Sell HT Media; target of Rs 78: ICICI Direct

ICICI Direct's research report on HT Media

Revenues came in at Rs 599.0 crore (decline of 2.5% YoY) and slightly below our estimate of Rs 609.2 crore. The Hindi ad revenue came in at Rs 177 crore, with 0.4% YoY decline vs. our estimate of ~1% YoY growth. English ad revenues declined 7.3% YoY to Rs 253 crore while subscription revenues declined 8% YoY to Rs 71 crore. Nevertheless, the company posted a strong performance in the radio segment with 29.5% YoY growth to Rs 43.0 crore as newly launched stations continued to boost revenues The company continued its focus on cost savings and reported EBITDA margins of 13.3% vs. our estimate of 12%. On the cost front, savings in raw material cost & employee expenses aided EBITDA beat PAT came in higher at Rs 41.6 crore (vs. estimate of Rs 37 crore), given the beat at the operating level and higher other income, albeit partially offset by a higher-than-expected tax rate.

Outlook

HT Media’s inexpensive valuations of 11.3x FY19E earnings, which is a steep discount to its peers, need to be seen in conjunction with the problem of its inefficient capital allocation. The lack of clarity over cash deployment either through acquisition/dividend, etc, despite its robust net cash (~Rs 1200 crore), remains a cause for concern. We note that the management prefers to justify the stance of the same citing the healthy yield it generates with the cash and also that the cash is being held to provide for any potential acquisition opportunities that may be available in the course of business. However, the argument seems unconvincing as the company has failed to attract investors’ attention. In addition, the English segment’s ad growth continues to be elusive. We assign a SELL rating to the stock valuing it at 10x FY19E EPS of Rs 7.8, with a revised target price of Rs 78. We highlight that any multiple re-rating can only happen post clarity on the cash allocation or if there is a marked improvement in English print, which is not visible as of now.