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Buy Hindustan Media Ventures; target of Rs 305: Motilal Oswal

January 12
21:41 2018

Motilal Oswal’s research report on Hindustan Media Ventures

Muted revenue growth: 3QFY18 revenue came in flat YoY (9% QoQ) at INR2.3b (in line v/s est. of INR2.35b), despite a low base (3QFY17 was impacted by demonetization), largely due to (i) shift of Diwali ad spends to 2Q this year and (ii) lackluster local ad spend due to GST-related uncertainty. EBITDA increased 43% YoY (+29% QoQ) to INR583m (est. of INR439m), as 3QFY17 included high one-off expense related to HT Digital hive-off. EBITDA margin expanded 760bp YoY to 25.3%. PAT rose 12%/20% YoY/QoQ (at a slower rate than EBITDA) to INR493m on a high tax rate. Subdued ad and circulation growth: Ad spend recovered partly from the FMCG, auto, banking and finance sectors, while real estate and government were laggards (overall ad growth was 4%, of which 3% was contributed by volumes and 1% by yield). Circulation segment, on the contrary, witnessed a steep 14% revenue decline, though HMVL stated it maintained market share in UP and Bihar. Worst behind; management expects healthy growth: Management indicated that the ad growth outlook is improving, which should lead to healthy single-digit growth. However, 4QFY18 could see the impact of a high base (UP election ads in 4QFY17). Circulation yield improvement across industry (to pass on firming newsprint prices) may insulate margins.

Outlook
Maintain Buy with TP of INR305: In FY18, we expect flat revenue and PAT growth on the back of a weak ad market.  However, the improving ad outlook for FY19 should drive 8/11% revenue/PAT growth. Our FY19 PAT estimate is revised down by 5% on a higher tax rate. We maintain Buy with a TP of INR305 (prior: INR 302), based on 11x P/E on FY19E EPS of INR29.

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