Key Sector Data   Market Cap (Rs. cr) 10850 Market Cap (US$ mn) 1977 P/E 17.6 P/BV 3.0 Debt/Equity 0.4 ROA (%) 12.2 ROE (%) 17.3 EV/Sales 2.2 EV/EBITDA 9.9

Source: Capitaline Database; Capital Market Research

All the numbers are excluding DC Holdings numbers, as balance sheet for FY12 was not available

Media–Print: Financial Performance

	Sales% chg YoY	PBDIT% chg YoY	PAT% chg  YoY	PBDIT margin %	PAT margin %
Dec-11	11.7	-8.2	-18.9	22.2	11.5
Mar-12	8.7	-8.7	-19.0	20.5	9.8
Jun-12	2.3	-15.3	-12.1	21.5	12.4
Sep-12	4.8	4.1	13.4	22.5	13.2
2007-08	21.9	33.1	20.1	21.1	9.6
2008-09	11.1	-25.9	-56.9	14.1	3.7
2009-10	13.9	124.4	331.7	27.8	14.1
2010-11	31.1	27.4	41.1	27.0	15.2
2011-12	13.0	-6.3	-12.6	22.4	11.7
2012-13 (F)	9.8	-8.7	4.7	18.6	11.2
2013-14 (F)	10.3	15.6	19.6	19.5	12.1

Source: Capitaline Database; Capital Market Research
LP: Loss to Profit PL: Profit to Loss
All the numbers are excluding DC Holdings numbers

Till date, print media industry business model is advertisement revenue driven and any slowdown in advertisement will have direct repercussion on the bottom line. Of the total print media industry revenues, estimated at $4 billion (Rs.22,000 crore), only ~30% comes from circulation and the balance ~70% is from advertising. Advertisement Revenue is main source of revenue directly driving the bottom line. During the year ended on March 31, 2012, advertisement revenue was 77% of total revenue, while corresponding figure for the year ended March 31, 2011 was 79.50%.

Advertising growth remains highly correlated to the overall GDP growth, especially in national advertising. The slowdown in FY09 and recent slowdown in FY12-13 had a direct impact on advertising growth for print companies. With the anticipated recovery in economic activity, we expect aggregate ad growth for print companies to claw back to FY12 level of 10-11%. Retail advertising continued to be strong even during the down-cycle, underscoring the resilience of growth in tier II/III cities

Indian Newspaper Industry is unique whereby the customer is not the main source of revenue but satisfied customer is main source of revenue through advertisement. The companies continued to work towards providing its advertisers with rising base of satisfied readers. Its sustained efforts towards providing customers with rich and niche content, new products, better reader connect activities and innovative solutions to advertisers.

Indian print media landscape is segregated into two main markets — English and regional. Regional is further divided into Hindi and vernacular markets. English print caters largely to top 6 metros, with a population base of ~60m. Hindi caters to 11 states, with a combined population of ~600m, while the balance ~500m prefers vernacular languages. The North-Eastern states and union territories are not considered priority markets for the print media due to their small size.

 While English is the largest segment in terms of ad revenues and accounts for ~40% of print ad revenues with ~18m daily readers, Hindi is the most popular language with ~65m daily readers but only ~30% of print ad spends. Vernacular markets account for the balance ~30% of ad revenues.

Print Media revenue grew by 8.3% to Rs. 20880 crore in 2011 from Rs. 19290 crore in 2010, thereby maintaining its dominance with regard to the share of advertisement revenues in the Indian M&E sector. Advertisement Revenues substantially added to the growth of Print Media and expanded its share in the overall revenue mix to 67% in CY 2011 from 65% a year ago. Considering the direct correlation between growth in advertising spends and GDP growth, a 10.6% growth in overall ad revenue in 2011 was impressive despite the slow growth in GDP.

With 82,000 registered newspapers, newspapers form a dominant 94% share of the entire print Industry, with the balance 6% percent coming from magazines.

Top Categories Advertised on Print (by volumes) in %	2007	2008	2009	2010	2011
Education	16.5	17.1	17.3	14.6	10.6
Auto	8.6	6.8	7.8	7.1	9.8
FMCG	6.6	5.8	7.2	7.4	8.9
Real Estate & Home Improvement	7.1	6.4	6.5	8	8.4
BFSI	7.8	8.3	7.9	8.7	6.7
Clothing/Fashion/Jewellery	5.9	5.1	5.5	5.3	6.5
Household Durables	6.1	6.5	5.3	5.3	5.7
Retail	5.9	5.5	5.8	5.8	5.6
Telecom/Internet/DTH	7.3	6.2	5.4	6.3	4.7
Corporate	4.1	3.6	3	3	2.8
Travel & Tourism	4.2	4.3	3.5	2.5	2.8
Media	2.4	1.9	2.2	2.2	1.5
Others	17.5	22.5	22.8	23.8	25.9

Source: HT Media Annual Report

Industry Performance

Print industry is suffering badly from the slowdown in GDP and contraction in the media spends by the industries. The industry which has seen double digit strong growth of 31% in FY11 has seen a low double digit growth of13% in the next consecutive year. Also the most of these numbers can be contributed from rise in circulation, while advertising revenue continued their downward movement. Also the PBIDT margin is also seems to squeeze down from 27% in FY11 to 22.4% in FY12. This can be contributed to rise in circulation and newsprint cost.

For the last 4 quarters, we can see that industry has drop down in its growth rate. June and September quarter of 2012 has seen just marginal growth of 3% and 5% on Y-o-Y basis. However, the PBIDT margin was firm more or less. FY13F is set to be the third consecutive year of margin contraction for print media companies, with a cumulative margin decline of ~920bp during FY10-13F. However, margin contraction in FY13F is expected to be restricted at ~380bp, compared to ~460bp in FY12, due to declining newsprint prices and commendable cost control across companies, with restricted circulation growth, lower pagination and efficiency improvement in other cost items.

Print Industry PBIDT margin

Source: Capitaline Database; Capital Market Research

Jagran Prakashan advt. revenue up by just 4%

For the quarter ended September 2012, Jagran Prakashan has reported 5% rise in net sales at Rs. 322.1 crore. Advertisement revenues grew 4% at Rs. 219.59 crore, circulation revenues were up 9% at Rs. 66.33 crore, event and outdoor business revenues grew 16% at Rs. 26.22 crore and the digital revenues were up by 15% to Rs. 2.24 crore. Operating margin declined by 162 bps at 24.3%. The net profit grew 52% at Rs. 69.44 crore.

3% growth in circulation revenue is due to increase in cover price. Circulation volume was up 6%. The advertising yields are under pressure and will remain under pressure for the whole year. It was down by 2% to 3% for Q2.

I-next and City Plus performed satisfactorily and registered phenomenal advertising growth in the local markets. While I-next grew by 38%, City Plus registered a growth of 33%.

The outdoor advertising industry has been hit most by the adverse macro economic conditions, Jagran Engage has registered a steep growth of 66% with top line of Rs. 20 crore with the help of improved occupancy of existing media and addition of new properties.

DB Corp Losses in new launches continue to pressure margins

For the quarter ended September 2012, total consolidated revenues have shown a growth of 8% to Rs. 378.4 crore. Total revenues from advertising clocked a growth of 3% to Rs. 282.6 crore. EBIDTA has grown by 24% at Rs. 86.1 crore with margin of 23%. Y-o-Y growth in EBIDTA is further note worthy, as the same factors completion of first year of launch of Nasik and Jalgaon edition in Maharashtra. Further, the same includes Forex gain of Rs. 4.61 crore, as per latest revised schedule VI requirement. Excluding the Forex gain, and other schedule VI requirement change, EBIDTA is Rs. 82.4 crore. PAT up by 21% to Rs. 48.6 crore

Print business advertising revenue grew by 1% to Rs. 263.6 crore. This number on base of 16% growth in Q2 FY12 and also festive season in FY12 was present in Q2 and Q3 quarters, while this year it has fallen in Q3. Print business's operating margin stand at 23.4%. Print Business Mature editions operating margin stand at 30%

Circulation revenues grew 16% to Rs. 69.8 crore. In volume term, circulation was up by 2.5% out of which 0.75% growth came from existing circulation

In Maharashtra, Divya Marathi continues to show good progresses and strengthens its foothold. Divya Marathi has posted impressive debut with robust readership numbers at 6.95 lakh readers, keeping in view that the newspaper is yet to complete its first year of launch across its editions.

The radio business advertising revenues have grown by 20% to Rs. 15.3 crore. The rise is due to rise in prices. OPM stood at 30%. The operating profit was at Rs. 4.6 crore. PAT stood at Rs. 1.91 crore

Hindustan Media Venture and HT Media showed just 4% top-line growth

For the quarter ended September 2012, Hindustan Media Ventures reported 4% rise in income from operations at Rs. 159.21 crore primarily due to good growth in circulation revenues which inclined by 16% to Rs. 38.7crore due to higher circulation and improvement in realization per copy. Operating margin decreased by 241 bps at 17.9% due to rise in employee cost and other expenditure. As a result, the resultant PAT de-grew 2% at Rs. 21.67 crore

For the quarter ended September 2012, HT Media reported 4% incline in consolidated income from operations at Rs. 510.74 crore. There was decline of 1% in advertisement revenue in print segment to Rs. 364 crore primarily due to decline in pricing. Circulation revenues increased by 11% to Rs. 56.3 crore, driven by higher circulation and higher realization per copy. The revenue from printing and publishing inclined by 3% to Rs. 479.18 crore while radio & entertainment business inclined by 27% to Rs. 19.92 crore. There was also rise in digital business by 36% to Rs. 13.31 crore. Operating margin decreased by 330 bps at 11.1% due to rise in raw material and employee cost. Net Profit declined by 24% at Rs. 33.31 crore

While there was a 1% decline in advertising revenues of print segment to Rs. 365 crore, English print advertisement revenue was down by 6% YoY. It was strong growth in regional Hindi prints particularly in Jharkhand and Bihar, which enabled the overall 5% increase in total income to Rs. 535 crore. In Jharkhand and Bihar, some segments like Real Estate and Retail did particularly well

The company did some restructuring activities in radio business and prices were also increased in FY12 as a result of which, resulted in 27% increase in radio business for Q2 FY13

Newsprint Cost

Newsprint is the key cost and margin differentiator for print media businesses. Newsprint prices are stable for now, volatility can impact earnings. Incidentally, newsprint prices constitute 40% of operating costs and 33% of revenues. Though international prices in dollar terms have been largely stable over the past two years, newsprint cost for Indian print companies was hardening due to an increase in domestic newsprint price and rupee depreciation.

Newsprint prices have come off significantly, with Y-o-Y increase easing from ~15% in FY12 to much more manageable level of ~6% in 1HFY13, and no major spikes are expected, going forward. Apart from moderation in cost inflation, newsprint consumption too witnessed a muted growth given various efficiency measures to reduce wastage etc and reduced push to increase the average circulation.

Newsprint price in (US $/ Tonne)

	A-2012 - 13		A-2011 - 12		A-2010 - 11
	Price	% Chg.	Price	% Chg.	Price	% Chg.
Apr	640.0	0.0	640.0	11.3	575.0	-9.5
May	640.0	0.0	640.0	7.6	595.0	1.7
Jun	640.0	0.0	640.0	4.1	615.0	20.6
Jul	640.0	0.0	640.0	1.6	630.0	38.5
Aug	640.0	0.0	640.0	0.0	640.0	47.1
Sep	640.0	0.0	640.0	0.0	640.0	42.2
Oct	640.0	0.0	640.0	0.0	640.0	33.3
Nov	640.0	0.0	640.0	0.0	640.0	28.0
Dec	--	--	640.0	0.0	640.0	20.8
Jan	--	--	640.0	0.0	640.0	17.4
Feb	--	--	640.0	0.0	640.0	16.4
Mar	--	--	640.0	0.0	640.0	13.3
LQ. Oct - Nov	640.0	0.0	640.0	0.0	640.0	--
YTD.Apr - Nov	640.0	0.0	640.0	2.9	621.9	--
FY. Apr - Mar	--	--	640.0	1.9	627.9	--

Source: CSSPRO

Outlook

Advertising growth remains highly correlated to the overall GDP growth, especially in national advertising. The slowdown in FY09 and recent slowdown in FY12-13 had a direct impact on advertising growth for print companies. Ad growth in this industry is reflection of GDP growth, which after growing at 8% to 9% has slowed down to 6% will definitely hit the industry.

Ad growth has bottomed out and expects to see recovery going forward from current rate. Q3 is festive season of Navratri and Diwali, ad spend by industries is expected to grow. This time marriage season is expected to start as soon as Diwali is over in Q3, which is good sign for the print industry. Also the key drivers for improved ad revenue performance i.e. stable GDP growth and expected easing in the interest rates, is a positive for print-heavy categories like automobiles and real estate.

Also historically, print companies have expanded by increasing penetration and keeping the cover prices affordable, thus resulting in relatively lower circulation revenue growth. However, over the past few quarters, the industry has been in a consolidation mode, and circulation revenue growth for most print companies has been higher than the ad growth, thus reducing weight only on ad revenue to grow its top-line. Overall, H2 FY13 looks more promising over H1 FY13.