MOSL: HINDUSTAN MEDIA VENTURES (Buy)-GST and RERA prune ad growth

​Hindustan Media Ventures: GST and RERA prune ad growth;

(HMVL IN, Mkt Cap USD0.3b, CMP INR250, TP INR302, 21% Upside, Buy)

• A quarter of weak earnings: Revenue fell 8% YoY (-11% QoQ) to INR2.1b (below est. of INR2.3b) owing to subdued ad and circulation revenue. EBITDA dropped 10% YoY (-11% QoQ) to INR454m (est. of INR492m), largely led by a decline in revenues and a rise of ~290bp in raw material cost. EBITDA margin shrunk 50bp YoY (flat QoQ) to 21.5% (50bp above est. of 21%). PAT plunged 25% YoY (-9% QoQ) to INR409m (est. of INR445m).
  
• High base, GST pull down ad business: Ad revenue declined 8% YoY to INR1.6b (est. of INR1.7b), mainly led by ~12% YoY volume decline due to GST, RERA and a high base (UP elections last year). The strategy to boost yield saw the largest impact on FMCG, health and fitness segment, partly offset by a 5% yield improvement led by resurgence in Auto, BFSI and other sectors.
  
• Circulation revenue growth on a freefall: Circulation revenue continued to decline (-7% YoY to INR500m v/s est. of INR581m) in 2QFY18, largely led by lower realization/copy on intensified competition in Bihar.
  
• Cut TP to INR302; maintain Buy: We cut revenue/EPS estimates by 6%/10% for FY18-19E on a weak 1HFY18 and moderate circulation/ad revenue. Management indicated that the outlook has improved with the onset of the festive season. We expect flat EPS in FY18 and 18% growth in FY19, led by a recovery in ad/circular revenue of 9%/6%. We thus cut our TP to INR302 (prior: INR 350), based on 10x P/E on FY19E EPS of INR30. Maintain Buy.