HT Media's Q3FY18 results (Outperformer) - Cost efficiencies continue to drive earnings growth!

Q3FY18 result highlights

• HT Media cons. rev. fell by 3.8% yoy to Rs6.3bn (in-line), EBITDA grew 21.9% yoy to Rs1.3bn (5% beat). Adj. PAT (for one-time gain on land sale of ~Rs312m) grew by just 2% yoy to Rs932m (12% beat) despite 22% EBITDA growth because of 39% yoy fall in adj. other income (on lower yields) and higher tax rate yoy (at 8.1% versus 3.3% yoy).
• Hindi Print ad rev. grew by 4.9% yoy (IDFCe: flat yoy) despite overall softness in target markets post GST/RERA led ad spend slowdown. Growth was supported by both volume (3% yoy) and yields (2% yoy). English Print ad rev. declined 7.6% yoy (IDFCe: 4.3% yoy decline) pressured by ~16% yoy volume decline. Overall print ad rev. declined 3.1% yoy (IDFCe: 2.7% yoy decline).
• Radio rev. growth slowed down to 4.7% yoy (IDFCe: 10% yoy) after 9 consecutive quarters of double digit growth. Growth was entirely yield driven and came from both core and new stations. Digital ad rev. fell by 24% yoy led by sharp weakness in Shine.com revenues.
• Cost optimization procedures put in place earlier in July 2017 were reflective in EBITDA performance. EBITDA for the quarter came in at Rs1.3bn, reflecting a ~22% yoy growth (5% beat) while EBITDA margin expanded ~450 bps yoy to 21.5%. Adj. PAT came in at Rs932mn (+2.0% yoy; 12% beat). Reported PAT at Rs1.24bn was supported by a one-time gain on land sale (~Rs312mn).

Key positives: Hindi ad rev. growth better than expected.

Key negatives: Continued slowdown in Eng. ad rev., radio rev. growth slows down.

Impact on financials: Unchanged. Introduce FY20E financials.

Valuations & view

We estimate a 30% earnings CAGR for HT Media over FY17-19E (despite flat CAGR in print ad rev), supported by the major cost cutting initiatives taken in mid FY17. We acknowledge that HT Media’s English ad revenue is under threat given the proliferation of smartphones and on-the-go news availability. However, the massive cost rationalisation exercise has driven near-term earnings and stock outperformance. Key re-rating triggers are distribution of surplus cash to shareholders or value unlocking in radio business. However, we do not fully appreciate the strategy of moving the digital content business out of HT Media and listing it separately as this could be a de-rating event for the core traditional Print business. We have an OP on HT Media with revised PT of Rs117 as we roll-forward to FY20E (9x). Key risk to our call is any sharp increase in newsprint prices.