDA (FY18E) vs. EBITDA CAGR (FY16-19E)


Exhibit 73: EV/EBITDA (FY18E) vs. core RoIC (FY18E)


DB Corp

Jagran

HMVL

HT Media

4.0

5.0

6.0

7.0

8.0

9.0

10.0

8% 9% 10% 11% 12% 13% 14% 15%

EV

/EBIT

DA

(FY

18e)

EBITDA CAGR (FY16-19e)

DB Corp

Jagran

HMVL

HT Media

4.0

5.0

6.0

7.0

8.0

9.0

10.0

5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

EV

/EBIT

DA

(FY

18e)

Core RoIC (FY18e)



Exhibit 74: PE (FY18E) vs. EPS CAGR (FY16-19E)


Exhibit 75: PE (FY18E) vs. RoE (FY18E)


Exhibit 76: EV/EBITDA (FY18E) vs. EBITDA margin (%) (FY18E)


Exhibit 77: EV/EBITDA (FY18E) vs. Dividend yield (%) (FY18E)


DB Corp

Jagran

HMVL

HT Media

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

5% 10% 15% 20% 25% 30%

P/E

(FY

18e)

RoE (FY18e)

DB Corp

Jagran

HMVL

HT Media

4.0

5.0

6.0

7.0

8.0

9.0

10.0

10% 15% 20% 25% 30%

EV

/EBIT

DA

(FY

18e)

EBITDA margin(%) (FY16-19e)

DB Corp

Jagran

HMVL

HT Media

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

EV

/EBIT

DA

(FY

18e)

Dividend yield(FY18e)

DB Corp

Jagran

HMVL

HT Media

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

P/E

(FY

18e)

EPS CAGR (FY16-19e)



Demonetisation: Curious case of 3QFY17

Print and publishing companies were optimistic of the pickup in advertising in 2HFY17 on

back of good monsoons and rollout of 7th pay commission. All the companies talked about

the great festive season in October which raised their hopes of a solid revival in 2HFY17.

But with announcement of demonetisation on 8th November, the recovery has been

derailed. Most of the Companies have cut their advertisements spends in a big way and

that is expected to hurt the publishing companies who earn 70-80% of their revenues

through advertisements.

It is very difficult for anyone to guess how the companies will report their 3QFY17

numbers, so broadly if we break 3Q month wise Exhibit 78, we can expect the month of

October to be very good for all the companies also helped by soft comps. First 8 days of

November were also seeing positive momentum, but post the demonetisation

announcement, the companies have seen a big drop in advertisements (both in volumes

and yields). Jagran in their conference calls have talked about December being a better

month than November and they have seen some recovery happening. But exactly how

good October was, how bad the decline was in November and how sharp was the recovery

in December is very difficult to estimate and we will get the clearer picture when the

Companies come out with their 3Q numbers in Jan/Feb.

Exhibit 78: The curious case of 3QFY17

We have tried to analyse the impact of demonetisation of various sectors which are the

main advertisers for the print companies. Except organised retail, government and new

digital wallets/BFSI who have gained market share because of demonetisation, rest of the

sectors have been hit and have cut their advertising spends. Generally, whenever

advertising falls, the print companies have few levers which they use to cut their costs:

1. Increase in cover prices

2. Decrease in pagination

3. Decrease in weight of paper

4. More use of domestic paper

But in this case, we do not think that Companies will be increasing their cover prices

further (last year most of them did), as they are focussing on increasing their circulation

as the new readership survey is round the corner (expected in 2QFY18). The other levers

of pagination, grammage and mix of domestic paper, the Companies are already using in

our view.


October

Expected to be very strong

festive month for all the companies

November

Advertisements ( esp. local)

expected to fall sharply post

demonetisation. Also last year Diwali was in November, so this month has strong comps.

December

The demand is expected to revive slowly



Exhibit 79: Impact of demonetisation of currency on various important sectors for Print media

Source: Mint, Equirus Research, *green colour signifies positive effect, red signifies negative impact and yellow signifies neutral impact

January 8, 2017 Analyst: Depesh Kashyap, CFA [email protected] (+91-7228934327) Page 1 of 14


DB Corp Limited Absolute : LONG

Relative : Overweight

Initiating Note Regular Coverage 16% ATR in 15 months

Diversified play on India’s print story Media & Entertainment

© 2017 Equirus. All rights reserved.

Rating Information

Price (Rs) 373

Target Price (Rs) 450

Target Date 31st Mar'18

Target Set On 6th Jan’17

Implied yrs of growth (DCF) 15

Fair Value (DCF) 488

Fair Value (DDM) 445

Ind Benchmark BSETECK

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 68,614

Free Float (%) 30.07 %

52 Wk H/L (Rs) 447.8/283.4

Avg Daily Volume (1yr) 58,165

Avg Daily Value (Rs Mn) 21

Equity Cap (Rs Mn) 1,839

Face Value (Rs) 10

Bloomberg Code DBCL IN

Ownership Recent 3M 12M

Promoters 69.9 % 0.0 % -0.1 %

DII 6.2 % -0.8 % -1.5 %

FII 18.6 % 0.1 % 0.1 %

Public 5.3 % 0.8 % 1.4 %

Price % 1M 3M 12M

Absolute 7.0 % -3.7 % 16.7 %

Vs Industry 5.4 % 0.5 % 25.2 %

JAGRAN 2.7 % -11.6 % 4.2 %

HMVL 5.2 % -8.0 % -5.3 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (16A) 3.6 3.2 5.8 3.5

EPS (17E) 5.6 4.6 5.1 3.7

Dainik Bhaskar is the highest circulated news daily in India and is ranked fourth in

the world in terms of circulation. Wider reach, strong execution capability and

leadership position in most of the markets it is present gives the company a strong

competitive advantage over its peers. In our view, current valuations provide a good

entry point, given the strong elections pipeline, strong balance sheet, high cash flow

generation, high RoE (20% even in downturns) and consistently high dividend payouts

(~50%). We estimate EBITDA to grow at a CAGR of 14% over the period FY16-19E and

initiate our coverage with a Long rating with Mar’18 TP of Rs. 450.

News radio frequencies and strong election pipeline to drive growth: DB Corp

acquired 13 new frequencies in the phase III radio auctions last year, once launched

(expected by end of FY17E) and fully operational, these new stations will provide a

significant boost to radio revenues. All radio frequencies have been acquired in the

cities of Maharashtra, Haryana, Gujarat and Rajasthan, where DB Corp already has a

strong presence in print segment. In our view, strong brand presence in these states

will lead to faster turnaround for the radio business as well. Strong elections

pipeline in states of Punjab (February FY17), Gujarat (FY18), MPCG & Rajasthan

(FY19), where DB Corp is a market leader shall provide support to the advertising

growth momentum. We estimate revenue CAGR of 11% over FY16-19E driven by

both circulation and advertising growth.

Multiple levers to drive profitability higher: The company expects newsprint cost

(40-50% of total cost) to increase by 3%-5% in the near term, also launch of new

radio stations will put some pressure on the margins in the near term (as radio

stations take around 3 years to breakeven) but rising share of radio (higher margin

segment) in the overall revenues and maturing of Jharkhand & Maharashtra editions

in FY17 and Bihar edition expected FY18 (as it will be completing its fourth year),

margins are expected to improve. Also, barring the impact of demonetization, the

margin pressures are expected to be offset by the revival in advertisement as the

economy picks up with further boost coming from elections in the states where DB

Corp is a clear market leader.

Initiate coverage with Long rating and Mar’18 TP of Rs. 450: We initiate our

coverage with Long rating and Mar’18 TP of Rs. 450 based on 11x on EV/EBITDA

multiple on our FY18 estimates. Downside risks: Slower pickup in economy and

corporate earnings will affect advertising growth and higher than expected increase

in newsprint costs will put pressure on margins.

Consolidated Financials

Rs. Mn YE Mar FY16A FY17E FY18E FY19E

Sales 20,519 22,541 25,302 27,769

EBITDA 5,345 6,302 7,159 8,010


Interest Expense 92 86 86 86

Other Income 281 141 156 211

Reported PAT 2,966 3,538 4,086 4,674

Recurring PAT 2,966 3,538 4,086 4,674

Total Equity 13,466 14,544 16,001 17,941

Gross Debt 2,416 2,416 2,416 2,416

Cash 924 1,892 3,481 5,618

Rs Per Share FY16A FY17E FY18E FY19E

Earnings 16.1 19.0 22.2 25.4

Book Value 73 79 87 98

Dividends 11.0 11.4 12.2 12.7

FCFF 7.7 18.7 22.9 26.1

P/E (x) 23.1 19.6 16.8 14.7

P/B (x) 5.1 4.7 4.3 3.8

EV/EBITDA (x) 13.4 11.2 9.6 8.3

ROE (%) 23 % 25 % 27 % 28 %

Core ROIC (%) 21 % 24 % 28 % 32 %

EBITDA Margin (%) 26 % 28 % 28 % 29 %

Net Margin (%) 14 % 16 % 16 % 17 %

DB Corp Limited Absolute – LONG Relative – Overweight 16% ATR in 15 months


Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY17E 19.0 20.8 -8 % The consensus estimates have not been

revised post the demonetisation drive in

our view FY18E 22.2 24.5 -9 %

Sales FY17E 22,541 22,905 -2 %

FY18E 25,302 25,712 -2 %

PAT FY17E 3,538 3,788 -7 %

FY18E 4,086 4,492 -9 %

Our Key Investment arguments:

1. Multiple growth engines in the near term: DB Corp acquired 13 new

frequencies in the phase III auctions last year, once launched (expected by end

of FY17E) and fully operational, these new stations will provide a significant

upside to the radio business. All the stations have been acquired in the cities of

Maharashtra, Haryana, Gujarat and Rajasthan, where the company already has a

strong print media presence. The strong elections pipeline to provide support to

the advertising growth momentum. We estimate revenue growth of CAGR 11% in

FY16-19E driven by advertising growth.

2. Multiple levers to drive profitability higher: The company expects newsprint

cost (40-50% of total cost) to increase by 3-5% in the near term, also the launch

of new radio stations will put some pressure on the margins in the near term ( as

radio stations take around 3 years to breakeven). But this pressure is expected

to be offset by the revival in advertisement as the economy picks up with

further boost coming from the elections in the states where DB Corp is a clear

market leader.

3. Strong balance sheet and cash flow generation to protect the downside:

Company is currently focusing on its radio and digital business and there is no

major capex expected in the next few years. Though, there will be some

increase in circulation in the existing markets, but with no new launches

planned in the print business in the near term, we estimate strong free cash

flow generation and high dividend payout, which should protect the downside

for investors.

Risk to Our View:

1. Slowdown in economy

2. Newsprint prices rise more than expected

Key Triggers

Revival in the advertisement growth

Sensitivity to Key Variables % Change % Impact on EPS

Newsprint prices 10 % -11 %

Advertisement revenues 10 % 13 %

- - -

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.8 % 0.6 10.4 % 4.0 % 10.0 %

- FY17E FY18E FY19-21E FY22-26E FY27-31E

Sales Growth 10 % 12 % 10 % 8 % 8 %

NOPAT Margin 16 % 16 % 17 % 15 % 15 %

IC Turnover 1.53 1.73 2.11 2.10 2.10

Core RoIC 23.9 % 27.5 % 35.9 % 33.0 % 32.7 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 275 315 413 397 433

Valuation as of 31st Mar'18 310 355 466 448 488

Based on DCF, we derive 31st March 2018 fair value of Rs. 488.

Company Description:

D B Corp Ltd. is engaged in printing and publication of Newspaper in four languages

across 14 states, in Radio Business with "94.3 MY FM" Radio station in 7 states and 24

cities along with strong web presence in India. DBCL is the only media house to enjoy

leadership at multiple states, in multiple languages and with well diversified readership.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY16A FY17E FY18E FY16A FY17E FY18E FY16A FY17E FY16A FY17E FY18E FY16A FY17E

DB Corp LONG 373 68,614 450 Mar'18 16.1 19.0 22.2 23.1 19.6 16.8 73.3 4.7 23 % 25 % 27 % 3.6 % 3.6 %

Jagran LONG 175 57,340 220 Mar'18 10.1 9.4 11.3 17.3 18.7 15.5 48.4 3.3 24 % 18 % 20 % 0.0 % 2.1 %

HMVL LONG 273 20,066 370 Mar'18 24.6 27.1 29.0 11.1 10.1 9.4 123.8 1.8 22 % 20 % 18 % 0.4 % 0.5 %



Investment rationale

Multiple growth engines to drive growth in the near term: DB Corp is the largest print

media company in India with a strong brand portfolio. It’s key brand “Dainik Bhaskar”

which is a Hindi newspaper is present across 12 states, “Divya Bhaskar” Gujarati

newspaper in 2 states and “Divya Marathi” a Marathi Newspaper in Maharashtra. It also

owns FM radio network (94.3 MY FM), currently it is present in 7 states with 24

operational stations, 6 more stations are expected to be launched by the end of FY17E.

The company has also made good investments in the digital space and currently has 13

portals and 2 apps. Exhibit 1 shows the brand portfolio of DB Corp.

Exhibit 1: Strong brand portfolio provide multiple growth avenues


a) Print business: DB Corp is the largest circulated newspaper in India with

total circulation of approx. 5.3mn newspaper daily and a readership of close

to 44mn. It has wider geographic reach than any of its peers and has a well

distributed readership base across various states which make it resilient to

any region specific economic downturn.

Exhibit 2: DainikBhaskar is amongst the top circulated newspapers in the world


Exhibit 3: Even distribution of readership across states protects downside

Source: IRS 4Q12, Equirus Research

The states where DB Corp is present has higher GDP growth rates than the average

growth rate of India.

Hindi Newspaper

Dainik Bhaskar

12 states, 40 editions

Regional Newspaper

Divya Bhaskar & Divya Marathi

2 states, 14 editions

FM Radio Network

94.3 MY FM

7 states, 24 stations (6 more to be launched)

Digital & Mobile

DB digital

13 portals & 2 apps

Major brands

1000 2000 3000 4000 5000 6000 7000 8000 9000

10000

The Y

om

iuri

Shim

bun

The A

sahi Shim

bun

USA T

oday

Dain

ik B

hask

ar

The M

ain

ichi

New

spapers

Cankao X

iaoxi

Dain

ik J

agra

n

The T

imes

of

India

The N

ikkei

People

's D

aily

CIRCULATION (000)

26%

32%

19%

12%

4% 7%

Readership matrix(%)

MPCG

Rajasthan

Gujarat

Chd,Punjab, Haryana

Jharkhand

Maharashtra



Exhibit 4: Healthy GDP growth rates of States where DB Corp enjoys market

leadership

Source: Ministry of statistics, Equirus Research

i) Circulation revenues estimated to grow at CAGR (FY16-19E) of 7%: The

Company has been able to maintain its position as the largest circulated

daily for the last 2.5 years, as per Audit Bureau of Circulation growth. For

the past 5 years, the Company has been able to grow its circulation

revenues at a CAGR of 15% with volume growth of 5% and rest of the growth

driven by yield in its core legacy markets of MPCG and Rajasthan.

Company’s continuous focus on high quality content (having tie ups with

The Economist, Harvard business review, TIME magazine and New York

Times) has led to growth in readership despite increase in its cover price. In

our view, it will be difficult for the company to maintain its double digit

circulation growth as the prices cannot be raised beyond a level due to

competitive pressures. Barring a few cities in Maharashtra, the Company has

no plans to expand in newer geographies in the near future but the company

will focus on increasing its market share in Gujarat, Rajasthan & Punjab,

followed by Bihar, Jharkhand and in some parts of Madhya Pradesh. We

estimate the circulation revenue CAGR of 7% over the period of FY16-19E.

Exhibit 5: Circulation revenue estimated to grow at CAGR (FY16-19E) of 7%


ii) Led by volumes, advertising revenue to grow at CAGR (FY16-19E) of 11%:

In the last 5 years, the Company has grown its advertising revenues at a

CAGR of 7% which was lower than the industry. FY16 saw a decline of 5% in

the advertising revenues as the Company undertook a “Right Price”

initiative in which it raised the advertising yields for the clients which led to

significant drop in volumes. Now that the Company has fixed its advertising

rates at a new level, it is focusing on regaining its market share. The

negative impact of demonetization will delay the expected pick up in

advertising volumes but when it normalizes, DB Corp should see a volume

led revival in advertisement revenues driven by regaining market share and

revival in economy. Also, with a lower base of last year, Company is

estimated to do better than peers in FY17E. Consumption should improve in

Tier 2 and 3 cities driven by good monsoons and implementation of 7th pay

commission which should drive advertising growth. We estimate

advertisement revenue CAGR of 11% over FY16-FY19E.

4

6

8

10

12

14

16

18

2010-11 2011-12 2012-13 2013-14 2014-15

Bihar Jharkhand Madhya Pradesh

Chhattisgarh Rajasthan Punjab 1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Circulation revenue ( Rs mn)



Exhibit 6: Advertising revenue growth to be driven by volumes


b) New radio frequencies to drive revenue CAGR (FY16-19E) of 19%:

Company is running its radio business (94.3 MY FM) in-line with its strategy

of print business i.e. focus on non-metro cities. During the phase III

auctions, the company acquired 13 new radio frequencies in the states of

Maharashtra, Haryana, Gujarat and Rajasthan where it has strong print

media footprint. Currently, MY FM operates from 24 stations in 7 states and

rest of the 6 stations is expected to be launched by end of FY17E.

Generally, a new radio station takes around 3 years to breakeven, but the

existing print media presence, shall help new stations to breakeven faster

as the company should get some synergy benefits. We estimate the radio

business to grow at a CAGR of 19% in FY16-19E helped by volume

enhancement due to launch of new stations.

Exhibit 7: Radio business to scale new heights in next few years


c) Digital - The way forward: Digital media is the fastest growing segment in

the media industry currently. DB Corp has been among the front runners to

grow their presence in online space. The digital business of the Company,

though has a very small base, but is growing at an exponential pace. DB

Corp has been leading the digital revolution by creating 13 portals and 2

apps, through which the company offers instant/real time and engaging

content. The Company is giving greater emphasis in Hindi, Gujarati and

Marathi- 3 of the top 5 regional languages. Exhibit 8 clearly shows that

among the various news websites in India, bhaskar.com clearly attracts the

maximum traffic along with Times of India. As in print media, the Company

is trying to focus on content as the key differentiating factor in digital space

as well. It has created an exclusive content team for its digital properties;

the editorial strength for only digital division is close to 300+ journalists.

Exhibit 8: Dainik Bhaskar along with TOI attracts maximum traffic (mn) online

1000

3000

5000

7000

9000

11000

13000

15000

17000

19000

Advertisement revenue (Rs mn)

200

400

600

800

1000

1200

1400

1600

1800

2000


Radio business (Rs mn)




Though currently, the digital business contributes only 2.4% to company’s total revenues,

but given the strong growth in digital space, we estimate digital business will gain its

share to 4% of total revenues in next 3 years growing at a CAGR of 27% FY16-19E.

Exhibit 9: Strong growth in Digital shall continue


Exhibit 10: Revenues estimated to grow at CAGR (FY16-19E) of 11%


Margins to remain strong despite near term pressures

The rising crude oil prices has got investors worried of the raw material inflation that the

company may have to face in the next few years. We have argued that print companies

have some levers to moderate the impact of cost inflation like reducing consumption of

paper by decreasing pagination, weightage of paper and using more domestic paper than

imported. However, we do agree that Company may have to face ~5% inflation in the

next couple of quarters. Also, there will be increase in operational and employee costs as

the Company launches its new radio stations. Demonetization of currency is expected to

further delay the recovery in advertisements by couple of quarters. But once its impact

normalizes, we estimate the margins to increase mainly due to following reasons:

a) Maturing of Jharkhand, Maharashtra and Bihar editions to help margins:

Company has strong hold on its legacy markets of Madhya Pradesh &

Chhattisgarh (MPCG), Chandigarh, Punjab & Haryana (CPH), urban Rajasthan and

urban Gujarat, where it is present for many years. However, the newer markets

of Jharkhand, Maharashtra and Bihar are classified as emerging editions.

Normally, it takes 4 years for a new state launch to breakeven, Jharkhand and

Maharashtra have already been moved to mature category by the Company in

FY17 and Bihar (which was launched in FY14) is expected to breakeven by FY18.

As the investment phase in these states peaks out, the margins shall improve.

0

5

10

15

20

25

30

35

40

June July August September October November

Bhaskar.com Jagran.com livehindustan.com

hindustantimes.com ToI.com

0.2% 0.5%

0.7% 0.9%

1.7%

2.4% 2.6%

2.9%

3.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0

100

200

300

400

500

600

700

800

900

1000


Digital revenues (Rs mn) % of total revenues

5,000

10,000

15,000

20,000

25,000

30,000

FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Net Sales (Rs mn)

CAGR(FY13-16) 9%

CAGR(FY16-19e) 11%



Exhibit 11: Maturing of Jharkhand, Maharashtra editions in FY17 and Bihar expected

in FY18 shall help margins


b) Increasing share of Radio business: DB Corp has been running its radio business

very efficiently (see Exhibit 12), with margins ~40% which are the best in the

industry. New launches of radio stations will put some pressure on margins due

to rising operating and employee costs and the new stations may take 3-4 years

to breakeven. But as the revenue share of Radio business increases in the overall

revenues of the company, it should be margin accretive.

Exhibit 12: High growth and higher margin business of Radio


We estimate EBITDA to grow at a CAGR (FY16-19E) of 14%.

Exhibit 13: EBITDA estimated to grow at a CAGR (FY16-19E) of 14%


Strong balance sheet and cash flow generation to protect the downside

DB Corp has a strong balance sheet with minimal debt on the balance sheet, its net

debt/equity stood at 0.1x in FY16. With strong cash flow from operations (~Rs. 4,000mn)

and minimal capital expenditure in the next few years, we estimate the company to have

a free cash flow yield of 5% in FY17E and 7% in FY18E. The Company has also maintained

good dividend payout ratio of approximately 50% over the last few years. DB Corp has an

excellent track record of maintaining sector leading return ratios, even in the downturn

period of FY09 and FY12, DB Corp was able to maintain its RoE above 20%.

-60%

-40%

-20%

0%

20%

40%

0

5000

10000

15000

20000

FY12 FY13 FY14 FY15 FY16

Mature editions revenues( Rs mn)

Emerging editions revenues (Rs mn)

Mature editions EBITDA margin(%)

Emerging editions EBITDA margin(%)

22.4%

32.6%

39.7% 41.0%

37.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

200

400

600

800

1000

1200

FY12 FY13 FY14 FY15 FY16

Revenues (Rs mn) EBITDA margin(%) (RHS)

24%

27%

28%

26%

28% 28%

29%

20%

21%

22%

23%

24%

25%

26%

27%

28%

29%

30%

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


EBITDA(Rs mn) EBITDA margin(%)



Exhibit 14: Dividend payout ratio estimated to remain strong


Exhibit 15: DB Corp maintained high RoE even in downturns


Valuation

DB Corp currently trades at EV/EBITDA of 10x and PE multiple of 17x on our FY18

estimates. The Company has historically traded in the range of EV/EBITDA of 9x-13x.

Since the radio and digital businesses of the Company still remain a small part of the

overall consolidated revenues of the Company, we value DB Corp by applying EV/EBITDA

multiple of 11x (which is the average multiple at which it has traded for the last 6 years)

on our FY18 EBITDA estimate of Rs. 7,159mn. Our target price derivation is shown in the

Exhibit below. Our target price of Rs. 450 implies a PE multiple of 20x on our FY18 EPS

estimates.

Exhibit 16: Target price derivation of DBCL

Rs mn EBITDA (FY18e) Multiple Valuation

DB Corp 7,159 11x 80,892

(-)Debt

2,416

(+)Cash and cash equivalents

3,481

Equity value

81,956

Outstanding shares(mn)

183.9

Target price(Rs)

450


46% 43% 45%

68%

60%

55% 50%

20%

30%

40%

50%

60%

70%

80%

2.0

4.0

6.0

8.0

10.0

12.0

14.0


Dividend per share Payout ratio (%)(RHS)

18%

23%

28%

33%

38%

43%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

RoE



Exhibit 17: EV/EBITDA vs. EBITDA growth of DBCL


Exhibit 18: P/E vs. EPS growth of DBCL


Investment Risk & Concerns

Another economic slowdown can result in lower expected growth in advertising

revenue: A slowdown in the economy can result in lesser than expected media spend by

the corporates, which can have a negative impact on the advertising revenue of DBCL,

which contributes almost 75% to the total revenue.

Higher than expected increase in newsprint price will have a negative impact on the

operating margins: Newsprint prices account for 30-40% of the total sales and 40-50% of

the total cost component. Newsprint prices are strongly correlated to crude oil prices

which have been rising lately and may put some stress on operating margins.

Rising competition: DBCL operated in a highly competitive environment. Most of the

states that it operates in have 2 or 3 other players as well. If competition reduces their

cover prices or advertisement rates to gain market share, it will put pressure on DBCL as

well.

-5%

0%

5%

10%

15%

20%

25%

0

20000

40000

60000

80000

100000

120000

140000

Mar/10

Sep/10

Mar/11

Sep/11

Mar/12

Sep/12

Mar/13

Sep/13

Mar/14

Sep/14

Mar/15

Sep/15

Mar/16

Sep/16

Mar/17

Sep/17

Mar/18

8x

10x

13x

14x

16x

EBITDA Growth

-20%

-10%

0%

10%

20%

30%

40%

0100200300400500600700

Mar/10

Sep/10

Mar/11

Sep/11

Mar/12

Sep/12

Mar/13

Sep/13

Mar/14

Sep/14

Mar/15

Sep/15

Mar/16

Sep/16

Mar/17

Sep/17

Mar/18

10x

15x

20x

25x

30x

EPS Growth



Corporate Governance

Following are key highlights of our preliminary assessment of level of corporate

governance in the company through its FY16 Annual Report:

Board of directors

Composition: The Board of Directors of the Company comprises of nine

members with two Executive Directors and seven Non-executive

Directors. The Chairman of the Board is Non-executive Director. There

are five Independent Directors and four Non-independent Directors on

the Board of the Company.

Background: All the members of the Board are associated with the

Company since November, 2007 or even earlier. Each of them has rich

experience in his/her respective field.

Distribution of power: Four of the board level committees: Audit

committee, Nomination and remuneration committee, Compensation

committee and the CSR committee are headed by Ashwani Kumar

Singhal who is an independent director while Stakeholder’s relationship

committee is headed by Mr. Girish Agarwal who is non-independent

director and Executive Committee is headed by Mr. Ramesh Chandra

Agarwal (Non-executive Chairman).

Disclosure Norm: As per our preliminary study, we do not find any issues on this

front, company follows disclosure norms as stipulated by the listing agreement

of the exchanges and is timely in coming up with quarterly results and other

disclosures.

Annexure 1: Company Overview DB Corp Ltd is engaged in printing and publishing of newspaper in 4 languages across 14

states and 62 editions. DainikBhaskar (Hindi Daily) is the highest circulated news daily in

India and is ranked fourth in the world in terms of circulation.

DBCL has transformed itself from a single state player to a national player, the company

has displayed consistent track record of growth in the past by maintaining leadership

position in each and every market it operates. DBCL has a proven business model with

strong execution capabilities and has demonstrated success in each of the market it had

entered. DBCL’s proven market entry strategy has redefined category norms and broke

barriers across languages, geography and medium, time and again.

Exhibit 19: DB Corp business overview


Print: The Company has a leading Hindi Newspaper brand “DainikBhaskar” which is

present across 12 states. Its Gujarati Newspaper “DivyaBhaskar” which is published in 2

states and 1 Marathi newspaper “Divya Marathi” which is published in 1 state.

D B Corp ltd

Print

Newspapers

Dainik Bhaskar

Divya Bhaskar

Divya Marathi

Saurashtra Samachar

DNA, DB Post, DB Star

Periodicals

AHA Zindagi

Bal Bhaskar

Young Bhaskar

Radio

94.3 MY FM

7 states, 24 stations (6 stations in the pipeline)

Digital

13 portals and 2 Apps



FM Radio: DBCL operate FM radio business under the brand name (94.3 MY FM). It

currently operates 24 FM radio stations and will be soon launching another 6 stations. The

radio stations concentrate on music, talk shows and other entertainment oriented

programs which offer significant interaction with the listeners. Most of the radio stations

are present in markets in which DBCL also have a newspaper presence, which makes it

easier for DBCL to promote their radio programs to both advertisers and listeners. The

radio business derives its revenue from advertisements and sponsorships.

Digital: DB Digital has 13 portals which provide content across genres such as news,

fashion, spiritual, sports, entertainment and home-buying &rental. It also has 2 apps

DainikBhaskar and DivyaBhaskar mobile apps which provide users with rich collection of

information and entertainment.

Company history

1958: DainikBhaskar launched its first edition in Bhopal

1995: DainikBhaskar emerged as the No.1 in Madhya Pradesh

1996: DainikBhaskar launches its Jaipur Edition and becomes No. 1 from 1st day

1996: Expands in Haryana and Chandigarh

2003: Launches “DivyaBhaskar” edition from Ahmedabad. It was the biggest launch of

newspaper edition across languages

2004: Initiates presence in Maharashtra and also acquires “SaurashtraSamachar” in

Gujarat. Also launched its new Hindi Magazine “AHA! Zindagi.

2005: Inception of D B Corp Ltd, pursuant to the demerger of publishing business of

Writers and publishers limited (WPL). Launches its Radio business through its subsidiary

SMEL in 17 stations in the name of MY FM

2006: Enters Punjab and launched Amritsar and Jalandhar edition

2010: Listing of DB Corp public issue on BSE and NSE. Launched in its 12th state of

Jharkhand

2011: Launched Divya Marathi in Maharashtra, the 4th language newspaper of the group

2014: DB Corp Ltd, launches its newspaper in Patna-Bihar

2015: Acquired 13 new stations in Phase 3 Radio Auctions.

Key Management profile

Mr Ramesh Chandra Agarwal – Chairman

Mr Ramesh has over five decades of experience, is also serving as Chairman of FICCI of

the MP region. He is included in India Today’s list of 50 most powerful persons in India

Mr. Sudhir Agarwal –Managing director

Mr. Sudhir has 27 years of experience in the publishing and newspaper business. He is

responsible for Company’s long term vision, business planning and performance

monitoring

Mr. Pawan Agarwal – Deputy Managing Director Mr. Pawan has 13 years of experience in the publishing business. He heads entire

production, IT and Strategy department, with the Radio and Digital business.

Mr. Girish Agarwal – Non-executive Director

Mr. Girish has 20 years of experience. He was awarded “Outstanding Entrepreneur”

trophy at APEA. He provides direction to the marketing strategy and related operations of

the group.

MrPiyushPandey- Independent Director

Mr. Piyush is the Executive Chairman of Ogilvy & Mather pvt. Limited, India

Mr. Harish Bijoor- Independent Director

Mr. Harish is a member of the planning group sub-committee of the Union planning

commission of India

Mr. Ashwani Kumar Singhal- Independent Director

Mr. Ashwani is a vice president of BIR Brussels, the International Authority in Non-Ferrous

metals

Mr. Naveen Kumar Kshatriya- Independent Director

Mr. Naveen has 40 years of international experience with Unilever and BP Castrol at

senior most position at UK, Middle East, Singapore and Hong Kong.

Ms. Anupriya Acharya- Independent Director

Ms. Anupriya is a post graduate from IIT-Roorkee, was Zenith Optimedia’s group CEO and

now CEO of Publicis media.



Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q16A 2Q16A 3Q16A 4Q16A 1Q17A 2Q17A 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E FY16A FY17E FY18E FY19E

Revenue 4,733 4,780 5,853 5,140 5,703 5,286 5,970 5,571 6,273 5,815 7,165 6,039 20,507 22,531 25,292 27,759

Raw Material Consumed 1,448 1,495 1,663 1,580 1,600 1,634 1,763 1,664 1,759 1,798 1,975 1,815 6,187 6,661 7,347 8,025

Event Expenses 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Other expenses 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

EBITDA 1,225 1,127 1,875 1,152 1,821 1,514 1,694 1,310 1,935 1,601 2,291 1,369 5,379 6,339 7,196 8,047

Depreciation 208 215 232 222 211 216 240 246 235 235 235 235 877 913 941 942

EBIT 1,018 912 1,643 930 1,611 1,298 1,454 1,064 1,700 1,366 2,056 1,134 4,503 5,427 6,255 7,105

Interest 21 27 19 24 34 6 22 25 22 22 22 22 92 86 86 86

Other Income 68 53 37 123 42 42 28 28 39 39 39 39 282 141 156 211

PBT 1,064 938 1,661 1,030 1,619 1,335 1,460 1,067 1,717 1,383 2,073 1,151 4,692 5,481 6,325 7,230

Tax 393 337 585 374 568 440 526 384 601 484 726 403 1,690 1,918 2,214 2,530

Recurring PAT 671 601 1,075 655 1,050 895 935 683 1,116 899 1,348 748 3,002 3,563 4,111 4,699

Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Reported PAT 671 601 1,075 655 1,050 895 935 683 1,116 899 1,348 748 3,002 3,563 4,111 4,699

EPS (Rs) 3.89 3.48 6.24 3.80 5.70 4.68 5.08 3.72 6.07 4.89 7.33 4.07 16.32 19.18 22.36 25.56

Key Drivers

Ad revenue(in Rs mn) - - - - - - - - - - - - 13,282 14,345 16,387 18,026

Circulation revenue(in Rs mn) - - - - - - - - - - - - 4,356 4,893 5,139 5,346

Revenue from radio business(in Rs mn)

- - - - - - - - - - - - 1,076 1,270 1,524 1,828

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue -3 % 1 % 22 % -12 % 11 % -7 % 13 % -7 % 13 % -7 % 23 % -16 % - - - -

Raw Material Consumed -5 % 3 % 11 % -5 % 1 % 2 % 8 % -6 % 6 % 2 % 10 % -8 % - - - -

EBITDA 2 % -8 % 66 % -39 % 58 % -17 % 12 % -23 % 48 % -17 % 43 % -40 % - - - -

EBIT 7 % -10 % 80 % -43 % 73 % -19 % 12 % -27 % 60 % -20 % 50 % -45 % - - - -

Recurring PAT 4 % -11 % 79 % -39 % 60 % -15 % 4 % -27 % 63 % -19 % 50 % -44 % - - - -

EPS 4 % -11 % 79 % -39 % 50 % -18 % 9 % -27 % 63 % -19 % 50 % -44 % - - - -

Yearly Growth (%)

Revenue -3 % 0 % 6 % 6 % 20 % 11 % 2 % 8 % 10 % 10 % 20 % 8 % 63 % 10 % 12 % 10 %

EBITDA -9 % -9 % 2 % -4 % 49 % 34 % -10 % 14 % 6 % 6 % 35 % 4 % 33 % 18 % 14 % 12 %

EBIT -11 % -11 % 1 % -2 % 58 % 42 % -12 % 14 % 6 % 5 % 41 % 7 % 25 % 21 % 15 % 14 %

Recurring PAT -15 % -12 % 2 % 2 % 56 % 49 % -13 % 4 % 6 % 0 % 44 % 10 % 12 % 19 % 15 % 14 %

EPS -15 % -12 % 2 % 2 % 46 % 34 % -19 % -2 % 6 % 5 % 44 % 10 % 11 % 18 % 17 % 14 %

Margin (%)

EBITDA 26 % 24 % 32 % 22 % 32 % 29 % 28 % 24 % 31 % 28 % 32 % 23 % 26 % 28 % 28 % 29 %

EBIT 21 % 19 % 28 % 18 % 28 % 25 % 24 % 19 % 27 % 23 % 29 % 19 % 22 % 24 % 25 % 26 %

PBT 22 % 20 % 28 % 20 % 28 % 25 % 24 % 19 % 27 % 24 % 29 % 19 % 23 % 24 % 25 % 26 %

PAT 14 % 13 % 18 % 13 % 18 % 17 % 16 % 12 % 18 % 15 % 19 % 12 % 15 % 16 % 16 % 17 %



Consolidated Financials P&L (Rs Mn) FY16A FY17E FY18E FY19E

Balance Sheet (Rs Mn) FY16A FY17E FY18E FY19E

Cash Flow (Rs Mn) FY16A FY17E FY18E FY19E

Revenue 20,519 22,541 25,302 27,769 Equity Capital 1,837 1,837 1,837 1,837 PBT 4,657 5,443 6,286 7,191

Op. Expenditure 15,173 16,239 18,144 19,759 Reserve 11,629 12,707 14,163 16,103 Depreciation 878 914 942 943

EBITDA 5,345 6,302 7,159 8,010 Networth 13,466 14,544 16,001 17,941 Others 0 0 0 0

Depreciation 878 914 942 943 Long Term Debt 1,135 1,135 1,135 1,135 Taxes Paid 1,747 1,905 2,200 2,517

EBIT 4,468 5,388 6,216 7,067 Def Tax Liability 1,281 1,281 1,281 1,281 Change in WC -632 -477 -493 -397

Interest Expense 92 86 86 86 Minority Interest 0 0 0 0 Operating C/F 3,351 3,920 4,466 5,096

Other Income 281 141 156 211 Account Payables 1,180 1,314 1,409 1,539 Capex -1,991 -546 -318 -349

PBT 4,657 5,443 6,286 7,191 Other Curr Liabi 2,934 2,934 2,934 2,934 Change in Invest 55 0 0 0

Tax 1,690 1,905 2,200 2,517 Total Liabilities & Equity 19,996 21,208 22,760 24,830 Others 173 141 156 211

PAT bef. MI & Assoc. 2,966 3,538 4,086 4,674 Net Fixed Assets 8,912 8,545 7,920 7,325 Investing C/F -1,818 -406 -161 -138

Minority Interest 0 0 0 0 Capital WIP 459 459 459 459 Change in Debt 90 0 0 0

Profit from Assoc. 0 0 0 0 Others 3,589 3,589 3,589 3,589 Change in Equity 13 0 0 0

Recurring PAT 2,966 3,538 4,086 4,674

Inventory 1,675 1,825 1,952 2,089 Others -2,505 -2,546 -2,716 -2,821

Extraordinaires 0 0 0 0 Account Receivables 3,862 4,323 4,783 5,173 Financing C/F -2,402 -2,546 -2,716 -2,821

Reported PAT 2,966 3,538 4,086 4,674 Other Current Assets 576 576 576 576 Net change in cash -869 968 1,589 2,138

FDEPS (Rs) 16.1 19.0 22.2 25.4 Cash 924 1,892 3,481 5,618 RoE (%) 23 % 25 % 27 % 28 %

DPS (Rs) 11.0 11.4 12.2 12.7 Total Assets 19,996 21,208 22,760 24,830

RoIC (%) 20 % 22 % 23 % 24 %

CEPS (Rs) 20.9 24.2 27.3 30.6 Non-cash Working Capital 2,000 2,476 2,969 3,366

Core RoIC (%) 21 % 24 % 28 % 32 %

FCFPS (Rs) 7.7 18.7 22.9 26.1 Cash Conv Cycle 35.6 40.1 42.8 44.2 Div Payout (%) 68 % 60 % 55 % 50 %

BVPS (Rs) 73.3 79.1 87.0 97.6 WC Turnover 10.3 9.1 8.5 8.3 P/E 23.1 19.6 16.8 14.7

EBITDAM (%) 26 % 28 % 28 % 29 % FA Turnover 2.2 2.5 3.0 3.6 P/B 5.1 4.7 4.3 3.8

PATM (%) 14 % 16 % 16 % 17 % Net D/E 0.0 -0.1 -0.1 -0.2 P/FCFF 48.3 20.0 16.3 14.3

Tax Rate (%) 36 % 35 % 35 % 35 % Revenue/Capital Employed 1.8 1.8 1.9 1.9 EV/EBITDA 13.4 11.2 9.6 8.3

Sales Growth (%) 2 % 10 % 12 % 10 %

Capital Employed/Equity 1.3 1.3 1.2 1.2

EV/Sales 3.5 3.1 2.7 2.4

FDEPS Growth (%) -6 % 18 % 17 % 14 %

Dividend Yield (%) 3.6 % 3.6 % 3.8 % 4.0 %

TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE

-20%

-10%

0%

10%

20%

30%

40%

0100200300400500600700

Mar/10

Sep/10

Mar/11

Sep/11

Mar/12

Sep/12

Mar/13

Sep/13

Mar/14

Sep/14

Mar/15

Sep/15

Mar/16

Sep/16

Mar/17

Sep/17

Mar/18

10x

15x

20x

25x

30x

EPS Growth

-5%

0%

5%

10%

15%

20%

25%

0

20000

40000

60000

80000

100000

120000

140000

Mar/10

Sep/10

Mar/11

Sep/11

Mar/12

Sep/12

Mar/13

Sep/13

Mar/14

Sep/14

Mar/15

Sep/15

Mar/16

Sep/16

Mar/17

Sep/17

Mar/18

8x

10x

13x

14x

16x

EBITDA Growth

15%

25%

35%

45%

55%

0

100

200

300

400

500

600

700

Mar/10

Sep/10

Mar/11

Sep/11

Mar/12

Sep/12

Mar/13

Sep/13

Mar/14

Sep/14

Mar/15

Sep/15

Mar/16

Sep/16

Mar/17

Sep/17

Mar/18

RoE

2x

3x

4x

5x

6x



Historical Consolidated Financials P&L (Rs Mn) FY13A FY14A FY15A FY16A

Balance Sheet (Rs Mn) FY13A FY14A FY15A FY16A

Cash Flow (Rs Mn) FY13A FY14A FY15A FY16A

Revenue 15,923 18,598 20,096 20,519 Equity Capital 1,834 1,835 1,836 1,837 PBT 3,313 4,524 4,923 4,657


EBITDA 3,760 5,003 5,622 5,345 Networth 10,292 11,467 12,882 13,466 Others 0 -23 0 0

Depreciation 581 642 881 878 Long Term Debt 1,374 1,264 983 1,135 Taxes Paid 1,041 1,502 1,686 1,747

EBIT 3,179 4,360 4,741 4,468 Def Tax Liability 1,160 1,232 1,209 1,281 Change in WC -618 -1,387 -95 -632


Other Income 213 239 257 281 Account Payables 961 1,114 1,215 1,180 Capex -605 -1,058 -715 -1,991

PBT 3,313 4,524 4,923 4,657 Other Curr Liabi 2,530 2,618 2,757 2,934 Change in Invest -402 10 0 55

Tax 1,132 1,457 1,759 1,690 Total Liabilities & Equity 16,327 17,695 19,045 19,996 Others 246 127 -814 118

PAT bef. MI & Assoc. 2,181 3,066 3,163 2,966 Net Fixed Assets 8,313 8,503 8,158 8,912 Investing C/F -762 -921 -1,529 -1,818

Minority Interest 0 0 0 0 Capital WIP 70 22 45 459 Change in Debt -600 -233 -331 90


Recurring PAT 2,181 3,066 3,163 2,966 Inventory 1,299 1,732 1,402 1,675 Others -1,187 -1,432 -1,742 -2,505

Extraordinaires 0 0 0 0 Account Receivables 3,083 3,280 3,450 3,862 Financing C/F -1,778 -1,650 -2,051 -2,402

Reported PAT 2,181 3,066 3,163 2,966 Other Current Assets 563 397 418 576 Net change in cash -174 -92 674 -869

EPS (Rs) 11.9 16.7 17.2 16.1 Cash 1,277 1,133 1,780 924

RoE (%) 22 % 28 % 26 % 23 %

DPS (Rs) 5.5 7.3 7.8 11.0

Total Assets 16,327 17,695 19,046 19,996

RoIC (%) 18 % 23 % 22 % 20 %

CEPS (Rs) 15.1 20.2 22.0 20.9 Non-cash Working Capital 1,454 1,676 1,297 2,000 Core RoIC (%) 20 % 25 % 24 % 21 %


BVPS (Rs) 56.1 62.5 70.2 73.3 WC Turnover 11.0 11.1 15.5 10.3

P/E 134.8 35.2 26.3 33.9


PATM (%) 14 % 16 % 16 % 14 % Net D/E 0.0 0.0 -0.1 0.0 P/FCFF 37.7 37.7 37.7 37.7


Sales growth (%) 10 % 17 % 8 % 2 %


EV/Sales 13.0 13.0 13.0 13.0

FDEPS growth (%) 8 % 41 % 3 % -6 %

Dividend Yield (%) 1.7 % 2.3 % 2.5 % 3.6 %



Jagran Prakashan ltd Absolute : LONG



Tuning in to the right frequency Media & Entertainment


Rating Information

Price (Rs) 175



Target Set On 6th Jan'17




Ind Benchmark SPBSMIP


Stock Information



52 Wk H/L (Rs) 213.05/144



Equity Cap (Rs Mn) 654

Face Value (Rs) 2

Bloomberg Code JAGP IN


Promoters 60.8 % 0.0 % 0.0 %

DII 12.6 % -0.2 % -0.1 %

FII 15.7 % -0.4 % 0.7 %

Public 11.0 % 0.5 % -0.6 %

Price % 1M 3M 12M

Absolute 2.7 % -11.6 % 4.2 %

Vs Industry 2.9 % -2.6 % -6.4 %

DBCORP 7.0 % -3.7 % 16.7 %

HMVL 5.2 % -8.0 % -5.3 %



EPS (16A) 2.4 2.4 2.9 2.5

EPS (17E) 2.4 2.3 2.6 2.1

Jagran Prakashan Limited (JPL) has consistently focussed on building its scale

through both organic and inorganic routes. “Dainik Jagran”, the key brand of the

Company is India’s most widely read newspaper since 2003. Elections in UP/ Punjab,

public listing of Radio City which shall unlock value of radio segment and strengthen

company’s balance sheet are few of the near term triggers which are not being

reflected in current valuations. We initiate our coverage with a Long rating and a

Mar’18 TP of Rs. 220.

Leadership position in UP and Radio City to drive growth: The Company holds

leadership position in the key Hindi states. The Company has increased its market

share to 7.3% in FY16 (from 7.0% in FY15) in terms of the print ad-revenue market.

Elections in the state of UP and Punjab, good monsoons, and implementation of 7th

pay commission will drive growth once the impact of demonetization normalizes.

The Company clearly has the largest radio business amongst its print media peers

contributing ~11% to its consolidated revenues. With the public issue of its radio

business around the corner, the business is expected to be a major growth driver in

the years to come.

Continuing turnaround of Mid-day, NaiDunia and increasing share of radio to help

margins: Both Mid-day and NaiDunia have shown regular improvement in their

operating performances. The demonetization of currency may derail the recovery

for couple of quarters, but they should pick up once the impact normalises. Also,

radio business has been a high growth and high margin business having steady state

margins of ~34%. As the radio business increases its scale and its share in the total

revenues of the Company improves, margins shall improve further.

Deleveraging of balance sheet and strong cash flow generation provides enough

room for dividend payouts: Jagran’s subsidiary Music Broadcast Limited (MBL)

which operates Radio City, is planning to raise Rs. 4,000mn via an IPO (DRHP filed on

28th Nov’16). The company plans to use the proceeds of the issue to reduce its

debt. This will further strengthen the balance sheet of the Company. It is to be

noted that Jagran’s board recently approved a buyback proposal (5th Jan’17) where

it plans to buyback 4.74% of outstanding shares at Rs. 195

Initiate coverage with Long rating and TP of Rs. 220: We initiate coverage with

Long rating with Mar’18 TP of Rs. 220 based on our SOTP valuation methodology.

Risks: Slowdown in economy, more than expected increase in newsprint costs.



Sales 21,065 22,459 24,588 26,989

EBITDA 5,896 5,925 6,736 7,682

Depreciation 1,044 1,240 1,243 1,247


Other Income 345 205 259 334

Reported PAT 4,446 3,058 3,700 4,454

Recurring PAT 3,283 3,058 3,700 4,454

Total Equity 15,812 17,440 19,408 21,778

Gross Debt 6,120 5,830 5,080 5,080

Cash 3,421 4,716 6,072 8,515


Earnings 10.1 9.4 11.3 13.6

Book Value 48 53 59 67

Dividends 0.0 3.7 4.5 5.4

FCFF 2.5 11.3 13.4 14.9

P/E (x) 17.3 18.7 15.5 12.9

P/B (x) 3.6 3.3 3.0 2.6

EV/EBITDA (x) 10.4 10.0 8.5 7.1

ROE (%) 24 % 18 % 20 % 22 %

Core ROIC (%) 24 % 17 % 20 % 24 %

EBITDA Margin (%) 28 % 26 % 27 % 28 %

Net Margin (%) 16 % 14 % 15 % 17 %

JagranPrakashan Limited Absolute – LONG Relative – Overweight 20% ATR in 15 months

January 8, 2017 Analyst: DepeshKashyap,CFA [email protected] (+91-7228934327) Page 2 of 14

Company Snapshot



EPS FY17E 9.4 11.0 -15 % In our view, consensus estimates are not

yet updated for the impact of

demonetisation and the increased

amortisation costs

FY18E 11.3 12.8 -11 %

Sales FY17E 22,459 22,995 -2 %

FY18E 24,588 25,488 -4 %

PAT FY17E 3,058 3,588 -15 %

FY18E 3,700 4,195 -12 %


1. Leadership position in UP and Radio City to drive growth: In terms of the

print-ad revenue market, the Company has gained market share to 7.3% in FY16

from 7.0% in FY15. With improving readership, 7th pay commission and good

monsoons, the Company looks well poised to take advantage of the improving

growth scenario once the impact of demonetization normalizes.

2. Continuing turnaround of Midday, NaiDunia and increasing share of radio to

help margins: Both Midday and NaiDunia have been improving their operating

performance lately. With turnaround of these businesses and growing share of

radio business (high margins ~34%), the operating margins are set to improve.

3. Strong cash flow generation provide enough room for dividends: With bulk of

the capex in the radio business already done, there are no major investments in

the pipeline. Though, there will be some increase in circulation in the existing

markets, but with no new launches planned in the print business in the near

term, we estimate strong free cash flow generation and high dividend payouts

which should protect the downside for investors.

Risk to Our View:



Key Triggers:


Declaration of dividends/Buybacks or some strategic acquisition will provide big

boost



6.8 % 0.8 11.3 % 2.5 % 10.0 %


Sales Growth 7 % 9 % 10 % 7 % 7 %

NOPAT Margin 15 % 16 % 17 % 15 % 15 %

IC Turnover 1.18 1.30 1.57 1.72 1.72

RoIC 17.3 % 20.3 % 27.4 % 26.7 % 26.7 %






Jagran Prakashan Ltd (JPL) is a media conglomerate with interests spanning across

Print, FM Radio, OOH, Activations & Digital covers all of India as its footprint – and is

amongst one of the largest media conglomerates in the country. Jagran group publishes

12 print titles in 5 different languages spread across 15 states with over 100 editions

and these include some veritable titles as the World's largest read daily, India's No.1

compact daily, India's No.1 Afternoon daily, and India's No.1 Urdu daily.


Rs. Mn.

Price

Target

Target

Date



Jagran Prakashan LONG 175 57,340 220 Mar'18 10.1 9.4 11.3 17.3 18.7 15.5 48.4 3.3 24 % 18 % 20 % 0.0 % 2.1 %

DBCL LONG 373 68,614 450 Mar'18 16.1 19.0 22.2 23.1 19.6 16.8 73.3 4.7 23 % 25 % 27 % 3.6 % 3.6 %

HMVL LONG 273 20,066 370 Mar'18 24.6 27.1 29.0 11.1 10.1 9.4 123.8 1.8 22 % 20 % 18 % 0.4 % 0.5 %



Investment Rationale

Leadership position in UP and Radio City to drive growth

DainikJagran is the largest read newspaper in India and has a leading position in the key

Hindi speaking states i.e. UP, Bihar, Jharkhand. The Company also operates through

‘NaiDuniya’ brand in Madhya Pradesh and Chattisgarh. The advertising revenue, which is

related to the economic growth of the states and India overall, is expected to remain

strong given the strong GDP growth rates in these states. The impact of good monsoons,

implementation of 7th pay commission and elections in UP/Punjab are expected to uplift

the advertisement growth once the impact of demonetization normalizes. Company’s

subisidiary “Music Broadcast Limited” which operates Radio City is working on

operationalizing of its new stations which it had acquired in Phase III auctions. Radio is a

high growth and high margin business and the industry is expected to grow at CAGR of

17% in FY16-20E.

Exhibit 1: DainikJagran has been at the top in terms of readership

Source: IRS, Equirus Research

Exhibit 2: UP and Bihar form ~70% of its readership base


Exhibit 3: Healthy GSDP growth rate of states where Jagran is present


2000

4000

6000

8000

10000

12000

14000

16000

18000

Dain

ik J

agra

n

Hin

dust

an

Dain

ik B

hask

ar

Mala

yala

Manora

ma

Daily T

hanth

i

Raja

sthan P

atr

ika

Am

ar

Uja

la

TO

I

Math

rubhum

i

Lokm

at

2013 Readership 2014 Readership

51%

18%

5%

11%

7%

3% 3% 2%

UP

Bihar

Jharkhand

MP&CG

Haryana & Punjab

Uttarakhand

Delhi

Others

4

6

8

10

12

14

16

18

2010-11 2011-12 2012-13 2013-14 2014-15

Bihar Jharkhand Madhya Pradesh

Chhattisgarh Uttar Pradesh



i) Circulation revenue estimated to grow at CAGR (FY16-19E) of 5%: The

Company has grown its circulation revenues at a CAGR (FY12-16) of 12%

driven by both increase in volumes and pricing. In the past, Jagran has

invested in increasing the circulation of its key brand “DainikJagran” and

has also relaunched “Inext” in a new format which improved its circulation.

The Company launched “Punjabi Jagran” in 2011 and has been improving its

circulation since. It also made an acquisition of “NaiDunia” in 2012 to

improve its foothold in Madhya Pradesh and Chattisgarh (MPCG) market.

Going forward, there is no plan of expansion or acquisition in any new

markets, we expect Jagran to keep increasing its circulation (though at a

slower pace) as the IRS survey is expected in 3QFY18 and it would like to

maintain its leadership position. We estimate revenue CAGR (FY16-19E) of

5%.

Exhibit 4: Circulation revenue estimated to grow at CAGR (FY16-19E) of 5%


ii) Advertising revenues estimated to grow at CAGR (FY16-19e) of 8%: The

Company has grown its advertising revenues at a CAGR (FY12-16) of 12%. In

1HFY17, Jagran saw 7% yoy growth in advertising, the expected recovery in

advertising in 2HFY17 has been hit by demonetization of currency. We

expect the advertising to be weaker in 2H (though UP elections should

provide support) and estimate the growth in FY17 at ~5 % (given the 1HFY17

growth at 7%). Once the impact normalizes, going forward, the Company

should see a volume led revival in advertisement revenues driven by rising

consumption in tier 2 and 3 cities triggered by good monsoons and

implementation of 7th pay commission. We estimate advertisement revenue

CAGR of 8% over FY16-19E.

Exhibit 5: Advertising revenue estimated to grow at CAGR (FY16-19E) of 8%


iii) Circulation growth along with gradual pick up in advertising should drive

Mid-day forward: Mid-day Infomedia limited (MIL) which publishes Mid-day

English, Mid-day Gujarati and Inquilab (Urdu paper) had seen some pickup in

its advertisement growth in FY16 and higher per copy realization boosted

the circulation revenues. Jagran has not reported 1HFY17 consolidated

numbers as it was awaiting various amalgamation approvals, the exact trend

of advertising growth is not known but we expect it to be weak in-line with

other publications. We are estimating flat advertising growth in FY17E and

expect a pickup in FY18E. Overall, we estimate Mid-day revenues to grow in

the range of 2-3% driven by circulation and gradual pick up in

advertisements.

1000

1500

2000

2500

3000

3500

4000

4500

5000

FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Circulation revenues ( Rs mn)

CAGR(FY12-16) 12%

CAGR(FY16-19e) 5%

1000

3000

5000

7000

9000

11000

13000

15000

17000


Advertisement revenue ( Rs mn)

CAGR(FY12-16) 11%

CAGR(FY16-19e) 8%



Exhibit 6: Growth to remain muted supported by circulation


iv) Radio City revenues estimated to grow at CAGR (FY16-19e) of 18%: To

begin with, Jagran was a small player in Radio operating “Radio Mantra”,

but in early FY16 with an acquisition of Radio City, it has jumped way ahead

of its peers. Recently, Jagran also demerged Radio Mantra and merged it

with Music broadcast limited (MBL), a subsidiary company which operates

Radio City. Post merger, Radio City has become even stronger player with

39 frequencies (all not operational as yet). Jagran has always operated

Radio City independently and recently has also filed a DRHP of MBL. MBL

plans to raise Rs. 4,000mn via this public issue, which will be majorly used

for reducing debt. The radio industry is expected to grow at a CAGR of 17%

during FY16-20E, with the additions of new stations, we estimate the

Company to grow at similar CAGR (FY16-19E) of 18%.

Exhibit 7: With launch of new stations, growth in Radio business is estimated to remain solid


Overall we are estimating the revenues to grow at CAGR (FY16-19E) of 9% as compared to

the CAGR (FY13-16) of 11%.

Exhibit 8: Overall revenue growth estimated to grow at CAGR(FY16-19e) of 9%


-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

FY14 FY15 FY16 FY17e FY18e FY19e

Mid-day-Advertising revenue(%) Mid-day-Circulation revenue (%)

Mid-day- Total revenue(%)

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Radio revenues ( Rs mn)

CAGR(13-16) 19%

CAGR(16-19e) 18%

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000


Net Sales (Rs mn)

CAGR (FY13-16) 11%

CAGR (FY16-19e) 9%



Multiple levers to hold up the margins

The additional operating and employee expenses due to launch of new radio stations and

negative impact of demonetisation on advertisements are expected to cause near term

pressure on margins but once these issues get normalized, the margins of Jagran are

expected to get better due to following factors:

i) Improving operating performance of other publications (Mid-day,

NaiDunia, INext, PunjbaiJagran): The flagship product of the Company i.e.

“DainikJagran” has EBITDA margins above 30%, its mainly the other

publications which include Mid-day, NaiDunia, INext and Punjabi Jagran

which have been putting downward pressure on the margins. The

profitability of NaiDunia has been below Company’s expectations and to

improve the same, the top management team of NaiDunia has been

restructured. Also due to pending high court approvals on schemes of

amalgamation, Company did not disclose the 1HFY17 numbers. In the last 2

years, the profitability of Mid-day publications has improved from just

breakeven to 20% EBITDA margins in FY16. The Company was targeting the

margins in the range of 24-25% for Mid-day in FY17, but it looks unlikely due

to demonetization, but once the impact normalises, it should be able to

improve its margins further.

Exhibit 9: Other Publications (Mid-day, NaiDunia, INext, PunjbaiJagran) are seeing a turnaround

Source: Company, Equirus Research, Note: Q117 and Q217 do not include Mid-day

Exhibit 10: Mid-day’s margin performance has been improving


ii) Increasing share of radio business in the overall revenues will boost

margins: Jagran’s Radio City is one of the largest radio player in the

country. With the merger of Radio Mantra, Radio City has been further

strengthened and it will have 39 frequencies (all not yet operational). It

operates at high EBITDA margins of 34%. The radio business currently

contributes ~11% to the total consolidated revenues. As the share of the

radio business increases in the overall portfolio, the margins of the

Company will improve.

Exhibit 11: Rising share of Radio business to push margins upwards


-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

-120

-80

-40

0

40

80

120

Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Q117 Q217

Operating profit ( Rs mn) Operating margin(%) (RHS)

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

FY13 FY14 FY15 FY16

Mid-day EBITDA margins (%)

9.0% 9.1%

11.3% 11.0% 11.8%

12.9%

14.1%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%


Share of Radio as % of consolidated revenues



Exhibit 12: EBITDA estimated to grow at CAGR (FY16-19E) of 9%


We estimate EBITDA to grow at a CAGR (FY16-19E) of 9% with EBITDA margins improving

to 28.5% in FY19E from 28.0% in FY16.

Strong cash flow generation to support dividend payouts

Barring last year, Jagran has always maintained a good dividend payout ratio. In FY16,

Company did not pay any dividend but has recently approved a buyback proposal (5th

Jan’17) where it plans to buyback 4.74% of outstanding shares at Rs. 195 through a

tender process.

Jagran’s subsidiary “Music Broadcast Limited (MBL)” has filed its DRHP and plans to raise

Rs. 4,000mn from the public issue. According to DRHP, the proceeds of the issue will be

used to redeem the debt it has taken from Jagran and also Rs. 2,000mn which was raised

in the form of Non-convertible debentures (NCD). Redemption of these NCD’s and inflow

of IPO proceeds will further strengthen the balance sheet.

Exhibit 13: Strong cash flow generation to support the dividends


Exhibit 14: Return on capital estimated to remain strong


19.4%

22.5%

25.5%

28.0%

26.4%

27.4%

28.5%

15%

17%

19%

21%

23%

25%

27%

29%

31%

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


EBITDA (Rs mn) EBITDA Margin (RHS)

25%

53%

48%

40% 40% 40%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

0.0

1.0

2.0

3.0

4.0

5.0

6.0


Dividend per share Divi payout ratio

10%

15%

20%

25%

30%

35%


Core RoIC RoE



Valuation

Jagran is currently trading at PE multiple of 16x and EV/EBITDA multiple of 9x on our

FY18 estimates.

The radio business of Jagran has been superior to its peers in terms of revenue

contribution (~11%) to its total consolidated revenues. Further public listing of the radio

business will help in value unlocking. We have preferred Sum-Of-The-Parts (SOTP)

methodology to value the Company where we have valued the standalone and radio

business separately. Jagran has always traded in the EV/EBITDA range of 8x-12x, we have

valued the print business by applying EV/EBITDA multiple of 10x(last 6 years average) to

our FY18 EBITDA estimate of Rs. 5,590mn to derive the value of Rs. 55,903mn. We have

valued radio segment using EV/EBITDA multiple of 14x (~30% discount to ENIL due to its

smaller size and further 30% holding company discount) on our FY18E EBITDA estimates of

Rs. 1,000mn to derive the value of Rs. 14,001mn. Exhibit 15 below shows the step by

step process we followed to derive our Mar’18 TP of Rs. 220.

Exhibit 15: Target price derivation through SOTP valuation

Jagran (Rs mn) EBITDA

(FY18e) Multiple Valuation

Standalone business 5,590 10x 55,903.1

Radio business 1,000 14x 14,001.1

Total EV

69,904.2

(-) Debt

5,080.4

(+) Cash and cash equivalents

6,071.7

Equity value

70,895.6

Outstanding shares(mn)

326.9

Target price(Rs) (rounded) 220


Exhibit 16: Jagran’s P/E has been in the range of 15x-25x


Exhibit 17: Jagran’s EV/EBITDA ratio has been in the range of 8x-12x


10x

15x

23x

30x

35x

-10%

0%

10%

20%

30%

40%

0

50

100

150

200

250

300

Mar

/09

Sep

/09

Mar

/10

Sep

/10

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

EPS Growth

-20%-10%0%10%20%30%40%50%60%

0

20000

40000

60000

80000

100000

120000

Mar

/09

Sep

/09

Mar

/10

Sep

/10

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

5x

8x

10x

12x

15x

EBITDA Growth




Another economic slowdown can result in lower than expected growth in advertising

revenue: A slowdown in the economy can result in lesser than expected media spend by

the corporates, which can have a negative impact on the advertising revenue.


operating margins: Newsprint prices account for 30-40% of the total sales and 40-50% of

the total cost component. Newsprint prices are strongly correlated to crude oil prices

which have been rising lately. Rising raw material cost may put some stress on operating

margins.

Rising competition: Jagran operates in a highly competitive environment. Most of the

states that it operates in have 2 or 3 other players as well. If competition reduces their

cover prices or advertisement rates to gain market share, it will put pressure on the

Company as well.


Following are key highlights of our assessment of level of corporate governance in the

company from its FY16 Annual Report.

Since the Chairman of the Company is also an Executive Director, atleast half of the

board should consist of Independent Directors. Presently, the Board consists of 18

directors, 12 directors are non-executive of whom 9 are independent directors

constituting the stipulated 50% of the total strength of Board of Directors.

Distribution of Power: Three of the four board committee including Audit, Nomination

and remuneration, Stakeholders relationship are run by independent directors. Only the

CSR committee is headed by the Chairman himself.

Disclosure Norms

Quarterly Reporting: The quarterly financials are generally provided on both standalone

and consolidated basis in the format in which it is submitted to the stock exchanges.

However, due to certain schemes of amalgamation which are pending for court

approvals, Company has been providing only standalone results in FY16.

Auditors Report The Auditor, PWC has reported the books of accounts to be in proper order and has

stated that the financials provide a true and fair view of the business. There is no

negative remark on the accounting policy or financial management of the company.

Annexure 1: Company Overview Jagran Prakashan Ltd (JPL) is India’s leading media and communications group with its

interests spanning across Print, OOH, Activations & Digital covers all of India as its

footprint. The group publishes 12 print titles in 5 different languages spread across 15

states with over 100 editions.

Exhibit 18: Jagran Prakashan Overview


Company History

1942: The first edition of DainikJagran was launched in Jhansi

2005: Company entered into strategic alliance and partnership with Independent News

and Media plc.

2006: The Company came up with a public issue

2010: Company acquires the print business of Mid-day Multimedia, which owned brands

like Mid-day, Mid-day Gujarati and Urdu newspaper “Inquilab”

2011: Launches Punjabi newspaper Punjabi Jagran

2012: Acquires Suvi info Management (Indore) Private limited, which owned the brand

Jagran Prakashan

Print

Newspapers

Dainik Jagran

INext

Mid Day

Nai Dunia

Inquilab

Punjabi Jagran

Periodicals

Sakhi

Khel Khaliyan

Radio

Radio City 91.1 FM

Digital

10 portals

Activation OOH



“NaiDunia”, third largest Hindi Daily in Madhya Pradesh, Chattisgarh (MPCG) market

2012: Raises Rs. 1,500mn through Non-convertible debentures

2014: Completes the merger of NaiDunia with itself

2015: Acquires Radio City 91.1 FM, India’s leading FM operator with 20 stations under the

brand, acquired 11 more stations in the phase III auctions

2016: Radio City files a DRHP and plans to raise Rs. 4,000mn via public issue


Mr. Mahendra Mohan Gupta – Chairman & Managing Director

Mr. Mahendra Mohan Gupta, age 75 years, holds a bachelor’s degree in commerce. He has

57 years of experience in the print media industry. He has held various key positions in

the industry including being the Chairman of United News of India (“UNI”), President of

The Indian Newspaper Society (“INS”). He also holds the post of Non-Executive Chairman

of Jagran Media Network Investment Private Limited, Rave@Moti Entertainment Private

limited and Jagran18 Publications limited. He has been a director of the Company since

inception and is a nominee of Promoters.

Mr. Sanjay Gupta –CEO and whole time director

Mr. Sanjay Gupta, age 52 years, is CEO and whole time director of the Company and also

holds the position of Editor-in-Chief of DainikJagran. He holds a bachelor’s degree in

Science and has more than 32 years of experience in print media. He is responsible for

implementation of business plan, regular monitoring of the operations, strategy,

competitive landscape and is involved in expansion plan including M&A and JV

opportunities.

Mr. Sunil Gupta – Whole time Director

Mr. Sunil Gupta, age 52 years, is a whole time director. He holds a bachelor’s and a

master’s degree in commerce. He has more than 32 years of experience in the print

media industry. He is in charge of operations in Bihar, Jharkhand and parts of eastern UP.

Mr. Shailesh Gupta –Whole time Director

Mr. Shailesh Gupta, age 45 years, is a whole time director and holds a bachelor’s degree

in commerce. He has more than 25 years of experience in the print media industry. He is

Chairman of council of Audit Bureau of Circulations, member of The Indian Newspaper

Society and heads advertisement and marketing department.

MrDevendra Mohan Gupta – Non-executive Director

Mr. Devendra Mohan Gupta, age 65 years, is a non-executive director and holds a

bachelor’s degree in Engineering (Mechanical). He has a vast experience in handling

Product Design, Research & Development, Production, Purchase & Sales( Domestic &

overseas). He was appointed as the Director of the Company in 2008 and is a nominee of

promoters.

Mr. Shailendra Mohan Gupta – Non-executive Director

Mr. Sahilendra Mohan Gupta, age 64 years, holds a bachelor’s degree in Science. He has

over 36 years of experience in administration, sales and marketing fields in Sugar,

Alcohol and Electronics industry. He was appointed Director of the Company in 2008 and

is a nominee of the promoters.

Mr. Satish Chandra Mishra – Non-executive Director

Mr. Satish Chandra Mishra, age 52 years, holds a B.E (Electronics) degree from Madhav

Institute of Technology, Gwalior(1983) and P.G. Diploma in Humar Resrource

management from IMT Ghaziabad(2006) and MBA (Marketing, operations) from Punjabi

school of management studies, Punjabi University, Patiala (2009). He has over 32 years of

experience in Newspaper industry. He joined the Board in 2013.

Mr. Amit Dixit – Independent Director

Mr. Amit Dixit, age 42 years, holds MBA degree from Harvard business school, MS degree

in Engineering from Stanford Uiversity and BTech from IIT, Madras. He is at present

Senior Managing Director in the Blackstone, a private equity fund. He joined the board in

2012.

Mr. AnujPuri – Independent Director

Mr. Anuj Puri, age 48 years, holds a bachelor’s degree in Commerce, is an Associate of

the Institute of Chartered Accountants of India (New Delhi), Associate of the Chartered

Insurance Institute, UK, Associate of Insurance Institute of Surveyors & Adjusters (India)

and an Associate of the Insurance Institute of India. He has over 24 years of experience in

multidisciplinary consulting ranging from real estate to social development projects.

Mr. DilipCherian – Independent Director

Mr. Dilip Cherian, age 58 years, holds a bachelor’s and master’s degree in Economic and

is a Gurukul Chevening Fellow from the London School of Economics. Mr. Cherian is

Founder & Consulting Partner of Perfect Relations, South Asia’s leading image

management consultancy. He advises CEOs on External communications, Internal

communications and public affairs. He joined the board in 2013.

Mr. Rajendra Kumar Jhunjhunwala – Independent Director

Mr. Rajendra Kumar Jhunjhunwala, aged 69 years, holds a bachelor’s degree in

Commerce. He has the vast experience of handling Sugar Mill, Vanaspati Plant and Steel



foundry of Motilal Padampat Udyog private limited. He was appointed as the director of

the Company in 2008.

Mr. Shashidhar Narain Sinha – Independent Director

Mr. Shashidhar Narain Sinha, aged 57 years, is the CEO of Lodestar universal India. He has

over 30 years of experience in media management and development. He was appointed

the Director of the Company in 2008.

Mr. Vijay Tandon – Independent Director

Mr. Vijay Tandon, aged 70 years, graduated from University of Delhi. He is a Chartered

Accountant and fellow of the Institute of Chartered Accountants of India. He has been

associated with number of private and public sector companies and banks in the capacity

of the auditor. He joined the board in 2005.

Ms. Anita Nayyar – Independent Director

Ms. Anita Nayyar, aged 54 years, holds a bachelor’s degree in Microbiology and has done

her post-graduation in Advertising and Marketing with a Masters in Management. She has

over 26 years of experience in the industry and was voted second most influential media

person in India by The Brand Equity Survey in 2006. Currently, she is CEO India and South

Asia for Havas Media group.

Mr. Jayant Davar – Independent Director

Mr. Jayant Davar, aged 54 years, is the founder, Co-Chairman & Managing Director of

Sandhar Technologies Limited. He is a mechanical engineer and is also an alumni of

Harvard Business School.

Mr. Ravi Sardana – Independent Director

Mr. Ravi Sardana, aged 49 years, is a Chartered Accountant by profession and a

Chevening Scholar. He has over two decades experience in investment banking and

corporate finance. He is currently Executive Vice President of ICICI Securities limited.

Mr. Vikram Sakhuja – Additional Independent Director

Mr. Vikram Sakhuja, aged 54 years, is an engineer from IIT Delhi with an MBA from IIM

Calcutta. He joined P&G in 1988 and held positions in Marketing Research and Media over

8 years. He joined the Board as an Additional independent Director in 2016.




Revenue 4,360 4,319 4,827 4,422 4,734 4,590 4,875 4,752 5,113 4,957 5,509 4,953 18,040 18,951 20,533 22,281

Consumption of raw materials 1,489 1,479 1,546 1,505 1,626 1,544 1,609 1,608 1,738 1,685 1,818 1,734 6,019 6,386 6,976 7,472

Employees cost 617 618 633 607 656 681 683 690 706 734 749 748 2,468 2,710 2,936 3,186

Other expenditure 1,021 981 1,239 1,185 1,148 1,153 1,297 1,235 1,227 1,190 1,350 1,264 4,532 4,833 5,031 5,392

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

EBITDA 1,233 1,241 1,409 1,125 1,304 1,213 1,287 1,219 1,442 1,348 1,592 1,208 5,020 5,023 5,590 6,230

Depreciation 205 216 222 198 189 195 210 209 208 208 208 208 841 803 832 840

EBIT 1,028 1,025 1,187 927 1,115 1,018 1,077 1,010 1,234 1,140 1,384 1,000 4,179 4,220 4,758 5,391

Interest 160 157 152 122 101 89 90 96 56 56 56 56 566 377 223 170

Other Income 181 125 31 93 79 165 120 110 115 115 115 115 252 475 462 503

PBT 1,050 993 1,066 898 1,093 1,094 1,107 1,024 1,294 1,200 1,444 1,060 3,866 4,318 4,997 5,724

Tax 351 332 369 291 356 339 376 353 440 408 491 360 1,315 1,425 1,699 1,946

Recurring PAT 699 661 697 607 736 755 731 671 854 792 953 699 2,550 2,893 3,298 3,778

Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Reported PAT 699 661 697 607 736 755 731 671 854 792 953 699 2,550 2,893 3,298 3,778

EPS (Rs) 2.03 1.78 2.13 1.86 2.26 2.32 2.24 2.05 2.61 2.42 2.92 2.14 7.80 8.85 10.09 11.56

Key Drivers

Ad revenue (in Rs mn) - - - - - - - - - - - - 12,831 13,408 14,749 16,224


Revenue from digita excl. ads(in Rs mn)

- - - - - - - - - - - - 13 14 15 17

OOH and event mgmt business(in Rs mn)

- - - - - - - - - - - - 893 999 1,030 1,062

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -


Revenue 10 % -1 % 12 % -8 % 7 % -3 % 6 % -3 % 8 % -3 % 11 % -10 % - - - -

Consumption of raw materials 9 % -1 % 4 % -3 % 8 % -5 % 4 % 0 % 8 % -3 % 8 % -5 % - - - -

EBITDA 19 % 1 % 14 % -20 % 16 % -7 % 6 % -5 % 18 % -6 % 18 % -24 % - - - -

EBIT 34 % 0 % 16 % -22 % 20 % -9 % 6 % -6 % 22 % -8 % 21 % -28 % - - - -

Recurring PAT 41 % -5 % 6 % -13 % 21 % 2 % -3 % -8 % 27 % -7 % 20 % -27 % - - - -

EPS 34 % -12 % 20 % -13 % 22 % 3 % -4 % -8 % 27 % -7 % 20 % -27 % - - - -

Yearly Growth (%)

Revenue 5 % 5 % 10 % 11 % 9 % 6 % 1 % 7 % 8 % 8 % 13 % 4 % 9 % 5 % 8 % 9 %

EBITDA 16 % 20 % 12 % 9 % 6 % -2 % -9 % 8 % 11 % 11 % 24 % -1 % 14 % 0 % 11 % 11 %

EBIT 22 % 27 % 17 % 21 % 8 % -1 % -9 % 9 % 11 % 12 % 29 % -1 % 22 % 1 % 13 % 13 %

Recurring PAT 25 % 18 % 13 % 22 % 5 % 14 % 5 % 11 % 16 % 5 % 30 % 4 % 14 % 13 % 14 % 15 %

EPS 19 % 4 % 13 % 22 % 11 % 30 % 5 % 10 % 16 % 4 % 30 % 4 % 14 % 13 % 14 % 15 %

Margin (%)

EBITDA 28 % 29 % 29 % 25 % 28 % 26 % 26 % 26 % 28 % 27 % 29 % 24 % 28 % 27 % 27 % 28 %

EBIT 24 % 24 % 25 % 21 % 24 % 22 % 22 % 21 % 24 % 23 % 25 % 20 % 23 % 22 % 23 % 24 %

PBT 24 % 23 % 22 % 20 % 23 % 24 % 23 % 22 % 25 % 24 % 26 % 21 % 21 % 23 % 24 % 26 %

PAT 16 % 15 % 14 % 14 % 16 % 16 % 15 % 14 % 17 % 16 % 17 % 14 % 14 % 15 % 16 % 17 %






Revenue 21,065 22,459 24,588 26,989 Equity Capital 654 654 654 654 PBT 4,674 4,369 5,286 6,362

Op. Expenditure 15,170 16,535 17,852 19,308 Reserve 15,159 16,786 18,754 21,124 Depreciation 1,044 1,240 1,243 1,247

EBITDA 5,896 5,925 6,736 7,682 Networth 15,812 17,440 19,408 21,778 Others 441 315 207 72

Depreciation 1,044 1,240 1,243 1,247 Long Term Debt 5,120 4,830 4,080 4,080 Taxes Paid -1,460 -1,311 -1,586 -1,909

EBIT 4,852 4,684 5,493 6,435 Def Tax Liability 1,000 1,000 1,000 1,000 Change in WC -679 -421 -492 -553


Other Income 345 205 259 334 Account Payables 1,390 1,474 1,494 1,492 Capex -3,560 -861 -614 -620

PBT 4,674 4,369 5,286 6,362 Other Curr Liabi 2,390 2,390 2,390 2,390 Change in Invest 3,262 0 0 0

Tax 1,390 1,311 1,586 1,909 Total Liabilities & Equity 25,712 27,133 28,372 30,740 Others 235 205 259 334

PAT bef. MI & Assoc. 3,284 3,058 3,700 4,454 Net Fixed Assets 13,226 12,847 12,219 11,592 Investing C/F -63 -656 -355 -286

Minority Interest 0 0 0 0 Capital WIP 1,450 1,450 1,450 1,450 Change in Debt -3,554 -290 -750 0

Profit from Assoc. -1 0 0 0 Others 1,122 1,122 1,122 1,122 Change in Equity 0 0 0 0

Recurring PAT 3,283 3,058 3,700 4,454

Inventory 669 858 936 1,002 Others -1,986 -1,952 -2,198 -2,491

Extraordinaires 1,163 0 0 0 Account Receivables 4,977 5,292 5,726 6,211 Financing C/F -5,540 -2,242 -2,948 -2,491

Reported PAT 4,446 3,058 3,700 4,454 Other Current Assets 848 848 848 848 Net change in cash -420 1,296 1,355 2,443

FDEPS (Rs) 10.1 9.4 11.3 13.6 Cash 3,421 4,716 6,072 8,515 RoE (%) 24 % 18 % 20 % 22 %


RoIC (%) 18 % 15 % 17 % 18 %


Core RoIC (%) 24 % 17 % 20 % 24 %




PATM (%) 16 % 14 % 15 % 17 % Net D/E 0.1 0.0 -0.1 -0.2 P/FCFF 69.3 15.5 13.1 11.7


Sales Growth (%) 19 % 7 % 9 % 10 %


EV/Sales 2.9 2.6 2.3 2.0

FDEPS Growth (%) 39 % -8 % 21 % 20 %

Dividend Yield (%) 0.0 % 2.1 % 2.6 % 3.1 %


10x

15x

23x

30x

35x

-10%

0%

10%

20%

30%

40%

0

50

100

150

200

250

300

Mar

/09

Sep

/09

Mar

/10

Sep

/10

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

EPS Growth

-20%-10%0%10%20%30%40%50%60%

0

20000

40000

60000

80000

100000

120000

Mar

/09

Sep

/09

Mar

/10

Sep

/10

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

5x

8x

10x

12x

15x

EBITDA Growth

0%5%10%15%20%25%30%35%40%

050

100150200250300350400

Mar

/09

Sep/

09

Mar

/10

Sep/

10

Mar

/11

Sep/

11

Mar

/12

Sep/

12

Mar

/13

Sep/

13

Mar

/14

Sep/

14

Mar

/15

Sep/

15

Mar

/16

Sep/

16

Mar

/17

Sep/

17

Mar

/18

RoE

1x

2x

3x

4x

5x







Op. Expenditure 12,303 13,201 13,192 15,170 Reserve 8,691 8,994 10,708 15,159 Depreciation 1,247 890 1,035 1,044

EBITDA 2,952 3,826 4,506 5,896 Networth 9,324 9,616 11,342 15,812 Others -587 100 224 441

Depreciation 755 789 1,035 1,044 Long Term Debt 4,623 4,658 5,479 5,120 Taxes Paid -501 -621 -701 -1,460

EBIT 2,197 3,037 3,470 4,852 Def Tax Liability 924 1,085 1,039 1,000 Change in WC -692 -120 -356 -679


Other Income 690 466 279 345 Account Payables 1,045 1,275 1,135 1,390 Capex -961 -497 -512 -3,560

PBT 2,580 3,158 3,380 4,674 Other Curr Liabi 2,091 2,613 3,546 2,390 Change in Invest -757 -1,249 -4,093 3,262

Tax 5 795 1,102 1,390 Total Liabilities & Equity 18,019 19,256 22,551 25,712 Others 80 48 198 235

PAT bef. MI & Assoc. 2,575 2,363 2,278 3,284 Net Fixed Assets 7,758 7,911 7,731 13,226 Investing C/F -1,639 -1,698 -4,407 -63

Minority Interest -5 -2 1 0 Capital WIP 1,311 1,137 722 1,450 Change in Debt 1,194 -484 1,556 -3,554

Profit from Assoc. -1 -4 0 -1 Others 2,148 1,907 3,847 1,122 Change in Equity 0 0 0 0

Recurring PAT 2,579 2,579 2,579 2,579 Inventory 833 999 929 669 Others -1,508 -1,400 -1,388 -1,986

Extraordinaires 28 101 803 1,163 Account Receivables 3,190 3,426 3,636 4,977 Financing C/F -314 -1,884 168 -5,540

Reported PAT 2,551 2,551 2,551 2,551 Other Current Assets 846 1,513 360 848 Net change in cash 65 -277 146 -420

EPS (Rs) 8.2 7.5 7.3 10.1 Cash 1,934 2,363 5,327 3,421

RoE (%) 30 % 23 % 22 % 24 %

DPS (Rs) 2.0 4.0 3.5 0.0

Total Assets 18,019 19,256 22,551 25,712

RoIC (%) 19 % 17 % 15 % 18 %

CEPS (Rs) 10.5 10.1 10.4 13.2 Non-cash Working Capital 1,732 2,050 243 2,714 Core RoIC (%) 18 % 19 % 21 % 24 %



P/E 57.7 30.0 26.7 17.3


PATM (%) 17 % 14 % 13 % 16 % Net D/E 0.3 0.2 0.0 0.1 P/FCFF 37.6 16.7 17.6 16.8


Sales growth (%) 13 % 12 % 4 % 19 %


EV/Sales 7.3 4.7 4.2 4.9

FDEPS growth (%) 45 % -8 % -3 % 39 %

Dividend Yield (%) 1.1 % 2.3 % 2.0 % 0.0 %



Hindustan Media Ventures Ltd Absolute : LONG



Watch out for ‘Money in the Bank’ Media & Entertainment


Rating Information

Price (Rs) 273



Target Set On 6th Jan’17




Ind Benchmark SPBSMSIP


Stock Information



52 Wk H/L (Rs) 314/243




Face Value (Rs) 10

Bloomberg Code HMVL IN


Promoters 74.3 % 0.0 % -0.6 %

DII 1.2 % 0.2 % -11.6 %

FII 15.3 % -0.8 % 9.3 %

Public 9.3 % 0.6 % 2.9 %

Price % 1M 3M 12M

Absolute 5.2 % -8.0 % -5.3 %

Vs Industry 4.0 % -0.7 % -12.9 %

DBCORP 7.0 % -3.7 % 16.7 %

JAGRAN 2.7 % -11.6 % 4.2 %



EPS (16A) 5.7 6.1 6.4 6.4

EPS (17E) 6.6 7.5 6.5 6.5

Hindustan Media Ventures Limited (HMVL), a subsidiary of HT Media has strong

presence in Bihar, Jharkhand, Uttarakhand, UP and Delhi-NCR. Its flagship

newspaper, Hindustan is the second largest newspaper in India in terms of

readership. The Company has been trading at a discount to its peers due to its

smaller size and low dividend payouts. In our view, the current valuations do not

capture company’s strong balance sheet, high cash flow generation and its

reinvestment potential. We initiate our coverage with a Long rating with Mar’18TP

of Rs. 370.

Consolidation in UP and new radio frequencies to drive growth: Apart from

leveraging the strong brand identity of its promoter, the Company also derives

significant synergy benefits from HT Media in terms of infrastructure and content

sharing. In the phase III radio auctions, HT Media has won 7 frequencies in the main

cities of UP, which will help HMVL expand its cross media presence. HMVL will be

able to bundle its service offerings to the advertisers, thus gaining larger wallet

share.

Closing gap with the leader in UP should take the margins higher: After Jagran,

Hindustan along with Amar Ujala compete for the second position in UP. Currently,

Hindustan’s advertisement yields are ~55-60% of the market leader and they aim to

increase the advertisement yields to 75-80%. Company aims to further increase its

circulation in UP as the IRS survey is fast approaching. Demonetization is expected

to optically hit the company more than its peers due its high base effect in 3Q last

year (Bihar elections). But as the impact normalises, UP elections together with

implementation of 7th pay commission should drive advertising growth.

Cash on the balance sheet suggests reinvestment potential: Due to its strong cash

flow generation, HMVL boasts of having a strong balance sheet with net cash of ~Rs.

6,000mn (including long term investments). The Company has been looking to

expand into new geographies or consolidate its position in the existing markets

through acquisitions for the last 2 years now. Our scenario analysis suggests, if the

Company makes an acquisition in the range of 6x-10x EV/EBITDA multiple, it could

potentially add up to 12% to our FY18 EPS estimates.

Initiate coverage with Long rating and TP of Rs. 370: We initiate with Long rating

and Mar’18 TP of Rs. 370 based on 7x EV/EBITDA multiple on FY18E estimates.

Downside risks: Slower pickup in economy which would affect the advertisement

growth and more than expected increase in newsprint costs are key downside risks.



Sales 9,185 9,502 10,396 11,538

EBITDA 2,177 2,194 2,526 2,942



Other Income 607 938 781 935

Reported PAT 1,805 1,990 2,128 2,528

Recurring PAT 1,805 1,990 2,128 2,528

Total Equity 9,086 10,959 12,963 15,343

Gross Debt 1,727 1,727 1,727 1,727

Cash 2,155 4,002 5,925 8,241


Earnings 24.6 27.1 29.0 34.4

Book Value 124 149 177 209

Dividends 1.2 1.4 1.4 1.7

FCFF 12.1 17.8 20.1 23.7

P/E (x) 11.1 10.1 9.4 7.9

P/B (x) 2.2 1.8 1.5 1.3

EV/EBITDA (x) 9.1 8.1 6.3 4.6

ROE (%) 22 % 20 % 18 % 18 %

Core ROIC (%) 46 % 41 % 46 % 53 %

EBITDA Margin (%) 24 % 23 % 24 % 25 %

Net Margin (%) 20 % 21 % 20 % 22 %

Hindustan Media Ventures Limited Absolute – LONG Relative – Overweight 30% ATR in 15 months


Company Snapshot



EPS FY17E 27.1 27.1 0 % In our view, consensus estimates are not

updated post demonetisation FY18E 29.0 31.0 -7 %

Sales FY17E 9,502 10,008 -5 %

FY18E 10,396 11,040 -6 %

PAT FY17E 1,990 1,989 0 %

FY18E 2,128 2,291 -7 %


1. Consolidation in UP and new radio frequencies to drive growth: Apart from,

leveraging the strong brand identity of its promoter, the Company also derives

significant synergy benefits from HT media in terms of infrastructure and

content sharing. In the phase III radio auctions, HT Media has won 7 frequencies

in the main cities of UP, which will help HMVL expand its cross media presence.

HMVL will be able to bundle its service offerings to the advertisers, thus gaining

larger wallet share.

2. Closing gap with the leader in UP should take the margins higher: After

Jagran, Hindustan along with Amar Ujala compete for the second position in UP.

Currently, Hindustan’s ad yields are ~55-60% of the market leader and they aim

to increase the ad yields to 75-80%. Company aims to further increase in

circulation in UP as the IRS survey is closing in. Demonetization is expected to

optically hit the company more than its peers due its high base effect in 3Q last

year (Bihar elections). But as the impact normalizes, the upcoming UP elections

together with implementation of 7th pay commission should drive advertising

growth.

3. Cash on the balance sheet suggests reinvestment potential: Due to its strong

cash flow generation, HMVL boasts of having a strong balance sheet with net

cash of ~Rs. 6,000mn (including long term investments). Our scenario analysis suggests, if

the Company makes an acquisition in the range of 6x-10x EV/EBITDA multiple, it could

potentially add up to 12% to our FY18 EPS estimates.

Risk to Our View:


2. Newsprint prices rising more than expected

Key Triggers


Declaration of dividends/Buybacks or some strategic acquisition will provide big

boost



6.8 % 0.7 11.0 % 2.5 % 35.6 %


Sales Growth 3 % 9 % 13 % 5 % 5 %

NOPAT Margin 15 % 16 % 18 % 15 % 15 %

IC Turnover 2.70 2.87 3.36 3.00 3.00

RoIC 40.7 % 46.3 % 60.9 % 46.9 % 46.1 %






HMVL, a subsidiary company of HT Media Ltd, is one of the leading print media

companies in India in terms of readership. HMVL publishes and print Hindustan, the

second largest daily newspaper in India in terms of readership with a readership of ~15

million readers.


Rs. Mn.

Price

Target

Target

Date



HMVL LONG 273 20,066 370 Mar'18 24.6 27.1 29.0 11.1 10.1 9.4 123.8 1.8 22 % 20 % 18 % 0.4 % 0.5 %

DB Corp. LONG 373 68,614 450 Mar'18 16.1 19.0 22.2 23.1 19.6 16.8 73.3 4.7 23 % 25 % 27 % 3.6 % 3.6 %

Jagran LONG 175 57,340 220 Mar'18 10.1 9.4 11.3 17.3 18.7 15.5 48.4 3.3 24 % 18 % 20 % 0.0 % 2.1 %




Consolidation in UP and new radio frequencies to drive growth: Hindustan is the second largest read newspaper in India and has a leading position in the

key Hindi speaking states i.e. Bihar, Jharkhand, UP, Uttarakhand and Delhi. The

advertising revenue, which is related to the economic growth of the states and India

overall, is expected to remain strong given strong GDP growth rates in these states. The

circulation revenues are also expected to remain strong due to the structural growth

drivers like improving spending power of the readers and rising literacy levels.

Exhibit 1: Company enjoys leadership position in Hindi states


No.1 position in Bihar and Jharkhand: According to the last readership survey,

Hindustan was the No.1 Hindi newspaper in Bihar and Jharkhand with a readership of

4.4mn and 1.3mn respectively. The company has printing locations in the cities of Patna,

Ranchi, Muzaffarpur, Dhanbad, Bhagalpur, Jamshedpur and Gaya. Besides having large

literate population of 54mn and 19mn in Bihar and Jharkhand respectively, the GDP

growth rates (constant prices) of Bihar and Jharkhand are of the order of 9.5% and 8.5%

respectively which is higher than India’s overall GDP growth rates.

No.2 in UP: UP is the second largest state in terms of GDP, and with 118.4mn literate

population, it is also the largest advertising market for Hindi newspaper with rough

market size of Rs. 12,000mn (Company estimates). The Company has been investing

aggressively in UP and is currently the No.2 player, with a readership of 8.13mn. The

company has printing locations in the cities of Lucknow, Varanasi, Meerut, Agra,

Allahabad, Gorakhpur, Bareilly, Moradabad, Aligarh, Kanpur, Dehradun, Greater Noida

and Haldwani. With a huge size of literate population, there is a further scope of

increasing market penetration.

No.2 in Delhi-NCR: In Delhi, Hindustan has been leveraging the strong brand identity of

its promoter Hindustan Times and currently is at No.2 position with a readership of

1.1mn.

Exhibit 2: GDP growth (%) in key states for Hindustan is higher than India’s overall

average growth rate

Source: Statistictimes, Equirus Research

i) Circulation revenues to grow at CAGR (FY16-19E) of 5% in absence of any

major expansion plans: The Company has grown its circulation revenues at

a CAGR (FY12-16) of 12% driven by both increase in volumes and pricing.

The Company has been trying to expand into newer geographies

inorganically or consolidate its position in the existing ones. Till that

happens, the Company is unlikely to expand in other states organically. We

estimate the circulation revenues to grow at CAGR (FY16-19E) of 5% mainly

driven my increase in number of copies and nominal increase in the prices.

In our view, it will be difficult for the company to keep increasing prices

due to competitive pressures.

1.07

4.38

1.31

8.13

2

1 1

2

0

1

2

3

4

5

6

7

8

9

Delhi Bihar Jharkhand UP

Hindustan's readership (mn) Current Readership position

4

6

8

10

12

14

16

18

2010-11 2011-12 2012-13 2013-14 2014-15

Bihar Jharkhand Uttarakhand Delhi Uttar Pradesh



Exhibit 3: Circulation revenue estimated to grow at a CAGR (FY16-19E) of 5%


ii) Advertising revenues estimated to grow at CAGR (FY16-19e) of 9%: The

Company has grown its advertising revenues at a CAGR (FY12-16) of 12%.

After Jagran, Hindustan along with Amar Ujala compete for the second

position in UP. Currently, Hindustan’s advertisement yields are ~55-60% of

the market leader and they aim to increase the advertisement yields to 75-

80%. We estimate advertisement revenue growth of CAGR (FY16-19E) of 9%.

The upcoming state elections in UP should help the advertising revenues in

the near term.

Exhibit 4: Advertising revenue estimated to grow at CAGR (FY16-19E) of 9%


iii) Cross selling and synergy benefits from the promoter, HT media:

Radio FEVER enters UP: Unlike its peers like DainikBhaskar and Jagran,

which have made big investments to grow their radio and digital business,

HMVL does not have any direct investments, but it derives certain cross-

selling benefits from its promoter businesses. In phase III radio auctions, HT

media has acquired 10 new FM radio frequencies, one each in Delhi, Mumbai

and Hyderabad and 7 frequencies in large cities of UP. Hindustan is the key

player in the UP market and its main rival Jagran has presence in both print

and radio space in the state. With the arrival of Radio Fever in UP,

Hindustan will derive significant synergies as they will be able to offer both

print and radio solutions to the clients.

Outsourcing the Digital business: HMVL/HT Media have formed a new

entity “HT Digital stream”, which will take care of the digital assets of both

HT media and HMVL. In this new entity, HMVL will hold 43% of the share and

remaining 57% will be held by HT Media. The Company is hoping of greater

synergies between HT Media digital and HMVL digital, and also greater

synergies between print and digital.

Overall we are estimating revenues to grow at CAGR (FY16-19E) of 8% as compared to the

CAGR (FY12-16) growth of 11%.

Exhibit 5: Overall revenues estimated to grow at CAGR (FY16-19E) of 8%


2%

4%

6%

8%

10%

12%

14%

16%

500

1000

1500

2000

2500

3000


Circulation revenue YoY growth(%)

2%

4%

6%

8%

10%

12%

14%

16%

18%

2000

3000

4000

5000

6000

7000

8000

9000

10000


Advertisement revenue YoY growth (%)

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

500

2500

4500

6500

8500

10500

12500


Revenues YoY growth (%)



Significant potential for margins to expand further

The Company has expanded its EBITDA margins from 16% in FY12 to 24% in FY16, implying

an average improvement of 200bps every year. The management feels confident that this

trend of margin expansion will continue for next few years as well. Higher newsprint

costs may have a dampening impact but we contend that the Company will be able to see

through the rising costs due to following factors:

Advertising revenues may provide cushion against the pressure of rising costs: In the

mature markets of Bihar and Jharkhand, the Company is operating at margins above 30%

but in UP, the Company is operating at margins of around 20%. Currently, the Company is

able to charge 50%-60% of the advertisement rates the market leader charges. As the

Company solidifies its position in UP and gets closer to the market leader in terms of

circulation and readership, there will be scope for further margin expansion.

Cost cutting initiatives at the corporate level: HT Media has undertaken a cost cutting

initiative at the group level, which will affect HMVL as well. The real effects of such an

initiative are difficult to quantify at the moment, but it will be step in right direction to

improve the margins further.

Exhibit 6: EBITDA margins to expand further albeit at a slower pace


We estimate EBITDA to grow at a CAGR (FY16-19E) of 11% with EBITDA margins improving

to 25.5% in FY19E from 23.7% in FY16.

Strong cash flow generation to keep the balance sheet strong

As of FY16, HMVL had Rs. 2,155mn of cash and cash equivalents on its balance sheet, if

we also include the non-current investments (which are basically investments in various

debt funds) of Rs. 5,483mn, then the effective cash on the balance sheet comes roughly

close to Rs. 7,638mn. With strong cash flow from operations (Rs. 1,500mn) and minimal

capital expenditure in the next few years, we estimate the company to have strong free

cash yield of 7% in FY17E and 8% yield in FY18E.

Exhibit 7: Low dividend payouts despite high cash flow generation


Exhibit 8: Prudent capital allocation may improve the return ratios further

Source: Company, Equirus Research, *Core RoIC excludes cash

15.9%

17.7%

20.7% 20.3%

23.7% 23.1%

24.3%

25.5%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

500

1,000

1,500

2,000

2,500

3,000

3,500


EBITDA EBITDA Margin (RHS)

10%

8%

6%

5% 5% 5% 5%

0%

2%

4%

6%

8%

10%

12%

0

500

1,000

1,500

2,000


FCFF dividend payout ratio(%) (RHS)

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%


Core RoIC RoE



Scenario analysis: question of reinvestment

A core challenge of modeling highly cash generative business and high cash on the

balance sheet is that investors end up underestimating the positive impact of re-

investment. HMVL has clearly stated its strategy that it is looking for acquisition to

expand its reach in new geographies or to consolidate its position in the existing markets.

The management has clearly communicated that it may require Rs. 3,000-5,000mn for

the acquisition, which is the primary reason that it has been accumulating cash, without

paying reasonable dividends. Since, Company has been unable to finalise on any

acquisition target for the last 2 to 3 years and net cash on the balance sheet has been

increasing, investors are becoming skeptical of the management plans.

Company’s stated acquisition criteria

The Company has been looking for acquisitions for the last 2.5 years now but the right

target still seems to elude them. We have put together the broad criteria for acquisitions

which management has conveyed in various analyst meets and conference calls:

Target type: The Company is only focusing on print media companies in the

Hindi or Vernacular space. English print, radio and digital falls in the realm of

HT Media, so HMVL is not looking at those companies

Operational synergies: The Company is likely to focus on targets that offer cost

synergies in terms of editorial or print facilities.

Size: According to Company, they have looked at targets in the wide range of

Rs. 150mn to Rs. 5,000mn. In our view, the Company will not be comfortable for

acquisitions beyond Rs. 5,000-6,000mn. The Company is ideally looking at a

payback period of 5-7 years on their investment.

Geographic focus: In the Hindi speaking belt, there are major states like

Madhya Pradesh, Gujarat, Rajasthan, Punjab, where the Company has no

presence. It may ideally be targeting players in these states or it may look at

southern states where its main rivals are not present (in the vernacular space).

In our view, Company may ideally not look for acquisitions in the regions where

it is already present as it is easier to expand organically in those regions.

To counter the uncertainties of estimates that do not include potential acquisitions, we

have performed a scenario analysis to measure the impact of acquisitions on our

estimates and valuations. Our key assumptions in this analysis are:

The Company makes an acquisition of Rs. 5,000mn (which is at the top end of

what Company will be willing to pay) in FY18E

Average multiple paid for the acquisition may range from 6x-12x trailing EBITDA

(broad range in which listed peers have traded)

Operating margin of the acquired business is 23%, which is a fair assumption for

any print player in its mature markets

Working capital management of acquired business performs in line with the

existing business.

Our analysis in Exhibit 9 suggests, if HMVL pays 6x-10x EBITDA multiple for an

acquisition, it may be EPS accretive from first year, paying higher may prove to be

dilutive as the HMVL is currently generating good returns from its investments in the form

of other income.



Exhibit 9: Our acquisition scenario analysis suggests right acquisition at right price may add upto 12% to our base case estimates

HMVL : Base case (Rs mn) FY16 FY17 FY18

FY18 Acquisition case (Rs mn) 6x 8x 10x 12x

Sales 9,185 9,502 10,396

Sales 14,019 13,114 12,570 12,208

Acquisition Growth (%)

0.0% 0.0%

Acquisition Growth (%) 38.1% 28.6% 22.9% 19.1%

Organic Growth (%)

3.5% 9.4%

Organic Growth (%) 9.4% 9.4% 9.4% 9.4%

Total Sales Growth (%)

3.5% 9.4%

Total sales Growth (%) 47.5% 38.0% 32.3% 28.5%

EBITDA 2,177 2,194 2,526

EBITDA 3,359 3,151 3,026 2,942

Margin (%) 23.7% 23.1% 24.3%

Margin (%) 24.0% 24.0% 24.1% 24.1%

Depreciation 225 227 230


EBIT 1,952 1,967 2,296

EBIT 3,054 2,846 2,721 2,637

Margin (%) 21.3% 20.7% 22.4%

Margin (%) 21.8% 21.7% 21.6% 21.6%

Net interest income 494 778 660

Net interest income 260 260 260 260

PBT 2,446 2,745 2,955

PBT 3,314 3,105 2,980 2,897

Tax 641 755 828

Tax 928 870 835 811

Tax Rate (%) 26.2% 27.5% 28.0%

Tax Rate (%) 28.0% 28.0% 28.0% 28.0%

Net income 1,805 1,990 2,128

Net income 2,386 2,236 2,146 2,086

No. of shares 73.4 73.4 73.4

No. of shares 73.4 73.4 73.4 73.4

EPS(Rs) 24.6 27.1 29.0

EPS(Rs) 32.5 30.5 29.2 28.4

Upside to base estimates 12% 5% 1% -2%




Valuation

HMVL currently trades at EV/EBITDA of 6x and P/E of 9x on our FY18 estimates. Due to its

small scale and low dividend payout ratio, the Company has always traded at a discount

to its larger peers. As its other peers, we value HMVL using our preferred EV/EBITDA

methodology. We arrive at our target price of Rs. 370 by applying EV/EBITDA multiple of

7x, which is the average EV/EBITDA multiple for the stock since last 5 years, on our FY18

EBITDA estimate of Rs. 2,526mn.

Our target price implies PE of 13x on our FY18 EPS estimates. In our view, as the

Company increases its dividend payout in line with its peers, it should re-rate to higher

multiples in line with peers.

Exhibit 10: HMVL’s target price derivation

Rs mn EBITDA (FY18e) Multiple EV

HMVL 2,526 7x 17,679

(-)Debt

1,810

(+)Cash and investments

11,408

Equity value

27,278

Outstanding shares (mn)

73.4

Target price (Rs)

370

Source: Equirus research, *cash and investments also include non-current investments

which are mainly investments in debt funds and are fairly liquid

Exhibit 11: HMVL has traded in the P/E range of 10x-15x


Exhibit 12: HMVL has traded in the EV/EBITDA range of 5x-10x


0%5%10%15%20%25%30%35%

50

150

250

350

450

Mar/13

Jun/13

Sep/13

Dec/13

Mar/14

Jun/14

Sep/14

Dec/14

Mar/15

Jun/15

Sep/15

Dec/15

Mar/16

Jun/16

Sep/16

Dec/16

Mar/17

Jun/17

Sep/17

Dec/17

Mar/18

6x

8x

10x

12x

15x

EPS Growth

0%

5%

10%

15%

20%

25%

30%

35%

0500010000150002000025000300003500040000

Mar/13

Jun/13

Sep/13

Dec/13

Mar/14

Jun/14

Sep/14

Dec/14

Mar/15

Jun/15

Sep/15

Dec/15

Mar/16

Jun/16

Sep/16

Dec/16

Mar/17

Jun/17

Sep/17

Dec/17

Mar/18

4x

8x

10x

12x

15x

EBITDA Growth




Economic slowdown can result in lower than expected growth in advertising revenue:

A slowdown in the economy can result in lower than expected media spend by the

corporates, which can have a negative impact on the advertising revenue.


operating margins: Newsprint prices account for ~30-40% of the total sales and 45-50% of

the total cost component. We are estimating a 5-6% y-o-y increase in the newsprint

prices over the next two financial years. Higher than expected increase in newsprint

prices will have a negative impact on the operating margin of the company


Following are key highlights of our assessment of level of corporate governance in the

company from its FY16 Annual Report.

The Board of Directors of the Company has a balanced mix of Executive directors, Non-

executive directors and independent directors. The Directors are eminent professionals

from diverse fields. The Board comprises of nine directors including seven non-executive

directors. The Chairperson of the board is a woman non-executive director.

Company complies with the requirement of at least one-half of the board to comprise of

independent directors. None of the independent directors of the Company serve as

Independent director in more than seven listed entities.

Disclosure Norms

Quarterly Reporting: The quarterly financials are provided on a standalone basis in the

format in which it is submitted to the stock exchanges.

Auditors Report The Auditor, S.R. Batliboi & Co. has reported the books of accounts to be in proper order

and has stated that the financials provide a true and fair view of the business. There is

no negative remark on the accounting policy or financial management of the company.

HMVL is a professionally run company and focuses a lot on adopting good corporate

governance practices. It is a subsidiary of HT Media which has been acknowledged as one

of the top 25 companies adopting good corporate governance practices for 2009 by the

Institute of Company Secretaries of India. HMVL draws its governance practices from HT

Media itself and is expected to have similar robust board practices. HMVL has a

completely different senior and second line of management.

Annexure 1: Company Overview Hindustan Media Ventures (HMVL), promoted by HT Media (an integrated multimedia

company which publishes leading dailies in India such as Hindustan Times and Mint), is

one of the leading print media companies in India with strong presence in major Hindi

speaking market. HT Media currently owns ~74.3% of HMVL's equity share capital.

Hindustan, the Hindi flagship daily of HMVL, covers news across the entire spectrum of

international, national and local news relating to politics, business, entertainment,

sports and other general interests. The first edition of 'Hindustan' was published on April

12, 1936 from Delhi and the reach of the newspaper now extends to six regions, namely,

Uttar Pradesh, Uttarakhand, Bihar, Jharkhand, Mohali and Delhi-NCR. 'Hindustan' is the

second largest brand in terms of readership of Hindi daily newspapers. Hindustan

dominates in Bihar with an undisputed readership of over 4mn. Hindustan has been the

No.1 newspaper of Jharkhand, ever since IRS survey started reporting readership

numbers for Jharkhand as a separate state and in Delhi + NCR, Hindustan is an

undisputed No. 2. With strong focus on UP, the Company has reached No.2 position in

the state in terms of readership.

Company History

1918: Incorporation of the Company as The Behar Journals Limited

1919: Commencement of the business of the Company; Commissioning of the printing

press at Patna; Commencement of printing and publishing of English newspaper,

“Searchlight”

1947: Commencement of printing and publication of Hindi daily “Pradeep” at Patna

1986: Termination of printing and publishing of Hindi daily “Pradeep” and English daily

“Searchlight”.

1987: Name of the Company changed to “Searchlight Publishing house limited” in order

to capitalize on the name earned by its publication Searchlight

2008: Name of the Company changed to Hindustan media Ventures Ltd

2009: Acquisition of Hindi business from HT Media comprising of Hindi daily newspaper,

“Hindustan”, in terms of the printing agreement with the holding company

2010: Company came out with an IPO of Rs. 2,700mn and got listed on BSE & NSE on 21st

July 2010

2016: Acquisition of Hindi brands from the parent company for Rs. 670mn.




Mrs. Shobhana Bhartia – Non-executive Chairperson Mrs. Shobhana Bhartia, a graduate from Calcutta University, was also a former MP from

RajyaSabha. She has been associated with the company since its inception. She is also a

recipient of the Padma Shri for her contribution in the field of journalism.

Mr. Vivek Khanna – CEO Mr. Vivek Khanna is a Post Graduate in Management from IIM-Ahmedabad and Economics

graduate from the University of Delhi. He joined HT Media in 2008 after working for more

than 16 years of which 11 were spent in Hindustan Lever Limited (HLL).

Mr. Ajay Relan – Non-executive Independent director Mr. Ajay Relan, age 56 years, is an MBA from IIM Ahmedabad and has over 25 years of

corporate and investment banking experience. MrRelan has served on the board of

directors of several Citigroup Venture Capital India portfolio companies such as HT

Media, Yes Bank, i-Flex and Progeon.

Mr. Ashwani Windlass – Non-executive Independent Director Mr. AshwaniWindlass, holds an MBA from FMS, Delhi and has over 30 years of experience

in strategy, telecom and technology. He has established and managed many green field

projects in the field of telecom and technology.

Mr. Piyush G Mankad – Non-executive Independent Director Mr. Piyush G Mankad,was educated at Delhi University and later at Cambridge, UK where

he obtained a Post Graduate Diploma in Development Studies, with distinction. He is a

retired civil servant with a distinguished career of over 40 years in the IAS.

Mr. Shardul S. Shroff – Non-executive Independent Director

Mr. Shardul S. Shroff, age 54 years, holds a bachelor degree in Commerce from Sydenham

College Mumbai and has over 29 years of experience as a corporate attorney. He has

extensive experience in areas of infrastructure, projects and project finance, capital

markets and commercial contracts.

Dr. Mukesh Aghi –Director

Dr. Mukesh Aghi holds an advanced Management Diploma from Harvard business School,

Ph.D in International relations from Claremont Graduate University, California and an

MBA in International marketing from Andrews University, Michigan.

Mr. Priyavrat Bhartia –Whole time Director

Mr. Priyavrat Bhartia started as a financial analyst with Wasserstein Parella & Co., New

York in 1998. He holds a MBA from Stanford University (USA). He is also a director with a

number of companies including Birla Cotton Spinning and weaving mills ltd, Jubilant

Enpropvt, Ltd, HT Burda Media limited and Firefly e-Ventures limited.

Mr. Shamit Bhartia –Non executive Director

Mr. Shamit Bhartia holds a degree in Economics from Dartmouth College, USA. He has

worked in the Corporate Finance and M&A group, Lazard Frere, New York.

Mr. Benoy Roychowdhury – Whole time Director

Mr. Benoy Roychowdhury, has over 25 years of experience in marketing, sale and general

management. He holds a bachelor’s degree in Economics from Presidency College,

Calcutta University and has a Post Graduate Diploma in Business Management from XLRI,

Jamshedpur. He was previously with HT Media, where he was executive Director and was

responsible for revenue functions of media marketing and circulation. He also has worked

with Whirlpool as VP – Sales, Trade Marketing and Logistics.




Revenue 2,237 2,269 2,404 2,275 2,392 2,295 2,380 2,435 2,584 2,525 2,737 2,551 9,185 9,502 10,396 11,538

Raw material consumed 842 861 893 868 937 883 919 911 993 954 1,030 933 3,465 3,650 3,910 4,269

Personnel Expenses 287 299 312 343 302 324 332 343 333 357 359 376 1,240 1,302 1,424 1,558

Operating and other expenses 563 588 599 553 584 583 609 581 628 619 657 633 2,303 2,357 2,537 2,769

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

EBITDA 545 521 601 511 569 505 519 600 630 596 692 608 2,177 2,194 2,526 2,942

Depreciation 55 53 56 61 50 52 60 65 57 57 57 57 225 227 230 244

EBIT 490 467 545 450 519 453 459 535 573 538 634 551 1,952 1,967 2,296 2,697

Interest 29 30 27 27 47 41 36 37 30 30 30 30 113 161 121 121

Other Income 117 190 112 189 201 338 235 166 195 195 195 195 607 938 781 935

PBT 578 627 630 611 673 749 658 664 738 703 799 716 2,446 2,745 2,955 3,511

Tax 161 177 161 142 186 202 181 186 207 197 224 200 641 755 828 983

Recurring PAT 417 450 469 470 487 547 477 479 531 506 575 515 1,805 1,990 2,128 2,528

Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Reported PAT 417 450 161 470 487 547 477 479 531 506 575 515 1,805 1,990 2,128 2,528

EPS (Rs) 5.68 6.14 6.38 6.40 6.64 7.45 6.50 6.52 7.24 6.90 7.84 7.02 24.60 27.11 28.99 34.44

Key Drivers

Ad revenue(in Rs mn) - - - - - - - - - - - - 6,840 7,045 7,820 8,836


- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -


Revenue 11 % 1 % 6 % -5 % 5 % -4 % 4 % 2 % 6 % -2 % 8 % -7 % - - - -

Raw material consumed 6 % 2 % 4 % -3 % 8 % -6 % 4 % -1 % 9 % -4 % 8 % -9 % - - - -

EBITDA 23 % -4 % 15 % -15 % 11 % -11 % 3 % 16 % 5 % -5 % 16 % -12 % - - - -

EBIT 26 % -5 % 17 % -17 % 15 % -13 % 1 % 17 % 7 % -6 % 18 % -13 % - - - -

Recurring PAT 7 % 8 % 4 % 0 % 4 % 12 % -13 % 0 % 11 % -5 % 14 % -10 % - - - -

EPS 7 % 8 % 4 % 0 % 4 % 12 % -13 % 0 % 11 % -5 % 14 % -10 % - - - -

Yearly Growth (%)

Revenue 6 % 14 % 16 % 13 % 7 % 1 % -1 % 7 % 8 % 10 % 15 % 5 % 12 % 3 % 9 % 11 %

EBITDA 27 % 33 % 50 % 15 % 4 % -3 % -14 % 17 % 11 % 18 % 33 % 1 % 31 % 1 % 15 % 16 %

EBIT 33 % 43 % 61 % 16 % 6 % -3 % -16 % 19 % 10 % 19 % 38 % 3 % 37 % 1 % 17 % 18 %

Recurring PAT 23 % 43 % 28 % 21 % 17 % 21 % 2 % 2 % 9 % -7 % 21 % 8 % 28 % 10 % 7 % 19 %

EPS 23 % 43 % 28 % 21 % 17 % 21 % 2 % 2 % 9 % -7 % 21 % 8 % 28 % 10 % 7 % 19 %

Margin (%)

EBITDA 24 % 23 % 25 % 22 % 24 % 22 % 22 % 25 % 24 % 24 % 25 % 24 % 24 % 23 % 24 % 25 %

EBIT 22 % 21 % 23 % 20 % 22 % 20 % 19 % 22 % 22 % 21 % 23 % 22 % 21 % 21 % 22 % 23 %

PBT 26 % 28 % 26 % 27 % 28 % 33 % 28 % 27 % 29 % 28 % 29 % 28 % 27 % 29 % 28 % 30 %

PAT 19 % 20 % 19 % 21 % 20 % 24 % 20 % 20 % 21 % 20 % 21 % 20 % 20 % 21 % 20 % 22 %








EBITDA 2,177 2,194 2,526 2,942 Networth 9,086 10,959 12,963 15,343 Others -387 -778 -660 -814

Depreciation 225 227 230 244 Long Term Debt 1,727 1,727 1,727 1,727 Taxes Paid 659 755 828 983

EBIT 1,952 1,967 2,296 2,697 Def Tax Liability 82 82 82 82 Change in WC 4 -43 -105 -104


Other Income 607 938 781 935 Account Payables 947 1,011 1,060 1,158 Capex -827 -210 -205 -205

PBT 2,446 2,745 2,955 3,511 Other Curr Liabi 994 994 994 994 Change in Invest -1,718 0 0 0

Tax 641 755 828 983 Total Liabilities & Equity 12,837 14,774 16,827 19,305 Others 436 938 781 935

PAT bef. MI & Assoc. 1,805 1,990 2,128 2,528 Net Fixed Assets 2,467 2,450 2,425 2,385 Investing C/F -2,110 729 575 730

Minority Interest 0 0 0 0 Capital WIP 26 26 26 26 Change in Debt 743 0 0 0


Recurring PAT 1,805 1,990 2,128 2,528

Inventory 482 490 525 573 Others -213 -277 -245 -269

Extraordinaires 0 0 0 0 Account Receivables 1,177 1,276 1,396 1,549 Financing C/F 530 -277 -245 -269

Reported PAT 1,805 1,990 2,128 2,528 Other Current Assets 682 682 682 682 Net change in cash 51 1,847 1,923 2,316

FDEPS (Rs) 24.6 27.1 29.0 34.4 Cash 2,155 4,002 5,925 8,241 RoE (%) 22 % 20 % 18 % 18 %


RoIC (%) 20 % 18 % 16 % 16 %

CEPS (Rs) 27.7 30.2 32.1 37.8 Non-cash Working Capital 400 443 548 652

Core RoIC (%) 46 % 41 % 46 % 53 %




PATM (%) 20 % 21 % 20 % 22 % Net D/E 0.0 -0.2 -0.3 -0.4 P/FCFF 22.6 15.4 13.6 11.6


Sales Growth (%) 12 % 3 % 9 % 11 %


EV/Sales 2.1 1.9 1.5 1.2

FDEPS Growth (%) 28 % 10 % 7 % 19 %

Dividend Yield (%) 0.4 % 0.5 % 0.5 % 0.6 %


0%5%10%15%20%25%30%35%

50

150

250

350

450

Mar/13

Jun/13

Sep/13

Dec/13

Mar/14

Jun/14

Sep/14

Dec/14

Mar/15

Jun/15

Sep/15

Dec/15

Mar/16

Jun/16

Sep/16

Dec/16

Mar/17

Jun/17

Sep/17

Dec/17

Mar/18

6x

8x

10x

12x

15x

EPS Growth

0%

5%

10%

15%

20%

25%

30%

35%

0500010000150002000025000300003500040000

Mar/13

Jun/13

Sep/13

Dec/13

Mar/14

Jun/14

Sep/14

Dec/14

Mar/15

Jun/15

Sep/15

Dec/15

Mar/16

Jun/16

Sep/16

Dec/16

Mar/17

Jun/17

Sep/17

Dec/17

Mar/18

4x

8x

10x

12x

15x

EBITDA Growth

0%5%10%15%20%25%30%35%40%

0

200

400

600

800

1000

1200

Mar/13

Jun/13

Sep/13

Dec/13

Mar/14

Jun/14

Sep/14

Dec/14

Mar/15

Jun/15

Sep/15

Dec/15

Mar/16

Jun/16

Sep/16

Dec/16

Mar/17

Jun/17

Sep/17

Dec/17

Mar/18

RoE

0.5x

1x

2x

3x

4x









Depreciation 217 216 243 225 Long Term Debt 32 203 984 1,727 Taxes Paid 284 428 397 659

EBIT 909 1,297 1,422 1,952 Def Tax Liability 66 65 59 82 Change in WC -115 11 51 4

Interest Expense 53 57 105 113 Minority Interest 0 0 0 0 Operating C/F 807 1,133 1,375 1,630

Other Income 285 306 564 607 Account Payables 599 762 972 947 Capex -75 -426 -153 -827

PBT 1,140 1,546 1,881 2,446 Other Curr Liabi 501 621 812 994 Change in Invest -666 -909 -1,786 -1,718

Tax 295 434 472 641 Total Liabilities & Equity 6,281 7,743 10,214 12,837 Others 166 161 123 436

PAT bef. MI & Assoc. 845 1,112 1,409 1,805 Net Fixed Assets 1,781 1,693 1,801 2,467 Investing C/F -575 -1,173 -1,816 -2,110

Minority Interest 0 0 0 0 Capital WIP 10 110 32 26 Change in Debt -231 171 774 743


Recurring PAT 845 1,112 1,409 1,805 Inventory 324 330 448 482 Others -152 -155 -197 -213

Extraordinaires 0 0 0 0 Account Receivables 791 933 1,072 1,177 Financing C/F -383 16 577 530

Reported PAT 845 1,112 1,409 1,805 Other Current Assets 219 414 438 682 Net change in cash -151 -24 136 51

EPS (Rs) 11.5 15.2 19.2 24.6 Cash 1,813 2,696 1,277 2,155

RoE (%) 18 % 20 % 21 % 22 %

DPS (Rs) 1.2 1.2 1.2 1.2

Total Assets 6,281 7,743 10,214 12,837

RoIC (%) 18 % 20 % 20 % 20 %

CEPS (Rs) 14.5 18.1 22.5 27.7 Non-cash Working Capital 233 294 174 400 Core RoIC (%) 30 % 38 % 40 % 46 %



P/E 23.7 18.0 14.2 11.1


PATM (%) 13 % 15 % 17 % 20 % Net D/E -0.4 -0.4 0.0 0.0 P/FCFF 26.0 26.8 15.4 22.6


Sales growth (%) 6 % 15 % 12 % 12 %


EV/Sales 2.9 2.4 2.4 2.2

FDEPS growth (%) 29 % 32 % 27 % 28 %

Dividend Yield (%) 0.4 % 0.4 % 0.4 % 0.4 %



HT Media Ltd Absolute : Trade

Relative : Benchmark


Still time before it Shines Media & Entertainment


Rating Information

Price (Rs) 76



Target Set On 6th Jan'17



Fair Value (DDM) 35

Ind Benchmark SPBSMSIP


Stock Information



52 Wk H/L (Rs) 96.5/68.9

Avg Daily Volume (1yr) 2,59,332



Face Value (Rs) 2

Bloomberg Code HTML IN


Promoters 69.5 % 0.0 % 0.0 %

DII 10.4 % 1.6 % 1.7 %

FII 7.3 % -2.8 % -6.2 %

Public 12.9 % 1.1 % 4.4 %

Price % 1M 3M 12M

Absolute 7.6 % -11.7 % -14.5 %

Vs Industry 6.4 % -4.4 % -22.1 %

DB Corp 7.0 % -3.7 % 16.7 %

Jagran 2.7 % -11.6 % 4.2 %



EPS (16A) 1.1 1.6 3.0 1.6

EPS (17E) 1.0 1.3 0.5 1.1

Hindustan Times (HT) Media Ltd is one of the leading media houses in the country

with a well-diversified portfolio and strong brands to boast of. While balance sheet

remains strong but muted growth of its English newspaper, low dividend pay-out and

heavy investments in digital, radio and certain non-core areas like education has

depressed RoE to single digits. Though investments in the digital business may have

peaked out, but weak advertisement growth and rising newsprint costs will continue

to put pressure on the margins. We initiate our coverage on HT Media with a Trade

rating with Mar’18 TP of Rs. 80.

English business continues to languish, Hindustan and Radio to drive growth:

English newspaper has been a laggard and has seen a much weaker advertising CAGR

(FY12-16) of 2% while advertising in the Hindi business has grown at CAGR (FY12-16)

of 12%. In 1HFY17, the English newspaper advertising growth has further

exacerbated and has seen a decline of ~4%, the recovery that was expected in

2HFY17 will be further delayed due to demonetisation of currency. We estimate the

English newspaper advertising to grow at CAGR (FY16-19E) of 1%. Hindi newspaper

(through subsidiary HMVL) is estimated to do much better and advertising is

estimated to grow at CAGR (FY16-19E) of 9%.

New stations to drive the Radio business going forward: Radio Fever (104 FM) has

been a leading brand in the metro cities of Delhi, Mumbai, Bangalore, Kolkata and

Chennai. The radio segment has grown at CAGR (FY12-16) of 18%, with the addition

of 10 new frequencies; the segment is estimated to grow at CAGR (FY16-19E) of 22%.

Digital losses are expected to reduce but rising newsprint costs to put pressure

on margins: The major part of digital losses that the company has seen in the past

few years are mainly due to advertising expenditure on Shine.com. Company expects

the Shine.com to breakeven by FY18E, but rising newsprint costs (80% is imported)

and weaker advertising growth will continue to put pressure on margins.

Initiate coverage with Trade rating and TP of Rs. 80: We initiate our coverage on

HT Media with Trade rating and Mar’18 PT of Rs. 80 based on SoTP valuation.

Downside risks: Slower pickup in economy and corporate earning which would

affect the advertisement growth and more than expected increase in newsprint

cost. Upside risks: Faster pickup in advertising, lower increase in newsprint cost,

improved profitability of radio and digital businesses. Buybacks/dividend

announcements can lead to re-rating of the stock.



Sales 25,008 24,810 27,427 29,877

EBITDA 3,079 2,386 3,673 4,030

Depreciation 1,018 1,223 1,274 1,339


Other Income 1,543 1,988 1,637 1,822

Reported PAT 1,678 907 1,678 1,924

Recurring PAT 1,678 907 1,678 1,924

Total Equity 20,515 21,370 22,950 24,762

Gross Debt 10,572 10,572 10,572 10,572

Cash 7,568 9,274 11,584 14,497


Earnings 7.2 3.9 7.2 8.3

Book Value 89 93 100 107

Dividends 0.4 0.2 0.4 0.4

FCFF -17.1 6.4 10.8 12.6

P/E (x) 10.5 19.4 10.5 9.1

P/B (x) 0.8 0.8 0.8 0.7

EV/EBITDA (x) 6.8 8.1 4.6 3.5

ROE (%) 8 % 4 % 8 % 8 %

Core ROIC (%) 12 % 5 % 12 % 13 %

EBITDA Margin (%) 12 % 10 % 13 % 13 %

Net Margin (%) 7 % 4 % 6 % 6 %

HT Media Limited Absolute – Trade Relative – Benchmark 5% ATR in 15 months

January 8, 2017 Analyst: DepeshKashyap, CFA [email protected] (+91-7228934327) Page 2 of 17

Company Snapshot



EPS FY17E 3.9 6.6 -41 % In our view, Consensus numbers are not

yet updated post demonetisation FY18E 7.2 7.9 -9 %

Sales FY17E 24,810 26,327 -6 %

FY18E 27,427 28,669 -4 %

PAT FY17E 907 1,509 -40 %

FY18E 1,678 1,814 -8 %


1. English business continues to languish, Hindustan and Radio to drive growth:

English newspaper has been a laggard and has seen a much weaker advertising

CAGR (FY12-16) of 2% while advertising in the Hindi business has grown at CAGR

(FY12-16) of 12%. In 1HFY17, the English advertising growth has further

exacerbated and has seen a decline of ~4%, the recovery that was expected in

2HFY17 will be further delayed due to demonetisation of currency. We estimate

the English newspaper advertising to grow at CAGR (FY16-19E) of 1%. Hindi

newspaper (through subsidiary HMVL) is estimated to do much better and

advertising is estimated to grow at CAGR (FY16-19E) of 9%.

2. New stations to drive the Radio business going forward: Radio Fever (104 FM)

has been a leading brand in the metro cities of Delhi, Mumbai, Bangalore,

Kolkata and Chennai. The radio segment has grown at CAGR (FY12-16) of 18%,

with the addition of 10 new frequencies; the segment is estimated to grow at

CAGR (FY16-19E) of 22%.

3. Digital losses are expected to reduce but rising newsprint costs to put

pressure on margins: The major part of digital losses that the company has seen

in the past few years are mainly due to brand building expenditure on

Shine.com. Company expects the Shine.com to breakeven by FY18E, but rising

newsprint costs (80% is imported) and weaker advertising growth will continue to

put pressure on margins.

Risk to Our View:



Key Triggers:


Buybacks or better dividends can improve sentiments



6.8 % 0.7 11.0 % 2.0 % 10.0 %

FY17E FY18E FY19-21E FY22-26E FY27-31E

Sales Growth -1 % 11 % 9 % 5 % 5 %

NOPAT Margin 3 % 6 % 7 % 7 % 7 %

IC Turnover 1.64 1.63 2.30 1.96 1.49

RoIC 5.5 % 12.1 % 16.8 % 14.6 % 10.7 %




Based on DCF, we derive fair value of Rs. 132 as on 31st Mar’18.


Hindustan Times (HT Media) is one of the leading media houses in the country which has

built strong brands across various platforms. In the print space, it has built strong brands

in English newspaper (Hindustan times and Mint) and also in Hindi newspaper (through its

subsidiary HMVL). The Company also operates FM radio stations under the brands ’Fever’

and ‘Radio Nasha’. Their internet businesses include multiple web portals

(hindustantimes.com, livehindustan.com, livemint.com and shine.com). They have also

ventured into education space through ventures like Studymate and Bridge school of

management.


Rs. Mn.

Price

Target

Target

Date



HT Media TRADE 76 17,596 80 Mar'18 7.2 3.9 7.2 10.5 19.4 10.5 89.0 0.8 8 % 4 % 8 % 0.5 % 0.3 %

DB Corp. LONG 373 68,614 450 Mar'18 16.1 19.0 22.2 23.1 19.6 16.8 73.3 4.7 23 % 25 % 27 % 3.6 % 3.6 %

Jagran LONG 175 57,340 220 Mar'18 10.1 9.4 11.3 17.3 18.7 15.5 48.4 3.3 24 % 18 % 20 % 0.0 % 2.1 %




Hindustan Times (HT Media) is one of the leading media houses in the country which has


in English newspaper (Hindustan Times and Mint) and also in Hindi newspaper (through its

subsidiary HMVL)

English business continues to languish, Hindi and Radio to drive growth: HT

media has a strongbrand portfolio across various platforms i.e. print, radio, internet and

education. In English, it has Hindustan Times which is No.1 in Delhi-NCR and No.2 in

Mumbai in terms of readership. In Hindi, through its subsidiary (HMVL), it has Hindustan

which is No.1 in Bihar and Jharkhand and No.2 in UP in terms of readership. English

newspaper has been a laggard in the past few years and is expected to grow at a slower

pace than Hindi/Vernacular newspapers.

Well aware of the lower growth expectations of the English business, Company has been

focusing on developing its radio and digital business, while the Hindi newspaper continues

to grow strongly.

Exhibit 1: Leading position amongst the top English dailies in India (2014)

Source: IRS (2014), Equirus Research

Exhibit 2: Leading position amongst the top Hindi dailies in India (2014)


Exhibit 3: English newspaper is losing its share to the Hindi business in terms of the

consolidated print revenues


7950

4515

1622 1195 1003 834 573 507 442 361

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Tim

es

of

India

Hin

dust

an t

imes

Hin

du

Mum

bai M

irro

r

Tele

gra

ph

Econom

ic T

imes

Mid

Day

Tri

bune

Deccan H

era

ld

Deccan C

hro

nic

le

16631

14746 13830

7905 7808

4847

2988 2736 2571 2377

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Dain

ik J

agra

n

Hin

dust

an

Dain

ik B

hask

ar

Raja

sthan P

atr

ika

Am

ar

Uja

la

Patr

ika

Pra

bhat

Khabar

Navbhara

t Tim

es

Hari

Bhoom

i

Punja

b K

esa

ri

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%


Share of English in total print revenues

Share of Hindi in total print revenues



Circulation revenue estimated to grow at CAGR (FY16-19E) of 2% and 5% for English

and Hindi respectively: As far as circulation is concerned, HT Media does not have any

immediate expansion plans for its English daily “Hindustan Times”. Recently, it has also

discontinued the circulation of ‘HT Edge’, which will impact the volumes but shall

improve the realizations. We estimate circulation revenue of English business to grow at

a CAGR (FY16-19E) of 2% mainly driven by realizations growth.

Exhibit 4: English circulation revenue estimated to grow at CAGR (FY16-19E) of 2%


On the other hand, HMVLhas been able to grow its circulation revenues at a CAGR (FY12-

16) of 12% driven by both increase in volumes and pricing. The Company has been trying

to expand into newer geographies inorganically or consolidate its position in the existing

ones. Till that happens, the Company has no plans to expand in other states organically.

We estimate the circulation revenues to grow at CAGR (FY16-19E) of 5% mainly driven my

increase in number of copies and nominal increase in the prices. In our view, it will be

difficult for the company to keep increasing prices due to competitive pressures.

Exhibit 5: Hindi circulation revenue estimated to grow at CAGR (FY16-19E) of 5% as

HMVL further consolidates its position in UP and Bihar


Similar trends expected in advertising as well: Going by the historical trend, the

advertising growth in the English business is expected to be lower than Hindi/Vernacular

newspapers, but as the economy shows recovery in urban cities, the market leadership of

its English daily in Delhi and Mumbai will be the key beneficiary. The advertising revenue

for HT Media has declined by 4% in 1HFY17 due to weakness in the urban areas, with the

demonetization of currency in November, we expect the 2HFY17 to be much worse and

are factoring in 7% decline for FY17E and expect the advertising to pick up in FY18E. We

estimate the advertising revenue to grow at a CAGR (FY16-19E) of 2%.

For the Hindi newspaper, 1HFY17 has shown a growth of 4%, due to the impact of

demonetization and further higher base effect of Bihar elections in 3Q last year, we

estimate a decline of 2% in 3Q but due to upcoming state elections in UP, recent approval

of UP state government for the rollout of 7th pay commission and good monsoons,

advertising is expected to be better for Hindustan in 4QFY17 and beyond. We estimate

the advertising revenue to grow at CAGR (FY16-19E) of 9%.

200

300

400

500

600

700

800

900

1000


English circulation rev (mn)

CAGR(FY12-16) 9%

CAGR(FY16-19e) 2%

200

700

1200

1700

2200

2700


Hindi circulation rev (mn)

CAGR(FY12-16) 12%

CAGR(FY16-19e) 5%



Exhibit 6: Advertising for the English newspaper estimated to grow at CAGR (FY16-

19E) of 2% with pick up expected in FY18 and FY19


Exhibit 7: Advertising for the Hindi newspaper estimated to grow at CAGR (FY16-19E) of 9%


New radio frequencies to drive growth: Before the phase III auctions, Radio Fever

(104 FM) was a much smaller player in the Radio segment vis-à-vis other players in the

industry. Its main focus has been on metro cities of Delhi, Mumbai, Bangalore, Kolkata

and it had also acquired a Radio company in Chennai. In the phase III auctions, the

Company has acquired 10 new frequencies, 1 each in Delhi, Mumbai and Hyderabad and 7

in major cities of UP. The Company has launched the 2 new stations in Delhi and Mumbai

under the brand of Radio Nasha, which mainly plays retro music. Having multiple

frequencies in Delhi and Mumbai will improve the advertisement volumes, though yields

in the new channels are expected to be at 60-70% of the Fever brand. In addition, the

Company has chosen to expand in UP as it is a major market for its Hindi newspaper and

the cross-media platform presence in UP will help it gain market share at accelerated

pace.

The company has grown at a CAGR (FY12-16) of 18%, now with multiple frequencies in

Delhi and Mumbai and new frequencies in UP, the Company is poised to see stronger

growth in the next few years, we estimate the sales in radio segment to grow at a CAGR

(FY16-19E) of 22%.

Exhibit 8: New frequencies to drive radio growth at a CAGR (FY16-19e) of 22%


9000

9500

10000

10500

11000

11500

12000

12500

13000

13500


English Ad revenues (mn)

CAGR(FY12-16) 2%

CAGR(FY16-19e) 2%

2000

3000

4000

5000

6000

7000

8000

9000

10000


Hindi Ad revenues (mn)

CAGR(FY12-16) 12%

CAGR(FY16-19e) 9%

200

400

600

800

1000

1200

1400

1600

1800

2000

2200


Radio revenues (mn)

CAGR(FY12-16) 18%

CAGR(FY16-19e) 22%



Exhibit 9: Consolidated revenues estimated to grow at CAGR (16-19E) of 6%


Rising newsprint costs to put pressure on margins

On standalone basis, the Company has seen erosion of its EBITDA margins in the last few

years with margins declining to 8% in FY16 from 18% in FY12. The rising losses in the

digital segment and the subdued growth in the advertising revenues are the primary

reasons behind this decline.

Exhibit 10: Rising losses in the digital segment have led to sharp drop in profitability


Following are some favorable factors which may drive margin improvement:

1. Control of the Digital losses: In the Exhibit 10 above, we can see how the

losses in the digital segment have been rising over the last few years, Company

made an EBIT loss of Rs. 640mn in FY16. According to management, this was

primarily due to large amount of advertising they did for Shine.com. However,

they feel that brand building exercise for Shine.com is largely over and they

expect the losses to be halved in FY17E and further expect the business to

breakeven by FY18.

10,000

15,000

20,000

25,000

30,000

35,000


Net Sales (Rs mn)

CAGR(FY13-16) 7%

CAGR(FY16-19) 6%

-700.0

-600.0

-500.0

-400.0

-300.0

-200.0

-100.0

0.0

FY11 FY12 FY13 FY14 FY15 FY16

Digital EBIT (mn)



Exhibit 11: Shine.com has become a distant No.2 among job portals in terms of total

visits (mn)


2. Cost cutting initiatives at the corporate level: HT media has undertaken a cost

cutting initiative at the group level. The primary focus of this initiative is to

streamline various businesses and to rationalize the cost base of various

businesses with the main focus on the print business. The real effects of such an

initiative are difficult to quantify at the moment, but it will be a step in right

direction to improve the margins further.

3. Increasing profitability of Hindi business (subsidiary HMVL) to improve the

overall margins: HMVL has expanded its EBITDA margins from 16% in FY12 to 24%

in FY16, implying an average improvement of 200bps every year. The

management feels confident that this trend of margin expansion will continue

for next few years as well. In the mature markets of Bihar and Jharkhand, the

Company is operating at margins above 30% but in UP, the Company is operating

at margins of around 20%. Currently, the Company is able to charge 50%-60% of

the advertisement rates the market leader charges. As the Company solidifies its

position in UP and gets closer to the market leader in terms of circulation and

readership, there will be scope for further margin expansion.

Exhibit 12: HMVL has been improving its margins over the years and trend is expected to continue


Following are some of the unfavorable factors which may put pressure on margins:

1. Increasing newsprint costs: English newspaper companies generally have higher

amount of imported newsprint (80%) in their mix while Hindi/Vernacular papers

use just 20% of the imported newsprint. Due to additional freight charges,

imported newsprint is more correlated to the prices of crude oil. With rising

prices of crude oil, the newsprint prices are also rising and this put additional

pressure on the Company’s margins.

2. Setting up of new radio stations: Radio segment is generally a high margin

business (30-35% EBITDA margins), but the newly launched stations may take 3-4

years to breakeven. The initial few years will lead to rise in employee and other

operating expenses.

3. Weaker advertising growth outlook for English business: The advertising

revenues for the English business have seen decline of 4% in 1HFY17, the

demonetization of currency is expected to delay the recovery that was expected

in the second half. Hindustan Times is the market leader in Delhi region and

No.2 in Mumbai region, as and when the economy starts improving and

advertising picks up, we expect the company to be a major beneficiary.

We estimate consolidated EBITDA to grow at a CAGR (FY16-19E) of 9% with EBITDA

margins improving to 13% in FY19 from 12% in FY16.

15.9%

17.7%

20.7% 20.3%

23.7% 23.1%

24.3%

25.5%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

500

1,000

1,500

2,000

2,500

3,000

3,500


EBITDA EBITDA Margin (RHS)

0

5

10

15

20

25

30

35

40

June July August September October November

Naukri.com Shine.com Monster.com Timesjobs.com



Exhibit 13: HT Media’s EBITDA estimated to grow at CAGR(FY16-19E) of 9%


High cash flow generation but inefficient capital allocation is a concern

On a consolidated level, HT media generates Rs. 2,000mn of cash flow from its

operations, due to aggressive bidding by the Company in the phase III of radio auctions,

FCFF turned negative in FY16. Otherwise with minimal capital expenditure in the next

few years, we estimate free cash flow yield of 9% and 15% in FY17E and FY18E

respectively. Despite having high free cash flows, HT Media’s dividend payouts have been

very low. The Company has been making heavy investments to expand its radio and

digital portfolio, which is the main reason for its low return ratios.

Exhibit 14: Low dividend payouts despite good cash flow generation


Exhibit 15: Return ratios shall improve with rising profitability


14% 14%

12% 12%

10%

13% 13%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


EBITDA EBITDA Margin(RHS)

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000


FCFF(Rs mn) Dividend payout ratio(%)(RHS)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Core RoIC RoE



Valuation

HT Media currently trades at PE of 10x and EV/EBITDA of 5x on our FY18 estimates. Due

to weaker growth of English print, high losses in the digital and inefficient capital

allocation, the Company has been trading at a discount to the other print peers.

Since HMVL is a separate listed entity, we have valued the standalone and HMVL business

separately. In our view, as the radio and digital segments expand their revenues and

profitability, they may add further upside to the HT Media valuations.

We value HT Media standalone business at EV/EBITDA of 6x due to mix of weaker growth

outlook of the English print and stronger outlook for Radio business. The Hindi businessis

valued at a multiple of 7x as it has better growth prospects ahead. Since HT Media is a

holding company, we have applied a holding company discount of 30%. We derive our

target price of Rs. 80 by using SoTP valuation shown below.

Exhibit 16: We arrive at Mar’18 TP of Rs. 80

HT Media(Rsmn) EBITDA

(FY18e) Multiple

used Valuation

HTML(standalone) 1,568 6x 9406

(-)Debt

9,145


5,905

Equity value(1)

6,167

HMVL 2,526 7x 17,679

(-)Debt

1,810


11,408

Equity value

27,278

HT Media holding

74.3%

Equity value(2)

20,267

Combined equity value(1)+(2)

26,434

Holding company discount

30%

Net combined equity value

18,504

Outstanding shares

230.5

Target price(Rs)

80.0


Exhibit 17: HT Media has mostly traded in the P/E range of 10x-15x


Exhibit 18: HT Media has mostly traded in the EV/EBITDA range of 5x-8x


-30%-20%-10%0%10%20%30%40%

0

50

100

150

200

250

300

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

5x

10x

15x

20x

25x

EPS Growth

-20%

-10%

0%

10%

20%

30%

0

10000

20000

30000

40000

50000

60000

70000

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

5x

8x

10x

12x

15x

EBITDA Growth




Downside risks:

1. Any economic slowdown can result in lower than expected growth in

advertising revenue: A slowdown in the economy can result in lesser than

expected media spend by the corporates, which can have a negative impact on

the advertising revenue.

2. Higher than expected increase in newsprint will have a negative impact on

the operating margins: 70-80% of the newsprint used by HT Media is imported,

with the rise in prices of crude oil, the newsprint prices are rising and it may put

pressure on the operating margins of the company.

3. Continuance of higher losses in the digital segment: Company expects

Shine.com to breakeven by FY18, but if it gets delayed due to weaker growth, it

will put additional pressure on margins.

Upside risks:

1. Any buybacks or dividend announcements may change the market sentiments

and improve RoE.

2. Advertising growth for the English newspapers revive faster than expected.

3. Newsprint costs correcting further


Following are key highlights of our preliminary assessment of level of corporate

governance in the company through its FY16 Annual Report:

Board of directors Composition: The Board Directors of the company is composed of seven Directors,

including five Non-executive Directors, four of whom are independent Directors. The

Chairperson of the board is an Executive Woman Director.

Background: Most of the board members have been with the companyfor the past several

years. All of them have relevant experience in their field.

Distribution of power: Out of 7 board committees, four are headed by independent

directors, the remaining 3 committees namely Banking and Finance committee,

Investment Committee and CSR Committee are headed by the Chairperson herself

Disclosure Norm:

As per our preliminary study, we do not find any issues on this front, company follows

disclosure norms as stipulated by the listing agreement of the exchanges and is timely in

coming up with quarterly results and other disclosures.

Annexure 1: Company Overview Hindustan Times (HT Media) is one of the leading media houses in the country which has


in English newspaper (Hindustan times and Mint) and also in Hindi newspaper (through its

subsidiary)

Exhibit 19: Strong brand portfolio provides multiple growth avenues


The Company also operates FM radio stations under the brands ’Fever’ and ‘Radio

Nasha’. Their internet businesses include multiple web portals (hindustantimes.com,

livehindustan.com, livemint.com and shine.com). They have also ventured into

education space through ventures like Studymate and Bridge school of management.

Hindustan Times

Newspaper

Hindustan times

Mint

Brunch

Hindustan

Kadambini

Nandan

Internet

Shine.com

Hindustantimes.com

Livemint.com

Livehindustan.

com

Desimartini.

com

Digital quotient

Radio

Radio Fever

Radio Nasha

Education

Studymate

Bridge school of mgnt

Htcampus.

com

Events

HT leaders

hip summit

Mint Luxury



Company history

September 26, 1924: Beginning of Hindustan Times with Mahatma Gandhi, inaugurating

the newspaper.

1927: Hindustan Times was reborn as Hindustan Times Ltd, a limited liability company

1936: The Hindi daily Hindustan was launched

2003: The media business was demerged and incorporated under HT Media ltd.

2004: HT Media Ltd was listed as a public company

2006: Fever 104 FM was launched, in technical collaboration with the Virgin Group.

Hindustan was re-launched

2007: Mint, the business paper in partnership with the Wall Street Journal was launched

in Delhi and Mumbai

2008: Firefly e-Ventures, an HT Media Company, launched its first portal for job seekers,

Shine.com and a social networking website Desimartini.com

2009: Hindi business is demerged to Hindustan Media Ventures Limited (HMVL)

2010: HMVL came with an IPO, aggregating Rs. 2,700mn.

2013: Shine.com was demerged from its subsidiary Firefly e-ventures and merged into

the Company.


Mrs. Shobhana Bhartia –Chairperson& Editorial Director Mrs. Shobhana Bhartia is the Chairperson and Editorial Director of HT Media. She is a

graduate from Calcutta University and was also a former MP from Rajya Sabha. She is also

a recipient of the Padma Shri for her contribution in the field of journalism.

Mr. Priyavrat Bhartia –Director Mr. Priyavrat Bhartia, holds Master’s degree in Business Administration from Stanford

University (USA). He is also a director with a number of companies.

Mr. Shamit Bhartia –Jt. Managing Director Mr. Shamit Bhartia is Son of Mrs. Shobana Bhartia and brother of Priyavrat Bhartia. He

was appointed as Joint Manging Director w.e.f. May15, 2015 for a period of 5 years.

Mr. Rajiv Verma–CEO Mr. Rajiv Verma joined HT Media as CEO in 2004. He is a mechanical engineer from Delhi

College of Engineering. He has over 30 years of cross-sectoral experience with companies

like Hindustan lever, Nestle and Whirlpool. His international experience spans South East

Asia and Europe.

Mr. K N Memani –Director Mr. Memani is a qualified Chartered Accountant, holds a Bachelors degree in Commerce

from Calcutta University. He retired as the Chairman and Country Managing Partner of

Ernst & Young, India. He joined the Board in May 2004.

Mr. N K Singh –Director Mr. N K Singh is an Economist, former bureaucrat and former Member of Parliament. He

is currently the Chairman of the review committee on the Fiscal Responsibility and

Budget Management Act in the Union Ministry of Finance. He is also a senior member of

BJP.

Mr. Ajay Relan –Director Mr. Ajay Relan, is an MBA from IIM Ahmedabad (1976) and has over 25 years of corporate

and investment banking experience. MrRelan has served on the board of directors of

several Citigroup Venture Capital India portfolio companies such as Yes Bank, i-Flex and

Progeon. He is one of the pioneers of the Indian private equity industry.

Mr. Vikram Singh Mehta –Director Mr. Vikram Singh Mehta holds a B.A. (Mathematics Honors) degree from St. Stephens

College, Delhi University, BA/MA (Economics Honors) degree from Magdalen College,

Oxford University and a post graduate degree in Energy Economics from the Fletcher

School of Law and Diplomacy, Tufts University. He is also serving as an Independent

Director on the board of well-known companies.




Revenue 3,524 3,604 4,227 3,902 3,650 3,604 3,720 3,744 3,869 3,892 4,278 4,079 15,257 14,717 16,118 17,276

Raw material consumed 933 945 1,025 911 876 908 893 844 948 934 984 901 3,813 3,521 3,767 4,069

Personnel Expenses 995 1,036 1,020 858 1,094 1,088 1,086 1,073 1,161 1,160 1,168 1,170 3,908 4,342 4,658 5,010

Operating and other expenses 1,487 1,441 1,524 1,847 1,530 1,529 1,544 1,549 1,509 1,479 1,583 1,554 6,299 6,152 6,125 6,565

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

EBITDA 110 182 659 285 149 79 197 278 251 319 543 454 1,236 703 1,568 1,633

Depreciation 163 165 175 191 230 240 245 246 247 247 247 247 694 960 987 996

EBIT -53 17 484 94 -80 -161 -48 31 5 73 297 207 542 -257 581 636

Interest 65 94 181 175 198 203 194 182 183 183 183 183 514 777 732 732

Other Income 172 342 166 352 289 515 200 156 292 292 292 292 1,242 1,160 1,169 1,235

PBT 54 265 469 272 11 151 -42 5 114 182 406 317 1,271 125 1,018 1,139

Tax 10 29 31 121 2 21 5 5 31 49 110 75 191 32 265 296

Recurring PAT 44 237 438 151 9 131 -47 0 83 133 296 241 1,080 92 754 843

Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Reported PAT 44 237 438 151 9 131 -47 0 83 133 296 241 1,080 92 754 843

EPS (Rs) 0.19 1.02 1.88 1.55 0.04 0.56 -0.20 0.00 0.36 0.58 1.29 1.05 4.64 0.40 3.24 3.62

Key Drivers

English ad revenue(in Rs mn) - - - - - - - - - - - - 12,154 11,304 12,208 12,818

English circulation revenue(in Rs mn) - - - - - - - - - - - - 865 857 883 910

Revenue from digital business(Rs mn) - - - - - - - - - - - - 409 532 692 899

Revenue from radio business(Rs mn) - - - - - - - - - - - - 1,092 1,310 1,638 1,965

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -


Revenue -4 % 2 % 17 % -8 % -6 % -1 % 3 % 1 % 3 % 1 % 10 % -5 % - - - -

Raw material consumed -2 % 1 % 8 % -11 % -4 % 4 % -2 % -5 % 12 % -1 % 5 % -8 % - - - -

EBITDA 13 % 66 % 261 % -57 % -48 % -47 % 150 % 41 % -9 % 27 % 70 % -16 % - - - -

EBIT -22 % NA 2,745 % -81 % NA NA NA NA -85 % 1,404 % 309 % -30 % - - - -

Recurring PAT -75 % 433 % 85 % -66 % -94 % - NA NA NA 59 % 123 % -19 % - - - -

EPS -76 % 437 % 84 % -18 % -97 % - -137 % - - 59 % 123 % -19 % - - - -

Yearly Growth (%)

Revenue 6 % 1 % 7 % 6 % 4 % 0 % -12 % -4 % 6 % 8 % 15 % 9 % 5 % -4 % 10 % 7 %

EBITDA -58 % -51 % 25 % 195 % 36 % -57 % -70 % -3 % 68 % 304 % 176 % 64 % -2 % -43 % 123 % 4 %

EBIT -186 % -91 % 37 % -239 % 52 % NA NA -67 % NA NA NA 563 % -1 % NA NA 9 %

Recurring PAT -75 % -31 % -27 % -17 % -80 % -45 % - - 816 % 2 % - - -5 % -91 % 715 % 12 %

EPS -75 % -31 % 1 % 99 % -79 % -45 % - - 804 % 3 % - - -5 % -91 % 715 % 12 %

Margin (%)

EBITDA 3 % 5 % 16 % 7 % 4 % 2 % 5 % 7 % 7 % 8 % 13 % 11 % 8 % 5 % 10 % 9 %

EBIT -2 % 0 % 11 % 2 % -2 % -4 % -1 % 1 % 0 % 2 % 7 % 5 % 4 % -2 % 4 % 4 %

PBT 2 % 7 % 11 % 7 % 0 % 4 % -1 % 0 % 3 % 5 % 9 % 8 % 8 % 1 % 6 % 7 %

PAT 1 % 7 % 10 % 4 % 0 % 4 % -1 % 0 % 2 % 3 % 7 % 6 % 7 % 1 % 5 % 5 %







Op. Expenditure 21,929 22,424 23,754 25,846 Reserve 20,054 20,908 22,489 24,301 Depreciation 1,018 1,223 1,274 1,339

EBITDA 3,079 2,386 3,673 4,030 Networth 20,515 21,370 22,950 24,762 Others -138 -1,000 -649 -833

Depreciation 1,018 1,223 1,274 1,339 Long Term Debt 10,572 10,572 10,572 10,572 Taxes Paid -917 -606 -823 -952

EBIT 2,061 1,163 2,398 2,692 Def Tax Liability 411 411 411 411 Change in WC -1,542 -281 -301 -72

Interest Expense 630 988 988 988 Minority Interest 2,360 2,871 3,418 4,068 Operating C/F 1,395 1,500 2,549 3,007

Other Income 1,543 1,988 1,637 1,822 Account Payables 4,546 4,486 4,584 4,911 Capex -5,800 -740 -791 -817

PBT 2,974 2,163 3,047 3,525 Other Curr Liabi 4,764 4,764 4,764 4,764 Change in Invest -3,357 0 0 0

Tax 832 606 823 952 Total Liabilities & Equity 43,167 44,473 46,698 49,488 Others 1,088 1,988 1,637 1,822

PAT bef. MI & Assoc. 2,142 1,557 2,224 2,573 Net Fixed Assets 9,902 9,418 8,935 8,412 Investing C/F -8,069 1,248 846 1,005

Minority Interest 464 511 547 650 Capital WIP 326 326 326 326 Change in Debt 7,204 0 0 0

Profit from Assoc. 0 -138 0 0 Others 14,712 14,712 14,712 14,712 Change in Equity 0 0 0 0

Recurring PAT 1,678 907 1,678 1,924

Inventory 1,616 1,750 1,823 1,934 Others -718 -1,041 -1,086 -1,100

Extraordinaires 0 0 0 0 Account Receivables 3,718 3,806 4,133 4,420 Financing C/F 6,486 -1,041 -1,086 -1,100

Reported PAT 1,678 907 1,678 1,924 Other Current Assets 5,324 5,324 5,324 5,324 Net change in cash -188 1,707 2,310 2,913

FDEPS (Rs) 7.2 3.9 7.2 8.3 Cash 7,568 9,274 11,584 14,497 RoE (%) 8 % 4 % 8 % 8 %


RoIC (%) 7 % 5 % 7 % 7 %


Core RoIC (%) 12 % 5 % 12 % 13 %

FCFPS (Rs) -17.1 6.4 10.8 12.6 Cash Conv Cycle 19.7 24.0 25.7 24.5 Div Payout (%) 7 % 6 % 6 % 6 %



PATM (%) 7 % 4 % 6 % 6 % Net D/E 0.1 0.1 0.0 -0.2 P/FCFF -4.4 -4.4 -4.4 -4.4


Sales Growth (%) 9 % -1 % 11 % 9 %


EV/Sales 0.8 0.8 0.8 0.8

FDEPS Growth (%) -7 % -46 % 85 % 15 %

Dividend Yield (%) 0.5 % 0.3 % 0.5 % 0.5 %


-30%-20%-10%0%10%20%30%40%

0

50

100

150

200

250

300

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

5x

10x

15x

20x

25x

EPS Growth

-20%

-10%

0%

10%

20%

30%

0

10000

20000

30000

40000

50000

60000

70000

Mar

/11

Sep/

11

Mar

/12

Sep/

12

Mar

/13

Sep/

13

Mar

/14

Sep/

14

Mar

/15

Sep/

15

Mar

/16

Sep/

16

Mar

/17

Sep/

17

Mar

/18

5x

8x

10x

12x

15x

EBITDA Growth

0%5%10%15%20%25%30%35%40%

0

50

100

150

200

250

300

350

Mar

/11

Sep/

11

Mar

/12

Sep/

12

Mar

/13

Sep/

13

Mar

/14

Sep/

14

Mar

/15

Sep/

15

Mar

/16

Sep/

16

Mar

/17

Sep/

17

Mar

/18

RoE

0.5x

1x

1.5x

2x

3x







Op. Expenditure 17,658 18,882 20,212 21,929 Reserve 15,490 16,992 18,563 20,054 Depreciation 914 858 1,003 1,018


Depreciation 914 858 1,003 1,018 Long Term Debt 3,826 4,168 3,441 10,572 Taxes Paid -810 -561 -612 -917

EBIT 1,911 2,267 1,683 2,061 Def Tax Liability 575 742 447 411 Change in WC 77 -220 1,535 -1,542

Interest Expense 446 649 467 630 Minority Interest 1,438 1,590 1,923 2,360 Operating C/F 2,444 2,705 4,091 1,395

Other Income 938 1,623 1,537 1,543 Account Payables 3,323 3,937 4,844 4,546 Capex -1,316 -1,517 -910 -5,800

PBT 2,404 3,241 2,752 2,974 Other Curr Liabi 3,321 3,746 4,242 4,764 Change in Invest -1,578 -2,411 -1,480 -3,357

Tax 623 917 574 832 Total Liabilities & Equity 28,443 31,636 33,920 43,167 Others 354 910 597 1,088

PAT bef. MI & Assoc. 1,780 2,324 2,179 2,142 Net Fixed Assets 7,344 7,538 7,042 9,902 Investing C/F -2,535 -3,018 -1,792 -8,069

Minority Interest 104 248 380 464 Capital WIP 1,118 309 380 326 Change in Debt 594 731 -727 7,204


Recurring PAT 1,677 1,677 1,677 1,677 Inventory 1,631 2,257 1,527 1,616 Others -554 -743 -852 -718

Extraordinaires 0 0 0 0 Account Receivables 2,712 2,867 3,120 3,718 Financing C/F 40 -12 -1,570 6,486

Reported PAT 1,677 1,677 1,677 1,677 Other Current Assets 2,808 3,069 3,471 5,324 Net change in cash -52 -325 729 -188

EPS (Rs) 7.1 8.9 7.7 7.2 Cash 7,773 9,359 3,991 7,568

RoE (%) 11 % 12 % 10 % 8 %

DPS (Rs) 0.4 0.4 0.4 0.4

Total Assets 28,443 31,636 33,920 43,167

RoIC (%) 10 % 11 % 9 % 7 %

CEPS (Rs) 11.0 12.7 12.2 11.7 Non-cash Working Capital 507 510 -967 1,350 Core RoIC (%) 14 % 16 % 14 % 12 %

FCFPS (Rs) 6.2 7.2 15.4 -17.1 Cash Conv Cycle 9.0 8.5 -15.4 19.7 Div Payout (%) 7 % 5 % 6 % 7 %

BVPS (Rs) 67.9 75.7 82.5 89.0 WC Turnover 40.4 43.2 -23.7 18.5

P/E 1,870.3 13.1 9.8 10.7


PATM (%) 8 % 9 % 8 % 7 % Net D/E -0.2 -0.3 0.0 0.1 P/FCFF 12.2 12.2 12.2 12.2


Sales growth (%) 2 % 7 % 4 % 9 %


EV/Sales 4.2 4.2 4.2 4.2

FDEPS growth (%) 1 % 24 % -13 % -7 %

Dividend Yield (%) 0.5 % 0.5 % 0.5 % 0.5 %



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Analyst Certification

I, Depesh Kashyap, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also

certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclaimers

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154). There are no disciplinary actions that have been taken by

any regulatory authority. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker. ESPL/its affiliates provide investment banking services including but

not limited to Private Equity, Mergers & Acquisitions, Structured Finance and Institutional Equities.

ESPL/its affiliates might have, managed or co-managed public offering of securities of the subject company or have received a mandate from the subject company or might have received compensation from the

subject company for investment banking or brokerage services in the past twelve months. ESPL & its affiliates, their directors and employees may from time to time have positions or options in the company and

buy or sell the securities of the company (ies) mentioned herein. ESPL or its Analyst did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection

with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is

not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. Research Analyst might have

served as an employee of the subject company in the past.

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein

may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of, and to observe, such

applicable restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view

and read this document.

This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe a security. ESPL is not soliciting any action based on this report. The

information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy or

completeness. The information contained herein stand on date, which are subject to change or modification. Any such changes could impact our interpretation of relevant information contained herein. While we

would endeavour to update the information herein on reasonable basis. ESPL, its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may be

regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies

referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or

particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or

refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its research report. Thus,

investors should be aware that the firm may have conflict of interest.

Additional Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker – dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on

soliciting the securities business in that jurisdiction without going through the registration requirements and/or prohibit the use of any information contained in this website. This Report and its respective contents

does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons"

are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under

certain rules.



Disclosures

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Analyst/ESPL/Associate/Relatives’ financial interest No

Analyst/ESPL/Associate/Relatives’ actual/beneficial ownership of 1% or more No

Analyst/ESPL/Associate/Relatives’ material conflict of interest No

Whether ECPL managed any public offering in past 12 months No

* Associate means individual who assist Analyst

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