Motilal Oswal has come out with its report on Indian print media sector. According to the research firm, print media universe is expected to deliver earnings CAGR of 17% over FY13-15 v/s 3% growth in FY13E and 11% decline in FY12. This coupled with high operating cash flow and low capex, dividend payouts are expected to remain at healthy levels, says motilal.
Indian print media accounts for 45% of total ad spend, and offers an excellent play on economic rebound. Concentrated industry structure ensures that the upside is enjoyed by the few dominant incumbents. Our top picks are DB Corp (initiating coverage with a Buy) and Jagran Prakashan (upgrade to Buy) - both have strong balance sheets, healthy payout ratios (40-70%), and the stocks offer attractive dividend yield of 2- 3.5%. We are Neutral on HT Media given low growth visibility in English print and inferior RoE/ payout. We also initiate coverage on HMVL with a Buy rating.
Expect FY13-15E earnings CAGR of 17%
We expect our print media universe to deliver earnings CAGR of 17% over FY13-15 v/s 3% growth in FY13E and 11% decline in FY12. This coupled with high operating cash flow and low capex, we expect dividend payouts to remain at healthy levels. Print companies earnings are relatively volatile due to 1) ad-heavy revenue (80% of revenues), 2) higher dependence on non-FMCG cyclical categories, and 3) volatility in newsprint prices (33% of revenues). HTML has the highest sensitivity to ad revenues due to higher contribution from English business, with 1% change in ad revenue impacting earnings by ~5%, compared to 2.5% for DB/Jagran/HMVL. For every 1% change in newsprint prices, the earnings impact is least for DB Corp (1.6%) followed by HMVL/Jagran (1.8-1.9%) and HTML (2.4%).
DB Corp: We initiate coverage on DB Corp with a Buy rating and a target price of INR287 (18x FY15 P/E), implying 28% upside. Company has a strong regional franchise, with leadership position across its footprint and a geographically diversified revenue/earnings profile. Valuation at ~16x FY14E P/E is attractive considering expected earnings CAGR of 18% over FY13E-15E along with high return ratios (20%+ RoE in down-cycle), attractive dividend payout (~40%) and yield (2%).
Jagran Prakashan: We upgrade Jagran Prakashan from Neutral to Buy with a target price of INR136 (18x FY15 P/E), implying 34% upside. Jagran has strong regional franchise in large states like Uttar Pradesh and Bihar. Valuation at ~16x FY14E P/E is attractive considering expected earnings CAGR of 16% over FY13E-15E along with high return ratios (20%+ RoE in down-cycle), attractive dividend payout (~70%) and yield (3.5%).
HT Media: We maintain Neutral on HT Media with a revised target price of INR111 (13.5x FY15 P/E; ~25% discount v/s target multiple for DB/Jagran), implying 6% upside. Despite attractive valuation at ~14x FY14E, we remain Neutral given low growth visibility in English print and inferior RoE/ dividend pay-out.
Hindustan Media Ventures (HMVL): We initiate coverage on HMVL, Hindi print subsidiary of HT Media, with Buy rating and a target price of INR200 (~10x one-year forward P/E; 45% discount v/s target multiple for DB/Jagran), implying 32% upside. Valuation discount is likely to sustain due to 1) lower scale, 2) concentrated profitability which can be under competitive threat and 3) lower dividend payout at ~12%. Nevertheless, strong earnings CAGR of 22% over FY13E-15E should drive stock performance," says Motilal Oswal research eport.
Public holding more than 90% in Indian cos
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