MOSL: HT MEDIA (Neutral)-Cost optimization supports growth in weak ad market

HT Media: Cost optimization supports growth in weak ad market

(HTML IN, Mkt Cap USD0.3b, CMP INR115, TP INR117, 2% upside, Neutral)

• Subdued revenue growth: Muted ad and circulation revenue growth pulled down overall revenue by 4% YoY (+12% QoQ) to INR6.3b (5% miss). However, EBITDA increased 22% YoY (+29% QoQ) to INR1.3b (est. of INR1.0b), led by the company’s cost-restructuring initiatives. Margin expanded 450bp YoY (+290bp QoQ) to 21.5%. This coupled with a) 20% YoY reduction in finance cost and b) 17% YoY rise in other income (led by INR311m gain on sale of Land & Building) led to overall PAT growth of 36% YoY (+88% QoQ) to INR1.2b (est. of INR0.6b).
• English business more hit than Hindi: English business ad revenue declined 8% YoY, led by a lower-double-digit decline in ad volumes, partly offset by yield improvement. Hindi business ad revenues recovered, growing 5% YoY (3% volume and 2% pricing), as the impact of GST-related uncertainty subsided. Circulation-wise, both English and Hindi saw a sharp 14-15% YoY decline, as volumes and pricing were impacted by intense competition in the legacy markets. However, rising newsprint prices may compel industry players to increase cover prices, partly mitigating the adverse impact.
• Hindi market recovery to support growth: Improving ad spends from the FMCG and retail segments are likely to improve Hindi business ad growth, even as English business ad growth is expected to remain sluggish. Management’s strong cost-optimization exercise is expected to improve EBITDA margin by 510bp in FY18. This, however, is likely to get partly reversed as discretionary costs inch up in FY19 to support revenue growth.