86353701

January 2008
Print Media
Piping hot
Amnish Aggarwal (AmnishAggarwal@MotilalOswal.com) Tel: +9122 3982 5404 Amit Purohit (AmitPurohit@MotilalOswal.com)Tel:+9122 3982 5418
Print Media
Contents
Page No. Executive summary ..................................................................................... 45 Exciting times for print media ..................................................................... 6-9 Print media companies on an octave ....................................................... 1013 Ad revenues key growth lever ........................................................... 1417 Strong cashflows provide scalable print business.................................... 18-21 Annexure I: E&M ad revenues to remain strong ................................... 2226 Companies .............................................................................................. 2767 Deccan Chronicle ....................................................... 28 HT Media ................................................................... 39 Jagran Prakashan ...................................................... 53
22 January 2008
7In-depth
SE CTO R: PR INT ME DI A
Print Media
BSE Sensex: 16,730 S&P CNX: 4,899
22 January 2008 Exciting times: Print media is witnessing favorable traction due to the confluence of favorable government policies and advertising industry CAGR of 18% over last 2-3 years. The 26% FDI in print media has led to capital flows and strategic tie-ups for large companies like HT Media, Jagran Prakashan and Business Standard. Companies now no longer shy away from entering new geographies, launching new media properties or pitching for strategic tie-ups and acquisitions. We expect a few media groups to emerge much stronger after a spate of industry expansion and consolidation. Upgrading from a single media house to one of complete media solutions: Leading print companies are upgrading from print advertising to complete media solutions with entry into new media segments like radio, internet, OOH and event management (US$1.5b ad revenue potential to 2010). HT Media has launched Fever104 FM radio and Mint. Jagran Prakashan has launched Iand City Pluspapers in addition to entering into Out Of Home (OOH) and event Next management. Deccan Chronicle (DCHL) has launched Odyssey Bookstores and Internet ventures. We expect more action, particularly in the Internet and business news space. We expect some of these initiatives to start contributing positively from FY09 with potential to contribute 25% to EV of some of these companies by 2010. Ad revenues to grow ahead of circulation revenues: We estimate the dual impact of favorable demographics and buoyant economy to result in ad revenue CAGR of 14.5% for print over CY06-11. In addition the industry will witness rising share of color ads (35% in FY07-45% by FY09), higher ad rate growth for Hindi and vernacular dailies and higher inventory utilization. This would benefit large players covering multiple geographies and genres. We expect the companies in our universe to report 20% CAGR in ad revenues over FY07-10. We estimate just 9.4% increase in circulation revenue, as aggressive pricing will limit circulation revenue growth from new geographies. 35% PAT CAGR to sustain premium valuations: Rising advertising revenue share and 10% decline in newsprint prices will drive EBITDA margin expansion of 800bp in FY08 and 1,100bp over FY07-10. This would enable 35% PAT CAGR over FY07-10. Print companies have been re-rated and are trading at 15-20x FY10 P/E. We expect the valuation premium to sustain due to high growth visibility, expansion into new media and strong free cash flows. We initiate coverage on the print media sector with a Buyrating on Deccan Chronicle, HT Media and Jagran Prakshan. Top pick: DCHL .
C OM PANY NA M E P G.
Deccan Chronicle 28 (Buy, Rs185)
HT Media 39 (Buy, Rs191)
Jagran Prakashan 53 (Buy, Rs123)
22 January 2008
Print Media
Executive summary
We believe the print medium sector offers a proxy play on growth of the Indian economy and the rising consumer demand. Print media companies are set to benefit from advertising industry growth and are considering alternate media vehicles to obtain enhanced operational leverage. We foresee print media companies to have tremendous bargaining power v/s other entertainment segment of the media sector based on their better positioning to leverage the big opportunity offered by localization (niche vernacular and Hindi language newspapers and premium English language readership segments); potential widespread availability and reach of printed newspapers and increasing disposable incomes. We expect print media to post PAT CAGR of 36% over FY07-10. We initiate coverage on three listed print media companies in the E&M sector - Deccan Chronicle Holdings, HT Media and Jagran Prakashan - each with a unique USP and exclusive business dynamics. Deccan Chronicle is a play on growth in the English newspaper market in southern India with growing presence in internet and leisure retailing. HT Media offers the best of both worlds with strengths in English daily ( Hindustan Times ) Hindi daily (Hindustan) and business daily ( Mint). Jagran Prakashan is a play on growth in Hindi newspaper markets, particularly in the low-penetration high-potential Hindi belt with growing presence in OOH and event management. Deccan Chronicle Present in: English newspaper New entry: Internet, retai l Strengthening hold in southern India Management allays concerns via debt securitization Odyssey, Sieger to unlock shareholder value
C OM PAR ATI V E VA LUAT IONS ( FY 10) C OM PA NY R EC O C M P TA R GET MA R KET C AP E PS P/ E E V/ EV / RO E R OC E U PSI D E ( RS ) ( R S) ( RS B ) (US $ B ) ( R S) (X ) E BI TD A (X ) SA LES (X ) (%) (% ) (% )
HT Media Present in: Hindi & English newspaper New entry: Radio, internet, business daily
Jagran Prakashan Present in: Hindi newspaper New entry: OOH, bilingual newspaper, event management Leadership status in the Hindi print market to ensure steady growth New initiatives hold long-term potential 40% CAGR in PAT likely
HT Mumbai will turn around by FY09 Hindustan demerger will rev up expansion plans in the Hindi belt Mint, Fever 104FM in investment mode
Deccan Chronicle Buy 185 335 45.0 1.1 16.2 11.4 7.9 4.7 23.5 31.5 81 HT Media Buy 191 289 44.8 1.1 10.8 17.8 10.3 2.4 19.4 20.3 51 Jagran Prakash Buy 123 183 37.2 0.9 7.5 16.5 9.8 3.0 27.8 38.9 48 Source: Motilal Oswal Secuerities 22 January 2008
Print Media
GEOGR A PHI CA L SP RE AD OF PR INT M E DI A C OM PA NIES
Jammu and Kashmir NCR Punjab Himachal Uttaranchal Haryana Uttar Pradesh Bihar
Jharkhand
West Bengal
Mumbai
Hyderabad Bangalore Chennai
Hindustan Times Delhi, Mumbai, Kolkata, Lucknow, Patna & Ranchi Hindustan Delhi, Lucknow, Patna, Meerut, Kanpur, Varanasi, Agra & Ranchi Mint Delhi, Mumbai, Bangalore Fever 104 FM Delhi, Mumbai, Bangalore and Kolkata Deccan Chronicle Hyderabad, Chennai and Bangalore Jagran Prakash UP, Bihar, Uttaranchal, Punjab, Jharkhand, Haryana, Himachal, J&K, West Bengal, New Delhi I-next - Jagran Prakash Kanpur, Lucknow City Plus - Jagran Prakash NCR & Bangalore OOH - Jagran Ahemdabad, Bangalore, NCR, Hyderabad, Kolkata, Lucknow & Mumbai Source:Company/Motilal Oswal Securities
22 January 2008
Print Media
Exciting times for print media
The Indian print media industry has shown strong traction in the last couple of years. Opening up of the sector to foreign direct investment (FDI) and growth of the advertising industry has buoyed players to enter new territories and new media verticals. We expect this phenomenon to pay off over the next 2-3 years . FDI in print strengthens large players In a strategic move, the Government of India (GoI), in CY05, allowed foreign direct investment (FDI) in news-based print media. However, considering the sensitivity of this sector, the new guidelines also imposed a set of restrictions for news-based printing. Nevertheless, opening up of the sector to FDI has witnessed keen interest of global majors and private equity players in the sector. Key highlights of GoIs FDI regulations are: FDI allowed in entities which are registered in India under the Companies Act Foreign investment including NRI, PIO and FII capped at 26% for news media Largest Indian shareholder to hold 51% equity At least 50% of FDI to result in fresh capital infusion Facsimile editions of foreign newspapers allowed after registrations but without any local content, alterations and advertising targeting Indian consumers.
FUND I NFUS ION PO ST FD I IN P RI NT COM PA NY NA ME IN VE ST OR NA TUR E FU NDS I NFUSE D (R S B) YEA R
Opening the sector to FDI has attracted global majors and private equity
HT Media Henderson Media Strategic 1.0 2005 Business Standard Financial Times Strategic N.A. 2005 Jagran Prakashan Independent News & Media Strategic 1.7 2005 Dainik Bhaskar Warburg Pincus Financial 1.5 2006 Amar Ujala D E Shaw Financial 1.2 2006 Source: Industry/Motilal Oswal Securities
Proposals to increase FDI in some print media companies such as Mid-Day Multimedia, Business India etc. are awaiting GoI clearance. Springer India has 12 proposals pending with the Central government for launch of Indian editions of its international publications in areas like orthopedic, neurology, cancer and intensive care. FDI infusion in some print companies has given their operations a boost by providing not only technical and strategic inputs but also financial strength.
Media companies have, in turn, directed funds into new media verticals
Several media companies have directed funds into new businesses in different verticals and new territories. For instance, HT Media has opted to enter radio broadcasting and Internet as well as entered into the Mumbai market. DCHL has launched its retail foray and internet ventures besisdes media selling. Jagran has diversified into entirely new businesses event management and out-of-home (OOH) advertising apart from an English infotainment weekly and a bilingual daily newspaper.
22 January 2008
Print Media
Also, players are now broadening their horizons by entering hitherto untapped territories
Players eye new territories; broaden their base The print media industry has been operating in niche markets where each player has a stronghold in one or more geographic regions. The situation changed when Bennett Coleman took the initiative to enter Delhi with their English daily, The Times of India . This move resulted in a strong price war between the two English dailies: The Times of India (TOI) and Hindustan Times (HT), forcing the latter to protect market share. The lower prices expanded the market and benefited both consumers and the companies. Taking this cue, several players have since entered new markets with lower prices in an industry where a newspaper becomes a daily habit for a consumer, who additionally displays loyalty by staying with the product for a long period.
PR INT M ED IA - B RO AD ENI NG HO RI ZON S KEY PL AYE R NE W RE GIO N BR A ND L AN GUA GE KE Y CO M PET I TOR
Bennett Coleman Delhi Times of India English Hindustan Times Kolkata Times of India English The Telegraph Karnataka Times of India English Deccan Herald HT Media Mumbai Hindustan Times English Times of India UP Hindustan Hindi Dainik Jagran Mumbai, Delhi Mint English The Economic Times, Business Standard, Financial Express Dainik Bhaskar Mumbai DNA English TOI, HT Punjab Dainik Bhaskar Hindi Dainik Jagran, Punjab Kesari Jagran Prakashan Punjab, Bihar Dainik Jagran Hindi Dainik Bhaskar, Amar Ujala, Punjab Kesari, Hindustan Deccan Chronicle Chennai Deccan Chronicle English The Hindu Bangalore (likely) Deccan Chronicle English Deccan Herald Source: Industry/Motilal Oswal Securities
We expect convergence in the same genre as well as across genres
Trend of industry confluence begins; expected to gain momentum Print media is a highly fragmented industry in India with more than 62,483 registered newspapers. Hindi newspapers comprise 40% of the market while English papers are present in merely 15% of the market. Vernacular and other language newspapers comprise the remainder. The readership to circulation ratio for Hindi and vernacular papers is 7-9x whereas for English it varies from 2-4x. Each geographic region boasts its very own leading newspaper represented by its strong niche readership and customer loyalty. Many large players have benefited financially owing to capital infusion via FDI and IPOs. In addition, more and more companies are moving into new geographies to gain a panIndia presence. Geographically spread-out operations protects newspapers: (1) by reducing their vulnerability in a scenario of rising competition in their stronghold areas; (2) the larger reach helps to attract greater advertising. We expect industry to consolidate in forthcoming years with few large players endeavoring to create an Indiawide presence. Starting this trend is Bennett Coleman, which has acquired 12% stake in Sandesh, a Gujarati daily. Consolidation in the same genre as well as across
A pan India presence has twofold benefits for media companies
22 January 2008
Print Media
genres, with large publishing houses acquiring mid-sized regional papers. We also expect tie-ups between regional leaders and large groups to create pan-India conglomerates with an objective to achieve economies of scale in operations and advertising.
TOP SE LLING DA IL IES A S P ER IR S 2007 R 1 NEWS PA PE R LEA D ER SHI P I RS ( M ) LA NG UA GE
Dainik Jagran UP, Punjab 21.1 Hindi Dainik Bhaskar Madhya Pradesh 20.9 Hindi Eenadu Andhra Pradesh 13.8 Telugu Lokmat North India 10.8 Hindi Amar Ujala Rajasthan 10.8 Hindi Hindustan Bihar 10.4 Hindi Daily Thanthi Tamil Nadu 10.3 Tamil Dina karan 9.6 Hindi Rajasthan Patrika Rajasthan 9.4 Hindi Malayalam Manorama Kerala 8.4 Malayalam TOI Mumbai 7.5 English Mathrubhumi Kerala 7.4 Malayalam Anand Bazaar Patrika Kolkata 7.3 Bengali Source: Industry/Motilal Oswal Securities
The E&M sector is mainly advertisement led
Paradigm shift in operating environment Print media is the second largest component of the Rs436b E&M industry in India. The segment has been growing at 20% annually over the last two years and the growth rates are expected to average 13% annually over the forthcoming five years. The industry will continue to be driven by advertisement revenue; however circulation revenue growth is expected to be squeezed on account of increasing competition. Hence we expect the thrust to garner higher ad revenues would pick up resulting in a higher share of advertisements. We expect advertisements to account for 65% of print media revenues by CY2011 versus 59% in CY06. For CY06 English newspapers accounted for 53% of industry ad revenues while Hindi and regional languages accounted for 23% and 24%.
SHA RE OF AD V ER TIS ING R EV EN UE TO IN CR EA SE ( R S B)
160
Circulation Advertisement
120
80
40
0 CY04 CY05 CY06 CY07E CY08E CY09E CY10E CY11E

Source: Company/Motilal Oswal Securities
22 January 2008
Print Media
We believe print media has broken out of its traditional objective of serving as a tool for gathering and improving political clout. This trend was uniform across companies both in English, Hindi and the vernacular space. Ever since, several media companies have undergone complete transformation (induction of professional managements, equity infusion by collaborators and product innovations) and have entered new media verticals with an objective to generate healthy returns on investments. Trending toward a free paper market Nearly all leading players have adopted an aggressive pricing policy to garner higher circulation forcing existing players to reduce their cover prices significantly. The companies have been able to increase circulation owing to offering attractive subscription schemes for consumers. This has reduced the circulation revenue to total revenue ratio to as low as 15-20% in certain cases. We believe that the continued aggression of new players will likely result in lower consumer prices. Meanwhile players contend that industry is gradually moving in the direction of a free paper way. We however believe that although the newspaper will not be entirely free, the price to the consumer will be lower than the sale price of waste newsprint.
It appears industry is moving in the direction of a free paper way
22 January 2008
Print Media
Print media companies on an octave
Buoyant advertising growth and strong free cashflow is leading media companies to enter new verticals such as radio, OOH, event management and internet. We estimate the new businesses to top up 25% to EVs of the respective companies. We believe demographics greatly support investment in print media. Further, based on conducive demographics, low newspaper penetration levels would result in improvement in circulation. Additionally, newspaper advertising is likely to exceed TV advertising 2007 onward. Convergence of other media vehicles Buoyed by the strong advertising growth and strong free cash flows, print media companies have started exploring new opportunities in the media space. This we believe has been necessitated by two factors: Changing competitive landscape: Competition in the newspaper industry is rising rapidly as players are entering new geographies forcing incumbents to cut cover prices and improve the product offering substantially The convergence phenomenon of various media vehicles has created awareness among media companies to leverage existing networks and client relationships to offer comprehensive media solutions We believe the impact of convergence is very clearly visible globally as companies in the media space are extending their reach beyond traditional strongholds. These include genres such as print, internet, broadcasting, OOH, event management and radio. The trend was started by the Bennett Coleman group (Times group) in India and subsequently adopted by others. All the leading print media companies are on a mission to enter new media businesses that have some synergy with their core businesses so as to exploit their respective existing resources. These include new print properties like business paper, weekly tabloid and facsimile editions of foreign newspapers. New initiatives include radio, internet, SMS, OOH, event management and retailing.
PR INT C OM PA NIE S A DD IN G NE W M ED IA V ER TI CA LS P RI NT INI TI ATI V ES SY NE R GY N ON PR I NT S YN ER GY
Media companies are considering (1) new initiatives and (2) the offer of comprehensive solutions
Deccan Chronicle
Chennai Brand & Content Media Selling In house Ads
Bangalore Brand & Content Internet Jobs, Matrimonial Retailing None
Print companies are seeking new initiatives in non-print areas
HT Media
HT Mumbai Brand & Content Radio Virgin Radio Tie up
Hindustan - UP Brand & Content Internet Jobs, Matrimonial Mint Jagran Prakashan Jagran - Punjab Brand & Content OOH Strategic Partner (INM) City Plus None Event Management Network, People I Next Marketing, Printing, Internet Yahoo tie-up Hindi Business Content Daily Marketing, TV 18 Tie up Source: Company/Motilal Oswal Securities
22 January 2008
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Print Media
We believe that most of the players have strong brands, infrastructure, content sourcing etc. in place for new forays in print media properties. HT in Mumbai, Jagran in Punjab, INext in UP are expected to breakeven in FY2009. Jagran and TV18s Hindi business daily and Deccan Chronicles Bangalore launch are likely in few months. Most of the other new ventures like radio, OOH, internet etc. are in high growth areas and are likely to start contributing positively by FY2009-10. We estimate that by FY2009-10, new businesses have the potential to top up 25% to the enterprise value (EV) of many of these companies. Improving penetration favors circulation growth Print media has lower penetration in India particularly among the lower socioeconomic classes. The penetration of print media in the lower to middle economic classes SEC B1, B2, C, D, E1 and E2 is significantly lower than TV penetration. In SEC D, E1 and E2 the difference in the penetration level between print and satellite TV is very high even though the monthly outgo for satellite TV is far higher versus the monthly cost for a newspaper. We conclude that the major reason for these classes not reading a newspaper appears to be literacy levels and availability of the product. As the economy develops and demographics improve, we expect the penetration of print medium to increase which augurs well for circulation growth in the industry.
PEN ETR AT ION OF ME DI A VE HIC LES PR INT T ELE V IS ION SAT ELLI TE TV R AD IO S EC (% ) (% ) ( % ) ( % )
The lower penetration of print media in India is slowly being overcome
A1 A2 B1, B2 C D E1, E2
95.2 96.1 84.0 36.5 90.5 94.5 77.5 29.8 81.1 90.6 67.4 24.7 69.5 85.8 59.4 23.1 52.6 77.5 48.9 20.5 30.1 65.0 37.8 15.8 Source: Industry/Motilal Oswal Securities
We expect the improving literacy to enhance readership across India
(1) Higher literacy rate to result in increase in readership One of the major hindrances in the growth of print media is low literacy rate. According to a National Readership Survey (NRS) 2006, the literacy rate has risen from 69.9% to 71.7%, still leaving a lot of room for sustained increase. The readership has increased by 3% from 216m to 222m. Literacy rate in rural areas has increased by 120bp (64.6%) in comparison with 90bp (85.3%) for urban areas. The number of readers in rural areas stands at 110m, nearly equal to the number of readers in the urban areas. With 70% of Indian population in the rural areas, an increase in the literacy rate would result in an incremental increase in readership. The rise in the literacy rates in rural areas augurs well for the Hindi and vernacular language papers owing to the higher number of consumers opting for these papers.
22 January 2008
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Print Media
AV ER A GE D AI LY R EA DE R SHI P (' 000 ) 2003 R1 2005 R 1 2006 R1 2007 R 1
Dainik Jagran 15,722 17,473 19,071 17,114 Dainik Bhaskar 13,613 13,810 14,571 12,514 Hindustan 7,386 8,192 9,724 9,052 Amar Ujala 8,597 9,276 9,894 8,255 HT 2,946 3,276 3,508 3,331 TOI 7,230 7,041 7,084 6,781 Hindu 2,710 2,661 2,797 2,209 Deccan Chronicle 1,054 1,029 1,132 1,311 Source: Industry/Motilal Oswal Securities
Improved infrastructure will ensure better availability of newspapers countrywide
(2) Increase in newspaper availability Newspapers are the fastest moving consumer product with shelf life as low as 30 minutes. Hence timely availability of newspapers is a key concern. But 70% of Indias population lives in rural areas and interior regions, which have poor connectivity in terms of roads. Moreover several of the interior areas are inaccessible due to seasonal changes during winter and the rains. The GoI has been increasing its expenditure on rural roadways and developing infrastructure, which will enable improved availability of the product ahead. (3) Increase in consumers affordability We note one newspaper is shared by eight readers in rural areas versus 3-4 readers in urban areas, indicating that an increase in affordability is likely to have a positive impact on newspaper circulation. India still has 26% of the population living below the poverty line; in certain large states like UP and Bihar, the proportion stands at 31.2% and 42.6% respectively.
Rising GDP will lead to improved consumers affordability
We believe conditions leading to an improvement in affordability are positive. The following are indicators: Job creation potential appears favorable in the wake of the economy sustaining doubledigit nominal GDP growth: Nominal GDP has been growing at more than 14% in dollar terms over the last three years. Rising income levels will improve the affordability; this could translate to a customer buying a newspaper: Employment opportunities have been rising for the educated youth and the labor class due to fast growth in construction, real estate and retail sectors. Statistics is a pointer: There are 359m people who can read and understand but do not read any publication; of them, 68% read Hindi. This segment of readers can potentially be coerced to buy newspapers. In sum, we believe that increasing literacy rate, better product availability and rising consumers income levels would improve the penetration levels for newspapers.
22 January 2008
12
Print Media
E&M segment enjoys high beta v/s nominal GDP growth attracting higher advertising volume
Higher GDP growth drives increased E&M advertising Changing lifestyles and rising disposable income levels have facilitated deeper penetration of the entertainment and media industry. A PWC report estimates the sector to post 18% CAGR over next five years. Our analysis suggests GDP and advertising growth are positively correlated. In accordance with the least square regression equation, the ad industry is expected to grow by minimum 13-14% p.a. irrespective of GDP growth. The wave of convergence currently sweeping the industry should sustain steady industry growth rates. We believe the sector will witness relaxation in various government policies. Newspaper advertising to grow faster than TV Print medium faces competition head-on from the television segment. Internationally, however, print advertisement has lost share to television advertising. In India, since the mid-90s until 2004, print media led all other mediums of advertising even though its share in the total advertising spend has declined from ~60% in 1994 to 46% in 2006. During this period television advertising started picking up (currently, 44% of the total advertising pie). We believe newspaper ads will continue to grow ahead of TV ads based on: Ready reference material: A newspaper advertisement has longer shelf life. Unlike television, print media provides the consumer with higher convenience as the reader can at any time refer to the ad. More personalized ads: In print the advertiser can target a specific niche/ reader segment, thereby increasing the effectiveness of the advertisement. The reader, in turn, gets a more detailed and personalized advertisement. Television advertisements are more general and offer the viewer fewer details. No hindrance of channel surfing: The printed advertisement gets a better share of the eyeball v/s a TV ad, where channel surfing has become a rampant habit with viewers. On the other hand, the print medium does not have to contend with this issue. PWC estimates that newspaper advertising will grow at 14.5% per annum to 2011 compared with 13.2% growth in TV advertising. According to PWC absolute advertising in the TV segment was higher than in newspapers in 2005, but newspaper advertising is likely to exceed TV advertising from 2007.
NEWS PAP ER ADV ER T IS ING TO GA IN A HE AD OF TV
PWC: Absolute advertising in TV was higher v/s newspapers in 2005, but newspaper advertising is likely to exceed TV advertising from 2007
160
TV Ads (b) (LHS) Newspaper ads (b) (LHS) Gr (%) (RHS) Newspaper Gr (%) TV ad (RHS)
32
120 80
24 16
40
0 2004 2005 2006E 2007E 2008E 2009E 2010E 2011E

Source: Company/Motilal Oswal Securities 22 January 2008
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Print Media
Ad revenues key growth lever
Sustained GDP growth rate and entry of the new breed of advertisers would ensure steady print advertising growth of 14.5% over CY06-11. We expect advertising to be the key revenue and margin driver on the back of higher inventory utilization and rising share of color ads while circulation revenue growth will remain muted. We also expect advertising growth in vernacular dailies to outpace English dailies. New media verticals and advertisers to fuel ad revenue growth Historically, FMCG companies have been the biggest contributors to total advertising spend. However changing patterns in consumer spend has resulted in emergence of a new set of advertisers who now occupy a very important place in the industry. These include industries such as durables, luxury goods, passenger vehicles, retail, real estate, banking and finance and telecom. Some of these industries are in the high growth phase, which would ensure substantial adspend over the next few years. A growing economy and the need to attract consumer eyeballs has resulted in advertisers exploring new ad mediums. Prominent amongst these are out-of-home (malls, multiplexes, airports, cafes and bus stops), utility bills, internet and radio. Print companies have expanded into new media verticals as these avenues provide an opportunity to target consumers of differing age groups and segments. PWC estimates that media verticals like radio, OOH, internet and event managementhave revenue potential of US$1.4b p.a. by 2010.
CHA NGI NG TR EN D I N AD AV EN UES , R EV E NUES A ND AD V ER TI SER S
New breed of advertisers and eyeball avenues to fuel ad industry growth
Traditional avenues Broadcasting, Films, Print
Fast movers Radio, Internet, Out of Home Advertising, Event Management
AD V ER TI SIN G R E VE NUE ( RS M ) CY 0 6 CY 1 1 C AG R ( %)
Internet 1,600 9,500 42.8 Radio 5,000 17,000 27.7 Event Management 9,420 22,090 18.6 Out of Home 10,000 21,500 16.5 NewsPapers 66,000 130,000 14.5 Television 66,200 123,000 13.2
Traditional advertisers FMCG, Durables, Two Wheelers
New breed of advertisers Passenger cars, Retail, Banking and Finance, Telecom, Insurance
14
Print Media
We expect ad growth to drive newspaper business
Advertising growth will drive newspaper business We expect advertising revenues to drive profit growth in the newspaper segment. Pricewaterhouse Coopers (PWC) estimates that advertising revenues for print media companies will grow at a CAGR of 14.5% over CY06-CY11, while circulation revenues will grow at 9.4% over the period. Consequently the share of advertising in total revenues will increase from 55% in CY2005 to 65% by CY2011. We believe that the ad growth rates for leading print media companies with strong brands would outpace industry growth. Similarly, we expect vernacular and Hindi market to grow ahead of the English market which would work to the advantage of some of the companies in our coverage universe. The following will be the key drivers for sustaining ad growth: Aggressive geographic expansion by newspapers will result in decline in cover prices in highly competitive markets. Even in other markets the cover prices are unlikely to record an increase, as the industry is gradually moving toward a free paper market. The lower prices will increase newspaper penetration significantly. We expect newspaper circulation to increase at 3% per annum Although ad rates are likely to increase in double digits, rising circulation will keep the growth in ad cost per thousand (CPT) in control Rising literacy levels will attract more newspaper advertising (more focused readers and stickiness v/s broadcasting) thereby pushing up ad inventory utilization Increasing affordability (GDP is expected to grow at 8% CAGR) and improving newspaper availability in rural and interior regions hitherto untapped Low penetration even among the literate and well off sections of society, as the space is becoming exciting because media content is changing to suit every consumer class Newspapers carry local editions which are one of the best means of advertising for the retailers and city level ads which is not possible on TV, the second largest advertising medium in India.
NEWS PAP ER S S TEA DY AD GRO WTH
25 20
Ad Gr (%) (LHS) Cir Gr (%) LHS Ad / Total Revenue % (RHS)
66
62
15 58 10 54
0 2005 2006E 2007E 2008E 2009E 2010E 2011E
50
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Print Media
RI SI NG SHA RE OF AD VE R TIS ING I N RE VE NUE M IX
CY06 Ad Revenue 59%

Circulation 41%
CY11E Ad Revenue 65%

Circulation 35%
Source: Industry/Motilal Oswal Securities
Print companies are increasingly preferring to advertise in color
Advertising mix to change in favor of color All the print media companies are moving in favor of including a greater number of color ads. Most of the companies have incurred capex of more than Rs1.5-2b in the past 3-4 years, which is aimed at creating infrastructure for the same. The preference for color is basesd on: (1) colored ads give better visual effect to the advertisement which is important for premium and luxury goods companies; (2) improved connect with the consumer through colored ads improves communication for the company. Print media companies have been charging 30-40% premium for colored ads. Except matrimonial and ads for jobs, an increasing number of other ads are being made in color. Although the ratio varies from one company to another, on an average 35% of ads were in color in FY2007. We expect the share of color ads to increase to 50% for all print companies in the next 2-3years. We estimate that a 5% increase in the share of color ads would increase average ad rates by 2%, which will boost topline growth and profits.
AD V ER TIS ING M I X - C OLOR AND B& W
80
Colored Ads % BW Ads %
60
We expect share of color ads to increase to 50% for all print companies by FY11
20 40
0 FY06 FY07 FY10E FY08E FY09E
Source: Motilal Oswal Securities
22 January 2008
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Print Media
Hindi and vernacular readership is rising at 6% p.a. while that in English is nearly stagnant
Hindi/vernacular dailies faster growth in ad inventory utilization likely We expect the market for Hindi and vernacular newspapers to remain vibrant over the next few years based on the fact that English newspaper readership is more or less stagnant while readership in Hindi and vernacular newspapers is increasing at 6% per annum. We note readership of vernacular and Hindi newspapers v/s English is nearly: (a) 7 times that of English newspapers overall; and (b) 18 times the readership in rural areas. We expect higher growth in ad space in non-English dailies as the rural and interior regions are expected to be big demand drivers for consumer goods in the coming years. Consequently, we expect the advertisers to increase their focus on rural areas and small towns. As the readership of Hindi and vernacular papers is much higher in these areas, the respective ad space growth is expected to remain ahead of English dailies. We also note that the Hindi and vernacular dailies provide tremendous potential for ad space growth, as currently the ratio of ad to editorial space in Hindi dailies stands low at 30:70 v/s the English daily at 50:50. Hindi and vernacular dailies faster growth in ad rates likely Hindi and vernacular newspapers have higher readership, as 17% of the literate population read Hindi dailies in comparison with 2.7% for English dailies. Despite the higher readership of vernacular and Hindi dailies, the share of English dailies in the total advertising pie is higher. English dailies account for more than 53% of the total newspaper advertising pie. One of the key reasons for the higher adspend in English dailies is greater share of readership in the higher income classes, which is presumed to be the consuming class.
Ad rates for English newspapers are 9x that of Hindi owing to English enjoying a higher share of the upper income readership
This has resulted in a steep difference in the ad rates of English and other newspapers. The advertising rates of English newspapers are 9x the rates of Hindi and nearly 13x the rates of vernacular newspapers. We expect the ad rates of vernacular and Hindi newspapers to increase at a faster clip due to increasing focus of the advertisers toward rural areas and small towns for incremental demand growth. Recent ad rate increases for vernacular newspapers have been higher than that for the English newspapers. We expect the trend to not only continue but gain momentum in the coming quarters.
RE LATI V E AD VE RT IS EM ENT S PA CE GR OWT H E NGLIS H V/ S HI ND I GR OWTH I N A D SPA C E F Y0 5 F Y0 6
English Newspaper 3 4 Hindi Newspaper 13 11 Source: Company/Motilal Oswal Securities
22 January 2008
17
Print Media
Strong cashflows provide scalable print business

We expect print companies to post 35% PAT CAGR over FY07-10. Decline in newsprint prices and rising revenue proportion of advertising will likely expand EBITDA margins by 1,100bp. We estimate some of the new media initiatives (such as radio, OOH, event management, internet) to start contributing in FY09. Lower newsprint prices will be beneficial The share of newsprint is the biggest component in the total material cost of a newspaper. The prices of newsprint have witnessed an uptrend since mid-2002, moving from US$450/ tonne in June 2002 to US$650/tonne in June 2006. This was due to appreciation in the Canadian dollar and high energy prices. However, these prices have corrected to around US$550/tonne and are currently ruling at US$580 per tonne due to lower US demand and higher Chinese exports. This along with 12% appreciation in the rupee versus the US dollar has resulted in a decline in newsprint prices. We expect this to result in 5-12% lower prices of newsprint for various print media companies in FY08. We expect newsprint prices to remain range-bound and we have assumed flat to small increase in FY09.
The current lower newsprint prices are beneficial for print companies
Newsprint price changes impact various companies depending upon the import content, newsprint quality and circulation revenues. Deccan Chronicle has the highest import content among the three listed players while Jagran, the lowest one. Newsprint prices for Deccan are higher than other players. Circulation revenue covers just 25% of newsprint costs for Deccan Chronicle and 32% for HT Media while the same stands at a high of 80% for Jagran. We have factored in 12% lower newsprint prices for Deccan and HT Media in FY08 while the same for Jagran has been assumed at 5%.
NEWS PR INT P RI CE S T RE ND ING LOWE R (US$ /T ON) R UPE E AP PR EC IA TI ON T O B EN EFI T (US $/ RE )
680 630 580
48 46 43 41 38
530 480
Source: Bloomberg/Motilal Oswal Securities
22 January 2008
18
Print Media
NEWS PR INT COS T FOR LIS TE D P RI NT C OM PANI ES F Y0 7 N EWS PR IN T C OS T R A W MA TER I AL C I RC ULAT ION R EV ENUE / ( RS / TON) I M POR TS ( %) NE WSP RI NT C OS TS ( %)
Deccan Chronicle 33,916 100 21.5 HT Media 31,046 70 31.5 Jagran Prakshan 26,281 30 78.5 Source: Company/Motilal Oswal Securities
We expect circulation revenue/newsprint costs for print companies to improve due to decline in newsprint prices. We estimate that lower newsprint prices will expand FY08 EBITDA margin for Deccan and HT Media by 350-400bp while the increase for Jagran could be relatively moderate at 150-170bp. Advertising revenue growth to expand margin Print media companies are expected to record strong advertising revenue and modest growth in circulation revenue. Advertising revenue for the listed players is expected to grow by more than 20% (FY07-10E) on an average, while circulation revenue is likely to post mid-to-high single-digit growth over the same period. The slow pace in circulation revenue is on account of increasing competition leading to aggressive pricing by players. Operating leverage arising from strong ad revenue growth will be the key driver for increase in EBIDTA margins by more than 1100bp over FY07-10E, with FY08 accounting for an 800bp increase. Deccan Chronicle and Jagran Prakshan will report sharp margin expansion. We expect EBITDA margin expansion of 10% for Jagran Prakshan over FY07-10E. Margins for HT Media and Deccan Chronicle are estimated to expand by 4.6% and 13% over the same period.
A D GR OWT H TO TR I GGER OPE RA TI NG LEV ER A GE PA R TIC ULA R S D EC C AN C HR ONIC LE H T M ED IA JA GRA N P RA KS HAN T OTAL FY 0 8 E F Y0 9 E F Y 1 0 E FY 0 8 E F Y0 9 E F Y1 0 E FY 0 8 E F Y0 9 E F Y1 0 E FY 0 8 E F Y0 9 E F Y1 0 E
We expect ad revenue of listed players to grow by 20+% over FY07-10
Advt. rev growth (%) 33.0 23.0 13.0 19.0 19.0 18.0 36.0 26.0 24.0 27.0 22.0 18.0 Circulation rev. growth (%) 9.9 9.5 3.8 9.8 8.4 12.6 7.5 3.0 2.0 9.0 6.0 7.0 Total revenue growth (%) 31.0 22.2 12.4 16.8 17.5 16.8 33.4 23.7 21.0 25.0 21.0 17.0 EBIDTA margin (%) 57.5 58.4 59.9 18.9 21.2 22.9 26.0 28.4 30.4 34.1 36.1 37.7 Source: Company/Motilal Oswal Securities
New initiatives will start contributing from FY09 Print media companies have been on an expansion spree, the benefits of which will start flowing from FY09 onward. These include HT Mumbai for HT Media, Dainik Jagran (8 loss making editions) for Jagran. All the leading print companies are launching new editions in existing properties as well as new brands, which will take 18-24months to turn around. These include Mint (HT Media) and I(Jagran). In addition, some of the Next diversification avenues such as OOH, event management of Jagran and retail of DCHL to start contributing from FY09. Fever 104FM (HT Media) and the internet venture of DCHL will turn profitable from FY10 only. Some of the ventures like internet and retail of
22 January 2008
19
Print Media
DCHL and radio of HT Media are in separate entities and have been valued on an SOTP basis; hence their impact would not be directly reflected in the standalone numbers. Robust profits, strong free cash flows to sustain premium valuations We expect print media companies to report robust growth for the next 2-3 years. We expect sales growth upward of mid-teens and PAT growth of 36%. We expect these companies to generate strong free cash flows, which would enable them to expand further into new media opportuniities.
KEY FI NA NC IA LS PAR A M ETE R PA RT IC ULA RS D EC C AN C HR ONIC LE HT M E DI A JA GRA N P RA KA SHA N F Y 0 8E F Y 0 9 E F Y 10 E F Y 0 8E F Y 0 9 E F Y 10 E F Y 0 8E F Y 0 9 E F Y 10 E
Sales Growth (%) 31.0 22.2 12.4 16.8 17.5 16.8 33.4 23.7 21.0 PAT growth (%) 52.5 35.8 20.2 21.2 39.5 29.1 56.2 39.5 35.7 EPS (Rs) 9.9 13.5 16.2 6.0 8.3 10.8 4.0 5.5 7.5 PE (x) 18.6 13.7 11.4 30.3 21.7 16.8 31.2 22.4 16.5 FCF (Rs) 3,292 3,959 3,594 1,782 2,649 3,388 1,139 1,667 2,055 FCF (Rs/share) 13.3 16.0 14.5 7.6 11.3 14.5 3.8 5.5 6.8 Source: Company/Motilal Oswal Securities
Print media companies are trading at 14-20x FY10 and 20-25xFY09 earnings which is in line with most US print companies but at 20-30% premium to Asian peers. We believe Indian companies deserve premium valuations versus global companies based on: Print media industry is likely to report 14.5% CAGR ad revenue growth for the next few years. Indian print companies are likely to report PAT CAGR of 36% over FY07-10 v/s high single-digit to mid-teen growth in companies of other regions. Return ratios for Indian companies will improve further once the new initiatives start paying off ahead.
FINA NC IA L COM PA RI SON OF I ND IA N AN D GLOB AL NEWS PAP ER C OM PAN IE S COM PA NY NAM E Y EAR EPS G R. (%) P /E ( X) EV /E BI D TA (X ) END F Y0 8 F Y0 9 F Y0 7 FY 0 8 F Y0 9 F Y0 7 F Y0 8 F Y0 9 FY 0 7 F Y0 8 F Y0 9 EB IT DA M A RG IN (%)
New York Times December 14.8 -7.1 13.7 11.9 12.8 6.3 6.2 6.7 15.0 15.5 14.5 Washington Post December 16.4 N.A 25.2 21.6 N.A 10.8 9.4 N.A 15.9 16.9 N.A Star Publications (Malaysia) December 10.9 7.0 16.0 14.5 13.5 8.8 8.0 7.6 30.4 31.9 32.4 Pearson December 10.2 13.3 15.5 14.0 12.4 9.9 9.0 8.4 17.1 17.2 17.8
F Y0 9 F Y1 0 F Y0 8 FY 0 9 F Y1 0 F Y0 8 F Y0 9 F Y1 0 FY 0 8 F Y0 9 F Y1 0
Deccan Chronicle March 35.8 20.2 18.6 13.7 11.4 12.0 9.1 7.9 57.5 58.4 59.9 HT Media March 39.5 29.1 32.0 23.0 17.8 17.7 13.3 10.3 18.9 21.2 22.9 Jagran Prakashan March 39.5 35.7 31.2 22.4 16.5 18.0 13.2 9.8 26.0 28.4 30.4 Source: Bloomberg/Motilal Oswal Securities
22 January 2008
20
Print Media
Deccan Chronicle is our Top Pick in the print media space
Recommendation Initiating coverage with positive view; Deccan Chronicle is Top Pick We have positive view on listed companies in the print media space. Each of these companies is a leader in its respective geographical area. These companies are utilizing strong cash flows to enter new business segments which will start contributing from FY09 onward. We initiate coverage on these companies with a Buyrating with Deccan Chronicle as our Top Pick.
BA SI S O F V A LUA TIO N (R S /S HA RE ) D EC C AN C HR ONI CLE HT M ED IA J AGR A N PR A KAS HAN
DCF 284 274 184 Radio - 15 Retailing 21 - Internet & Media Selling 30 - SOTP 335 289 184 Current Price 185 191 123 Upside (%) 81 51 48 Source: Motilal Oswal Securities
Concerns Rising competition can impact circulation revenue: Leading newspaper publishers are entering new geographical territories to increase circulation by offering attractive subscription prices to the consumers. This will increase breakeven time in the new territories . Economic slowdown:Advertising revenue has a direct relationship with GDP growth. Any slowdown in the economy would result in a decline in the ad budget of corporates, thereby impacting the print media industry. Increase in newsprint prices: Newsprint prices, which have been on an upswing from 2003 to 2006, have seen a decline in the last six months. We have factored in 5-12% decline in newsprint prices in FY08 and 2% p.a. increase thereafter. However, any sharp increase in prices could result is lower margin expansion. Failure of new businesses: Print media companies have entered new business segments like OOH (out-of-home), event management, radio, internet, retail etc. Failure of this diversification strategy can result in profit being lower v/s our estimates.
22 January 2008
21
Print Media
Annexure I: E&M ad revenues to remain strong
E&M segment enjoys high beta v/s nominal GDP growth attracting higher advertising volumes
GDP and advertising growth are positively correlated Versus nominal GDP growth, the Indian entertainment and media (E&M) industry enjoys a high beta 1.25x-1.50x growth v/s GDP. We note growth of the E&M industry accelerates with increase in GDP growth rate, as consumers higher disposable incomes result in greater spending on leisure and entertainment. Moreover it is the tendency of advertisers to increase advertising during such strong growth periods. Likewise, during low growth periods of the economic cycle, the reverse is true. The entertainment and media (E&M) industry has been growing at 17% over the last three years. A Price Waterhouse Coopers report estimates the E&M industry to post 18% CAGR over the next five years. As a consequence, size of the industry is expected to increase from Rs436b in 2006 to Rs1,000b by 2010E. We expect broad based growth rates for this industry; however, segments such as radio and internet will likely grow faster due to their smaller operating base. With a compounded annual growth rate (CAGR) of 18% per cent, the Indian entertainment and media industry is the fastest growing in the Asia-Pacific, says the study.
AD V ER TI SIN G IND UST RY GR OWTH T RE ND V / S NOM IN AL GD P
34.0
Nominal GDP Growth %
Advertising Industry Growth %
24.0
14.0
4.0
-6.0 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
Conclusions from our regression analysis We have completed a regression analysis of GDP growth v/s advertising industry for FY96-FY07. We found that growth in GDP and advertising are positively co-related. In accordance with the least square regression equation, the advertising industry is expected to grow by an average of 13-14% per annum, irrespective of GDP growth, as advertisers need to invest in brands even in the event of slow demand growth. This steady line of best fit indicates the advertising growth is steady. Hence we expect advertising to grow at 1518% CAGR over the next five years.
22
22 January 2008
Print Media
RE GR ESS ION OF A D VE R TSI NG IN DUS TR Y WI TH GD P
30 20 10 0 -10 0 2 4 6 8 10 12 14 Nominal GDP Growth %

Source: Motilal Oswal Securities
y = 0.3387x + 13.668 R2 = 0.0228
Policy changes will catapult E&M sector growth The wave of convergence currently sweeping the industry should sustain steady growth rates for industry. Another report by PricewaterhouseCoopers shows that revenues across the Indian E&M segment grew by 20 per cent in 2006 to US$9.71b and the countrys overall advertising spend grew by 23% to US$3.62b. International media giants are competing for a stake in the segment. In the last three years, US$89m of foreign direct investment (FDI) has flowed into the sector and in 2006, 13 FDI proposals were approved by the Government of India. Some recent key policy initiatives include: Opening up the media sector to foreign direct investment (FDI). The GoI allowed FDI into the media sector in 2005 at the following rates 100% for films and TV software production; 49% for cable networks; 20% for direct-to-home (DTH) & FM radio; 26% for news-based print media; 100% for journals and magazines etc. Newspapers were allowed to print facsimile editions of foreign newspapers Issue of 300 new radio frequencies and license fee on the basis of revenue sharing CAS (conditional access system) rollout in parts of Delhi, Mumbai and Kolkata for TV broadcasting. The stated measures have generated an increase in FDI in various segments of the E&M industry. Many global media groups have acquired strategic stakes in Indian media companies. Several corporates have entered the media sector in segments such as DTH, multiplexes, convergence and media content. Overall these measures have had a positive impact but we believe the sector still requires a great deal of thrust from policy initiatives in the following areas: Mandatory switchover to digital transmission in TV Uniform entertainment tax across states Strong intellectual property protection mechanisms Relaxation on uplinking of channels
22 January 2008
23
Print Media
We believe that the media sector will witness relaxation in various norms and policies in the coming years in accordance with the wave of convergence sweeping the industry. This should enable the industry to accelerate growth rates. E&M revenue mix shifts in favor of subscription The E&M sector is currently witnessing a structural shift in its revenue composition. The share of paid and subscription services in the total revenues of the industry has been rising, while the advertising sector has been reporting a gradual decline in revenue share. The share of ad revenue in the total E&M industry size has declined from 46.5% in CY04 to 42.9% in CY2006. On the other hand, increase in the share of subscription-led revenue is due to higher growth in television and film entertainment, which now comprise 63% of the E&M industry. The film industry is 100% subscription-led while the TV industry has been reporting 25% CAGR in subscription revenue. We expect the Indian consumer to spend above the average level of 3.5% per month on entertainment based on his upgraded lifestyle and attitude. Consequently we believe film and TV will attract a fair share of increased consumer spending. Further, with the rising number of multiplexes, we expect box office revenues of the film industry to increase by 17-18% CAGR. Likewise we expect the TV industry to record 26% CAGR in subscription revenues owing to the superior growth rate in direct-to-home (DTH) and higher reportage of cable revenues owing to CAS rollout.
E&M IN DUS TR Y CH ANGI NG R EV ENUE M I X ( RS B )
720
Ad Revenue E& M Ind Ratio (%)
48
540
44
360
40
180
36
0 2004 2005 2006 2007E 2008E

32
Rising growth of film and TV subscription will boost the share of subscription in total revenues by 300bp. Consequently, we expect share of advertising in total E&M revenues to decline from 42.9% in CY06 to 39.5% in CY08 with a corresponding rise in contribution of subscription revenues.
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Print Media
Steady advertising growth Structural shift notwithstanding, advertising revenue will remain the most profitable among all other revenue streams. Advertising continues to be a predominant component of the E&M industry and remains the most profitable amongst the various revenue streams. The total advertising market size stood at Rs180b in 2006 and has been growing at 15.5% CAGR in the last decade. We expect ad revenue to grow at 15-18% over the next 4-5 years, key drivers being: Low adspend to GDP ratio New categories and advertising formats Entry into new media verticals A buoyant economy Low adspend to GDP ratio: India has amongst the lowest ratio of adspend to GDP ratio at 0.34% (source: FICCI PWC media report) compared with the global average of 0.98%. The adspend appears negligible versus even developing countries like China (0.55%) and the Philippines (0.65%). Usually advertisers follow consumers eyeballs. Nearly 65% of the population falls in the category of deprived class, while reach of print media and satellite TV is 30% and 38% in lower economic classes E1 and E2 sections of society. We believe that these sections of the society would contribute significantly to the incremental demand. Advertisers are using several direct connect initiatives with this category of consumers to propel demand growth. We expect the media proliferation to increase significantly as the population share of this category is likely to decline to 52% by 2010. This we believe would push many advertisers to allocate more funds for advertising versus other sales promotion techniques. Such move will likely boost the ratio of adspend to GDP.
IND IA LOW AD S PE ND TO GDP R ATI O ( %)
1.80 1.40 1.00 0.60 0.20 0.95
0.34
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Print Media
New advertisers and media vehicles to accelerate ad growth: Historically, FMCG companies have been the biggest contributors to total advertising spend. However the changing pattern in consumer spend has resulted in emergence of a new set of advertisers who now occupy a very important place in the industry. These include industries such as durables, luxury goods, passenger vehicles, retail, real estate, banking & finance and telecom. Advertising mediums and delivery formats are also changing with new formats emerging such as advertisements in malls, multiplexes, telecom, electronic OOH, cafes, utility bills, internet and spots wherein the advertiser is sure to get consumer eyeballs. The increase in advertising avenues and number of industries, who need advertising support, augur well for the growth potential. New media verticals: The convergence phenomenon of various media vehicles has created awareness among media companies to leverage existing networks and client relationships to offer comprehensive media solutions. Buoyant economy: Indian economy has witnessed strong growth over the last three years during which the advertising industry has grown by 15% CAGR. Indian economy is in a sweet spot as it is likely to maintain double-digit nominal growth owing to beneficial demographic factors.
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26
In-depth
Companies
22 January 2008
C OM PANY NA M E P G.
Deccan Chronicle 28 (Buy, Rs185)
HT Media 39 (Buy, Rs191)
Jagran Prakashan 53 (Buy, Rs123)
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27
In-depth
Deccan Chronicle
S TOC K INFO. BLO OMB ER G
DECH IN
RE UTER S C OD E
22 January 2008
Initiating Coverage
Buy
Rs185
DCHL.BO
Y /E D E CE MB ER 2 0 07 2 0 08 E 2 0 09 E 2 0 1 0 E
Net Sales (Rs m) 5,528 7,240 8,850 9,947 EBITDA (Rs m) 2,582 4,161 5,166 5,962 NP (Rs m) 1,614 2,461 3,343 4,019 EPS (Rs) 6.8 9.9 13.5 16.2 EPS Growth (%) 105.0 47.3 35.8 20.2 BV/Share (Rs) 34.6 42.3 54.4 69.0 P/E (x) 27.3 18.6 13.7 11.4 P/BV (x) 5.3 4.4 3.4 2.7 EV/EBITDA (x) 18.1 12.0 9.1 7.9 EV/Sales (x) 8.5 6.9 5.3 4.7 RoE (%) 19.5 23.5 24.8 23.5 RoCE (%) 18.5 26.8 33.0 31.5
Deccan Chronicle Holdings (DCHL) is the most attractively valued stock in its universe besides a growing presence in south India and strong pricing power (20% CAGR in ad rates, FY05-07). Launch of Deccan Chroniclein Bangalore, Odyssey retail chain and Sieger Solutions will provide the next leg of growth. We estimate 35% standalone PAT CAGR over FY07-10. We initiate coverage with SOTP-based target price of Rs335, 81% upside. Bangalore edition to strengthen hold in southern print market: Deccan Chronicle has reported 14% CAGR in circulation in Andhra Pradesh and has achieved leadership in Chennai in less than two years. Success of the Bangalore edition (launch scheduled for 4QFY08) will complete the south India combo for advertisers, enabling 22% CAGR in ad revenues over FY07-10. Securitization of debtors allays concerns: DCHL has securitized debtors worth Rs4b with ICICI Bank at an estimated net cost of Rs99m. Managements commitment to reduce debtors from 217 days in FY07 to 90-100 days would improve cash flows and overcome concerns over financials in forthcoming quarters. Odyssey and Sieger Solutions to unlock value for shareholders: Odyssey retail is expected to ramp up to 1.1m sq ft by 2010 with EBITDA margins of 20%. Sieger Solutions has launched a website 'Papyrusclub.com' and plans to expand in verticals like online Matrimony and Jobs. We value Odyssey at Rs21/share and Sieger at Rs30/share (50% discount to management guidance).
STOC K PER FOR M A NCE (ON E YE A R)
KEY FINA NC IAL S
Shares Outstanding (m) 244.0 Market Cap. (Rs b) 45.0 Market Cap. (US$ b) 1.1 Past 2 yrs. Sales Growth (%) 88.0 Past 2 yrs. NP Growth (%) 124.0 Dividend Payout (%) 16.9 Dividend Yield (%) 0.5
STOC K DATA
52-Week Range (H/L - Rs) 270/140 Major Shareholders (as of December 2007) % Promoters 60.9 Domestic Institutions 13.3 FIIs/FDIs 18.1 Others 7.8
Deccan Chronicle (Rs) - LHS 260 230 200 170 140 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Rel. to Sensex (%) RHS
60 35 10 -15 -40
Average Daily Turnover Volume ('000 shares) 511.0 Value (Rs million) 112.0 1/6/12 Month Rel. Performance (%) 0/-24/-9 1/6/12 Month Abs. Performance (%) -13/-18/9
22 January 2008
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Deccan Chronicle
Vying for the southern crown! Deccan Chronicle Holdings Ltd. (DCHL) has set an ambitious target to emerge as the largest English newspaper in southern India. The southern Indian states of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala are amongst the most vibrant print markets.The companys decision to remain focused on the southern market is based on: Key southern ad markets valued at Rs7-8b each: Print advertising markets in each of the key southern cities of Hyderabad (Andhra Pradesh), Chennai (Tamil Nadu) and Bangalore (Karnataka) are valued at Rs7-8b respectively. The southern markets represent a similarity in culture and consumer behavior; hence probability of success becomes significantly higher for a player focused on these markets. Has substantial share of English readership: The stated key southern cities have a high share of English literacy and the rising population of IT professionals in these cities augurs well for the company which is focusing on the English print market. Key consumer demand cities: Hyderabad, Chennai and Bangalore occupy an important place in the media planning and consumer demand story in India. The rising number of IT professionals with high per capita incomes is leading to strong demand growth across product categories and segments. Management expects the advertising market in these cities to record CAGR of 25-30% per annum. This would translate to an ad potential of Rs30b in each of these cities over the next five years. Increasing strengths in all regions gradually DCHL has been moving step by step to capture the vibrant southern market. It is a leader in Andhra Pradesh market owing to its historical presence in the state for over 70 years. The company has seven editions in Andhra Pradesh. Circulation for Deccan Chronicle (English daily newspaper) has been steadily rising at a CAGR of 14% over FY04-07. The company faces competition from The Hindu and Times of India (TOI) in Hyderabad. DCHLs circulation at over 600,000 copies per day is far ahead of both The Hindu and TOI, which have circulation of 350,000/day and 90,000/day respectively. As per 2007 R1, the readership for Deccan Chronicle stood at over 900,000 in comparison with 400,000 for The Hindu. Its performance in Hyderabad appears commendable as DCHL has been able to maintain its lead despite stiff competition from TOI. We expect the company to maintain leadership position with low single-digit increase in circulation in Andhra Pradesh.
AND HR A PR A DE SH ST EA DY I NCR EA S E I N C IR C ULATI ON ( 000 PE R D AY )
750 607 649 575 400 225 50 1H03 2H03 1H04 2H04 1H05 2H05 1H06 2H06 1H07
509 553
296 342 380 402 431
29
Deccan Chronicle
DCHL entered Chennai in 2005 and is competing well with The Hindu for leadership in that market statistics indicate that current circulation stands at 300,000/day versus 330,000/day for The Hindu. DCHL has put paid to Indian Express(circulation of 80,000) from the Chennai market while the market leader has also reported a decline of 50,00070,000 in its circulation.
CHE NNA I CIR CU LATI ON TR E ND ( 000 P ER D AY)
400 295 277 299 300
200
100
0 1H06 2H06 1H07

Key highlights of DCHLs Chennai success: DCHL adopted an aggressive pricing strategy (Re1/copy compared with Rs3/copy charged by The Hinduand Indian Express at the time of Deccan Chronicles launch), which allows easy entry strategy as a second newspaper in consumers homes. DCHLs Chennai edition was initiated with 20 pages in color versus 4 color pages by The Hindu . A prime target was youth for whom sections on entertainment were included versus The Hindu , which focused more on editorials. DCHL faced minimum competition in Chennai, which has enabled the company to establish a strong presence in that market in less than two years. Indian Express was a weak player in Chennai. TOI has not entered this market, despite being present in Hyderabad since the last nine years, as its primary objective has been to protect its stronghold in Mumbai from the onslought of DNA and HT. Mumbai is TOI's most important market and accounts for a major share of its profits. Circulation growth of DC is reaching a plateau; however its figures are close to the leading player. Further, increase in Deccan Chronicle's cover price from Re1.0 to Rs1.5 has led to a slight slow down in circulation growth. We expect DCHL to aim for leadership in the Chennai market over the next one year. The Bangalore entry a focused strategy Deccan Chronicleis all set for the Bangalore launch of its daily in the next few months. The company has already invested Rs1.5b to set up a state-of-the-art printing facility and an entire backend infrastructure. The Bangalore market is currently dominated by the Times of India with a circulation of 325,000/day and Deccan Herald, Bangalores local English daily, the second largest player, with a circulation of 80,000/day. We expect Deccan
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Deccan Chronicle
Chronicleto adopt an aggressive pricing strategy for this region as well. Management seems confident of replicating the success it has witnessed in Chennai in the Bangalore market as well.
BA NGA LOR E- EX PEC TE D CI R C ULATI ON T RE ND ( 000 PE R DAY )
200 150 150 125 80
100
50
0 FY08E FY09E FY10E

However we believe that despite managements confidence DCHL would face stiffer competition in Bangalore versus Chennai owing to: The Bangalore market is dominated by TOI which has the financial muscle to reduce cover prices to protect its circulation TOIs product offering is also youth centric with focus on infotainment, which is in line with DCHLs positioning. Comparatively, DCHL does not offer any new platform to the consumer, unless the product offering in Bangalore is significantly different from the version it offers in Hyderabad and Chennai TOI is a strong player with presence in other media segments and properties The Economic Times (ET), Radio Mirchi, event management and OOH (out-of-home), which makes it better equipped to handle the onslaught of a comparable newspaper such as Deccan Chronicle . We expectDeccan Chronicleto cross circulation of 125,000 per day in FY09 thus emerging as the second largest player in the Bangalore market. We believe that replicating the success of Chennai in Bangalore would appear difficult owing to the presence of a strong player, TOI. Lean cost structure best suited to overcome competitive pressure We believe Deccan Chronicle is best positioned to overcome likely competition from TOI in Bangalore. The employee and advertising costs of the company are significantly lower versus peers. DCHL is one of the most profitable print media companies with the highest EBITDA margin among listed players owing to the following factors.
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Deccan Chronicle
FINA NC IA L IND IC ATOR S ( % OF SA LES ) E BI TD A M AR GI N EM PL OY EE EX P ENS E A DV E RT IS ING E X P. F Y 06 F Y 07 F Y0 6 F Y0 7 F Y0 6 F Y0 7
Deccan Chronicle 31.5 46.7 4.6 3.9 1.0 1.2 HT Media 14.4 18.3 14.4 14.2 8.6 6.1 Jagran Prakshan 14.9 20.0 11.9 11.8 2.9 5.5 Source: Industry/Motilal Oswal Securities
Deccan Chronicle aggregates a great deal of outsourced content. The company has fewer reporters and news staff on the field. In addition it has tie-ups with renowned writers who provide editorials on a case by case basis. This has resulted in low content cost for the company. The company has one of the most advanced printing facilities in the country. The entire printing and packaging line is automated so that just 15-20 people can run the entire facility.
TR END IN E M PLOY EE C OS T
500
Employee Cost (Rs m) LHS
% of revenue - RHS
10
375
250
125
0 FY04 FY05 FY06 FY07 FY08E FY09E FY10E

The automated printing facilities can print up to 16 color pages (30-50% ad rate premium v/s B&W ads) in the daily edition, which enables the company to attract premium advertisers. Hence the company benefits by the economies of scale which lowers relative costs. DCHL has a focused strategy. It has a historical presence and market leadership in Andhra Pradesh. It has ventured into the Chennai market, which is represented by weak competitors, thus limiting any increase in advertising expenses. DCHLs adspend is one-fifths the adspend of other listed peers that have entered fiercely competitive markets like Mumbai, Punjab, UP etc. DCHL may not enjoy some of the advantages such as the low advertising expenses, in Bangalore, but efficiencies in content sourcing and printing will enable the company to withstand competition from TOI. In addition, lower newsprint prices at the time of launch will benefit the company as the printing cost per copy will be on the lower side.
22 January 2008
32
Deccan Chronicle
Ad revenue to rise at 22% CAGR; share of color ads to increase DCHL has reported 72% CAGR in ad revenues over the past three years. Ad volumes have grown at 43% CAGR while average ad rates have increased by 20%. Andhra Pradesh has contributed more than 64% to ad revenues with Chennai accounting for the balance.
AD R EV ENUE S T RE ND A ND GEO GRA PHI C AL C ONT RI B UTI ON
12 9
Ad Rev. (Rs b) LHS 107 72
Gr. (%) RHS
120 90 60 10
Andhra Pradesh Chennai Bangalore 0.6 0.4 8 3.2 3.6 5 3 0 0.6 1.4 2.3 3.3 4.0 4.8 5.2 2.7 1.9
6 3 0 44 33 23 13
30 0
AD R EV EN UES : R I SING C OLOR AD S A ND A D R ATE S TR END
20 15 10 5 0
Total Ad space (m Sq cm) LHS space (m sq cm) Color Color % (RHS)
700 48 550 36 24 12 0 400 250 100
Av. Advertising rate - LHS Growth % RHS
32 24 16 8 0
Total ad volumes have increased by 43% CAGR, led mainly by success in Chennai. The company has reported 20% CAGR in ad rates from FY04-07. We have calculated ad rates based on the total ad space and revenues, which include both tenders and film ads. The advertising mix has been shifting in favor of colored ads, which command 30-50% premium over B&W (black and white) ads. The ratio of color ads has increased from 12.8% in FY04 to 35% in FY07. This is expected to increase further to 40% in FY08 and 45% in FY09. Lower advertising cost per thousand (ad rate/readership) for Deccan Chronicle in comparison with competitors has enabled the company to aggressively increase ad rates. Low CPT is primarily attributed to the double-digit circulation growth of 14% in Andhra Pradesh as well as success in the Chennai market. Although the outlook continues to be bullish we expect some moderation in circulation growth in the Andhra Pradesh and the
22 January 2008
33
Deccan Chronicle
Chennai markets, which should result in a relatively slower increase in ad rates going forward. We estimate blended ad rates to increase at 14.5% per annum, which would enable 22.5% CAGR in advertising revenues over FY07-10. Our estimates factor in ad rate growth of 20.5% in FY08, 12.3% in FY09 and 10.9% in FY10. The blended ad rates also factor in lower ad rates in Bangalore versus the Chennai and Andhra Pradesh markets. New ventures Retail and internet ventures to unlock shareholder value Deccan Chronicle will maintain its focus on the English print market in key cities in southern India. While there are adequate mid-tier cities in southern India which the company can cover over a period of time, management has decided to diversify the business through Sieger Solutions (internet) and Odyssey (retailing). Management plans to scale up these fast growth businesses in the next couple of years and also plans to unlock value for shareholders. (1) Sieger Solutions (100% subsidiary) exploring internet space; Sieger Solutions handles media space selling for Deccan Chronicle . The company gets a commission of 5-6% on the media selling it does for the parent. The company has reported sales and PAT of Rs2.5b and Rs38.6m for FY07. The fortunes of this business are closely linked to performance of the print business of eccan Chronicle. Management believes D that internet will be the most potent medium of news communication in forthcoming years and its internet strategy holds the key to long term growth, particularly for a citycentric newspaper company like Deccan Chronicle . The core circulation base of the company will be in IT-centric cities of Hyderabad, Chennai and Bangalore in which access to internet would be of a very high level. So the company has identified internet as a thrust area. The company has started a website 'The Papyrus Club'; which has one page dedicated to each school. The website will include those schools which have at least 2 time slots per week dedicated to internet. The school page on the site will be the school newspaper which can be used to share value-added news and information.The number of member schools has increased from 179 to 340 in the last three months as against management guidance of 500 in the next 12 months. This medium will serve as good advertising route to target focused groups. The company also plans to start a subscription fee with time. Management has also indicated its intention to opt for websites in jobs and matrimonial and is even looking at acquisitions in this area. The company has indicated that it would opt for private equity financing of Sieger Solutions at EV of Rs15-18b. The listed company in this space is Info Edge which has portals like Naukri.com, Jeevansaathi.com and 99acres.com and has an EV of Rs35-40b. We assume a discount of 50% to the lower end of the base value indicated by management. We value the company at Rs7.5b which translates into Rs30 per share of DCHL.
22 January 2008
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Deccan Chronicle
(2) Odyssey retail (100% subsidiary) in the fast lane: Odyssey a premier leisure store chain (offers books, music, movies, cards, toys, stationery, gifts etc.) was acquired by DCHL for Rs600m. The companys vision is to establish Odyssey as one of Indias finest and most admired leisure retail chain. To achieve this goal, the chain is rapidly expanding its retail operations, and selectively pursues opportunities to leverage the brands strength. Odyssey has entered into a tie-up with Caf Coffee Day. Odyssey will either open a Caf Coffee Day in its larger outlets or a small Odyssey outlet will be opened in Caf Coffee Day outlet. The company has now adopted two store formats under which the larger stores will have an area of more than 2,000 sq ft per store while the smaller ones will have an area of less than 2,000 sq ft.
RE VE NUE M OD EL FOR ODY SS EY R ETA I L F Y0 7 F Y 0 8 E F Y 0 9E FY 1 0 E
Express Stores (nos) 0 20 90 170 Area (sq Ft) 0 24,000 108,000 204,000 Regular Stores (nos) 19 32 52 72 Area (Sq ft) 123,500 318,500 618,500 918,500 Total Area (Sq ft) 123,500 342,500 726,500 11,22,500 Sales/Sq ft 5,282 5,547 5,910 Capex and Working cap req. (m) 856 960 990 Sales (Rs m) 265 1128 2,798 5,286 Gross Profit (Rs m) 507 1,259 2,485 Gross Margin (%) 45 45 47 PBT (Rs m) 6.8 102 321 806 PAT (Rs m) -0.1 74 215 540 Source: Company/Motilal Oswal Securities
Management has guided for opening 13 regular and 30 express retail stores in FY08. We estimate that the number of regular stores will increase to 52 by FY09 and 72 by FY2010. We believe that the diverse product offering by the company has good consumer appeal which will boost the same store sales. The company has achieved more than 50% gross margins in the past and management has guided for gross margins of 45-50% with net margins being 20-25%. Our estimates factor in 9% PBT margin in FY08 which would increase to 15% by FY10. We estimate that the capital requirement in the business could be Rs2.8b-3b by FY10. We have valued Odyssey on the basis of DCF and arrive at a value of Rs21/share for each share of DCHL.
22 January 2008
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Deccan Chronicle
Financials The company has grown at a fast clip in the past two years with sales and PAT rising by 82% and 124%. Increase in EBITDA margins is due to faster growth in ad revenues versus circulation revenues as the company entered Chennai with aggressive pricing of Re1 per copy. However circulation revenues have declined from 13% of sales in FY05 to 7.5% of sales in FY07.
DE CC A N C HR ONI CL E: GR OWTH R ATE S
Sales growth % 160 120 80 40 0 FY06 FY07 FY10E FY08E
EBIDTA Margin
Growth
EBIDTA
PAT %
Growth
FY09E
We believe that the company will enter the Bangalore market by adopting an aggressive pricing policy which will further reduce the ratio of circulation revenues. We expect circulation revenues to decline to 5% of total revenues by FY10.
TR END IN R EV ENUE M I X
12,000
Ad revenue (Rs m)
Circulation revenue (Rs m)
9,000
6,000
3,000
0 FY06 FY07 FY10E FY08E FY09E

We expect EBITDA margin to expand by 10.8% in FY08 due to the combined effect of 20% ad rate increase, rising traction in ad revenues from Chennai and 12% decline in blended newsprint prices from Rs33,916/tonne to Rs29,847/tonne. We expect PAT to increase by 52% in FY08 and growth rates to moderate thereafter. We expect PAT for FY09 to be up by 35.8%; however replication of the Chennai success story in Bangalore could result in substantial upside to our estimates.
22 January 2008
36
Deccan Chronicle
Securitization removes concerns on receivables... Deccan Chronicle has witnessed a sharp increase in debtors days from 167 in FY06 to 217 in FY07. The absolute increase in debtors is Rs1.7b, from Rs1.37b in FY06 to Rs3.04b in FY07. This had raised concerns about the actual cash generation.
IM PR OV ING C AS H FLOWS
22
EPS (Rs-LHS) FCF Per share (Rs-LHS) P/E (xRHS)
32
12
24
16
-8
-18
FY06 FY07 FY08E FY09E FY10E 0

Management has attributed the high debtor level to their conscious strategy of allowing credit to advertisers, which will result in the company getting advertisements for the Bangalore edition from the very beginning. The company has announced securitization of receivables with ICICI Bank to the tune of Rs4b, and currently has debtors days of just 11. We estimate the net securitization cost at Rs99m, which has been adjusted in the interest outgo for FY08. The company plans to publish audited results each quarter from the next fiscal and has indicated that debtors days will be in line with the industry trend of 90-100 days. Securitization of debtors will improve return ratios and cash flows significantly. However, we are cautious on ad volume growth post reduction in the credit period for advertisers. Our estimates for FY09 and FY10 already factor in some moderation in ad volume growth for the company. ... Buy with SOTP value of Rs335 We value DCHL on the basis of SOTP. We value the standalone newspaper business at Rs284 per share and Odyssey and Sieger at Rs21 and Rs30 per share. The stock trades at Rs185, which suggests an upside of 81%. Even after excluding the value of Sieger solutions we estimate the fair value at Rs305, an upside of 65%. We initiate coverage with Buy.
VA LUATI ON B AS IS DC F
Standalone Business Odyssey Sieger Solutions Total Source: Company/Motilal Oswal Securities
284 21 30 335
22 January 2008
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Deccan Chronicle
I NCO ME ST ATE M ENT ( R S M ILLI ON) Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 10 E N e t Sa le s 3 , 3 09 5 , 5 2 8 7 , 2 4 0 8 , 8 50 9 , 9 4 7 Ch a n g e ( %) 6 7 .1 3 1 .0 2 2 .2 1 2 .4
RAT IO S Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 E B as ic (R s) A dj us t ed E P S 3 .3 6 .8 9 .9 1 3 . 5 16 . 2 G rowth (% ) 1 05 . 0 47 . 3 3 5 . 8 20 . 2
P ri n ti n g a n d oth e r ex p 1 , 9 03 2 , 4 0 6 2 , 4 1 5 2 , 8 49 3 , 0 7 2 S ta ff C os t 1 5 2 2 1 5 2 8 2 3 4 5 3 8 8 A dm i nis tr a tiv e e xp 1 8 8 2 9 6 3 5 3 4 6 0 4 9 6 M i sc e l la n e o u s e x p 2 4 2 9 29 2 9 2 9 E BI T D A 1 , 0 41 2 , 5 8 2 4 , 1 6 1 5 , 1 66 5 , 9 6 2 % of Net S al es 3 1 .5 4 6 .7 5 7 .5 5 8 .4 5 9 .9
Cas h E P S 3 .8 7 .5 10 . 8 1 4 . 4 17 . 1 Bo o k V a lu e 1 5 . 4 34 . 6 42 . 3 5 4 . 4 69 . 0 DPS 0 .2 1 .0 1 .0 1 .5 2 .0 Pa yo u t ( in c l. Div . Ta x.) 6 .9 16 . 9 13 . 2 1 4 . 7 15 . 7
Va lu a tio n ( x ) P/E ( s ta n da l o n e) 5 6 . 1 27 . 3 18 . 6 1 3 . 7 1 1 .4
De p re c i ati o n 1 0 0 1 7 1 2 1 7 21 1 2 0 5 Inte r e s t 1 9 4 3 3 2 6 1 3 2 8 0 1 6 0 O th e r In c o m e 2 1 3 3 2 4 3 4 2 3 1 4 4 0 1 P BT be fo r e E OI 9 6 2 2 , 4 0 3 3 , 6 7 3 4 , 9 89 5 , 9 9 8 P BT a ft e r EO I 9 6 2 2 , 4 0 3 3 , 6 7 3 4 , 9 89 5 , 9 9 8 T ax 2 8 3 7 9 0 1 , 2 1 2 1 , 6 46 1 , 9 7 9 R at e ( %) 2 9 .4 3 2 .9 3 3 .0 3 3 .0 3 3 .0 Re por te d PA T 6 7 9 1 , 6 1 4 2 , 4 6 1 3 , 3 43 4 , 0 1 9 A dju ste d P AT 6 7 9 1 , 6 1 4 2 , 4 6 1 3 , 3 43 4 , 0 1 9 Ch a n g e ( %) 1 3 7 .8 5 2 .5 3 5 .8 2 0 .2
Cas h P /E 4 8 . 9 24 . 7 17 . 1 1 2 . 9 10 . 8 EV / E BI T DA 4 0 . 2 18 . 1 12 . 0 9 .1 7 .9 EV /S a le s 1 2 . 7 8 .5 6 .9 5 .3 4 .7 Pr i ce /B o ok Va l u e 1 2 . 0 5 .3 4 .4 3 .4 2 .7 Di vi dend Y ie l d ( %) 0 .1 0 .5 0 .5 0 .8 1 .1
Pr o fit a bilit y Ra tio s (% ) RoE 2 1 . 4 19 . 5 23 . 5 2 4 . 8 23 . 5 RoC E 1 2 . 4 18 . 5 26 . 8 3 3 . 0 31 . 5
Tur n ove r R at i os De bto rs ( Da ys ) 1 50 20 1 1 41 1 04 10 4
B ALA NC E SH EET ( RS M I LLI ON) Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 0 1 0 E S ha re C api ta l 4 1 2 4 7 8 4 9 5 4 9 5 4 9 5 Re s e r v es 2 , 7 66 7 , 7 9 1 9 , 9 7 0 1 2 ,9 7 5 16 ,5 7 1 N e t Wo rt h 3 , 1 78 8 , 2 6 9 1 0 ,4 65 1 3 ,4 7 0 17 ,0 6 6 L o an s 5 , 8 88 6 , 0 5 1 5 , 0 0 0 2 , 0 00 2 , 0 0 0 De ff er e d Ta x L i a b il i ty 2 4 3 4 4 1 5 0 0 5 0 0 5 0 0 Ca p ita l E mpl oye d 9 , 3 09 14 ,7 6 1 1 5 ,9 65 1 5 ,9 7 0 19 ,5 6 6
Cre di to rs . ( Da ys ) 5 1 34 33 3 3 33 As s e t T u rn o ve r ( x) 0 .4 0 .4 0 .5 0 .6 0 .5 Le ve r a ge Ra t io De bt/E qui ty ( x) 1 .9 0 .7 0 .5 0 .1 0 .1
CA SH FLOW S TATE ME NT ( RS M I LLIO N) Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 E PB T b e fo re E O Ite m s 9 42 2 ,4 1 1 3 , 94 3 4 , 95 5 5 ,7 5 7
G ro s s F ixe d A s se ts 3 , 5 09 6 , 0 9 2 6 , 2 0 7 6 , 2 14 6 , 2 2 0 L e s s: De p re c i at io n 2 2 8 3 9 4 61 1 8 2 2 1 , 0 2 8 N e t F ix e d A s s e ts 3 , 2 80 5 , 6 9 8 5 , 5 9 6 5 , 3 91 5 , 1 9 2 Ca p i tal WIP 4 0 6 1 2 5 2 0 0 1 5 0 5 0 Inv e s tme nt s 1 , 1 52 1 , 4 0 3 5 , 1 6 3 5 , 4 93 8 , 7 8 4
Ad d : De p re c i ati o n 1 00 17 1 2 17 21 1 20 5 Inte re s t 1 94 33 2 6 13 2 80 16 0 L es s : Dir e ct Ta xe s P a id 2 83 79 0 1 , 21 2 1 , 64 6 1 ,9 7 9 (I n c )/ De c i n WC -1 ,9 9 8 -1 ,7 9 6 -2 70 1 59 -5 49 CF f ro m Op e r a tion s -1 ,0 4 6 32 8 3 , 29 2 3 , 95 9 3 ,5 9 4 (I n c )/ De c in FA -1 ,4 2 8 -2 ,3 0 8 -1 90 4 3 94 (P ur )/S a l e o f I nve s tm e nts - 83 3 -2 51 -3 ,7 6 0 - 33 0 -3 ,2 9 1 CF f r om Inve s t me nt s -2 ,2 6 1 -2 ,5 5 9 -3 ,9 5 0 - 28 7 -3 ,1 9 7
Cur r . A s s e ts 4 , 7 99 7 , 8 0 8 5 , 3 3 6 5 , 3 80 6 , 0 6 0 In ven tor y 3 9 2 3 0 0 4 9 6 7 2 7 8 1 8 De bto r s 1 , 3 58 3 , 0 3 7 2 , 7 8 8 2 , 5 17 2 , 8 4 2 Ca s h & B a n k B a l an c e 2 , 0 35 3 , 3 3 3 5 6 4 6 8 1 7 6 6 L o an s & Ad v an c e s 1 , 0 14 1 , 1 3 8 1 , 4 8 8 1 , 4 55 1 , 6 3 5
(In c )/D ec i n N etwo r th - 20 8 3 ,4 3 2 -4 58 - 64 7 -8 16 (In c )/De c in De b t 3 , 47 5 16 3 -1 ,0 5 1 -3 ,0 0 0 0 L es s : In te re s t Pa i d 1 94 33 2 6 13 2 80 16 0
Cur r e nt Li a b. & Pr ov. 4 9 3 4 0 7 4 3 5 5 2 1 5 6 8 Cr e di to r s 3 1 3 2 7 5 2 7 6 3 3 0 3 5 8 O the r li a bil i ti es 5 3 1 2 6 1 3 4 1 6 0 1 7 3 P ro v is i o ns 1 2 7 7 26 3 1 3 7 N e t Cur r e nt A s s et s 4 , 3 06 7 , 4 0 0 4 , 9 0 1 4 , 8 59 5 , 4 9 2 M i sc e l la n o u s ex p 1 6 4 1 3 5 1 0 6 7 7 4 8 A pp lic a tion of F und s 9 , 3 08 14 ,7 6 1 1 5 ,9 65 1 5 ,9 7 0 19 ,5 6 6 E : M OS t E s t im at es
D iv id e n d P a i d 4 7 27 2 2 82 3 38 42 2 Oth e r s 1 9 -7 -2 71 3 4 24 1 CF f r om Fin. A c tivit y 3 , 13 9 3 ,5 2 9 -2 ,1 1 1 -3 ,5 5 5 -3 12
Inc /D e c of Ca s h - 16 7 1 ,2 9 8 -2 ,7 6 9 1 17 84 Ad d : B e g in n i n g B a la n c e 2 , 20 2 2 ,0 3 5 3 , 33 3 5 64 68 1 Clos ing Balance 2 , 03 5 3 ,3 3 3 5 64 6 81 76 6 E: MO S t E st i m at es
22 January 2008
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In-depth
H T Media
HTML IN
RE UTER S C OD E
22 January 2008
Initiating Coverage
Buy
Rs191
HTML.BO
Y/ E M AR C H 2 00 7 20 0 8 E 2 00 9 E 2 0 10 E
Sales (Rs m) 10,393 12,135 14,264 16,663 EBITDA (Rs m) 1,905 2,294 3,021 3,823 NP (Rs m) 1,156 1,401 1,954 2,522 EPS (Rs) 4.9 6.0 8.3 10.8 EPS Growth (%) 91.7 21.5 39.5 29.1 BV/Share (Rs) 33.5 39.0 46.3 55.6 P/E (x) 38.9 32.0 23.0 17.8 P/BV (x) 5.7 4.9 4.1 3.4 EV/EBITDA (x) 21.9 17.7 13.3 10.3 EV/Sales (x) 4.0 3.3 2.8 2.4 RoE (%) 14.7 15.4 18.0 19.4 RoCE (%) 15.1 16.2 18.8 20.3
HT Media is emerging as an integrated media house with strong presence in dailies English ( industan Times), Hindi (Hindustan) and business H (Mint), and FM radio (Fever104FM) with plans to launch new online ventures. We expect ad revenues to grow at a CAGR of 19% over FY07-10 with PAT CAGR of 30%. We believe, strong free cash flows and expected ramp-up in HT Mumbai and Hindustanwill help sustain premium valuations. We initiate coverage with SOTP based target price of Rs 289, upside of 51%. HT Mumbai likely to turnaround by FY09: HT is gradually adding content in HT Mumbai which would enable it achieve circulation of 400,000 and operating profit turnaround by FY09. This would enable 26% CAGR in ad revenues for HT Mumbai and 14% for English dailies over FY07-10. De-merger of Hindustan to see faster expansion: HT is de-merging its Hindi business into a separate subsidiary. HT has plans to launch 14 more editions ofHindustanto exploit the huge circulation and ad revenue potential in the Hindi market. We expect Hindustan ad revenues to increase at a CAGR of 27% over FY07-10. We expect HT Media to divest some stake in Hindustanwhich would unlock shareholder value. Mintand Fever 104FM to remain in investment mode: Mint- the financial daily from HT Media, has emerged as the second largest daily with plans to reach a penetration of 10-12 cities by FY09-10. Fever 104 FM is expected to increase its geographical reach after next round of FM station bidding. We expect these businesses to turn around by FY10.
STO CK PER FOR M A NCE (ON E Y EA R)
K EY FINA NCI ALS
Shares Outstanding (m) 234 Market Cap. (Rs b) 42.4 Market Cap. (US$ b) 1.1 Past 2 years Sales Growth (%) 29.0 Past 2 years NP Growth (%) 105.0 Dividend Payout (%) 6.1 Dividend Yield (%) 0.2
S TOCK D ATA
270 240 210 180 150
HT Media (Rs) LHS
50 30 10 -10 -30
Average Daily Turnover Volume ('000 shares) 176.0 Value (Rs million) 36.5 1/6/12 Month Rel. Performance (%) -9/-23/-5 1/6/12 Month Abs. Performance (%) -22/-17/13
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
22 January 2008
39
H T Media
Readying for pan-India presence HT Media emerging as integrated media house HT Media is one of the largest print media companies in the country with two of its newspapers ( Hindustanand Hindustan Time ) ranking in the Top Ten read newspapers s as per readership survey 2007 R1. The company is a market leader in Delhi (HT), Bihar and Jharkhand (Hindustan) and has emerged as second largest in financial dailies ( Mint).
Daink Jagran 17,473 19,071 17,114 16,502 Dainik Bhaskar 13,810 14,571 12,514 12,823 Hindustan 8,192 9,724 9,052 8,551 Amar Ujala 9,276 9,894 8,255 8,075 TOI 7,041 7,084 6,781 6,828 HT 3,276 3,508 3,331 3,319 The Hindu 2,661 2,797 2,209 2,237 Deccan Chronicle 1,029 1,132 1,311 1,260 Source: Industry/Motilal Oswal Securities
HT Media has extended its presence to five verticals. The company has launched the Mumbai edition of HT and four editions of Hindustanin UP (Meerut, Kanpur, Varanasi and Agra). In addition the company has launched Mint, a new business daily and Fever 104 an FM channel, and Firefly e-ventures an internet foray. Launches of Mintand FM radio have added two new verticals for the company. The company has aggressive plans for geographical expansion in existing verticals such as Hindustan, Fever 104 FM, Mintand internet, which will enable it to emerge as an integrated pan-India media house.
HT: NE W V ER TI C AL S AND R ESP EC TI VE E X PANS ION P LA NS EN GLIS H D A ILY HI NDI DA ILY B US INE SS D AI LY M AGA Z IN ES RA D IO
Brand
Hindustan Hindustan Mint Nandan Fever 104 FM Times Kadambaini
Edition
Delhi Delhi Delhi National Delhi
Mumbai Lucknow Mumbai Mumbai Kolkata Patna Bangalore Bangalore Lucknow Ranchi Patna Meerut Ranchi Kanpur Varanasi Agra Expansion in UP Chennai Hyderabad Kolkata Chandigarh Source: Company/Motilal Oswal Securities 14 editions Kolkata Kolkata
22 January 2008
40
H T Media
HT Mumbai & Delhi, key to ad revenue growth in the English daily HT Medias Hindustan Times is the second largest selling English daily in India. The company has a well spread out presence in northern India, Bihar, parts of UP, Kolkata and Mumbai. The company had extended its presence to several areas in Punjab, Haryana and Mumbai over the past few years. HTs English offering has seen a significant revamp in recent years with several supplements throughout the week targeting specific readers.
SUP PLE ME NTS OF ' THE HIND US TA N TIM E S' F RE QUE NCY PO SI TI ONI NG
HT Style/caf Daily Fun and Entertainment HT Horizons Wednesdays Education HT Power Jobs Tuesdays Career HT Estate Saturdays Property Brunch Sundays Lifestyle HT Classifieds Sundays Classified HT Local Lives Various Focus on local content HT Business Daily Business & Economic news Source: Company/Motilal Oswal Securities
RE AD E RS HIP 2006 R1 2006 R2 2007 R1 2007 R 2
TOI 7,084 6,919 6,781 6,828 Hindustan Times 3,508 3,501 3,331 3,319 Deccan Chronicle 1,132 969 1,311 1,260 Telegraph 1,082 1,008 919 1,015 ET 868 789 774 774 Mumbai Mirror 1,117 943 735 752 DNA 443 539 632 Tribune 483 518 539 539 Source: Industry/Motilal Oswal Securities
Entry into Mumbai has been very significant as Mumbai and Delhi account for 50% of print media advertising in India. A lions share of this revenue goes to the English dailies TOI and HT have the highest readership which hold sway in these cities. While TOI has been a dominant player in Mumbai, HT has been leading the English newspaper market in Delhi. HT has circulation of 900,000 in Delhi and 300,000 in Mumbai while TOIs circulation is 750,000 (Mumbai) and 550,000 (Delhi). Mumbai has been a monopoly market for TOI which has enabled the company to enjoy high subscription prices of Rs2.53.0 per copy and premium advertising rates (nearly double the rates in Delhi). But the scenario today has come full circle; HT entered Mumbai in 2005 and has achieved a circulation of 3,15,000 based on substantial subscription-based discount schemes.
22 January 2008
41
H T Media
M UM BA I - R EA DE RS HIP ( 00 0) 2 006 R 2
TOI Mumbai Mirror Midday DNA HT ET Indian Express
1,667 728 561 409 271 157 105 Source: Industry/Motilal Oswal Securities
HT has emerged as the third largest English daily in Mumbai after TOI and DNA. The company plans to gradually increase circulation and emerge as the second largest player trailing TOI over the next 12 months. Although the circulation figures for TOI, DNA and HT stand at 0.55, 0.4 and 0.31m in Mumbai, the readership figures are in favor of TOI as we note each copy is being read by more than 3.5 persons versus merely 1 reader for HT, indicating TOIs popularity. HTs circulation in Mumbai is built around subscription schemes, which offer consumers a 70% discount plus freebies. Newsstand circulation of HTin Mumbai continues to be poor as TOI continues to lead. HT has been able to offer good quality content to the readers, although it is the second English newspaper in most homes. HT continues to enrich its content and has added HT Caf and HT Business which has been well received. TOI has launched Mumbai Mirror which has resulted in severe pressure on MidDayon the one hand and a sharp reduction in TOIs profitability in Mumbai. HT, although ranked third in terms of circulation, has been able to garner better advertising than DNA, as HT can offer a package comprising Mumbai and Delhi to advertisers. The Mumbai ad market contributes around Rs1b to total ad revenues of the company in comparison with Rs200-Rs250m before launch of the local edition Although ad rates in Mumbai continue to command a premium over Delhi ad rates, this premium has narrowed to 50% v/s 100% earlier. We expect the gap to narrow down further. HT net circulation revenues have been very low to negative implying that the high marketing costs have resulted in Mumbai operations posting a loss in FY07. HT management expects it to emerge as the second largest circulated newspaper in Mumbai in another 12-15 months, although TOI will continue to be the leader in Mumbai in the foreseeable future. We expect the delta to work in favor of the company owing to higher inventory utilization in the Mumbai market, which has the highest ad rates in India.
22 January 2008
42
H T Media
DE LHI R EA D ER SHI P (' OOO)
2,200
TOI HT
2,050
1,900 1,750 1,600 2005 R1 2005 R2 2006 R1 2006 R2 2007 R1

TOI has surpassed HTs readership levels in Delhi for the first time during the last survey, which is a negative for HT given TOIs strong position in the Mumbai market. Management appears confident of holding on to its forte in the Delhi market. The Delhi market has witnessed entry of Mid-Day; and DNA has definite plans to enter this market. Delhi is a very competitive market and it would be tough for any new entrant to establish itself. Both HT and TOI have jointly increased the newspaper price from Re1 to Rs1.5 in the Delhi market. Additionally, HT and TOI have launched a daily tabloid,Metr in Delhi o to safeguard against entry of new players. Management believes that both HT and TOI will continue to lead the Delhi market. We expect 14% CAGR in ad revenues of HT (English daily) from an estimated Rs7.3b in FY07 to Rs10.8b in FY2010. Ad revenues from Mumbai are expected to grow at 27% while that from Delhi would increase at 12% per annum. We expect HTs Mumbai operations to turn around by FY09. Hindustan de-merger to harness full potential Hindustanthe Hindi newspaper from HT Media is the third largest Hindi newspaper in India. Hindustan is the market leader in Bihar and Jharkhand with a huge gap in readership versus its nearest competitors i.e. Prabhat Khabar and Dainik Jagran. HT has decided to demerge the operations of Hindustan into a separate subsidiary. The demerger would result in a sharper focus on the Hindi newspaper segment, which is expected to grow ahead of the English newspapers.
AV ER A GE D AI LY R EA DE R SHI P (' 000 ) 2005 R 1 20 06 R 1 2007 R1 2007 R2
Daink Jagran 17,473 19,071 17,114 16,502 Dainik Bhaskar 13,810 14,571 12,514 12,823 Hindustan 8,192 9,724 9,052 8,551 Amar Ujala 9,276 9,894 8,255 8,075 Rajasthan Patrika 6,309 6,714 6,946 7,402 Source: Industry/Motilal Oswal Securities
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H T Media
CI RC ULA TI ON OF HI NDU STA N (' 000) UP B IHA R
12,000 9,000 6,000 3,000 0
Hindustan Dainik Jagran Amar Ujala Aj
Hindustan Dainik Jagran Prabhat Khabar Aj 6,000 4,500 3,000 1,500 0
2005 R2 2006 R1 2006 R2 2007 R1

JHA RKH AND D ELH I
2005 R2 2006 R1 2006 R2 2007 R1
Hindustan Dainik Jagran Prabhat Khabar 1,300 1,150 1,000 850 700 2005 R2 2006 R1 2006 R2 2007 R1 2,000 1,500 1,000 500 0
Hindustan Dainik Jagran Navbharat Times Punjab Kesari
2005 R2 2006 R1 2006 R2 2007 R1

SUP PLE M ENT S OF HIN DUS TA N SUP P LEM E NT S LOC AT IONS FR E QUEN CY POS I TI ONI NG
Hindustan City New Delhi, Lucknow, Thursday, Friday, Film and Fashion Patna and Ranchi Saturday and Sunday Nai Dishayen Patna, Ranchi and Thursday and Wednesday Education/Careers Lucknow, Varanasi Ravi Utsav All HH editions Sunday Life Style Rangoli New Delhi and Wednesday and Film music and All HH edition Saturday entertainment Angna Patna, Ranchi and Wednesday Local Supplement Lucknow Pratibimb Patna Thursday Local Supplement Aadab Lucknow Lucknow Thursday Local Supplement Subeh Banaras Varanasi Friday Local Supplement Source: Company/Motilal Oswal Securitie
The Hindi newspaper market offers huge potential, as there are 359m people in India who can read and understand a language but do not read any newspaper. Of these: (1) 68% can read Hindi; (2) 20m belong to SEC A and B of the consumer class and affordability is not a constraint. In addition, Hindi newspapers are a strong demographic play, as the key states such as UP, Bihar, Rajasthan, Madhya Pradesh, which are Hindi speaking, have amongst the lowest literacy rates. Rising per capita income and improving availability of newspaper will increase newspaper circulation.
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H T Media
DE M OGRA PHI C S - FA VOR A BLE F OR SU STAI NED C IR CU LATI ON GR OWTH STATE E DI TI ON S C IR CULAT ION LI TE RA C Y * R UR AL ( %)* PE R CA PI TA BEL OW
(M ) RA TE % POP ULA TIO N INC OM E * POV E R TY LI NE %
Uttar Pradesh+ 1.27 56.3 79.2 10,289 31.2 Bihar++ 0.36 47.0 89.5 6,015 42.6 Delhi 0.30 81.7 7.0 47,477 8.2 Punjab 0.03 69.7 66.0 25,855 6.2 Haryana 0.13 67.9 71.0 26,632 8.7 Madhya Pradesh 63.7 73.3 11,438 37.4 Rajasthan 60.4 76.6 12,753 15.3 Indian Average 64.8 72.2 23,224 26.1 * Statistical Online of India, Census 2001 Figures, ** associates, + including Uttaranchal, ++ including Jharkhand Source: Company/Motilal Oswal Securitie
The Hindi newspaper market offers huge potential and this is reflected in higher sales growth in the adspace in the Hindi genre in comparison to English dailies. We expect this trend to gain further momentum in the coming years as rising incomes result in improving purchasing power of the Hindi newspaper readers. We expect rising advertising interest from large advertisers for Hindi newspaper readers. We expect this trend to result in higher ad rate growth in the Hindi genre versus the English genre ahead.
GR OWTH I N AD SPA CE ( %) F Y 05 F Y0 6
English Newspaper 3 4 Hindi Newspaper 13 11 Source: Company/Motilal Oswal Securitie
Higher advertising growth and huge potential offered by the Hindi market has resulted in a radical shift in management strategy to increase focus on this segment. HT Media is hiving off its Hindi business into a 100% subsidiary. The company has plans to launch 14 more editions of Hindustanin Uttar Pradesh in the next two years utilizing capex of Rs2b. The company has launched the Kanpur, Varanasi, Meerut and Agra editions during the past year. It is looking at an incremental circulation of 1m from the planned editions. The company has plans to emerge as a strong No.2 in the UP and Delhi market. Long term plans include an entry in Madhya Pradesh and Rajasthan market. Entry into new markets is unlikely to result in significant pressure on margins as the company is not undercutting prices in order to gain circulation. Management is focusing on the superior content of Hindustan , which would increase the circulation. Launch of the 14 new editions in UP will enable Hindustan to offer a much larger platform to advertisers as it already has a strong presence in Delhi, Bihar and Jharkhand. We expect Hindustansad revenues to grow at a CAGR of 26% over FY07-10 from an estimated Rs1.5b in FY07 to Rs2.95b in FY10. We expect HT Media to divest stake in this company at a future date, which will unlock shareholder value and fund investments.
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New media verticals (1) Mint smart beginning: HT Media has ventured into a Rs5b advertising opportunity with the launch ofMint, the maiden entry of the group in financial dailies. Financial dailies offer a good opportunity as the advertising rates per thousand are nearly 7 times that of English dailies mainly due to lower circulation despite 40% lower advertising rates per square cm. ET ( Economic Times ) leads the financial dailies with a circulation of nearly 0.9m copies daily while BL ( Business Line ) has been the second largest business daily.
BUS INE SS D AI LIE S ET LEA DS THE WA Y (C OPI ES -MI LLI ON)
1.0
Circulation Readership
0.8
0.5
0.3
0.0 ET BL FE BS
The company has tied up with Wall Street Journalfor global content and the product has already emerged as a clear No.2 amongst financial dailies in less than one year. Minthas been launched in Mumbai, Delhi and Bangalore and has achieved a daily circulation of more than 1,20,000 copies. The key differentiating factors working in favor of Mintare; Superior newsprint quality and easily manageable Berliner size Focus on quality content Premium positioning with few advertisements in the main content pages Backed by a high powered website www.livemint.com Lifestyle section on the weekends ( Mint Lounge ) Minthas been positioned as a premium offering amongst business dailies with advertising rates at a 10% premium over market leader, Economic Times . Mintwas launched in Bangalore recently and plans include the launch of Mintin Chennai followed by Kolkata and 10 more big cities over a period of the next two years. Incremental costs on the launch of Mintin new cities are expected to be low as the content in business dailies is national and international and the company would require only local printing and distribution. Management has hinted at sustaining investments with brand Mint to make it a profitable premium financial daily.
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We expect the company to increase the price of Mint in FY09 once it is rolled out in more cities. Minthas already caught the attention of the savvy advertisers due to its premium positioning. Current advertisers include financial institutions, airlines and some executive lifestyle products and services. We estimate Mintto have ad:edit ratio of 15% by FY0910. We believe that while the brand has made a good beginning, it will turn profitable by FY2010.
RE VE NUE GR OWT H B AC K B Y RI SI NG CI R CULA TI ON
180
Circulation ('000)
Revenues (Rs m)
1,000
160
800
140
600
120
400
100 FY08E FY09E FY10E

200
(2) Fever 104 FM long term play: HT Media has entered the FM radio market in a tie-up with Virgin Radio. HT Media has 75% stake in Fever 104FM, which has started FM radio stations in Mumbai, Delhi and Bangalore while the operations in Kolkata are expected to commence shortly. HT has acquired the FM license at a one-time fee of Rs750m for 10 years and 4% revenue share. We believe that entry into the radio business offers excellent growth potential and is a step forward in its quest to emerge as an integrated media house: Radio is a free-to-air medium with 99% penetration but low switching costs. Free to air medium with high penetration in emerging middle class consumers will make radio one of the preferred advertising mediums for the interiors and rural areas. Low mindshare involvement and free portability will ensure rising listenership levels as the audience spend more time out of home. Flexibility to listen to radio while working, traveling etc will ensure that the listener ship hours increase significantly over the coming few years. Rising importance of radio is expected to result in strong growth in advertising revenues. Radio industry attracts Rs5b as advertising and has 3% share in the advertising market. PWC expects the radio advertising pie to increase to 17b to 2011 and with more than 5% of the advertising share. Fever 104FM has been positioned as a channel targeting 18-30 years of age group with contemporary programming. Fever 104FM has 10% English and 90% Hindi music with ad time of 10min/hour. The company claims to have achieved 10-14% volume share and position amongst the top three players in Delhi and Bangalore; with similar expectations
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H T Media
for Mumbai. The advertising rates of Fever 104FM are Rs600/10sec which is at 50% discount to market leader Radio Mirchi. The ad utilization rates are 60% in Delhi while it is at 20-25% in Mumbai. Breakeven is expected at ad revenues of Rs12m/month in Mumbai and Delhi and Rs8m/month in Bangalore and Kolkata.
RE VE NUE BR EA KUP S TATI ON WIS E (R S M ) RE V EN UES F Y0 8 E F Y0 9 E F Y1 0 E
Delhi 132 177 227 Mumbai 70 123 195 Bangalore 55 87 120 Kolkata 39 69 95 Total revenues 297 457 637 Source: Company/Motilal Oswal Securities
Fever 104FM has entered the most lucrative markets like Mumbai, Delhi, Bangalore and Kolkata, which account for 40% of the total radio advertising revenue. The company has plans to bid for some more cities in the next round of bidding for FM stations. Management expects Delhi FM business to achieve breakeven in another quarter. We expect the radio business to achieve EBITDA breakeven by FY09 and turn PBT positive by FY2010. Launch of new FM stations can delay breakeven for Fever 104FM.
FEV ER 104F M EB ITD A POS IT IV E B Y F Y09 (R S M )
750
Revenues (LHS) EBIDTA (LHS) PBT (RHS)
80
500
250
-80
-160
-250 FY08E FY09E FY10E
-240
(3) Internet venture to expand significantly:HT Medias subsidiary Firefly e-ventures deals with initiatives in internet space. HT Media has been planning a host of internet initiatives in this vertical that include websites for jobs, matrimonial and social networking. Recently, the company has acquired Desimartin.com, a social networking website. The sites could be free initially but some such as matrimonial and jobs can go pay ahead. The company has a huge database in areas such as jobs, matrimony and classifieds, which can be harnessed on these sites. HT Media already has websites like Livemint.com, Hindustan.com and Hindustan Times.com, which would continue to operate under HT Media itself. New websites to be launched by Firefly e-ventures will compete with players like Bharat Matrimony.com, Shaadi.com, Naukri.com and Jobstreet.com. The company has not given any details of the investments in this subsidiary. Consequently our numbers do not factor in any impact of investments or benefits from these ventures.
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H T Media
Advertising revenues to grow steadily HT Media has reported 27% CAGR in ad revenues in the past three years. English dailies led by Delhi edition, has been the mainstay in advertising. We estimate, English dailies contribute nearly 83% to the companys total advertising revenues. We expect Hindustan Times advertising revenues to grow at a CAGR of 14% for the next three years on the back of steady performance in Delhi and strong traction building up in subscription-based circulation in Mumbai. Hindustanis currently in an investment mode and the company has plans to add more than 14 editions (mainly in UP) post de-merger of the Hindi business of the company. We expect growing presence in UP and rising importance of Hindi market to provide 26% CAGR in ad revenues in the coming three years. Mint has started getting advertisements and the product has achieved circulation of 1,15,000. Circulation is expected to increase further as the company has plans to launch products in another 10 cities in the coming 2-3 years. The company has positioned Mintas a premium product with 10% higher ad rates v/s the market leader. We expect Mintto report revenues of Rs257m by FY09. We also expect HT Media to post ad revenue CAGR of 19% in FY07-10. HT will continue to be the mainstay in advertising although its ad revenue share will decline from 83% to 80% in FY07-10.
ST EA DY R EV ENUE GR OWTH R EV ENUE M IX
20
Ad Revenues (Rs b) 100%
HT HS Mint
15 75% 10 50%
25% 0%
Favorable revenue mix to boost EBITDA margins HT Media derives 84% of its consolidated revenues from advertising; while circulation constitutes a mere 13% of the revenues due to the highly competitive scenario in the English dailies. Subscription-based entry strategy in Mumbai, Mintand UP has also contributed to the low increase in circulation revenues for the company.
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H T Media
RE VE NUE M I X - DO MI NA NCE OF AD RE VE NUE S TO IN CR EA SE
FY2007
Job Work 3%
Circulation Revenue 13%
FY2010
Job Work 1%
Circulation Revenue 11%
Advertising Revenue 84%
Advertising Revenue 88%
Circulation revenues of HT Media have increased at 8.2% in FY04-07 as the low subscription-based model impacted revenues despite price increase in Delhi. We expect circulation revenues to grow at 10% CAGR during FY07-10, due to the planned launch of 14 new editions of Hindustan in UP targeting incremental sales of 1m copies daily. Circulation revenue contribution to sales is expected to decline to 11%. We expect the rising proportion of ad revenues to increase EBITDA margin steadily in the coming years. The company has reported EBITDA margin expansion of 420bp in the past two years. We expect margins to expand by a further 460bp in FY07-10. We expect EBITDA to increase at a CAGR of 27% for FY07-10.
EB ITD A M AR GIN TO E XPA ND
EBIDTA m)
(Rs
EBIDTA (%)
Margin
30
25
20
15
0 FY05 FY06 FY07 FY08E FY09E FY10E FY11E

10
HT to remain in investment mode; 30% PAT CAGR over FY07-10 We expect strong growth in ad revenues to boost EBITDA margins in forthcoming years. HT Media has entered an investment mode, which is likely to continue in the years ahead. The company has indicated its intention to invest in new properties such as Mint, HT Mumbai, Fever 104FM and new launches of Hindustan.
50
22 January 2008
H T Media
FINA NC IA LS (R S M ) F Y 06 FY 0 7 F Y 0 8E F Y 0 9E F Y1 0 E
Advertising Revenue 6,550 8,767 10,426 12,427 14,619 Hindustan Times 5,631 7,267 8,293 9,476 10,801 Hindustan 918 1,488 1,896 2,381 2,952 Mint 0 12 236 569 865 Circulation Revenue 1,359 1,337 1,495 1,621 1,825 Others 290 274 214 217 220 Total 8,237 10,393 12,135 14,264 16,663 EBIDTA 1,184 1,905 2,294 3,103 3,917 Margin (%) 14.4 18.3 18.9 21.8 23.5
PAT 602 1,148 1,428 2,011 2,609 Margin (%) 7.1 10.6 11.5 13.7 15.3 Source: Company/Motilal Oswal Securities
HT Mumbai is expected to show substantial traction in ad revenues in the coming 12-15 months, once the subscription level crosses the 0.4m level. Although the new Hindustan editions in UP and Mintwill start contributing positively by FY09 and FY10, the high marketing expenses and losses will reduce by FY09. We expect the company to sustain PAT CAGR of 30% for FY07-10 as new initiatives start contributing gradually. Initiating coverage with a Buy HT Media's profit growth has been below expectation due to new investments in Mintand lower ad growth in real estate and automobiles sector. In addition a delayed Diwali has impacted performance in 2QFY08. We expect the companys performance to bounce back in the coming quarters due to the impact of Diwali and improving ad ratio across properties.
FINA NC IA LS I NDI CA TOR S
48
EPS (Rs-LHS) P/E (x-LHS) PAT Growth (%RHS)
240
36 24
180 120
12 0 FY07 FY08E FY09E FY10E

60 0
We believe that the low profit growth has resulted in 32% relative underperformance in the past six months. The stock is trading at a 21.7x FY09 and 16.8x FY10 after adjusting Rs15/ per share as the value of radio business. We expect the premium valuations to sustain due to company presence across verticals and huge free cash flow generating potential in the long term. Our estimates do not factor the internet business of the company. We value the stock at Rs289 per share, which includes the radio business at Rs15 per share. We initiate coverage with a target price of Rs289, an upside of 60%.
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H T Media
IN COM E STAT EM ENT (S TAN DA LONE ) ( R S M ILLI ON) Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 10 E N e t Sa le s 8 , 2 37 10 ,3 9 3 1 2 ,1 35 1 4 ,2 6 4 16 ,6 6 3 Ch a n g e ( %) 3 1 .9 2 6 .2 1 6 .8 1 7 .5 1 6 .8 Co s t o f P ro d u cti o n 4 , 2 52 5 , 2 2 8 5 , 7 9 3 6 , 4 19 7 , 3 6 7 S ta ff C os t 1 , 1 84 1 , 4 7 7 1 , 7 8 7 2 ,1 1 4 2 , 3 4 6 S GA E xp e n s es 1 , 6 17 1 , 7 8 4 2 , 2 6 2 2 , 7 09 3 , 1 2 7
RAT IO S Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 E B as ic (R s) A dj us t ed E P S 2 .6 4 .9 6 .0 8 .3 10 . 8 Gr ow th (%) 4 1 . 1 91 . 7 21 . 5 3 9 . 5 29 . 1 Cas h E P S 2 .3 6 .6 7 .8 1 0 . 9 14 . 0 Bo o k V a lu e 2 0 . 7 33 . 5 39 . 0 4 6 . 3 55 . 6 DPS 1 .0 0 .3 0 .4 0 .8 1 .3
E BI T D A 1 , 1 84 1 , 9 0 5 2 , 2 9 4 3 , 0 21 3 , 8 2 3 % of Net S al es 1 4 .4 1 8 .3 1 8 .9 2 1 .2 2 2 .9
Pa yo u t ( in c l. Div . Ta x.) 7 .4 6 .1 7 .0 1 0 . 0 12 . 0 Va lu a tio n ( x ) P/ E 7 4 . 5 38 . 9 32 . 0 2 3 . 0 17 . 8 Cas h P /E 8 4 . 4 28 . 9 24 . 4 1 7 . 6 13 . 7 EV / E BI T DA 5 2 . 5 21 . 9 17 . 7 1 3 . 3 10 . 3 EV /S a le s 7 .5 4 .0 3 .3 2 .8 2 .4 Pr i ce /B o ok Va l u e 9 .2 5 .7 4 .9 4 .1 3 .4 Di vi dend Y ie l d ( %) 0 .5 0 .2 0 .2 0 .4 0 .7 Pr o fit a bilit y Ra tio s (% ) RoE 5 .4 14 . 7 15 . 4 1 8 . 0 19 . 4 RoC E 8 .9 15 . 1 16 . 2 1 8 . 8 20 . 3 Tur n ove r R at i os De bto rs ( Da ys ) 5 4 51 55 5 6 56
De p re c i ati o n 3 8 5 3 9 7 4 3 5 5 9 0 7 5 6 Inte r e s t 1 3 5 1 4 3 1 7 3 1 2 9 11 6 O th e r In c o m e 1 7 7 4 0 3 3 1 5 4 1 2 4 1 2 PB T 8 4 1 1 , 7 6 8 2 , 0 0 1 2 , 7 14 3 , 3 6 2 T ax 2 3 9 6 1 4 6 0 0 7 6 0 8 4 1 R at e ( %) 2 8 .4 3 4 .8 3 0 .0 2 8 .0 2 5 .0 A dju ste d P AT 6 0 2 1 , 1 5 3 1 , 4 0 1 1 , 9 54 2 , 5 2 2 E xtr a -o r dina r y E xpe ns e s -2 2 9 3 0 0 0 Re por te d PA T 3 7 3 1 , 1 5 6 1 , 4 0 1 1 , 9 54 2 , 5 2 2 Ch a n g e ( %) 3 6 .3 2 1 0 .1 2 1 .2 3 9 .5 2 9 .1
B ALA NC E SH EET ( RS M I LLI ON) Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 10 E S ha re C api ta l 6 6 8 4 6 8 4 6 8 4 6 8 4 6 8 Re s e r v es 6 , 2 64 7 , 3 7 0 8 , 6 5 6 1 0 ,3 8 1 12 ,5 4 6 N e t Wo rt h 6 , 9 32 7 , 8 3 8 9 , 1 2 4 1 0 ,8 4 9 13 ,0 1 5 L o an s 1 , 6 96 1 , 7 8 2 1 , 9 2 0 1 , 5 20 1 , 3 7 0 De ff er e d Ta x L i a b il i ty 2 9 6 3 4 6 4 4 6 5 8 2 7 5 0 Ca p ita l E mpl oye d 8 , 9 24 9 , 9 6 6 1 1 ,4 90 1 2 ,9 5 1 15 ,1 3 5
Inv e nto r y ( D a ys ) 4 8 36 35 3 3 33 Cre di to rs . ( Da ys ) 6 8 53 51 4 9 49 Le ve r a ge Ra t io De bt/E qui ty ( x) 0 .2 0 .2 0 .2 0 .1 0 .1
CA SH FLOW S TATE ME NT ( RS M I LLIO N) Y/ E M AR C H 2 0 06 20 0 7 E 20 0 8 E 2 0 0 9 E 20 1 0 E PB T b e fo re E O Ite m s 8 41 1 ,7 6 8 2 , 00 1 2 , 71 4 3 ,3 6 2 Ad d : De p re c i ati o n 3 85 39 7 4 35 5 90 75 6
G ro s s F ixe d A s se ts 4 , 3 88 4 , 6 1 9 5 ,1 1 9 6 , 9 44 8 , 8 9 4 L e s s: De p re c i at io n 6 6 2 1 , 0 0 7 1 , 4 4 2 2 , 0 32 2 , 7 8 8 N e t F ix e d A s s e ts 3 , 7 26 3 , 6 1 1 3 , 6 7 6 4 , 9 11 6 , 1 0 5 Ca p i tal WIP 11 1 3 0 1 3 0 1 3 0 1 3 0 In ta n g ib l e As s e ts 1 8 2 3 4 6 3 4 6 3 4 6 3 4 6 Inv e s tme nt s 8 6 1 3 , 9 4 7 5 , 6 7 2 5 , 6 60 6 , 3 7 9
Inte re s t 1 35 14 3 1 73 1 29 1 16 L es s : Dir e ct Ta xe s P a id 6 5 56 9 5 00 6 24 67 2 In cr e as e i n W C 9 83 -5 97 3 26 1 60 17 4 CF f ro m Op e r a tion s 3 13 2 ,3 3 6 1 , 78 2 2 , 64 9 3 ,3 8 8
(I n c )/ De c in FA - 32 3 -5 66 -5 00 -1 ,8 2 5 -1 ,9 5 0 (P ur )/S a l e o f I nve s tm e nts 1 48 -3 ,0 8 6 -1 ,7 2 4 1 1 -7 19
Cur r . A s s e ts 5 , 9 53 3 , 8 1 7 3 , 7 8 2 4 , 3 51 5 , 0 4 7 In ven tor y 1 , 0 85 1 , 0 1 9 1 , 1 7 6 1 , 2 99 1 , 4 8 9 De bto r s 1 , 2 12 1 , 4 6 5 1 , 8 3 7 2 , 1 76 2 , 5 5 3 Ca s h & B a n k B a l an c e 2 , 6 78 1 , 0 6 2 4 7 1 5 4 8 6 4 4 L o an s & Ad v an c e s 9 7 9 2 7 1 2 9 8 3 2 8 3 6 1
CF f r om Inve s t me nt s - 17 6 -3 ,6 5 2 -2 ,2 2 4 -1 ,8 1 4 -2 ,6 6 9
(In c )/D ec i n N etwo r th 2 , 54 6 -2 82 -1 29 - 32 1 -5 42 (In c )/De c in De b t - 20 86 1 38 - 40 0 -1 50 L es s : In te re s t Pa i d 1 35 14 3 1 73 1 29 1 16 D iv id e n d P a i d 6 4 82 1 1 5 2 29 35 4
Cur r e nt Li a b. & Pr ov. 1 , 8 09 1 , 8 8 6 2 , 1 1 5 2 , 4 47 2 , 8 7 2 Cr e di to r s 1 ,3 1 1 1 , 2 2 6 1 , 3 6 8 1 , 5 16 1 , 7 3 9 O the r Lia bi li ti e s 1 9 6 2 8 7 2 9 1 2 9 5 3 0 2 P ro v is i o ns 3 0 2 3 7 3 4 5 7 6 3 6 8 3 1 N e t Cur r e nt A s s et s 4 , 1 44 1 , 9 3 1 1 , 6 6 6 1 , 9 03 2 , 1 7 4 A p p li c a tio n o f Fu n d s 8 , 9 24 9 , 9 6 6 1 1 , 4 9 1 1 2 ,9 5 1 15 ,1 3 5 E : M OS t E s t im at es
Oth e r s - 27 4 12 1 1 30 3 21 54 0 CF f r om Fin. A c tivit y 2 , 05 2 -2 99 -1 49 - 75 8 -6 23
Inc /D e c of Ca s h 2 , 18 9 -1 ,6 1 6 -5 91 7 7 96 Ad d : B e g in n i n g B a la n c e 4 89 2 ,6 7 8 1 , 06 2 4 71 54 8 Clos ing Balance 2 , 67 8 1 ,0 6 2 4 71 5 48 64 4
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In-depth
Jagran Prakashan
JAGP IN
RE UTER S C OD E
22 January 2008
Initiating Coverage
Buy
Rs123
JAGP.BO
Y/ E M AR C H 2 00 7 20 0 8 E 2 00 9 E 2 0 10 E
Net Sales (Rs m) 5,982 7,981 9,876 11,945 EBITDA (Rs m) 1,198 2,072 2,801 3,629 NP (Rs m) 762 1,190 1,661 2,253 EPS (Rs) 2.5 4.0 5.5 7.5 EPS Growth (%) 100.4 56.2 39.5 35.7 BV/Share (Rs) 17.0 18.6 21.8 26.9 P/E (x) 48.8 31.2 22.4 16.5 P/BV (x) 7.3 6.6 5.7 4.6 EV/EBITDA (x) 31.1 18.0 13.2 9.8 EV/ Sales (x) 6.2 4.7 3.7 3.0 RoE (%) 14.9 21.3 25.3 27.8 RoCE (%) 18.4 27.0 34.0 38.9
Market leadership position to ensure steady ad growth: Jagran is well placed to leverage leadership in the Hindi newspaper segment. We believe that Jagran will be a big beneficiary of higher ad rate growth in the Hindi v/s English market (ad rates are 9x Hindi ad rates) due to favorable demographics. In addition, rising inventory utilization in loss making editions (8 - Punjab, Haryana), increasing proportion of color and local ads and the buoyant economy will ensure 23% CAGR in ad revenue over FY07-10. New initiatives hold long term potential: Jagran has started new initiatives likeCity Plus(weekly infotainment paper) andI(bilingual Next daily), which are likely to report turnaround for existing editions in FY09. In addition the company has entered into a tie-up with TV18 to launch Indias first Hindi business daily, which will harness Jagrans distribution strengths. Its OOH and event management businesses are expected to turnaround in FY09 at revenue levels of Rs900m. Long term potential in OOH appears exciting due to technical support from INM and 16-18% CAGR in industry ad revenues. 40% PAT CAGR likely; initiating coverage with Buy: Strong growth in ad revenue and lower newsprint prices (150-170bp impact in FY08) will enable 1,000bp margin expansion over FY07-10. We estimate PAT growth of 43% over FY07-10. We believe, Jagran is the best play on the Hindi print market with presence in fast-growth new media segments. We initiate coverage with DCF-based target of Rs183. Buy.
K EY FINA NCI ALS
Shares Outstanding (m) 301.0 Market Cap. (Rs b) 37.2 Market Cap. (US$ b) 0.9 Past 2 years Sales Growth (%) 26.0 Past 2 years NP Growth (%) 687.0 Dividend Payout (%) 12.4 Dividend Yield (%) 0.8
S TOCK D ATA
STO CK PER FOR M A NCE (ON E Y EA R)
175 145 115 85 55
Jagran Prak. (Rs) LHS
110 80 50 20 -10
Average Daily Turnover Volume ('000 shares) 2,585.4 Value (Rs million) 478.3 1/6/12 Month Rel. Performance (%) -3/18/65 1/6/12 Month Abs. Performance (%) -15/25/83
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
22 January 2008
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Jagran Prakashan
Well placed to leverage its numero uno status Jagran group: Established leader in the Hindi belt Jagran Prakashan (JPL) publishes the Hindi daily, Dainik Jagran Indias No.1 newspaper, which has a readership base of 21.2m (source: 2006 National Readership Study, NRS), and is the most-read newspaper across languages in India. Its readership has increased from 9.6m in NRS 2000 to 21.2m in NRS 2006 - a CAGR of 14%. It has retained the numero unoposition in the Indian newspaper market for the last seven years, and is trailed by Dainik Bhaskar,its closest competitor.
Daink Jagran 17,473 19,071 17,114 16,502 Dainik Bhaskar 13,810 14,571 12,514 12,823 Hindustan 8,192 9,724 9,052 8,551 Amar Ujala 9,276 9,894 8,255 8,075 TOI 7,041 7,084 6,781 6,828 HT 3,276 3,508 3,331 3,319 The Hindu 2,661 2,797 2,209 2,237 Deccan Chronicle 1,029 1,132 1,311 1,260 Source: Industry/Motilal Oswal Securities
JPLs leadership status is due to the groups focus on the following attributes: Thrust on local content and greater number of editions: 32 editions of its Hindi daily are spread across the entire Hindi belt (comprised of 10+ states). The local news content is higher in the dailies, as the group realizes that the knowledge of daily news and occurrences in the consumers immediate surroundings is of paramount importance to him. Local news assumes greater importance for readers in small towns and cities. Timely news: The group has 25 printing centers; hence the average distribution area covered by each printing press is smaller, requiring lower transportation time. Hence, the edition can be put to bed much after midnight. This allows editorial content to be added even up to midnight resulting in addition of latest news i.e. coverage up to the last minute. Innovative supplements: JPL can be credited with introduction of some of the innovations in the Hindi newspapers such as color pages, daily features, weekly pullouts for careers/appointments, monthly tourism supplement, daily business pages etc., which have increased readership statistics.
DA INI K JAG RA N V A LUE AD D ED S UPP LEM ENT S SUP P LEM E NT N AM E FR EQ UENC Y POS IT IO NIN G S UP PLE M EN T NA M E F RE QUE NC Y P OSI TI ONI NG
Tarang Thursday Film/TV Khet Khaliahaan Monthly Agriculture Kasuti Friday Debates/ Yaatra Monthly Travel Discussions Shehnai Sunday Matrimonial Junior Jagran Weekly Teenagers Jagran City Friday city edition Jhankar Sunday Lifestyle Josh Wednesday Education/ Sangini Saturday Womens career Source: Company/Motilal Oswal Securities
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which offers significant growth opportunities Dainik Jagran has been in the geographical expansion mode since six years and has launched 16 new editions across states in the Hindi belt. The new editions have enabled the company to increase circulation and enter new states such as Bihar, Jharkhand, J&K, Punjab and Haryana. The company has a presence in Madhya Pradesh and Chhattisgarh through associates with editions from Bhopal, Jhansi and Rewa. Barring Rajasthan, which is the stronghold ofDainik Bhaskar , Jagran is present across the entire Hindi belt.
GE OGRA PH IC L OCAT ION OF JAGR A N I N IN DI A LAUN CH OF ED I TION YE AR O F LA UNC H S TA TE
Aligarh 2001 UP Moradabad 2000 UP Haldwani 2004 UP Patna 2000 Bihar Muzaffarpur 2005 Bihar Bhagalpur 2003 Bihar Ranchi 2003 Bihar Jamshedpur 2003 Bihar Dhanbad 2003 Bihar Hissar 2000 Haryana Panipat 2003 Haryana Jalandhar 1999 Punjab Ludhiana 2004 Punjab Amritsar 2006 Punjab Jammu 2005 J&K Dharamshala 2005 J&K
RE AD ER S HIP A ND CI R CULA TIO N OF JAG RA N (M ILL IONS )
24
Readership (m/day)
Circulation (Jan- Jun) (m/day)
3.0
18
2.3
12
1.5
0.8
0 2001 2002 2003 2005 2006

0.0
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We believe Dainik Jagransgeographical expansion is nearly complete (the Hindi daily has reported 14% CAGR over the past five years, mainly contributed by geographical expansion) and circulation growth will arise from existing regions such as Uttar Pradesh, Bihar, Punjab and Jharkhand, as the demographics are favorable. We believe, in this scenario, factors such as below-average literacy rates, newspaper unavailability due to lack of infrastructure and affordability will take a backseat as the economy grows at more than 8% consistently. Unfolding of these benefits will boost Hindi newspaper sales, as 68% of the literate population who do not read newspapers can read Hindi; plus, a large number of readers belong to the poorer sections of society.
DE M OGRA PHI C S - FA VOR A BLE F OR SU STAI NED C IR CU LATI ON GR OWTH STATE ED I TI ONS CI RC ULAT ION LI TE RA C Y * R UR AL ( %)* PE R CA PI TA BEL OW
( M) RA TE % POP ULA TIO N INC OM E * POV E R TY LI NE %
Uttar Pradesh+ 13 1.27 56.3 79.2 10,289 31.2 Bihar++ 8 0.36 47.0 89.5 6,015 42.6 Delhi 1 0.30 81.7 7.0 47,477 8.2 Punjab 3 0.03 69.7 66.0 25,855 6.2 Haryana 2 0.13 67.9 71.0 26,632 8.7 Madhya Pradesh 3** 63.7 73.3 11,438 37.4 Rajasthan 60.4 76.6 12,753 15.3 Indian Average 64.8 72.2 23,224 26.1 * Statistical Online of India, Census 2001 Figures, ** associates, + including Uttaranchal, ++ including Jharkhand Source: Industry/Motilal Oswal Securitie
All set to reap gains from past investments despite rising competition Dainik Jagran has achieved leadership status (either No.1 or No.2 newspaper) in most of its 32 editions. It is the market leader in Uttar Pradesh, Uttaranchal and Punjab while it is ranked No.2 in Bihar and No.3 in Jharkhand. UP and Uttaranchal are its most important markets as they contribute 65-70% to Jagrans total revenues. The company has launched 16 editions in the past six years, of which eight are loss making.
DA IN IK JA GRA N - POS IT IONI NG OF KEY ED IT IONS ED IT I ON STATE P OSI TI ON RE A DE RS HIP CI RC ULAT ION C OM PE TI TO RS R E AD ER SH IP 20 07 R 1 JUL-D EC 20 06 20 07 R 1
Kanpur UP 1 7.16 2.32 Amar Ujala 3.64 Lucknow UP 1 4.93 1.87 Hindustan 2.78 Meerut UP 2 2.30 1.52 Amar Ujala 2.43 Varanasi UP 1 1.70 1.51 Hindustan 0.96 Patna Bihar 2 2.77 1.11 Hindustan 3.48 Delhi Delhi 6 1.39 N.A. Times of India 5.13 Ludhiana Punjab 1 2.22 N.A. Punjab Kesari 2.16 Source: Industry/Motilal Oswal Securitie
Dainik Jagran has already achieved strong readership in many markets like Punjab, Haryana and UP. Competition is rising in these markets with HT Media planning to launch 14 editions in UP in the next 2-3 years; and Amar Ujala entering Punjab with an aggressive pricing strategy. Despite the increase in competition in some of its key markets, the strong focus on localized content will ensure steady circulation growth for Dainik Jagran .
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AV ER A GE D AI LY C IR CU LATI ON ( M /D AY )
3.00 2.82 2.75 2.55 2.50 2.33 2.34 2.25 2.12 2.45 2.73 2.65
2.90
2.00 FY04 FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E
Market leadership position to ensure 28% ad revenue CAGR We believe that 8-9% GDP growth will accelerate consumer demand in Tier III cities, small towns and rural areas. Consequently the advertisers are likely to increase their ad budget allocations for the media verticals which cater to these geographies. We are of the view that Hindi and vernacular newspapers will increasingly constitute a key share of the advertisers future media plans.We expect Jagran to gain from the increasing focus on interior regions, which have a higher number of Hindi readers. We note the interior regions cater to large sections of the addressable consumer class: 49% of Indias population, maximum by any daily 48% of SEC A households 49% of households with monthly income>Rs15,000 38-48% of the households with a refrigerator, washing machine, two wheeler, AC and TV leadership in SEC B1, B2, C, urban readers and females among the Hindi dailies Jagran has reported 23% CAGR in ad revenues for the past three years due to rising ad revenues from new geographies and rising traction for the Hindi print market. We expect ad revenues to increase at a CAGR of 28% for the coming three years on a larger base due to higher ad inventory utilization, increase in ad rates, new properties like Iand Next City Plusand rising share of color ads. Strong market share to increase ad inventory utilization Top two circulated newspapers in any geography garner 75% ad revenues of that particular segment. Jagran enjoys a strong leadership position for at least seven of its editions in Uttar Pradesh and is placed at No.2 for another eight editions in Punjab, Haryana and Bihar. This has ensured: (a) steady increase in ad inventory utilization rates; and (b) 5060% share of the Hindi print advertising pie at these places. Jagran had launched 16
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editions in the past six years, most of which have now matured. The rising circulation in new territories has begun to attract advertisers. Consequently advertising inventory utilization rates have increased from 61% in FY05 to 75% currently. We expect utilization rates to increase to 80% in the next 2-3 years. Localized focus to ensure higher advertising rates JPL has a presence in 11 states and publishes more than 250 sub-editions. This provides the company a strong competitive advantage over other players. The company is focused on a higher share of local news, which ensures sustained growth in readership, giving it an edge over competitors. This has enabled Jagran to develop a strong hold over local advertising, which provides several advantages like: More focused readership of ads Greater variety of ads Lower dependence on large players; which ensures higher rates
NA TI ONAL A DS (%) LOC AL A D S (%)
FY04 51 49 FY06 45 55 Source: Company/Motilal Oswal Securities
We estimate that the difference in the advertising rate for local and national/regional ads could be around 20-30%. Jagrans current ad mix includes 49% of the local ads and 51% national ads. Management has guided for an increase in the proportion of local ads to 55% in the next two to three years. Increase in the proportion of local news will ensure healthy ad rates. Ad rates to increase steadily JPL has increased blended net ad rates at the rate of 12% CAGR since the last two years. We expect Hindi ad rates to grow at a fast clip as English ad rates are 9x Hindi ad rates despite higher readership (3.5x), mainly due to higher purchasing power of English readers. Steady increase in purchasing power of Hindi readers will result in higher growth in Hindi ad rates. Jagran will be one of the biggest beneficiaries of rising traction in the Hindi ad market. Jagran has already increased card rates by 25% for color and 29% for B&W ads during the current year. We expect Jagrans blended net ad rates to increase at a CAGR of 20% over FY07-10. Advertising mix changing in favor of color Jagran is gradually changing the ad mix in favor of colored ads. Color ads are more profitable as the realization per sq. cm. is higher. We estimate that for display ads the premium charged by Jagran averages at around 70%. After making adjustments in the sales mix and positioning the average premium the company commands for color ads stands at 30-40%. The ratio of color advertising to total advertising has increased from 21% in FY05 to the current level of 35%. Management expects this ratio to increase to 45% by FY09. The company has no plans to opt for a full color edition, as B&W ads suit the budget of small and local advertisers. We estimate that 5% change in ad mix in favor of color ads will increase the overall advertising rates by 1.75% boosting profit margins.
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AD VE RT IS ING C AR D R AT E O F JA GR AN PR A KA SHA N PA RT IC ULA RS (R S/ SQ C M) F Y0 7 F Y0 8 GR OWT H% P R EMI UM AD VE RT IS IN G RAT ES B/ W C OLOR B /W C OLOR B /W COLOR F Y0 7 F Y0 8
U.P. + Uttaranchal 1,053 1,818 1,440 2,430 37 34 73 69 Punjab 243 414 270 450 11 9 70 67 Haryana 171 297 189 315 11 6 74 67 Delhi + NCR 306 531 333 567 9 7 74 70 Bihar 306 531 333 567 9 7 74 70 Jharkhand 189 324 207 342 10 6 71 65 Madhya Pradesh 207 380 225 378 9 -1 84 68 Jammu & Kashmir 99 171 108 180 9 5 73 67 Himachal Pradesh 99 171 108 180 9 5 73 67 West Bengal 63 108 71
All Editions 1,818 3,132 2,340 3,915 29 25 72 67 Source: Company/Motilal Oswal Securities
AD V ER TI SIN G M IX - C OLOR A ND B &W ( %)
100
Color share Black & White share
75 50 25 0 FY04 FY05 FY09E FY06 FY07E FY08E

Advertising revenue to increase steadily; UP to retain lead Jagran has recorded 23% increase in print advertising revenue over the last four years. The steady revenue growth is attributed to the rising proportion of color ads, increasing inventory utilization in new launches and 12% CAGR in ad rates. We expect advertising revenue for JPL to post CAGR of 23% over the next three years from FY07-10. We expect UP to remain as the mainstay with 53% contribution to Jagrans total ad revenues.
AD VE RT IS ING RE V ENUE TO GRO W S TE AD ILY ( RS M) UP R EGI ON TO RE M AI N A S M AI NS TAY
10,000 100% 7,500 5,000 2,500 0 75% 50% 25% 0%
UP Region Others
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Entry into new media verticals De-risking its business model: Jagran Prakashan is the market leader in the Hindi newspaper segment, which contributes more than 90% to total revenue. The Indian newspaper industry is fast evolving into a competitive place as leading players are moving into new territories to gain pan-India presence. Likewise Jagran has entered new genres to utilize huge free cash flows and emerge as an integrated media company. (1) Jagran Engage: Entry into the fast-growth OOH advertising: Jagran Prakashan has set up Jagran Engage (JEL, a 100% subsidiary) to manage its out-of-home advertising (OOH) business. Jagrans strategic stakeholder, Independent News and Media (INM), is a market leader in OOH advertisements in Australia and South Africa and has over 7,000 outdoor displays globally. JEL plans to leverage the expertise of INM in this business and is already getting onsite training for its personnel in some of the best practices followed in Australia. Additionally, JEL will gain access to technology and the global clients of INM. The total size of OOH advertisements in India is Rs12.5b and is expected to grow at 16.5% p.a. over CY06-11. JEL currently has 2,500 sites in 30 cities across India, out of which more than 1,000 sites are in northern India. It provides comprehensive outdoor advertising solutions to clients in street furniture, hoardings, transit and mobile advertising. Jagran currently runs most of its sites on a lease model. However, going forward, it has an objective to move in the direction of ownership as this would ensure better quality and higher returns versus the lease model. We believe this is possible based on the following strengths: Technical support of INM JELs strategic partner that manages more than 7,000 sites globally. Jagrans existing relationships with leading advertisers Widespread network of Jagrans associates in India, which should help identify the right kind of properties and manage them Adequate finances to opt for the ownership model will offer higher margins.
LOC ATI ON OF OOH P ROP ER TI ES NAM E OF CI TY NUM B ER AND NATU RE OF P RO PER TY
Ahmadabad 35 Hoardings Bangalore 451 Hoardings NCR 64 Buses in Noida, 22 unipole in South Delhi, 100 Kiosks in college Hyderabad 91 Billboards, 52 BQS Kolkata 27 Hoardings Lucknow 15 Poles and 9 Platforms, 776 hordings Mumbai 47 Hoardings and 166 pole kiosks Source: Company/Motilal Oswal Securities
JEL plans to have 75-80% of its OOH properties in hoardings and the rest will be shared between street furniture and mobile formats. The company does not have any intention to enter LCD display and OOH in retail due to inflated prices. The company expects to end FY07 with sales of Rs250m; and forecasts sales to cross Rs1b in the next three years.
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Management expects the EBITDA margin of the OOH business to be 23-25% and PAT margin to be 12-15% in the next few years. We believe that JEL is well placed to exploit the growth opportunity based on to the technical support of INM, Jagrans brand equity and experienced personnel.
JAG RA N ENGA GE (R S M ) F Y0 6 F Y 07 E F Y0 8 E F Y0 9 E
Revenue 28 250 450 800 Source: Company/Motilal Oswal Securities
(2) Jagran Solutions: Event management harnessing the strengths: Jagran Solutions caters to the Rs9b event management industry, which is growing at 19% CAGR and is expected to reach Rs22b by 2011. The business undertakes below-the-line promotion and marketing activities and various events. Jagran is favorably placed to grow in the business as: It has pan-India presence with existing clients in more than 5,000 cities Strong client relationships in print, electronic, SMS, OOH and manpower for execution Successful track record of partnering with some of the best brands in the world
EV ENT M AN AGE M ENT VE R TI CA LS VE RT IC AL RE C ENT CL IEN TS
Event management Accenture (Amby Valley), Idea Cellular, Escorts Promotions Lux Orchid, Lehar Retail Activation Conferences & Conventions Audio Visuals Channel Activation Red FM, Asian Paints, Microsoft XPSE Rural Activation Aashirvaad Rangoli, Dabur Chawyanprash, Ceat Televised content Red & White Antakshri, Zee Lok Sabha Exhibitions Bilt Book fair Direct Mailer Microsoft Source: Company/Motilal Oswal Securities
The business contributed Rs20m to the topline in FY06 and is expected to contribute more than Rs140m during FY07. We expect event management to scale up to contribute topline of Rs70m in FY08 and Rs100m by FY09 with PAT margin of 12-15%. (3) English newspaper foray: Adopting a flanking strategy: JPL has leadership in the Hindi newspaper segment but no presence in the English newspaper space. Realizing that the advertizing rate for English newspapers is 9x the rates for Hindi dailies, Jagran has made selective entry into this segment with an objective to harness distribution strengths, which can be leveraged at a later date to launch more new products. Jagran has launched Iand City Plusand has plans to launch a facsimile edition of The Independent, UK. next
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IJPL launched Iin December 2006, a bilingual tabloid in Kanpur and Lucknow next: at youth residing in the mini-metros of India. Currently there are six editions of Inext targeted next with a per day circulation of more than 300,000. Priced at Rs3, the paper targets the 18-35 age group of the Sec A consumers. The content is trendy with focus on local news and national/international news in a quick browsing format. The product is positioned mainly for the younger generation, which uses a mix of English and Hindi and is more comfortable with use of some English words in Hindi. The company plans to launch another edition in the first phase of rollout during the current year while more editions are expected to follow in FY09. City Plus: JPL has launched City Plus an infotainment weekly. The paper is distributed free of cost in shopping malls, clubs, restaurants, premium markets, and BPOs. The publication is in color with 30% editorial content, the remainder carrying advertisements. The weekly includes local information on markets, shopping, movies and entertainment and weekend events. The paper has 7 editions including six in the NCR and one edition in Bangalore with the targeted customers being TOI, HT readers and Sec A of Jagrans readers. Each edition currently has a circulation of 30,000 copies a day. There is no subscription revenue and the business model depends entirely on advertisement revenue. City Plusis targeting English newspaper consumers at locations where Jagran is not very strong. The company plans to print 25-30 editions of City Plusin the next 2-3 years. (4) Strategic stake sale; planning facsimile edition of The Independent :INM holds 20.8% stake in Jagran through its investment arm. INM is an Ireland-based leading newspaper and communications group with interests in Australia, India, Ireland, UK, South Africa and New Zealand. It has sales exceeding 1.6b Euros and PAT of more than 160m Euros. The group has The Independent newspaper in the UK and Ireland and has a leadership position in out-of-home advertising (OOH) in Africa. It also has a 39.7% stake in APN News and Media, which has market leadership in the OOH and radio segments in Australia. We believe Jagran is better placed than many of its competitors who have mainly received private equity funds from various investors. We expect INM and Jagran to explore ways to draw on each others strengths to grow in this market. Jagran is in the process of launching a facsimile edition of The Independent in India. Launch of the facsimile edition appears significant from the strategic intent of long term entry of Jagran into the English newspaper market. We believe this could be a stepping stone for launch of Independent The in India, in the long term.
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(5) JV with TV18 for a Hindi business newspaper: Jagran has announced a 50:50 joint venture with TV18 for the launch of Indias first Hindi business newspaper. The company plans to introduce the first edition in the next six months in Uttar Pradesh. The company has plans to extend the business newspaper to other regional languages and states. Long term plans include achieving No.2 status in the business daily segment. The venture will capitalize on the business news strengths of TV18 and the publishing cum brand strengths of Jagran in the Hindi market. We expect this venture to add value for the company in the coming years. (6) Other properties: Jagran has properties like Jagran.com (most visited Hindi website globally), a short code service 7272, Sakhi(first premium Hindi womens magazine in India) and Jagran Varshiki(an annual GK Digest) all of which have a strong presence in their respective verticals. The company is yet to fully exploit the commercial benefits of these properties. Jagran has tied up Yahoo for this website, which has been renamed Jagran.Yahoo.com and the SMS service is being expanded now. Richer revenue mix and lower input costs to expand margins Higher share of ad revenue in total revenue Print media has a very high operating leverage. Any increase in the advertising rates, utilization and color ads proportion is margin accretive. We expect Jagrans advertising mix to become richer as: Share of color advertising volumes will increase from 35% to 45% during FY07-09. (color ad rates are at 30-40% premium to B&W) Inventory utilization is expected to increase from 77% in FY07 to 82% by FY09. Blended net advertising rates are expected to increase at a CAGR of 20% due to rising proportion of color ads, local ads and rate increases Circulation revenue will increase at 4% mainly led by circulation due to flattish cover price We expect advertising revenue to grow at 24% CAGR over the next two years. Contribution of OOH and event management to total sales is expected to increase from 5% in FY07 to 13% by FY2009. The share of circulation revenue in total revenue is expected to decline from 28% in FY07 to 17% in FY09E. Rising share of ad revenue, OOH and event management will be margin accretive.
KEY RE VE NUE D RI VE R S (%) F Y0 5 FY 0 6 FY 0 7 F Y0 8 E F Y 0 9E F Y 1 0E
Color Advertising 21 30 35 40 45 50 Ad rate increase N.A 10 14 25 19 16 Ad Utilization 61 75 77 79 82 85 Circulation Growth 10 0 5 4 4 3 Source: Company/Motilal Oswal Securities
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PER C ENTA GE SHA R E IN TOTAL R EV ENU E (%)
Advertising Revenue (RHS) Circulation Revenue (LHS) OOH & EM (LHS) Others (RHS) 100%
75%
50%
25%
0% FY05 FY06 FY10E FY07 FY08E FY09E

New editions to reach breakeven Jagran has launched 17 editions since 1999. It normally takes four years for an edition to reach breakeven. Currently, it has 8 editions that are loss making. The company expects three to four of these to breakeven in the current year. The remaining editions are expected to take another two to three years as they have been launched recently. The company expects profitability to improve as new additions are likely to be on the lower side and focus would be to maximize the ad revenues and circulation in existing geographies. Decline in newsprint prices to boost profit margins Newsprint cost is the biggest component in the total cost structure for a newspaper. Circulation revenue for Jagran covers nearly 70-75% of the newsprint costs, as per copy realization in Hindi papers is better versus English dailies. The prices of newsprint have witnessed an uptrend since mid-2002. The prices moved from US$450/tonne in June 2002 to US$650/tonne in June 2006, a CAGR of 10%. However, these prices have corrected in the last six months and are currently ruling at US$580 per tonne due to lower demand from the US and emergence of China emerging as a major newsprint exporter. Moreover the rupee has appreciated against major currencies like USD and GBP by 8-10%. As newsprint prices are benchmarked to imported prices, we expect 5% decline in the newsprint costs for the company in FY08. We have factored in 2% and 3% increase in newsprint costs in FY09 and FY10. We expect lower newsprint prices to add 160-180bp to EBITDA margin in FY08. Jagran has reported a 500bp increase in EBITDA margin in FY07. We expect the margin expansion to continue due to changing revenue mix in favor of advertising revenues and lower newsprint costs.We expect the company to expand EBITDA margin by 430bp in FY08 and 230bp in FY09. This would provide a 44% CAGR in EBITDA over FY07-09.
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EB ID TA M AR GI N TO E XPA ND 670B P IN F Y07 -0 9
4,200
EBIDTA LHS)
(m-
EBIDTA RHS)
margin
(%-
38
3,200
30
2,200
22
1,200
14
200 FY05 FY06 FY10E FY07E FY08E FY09E

Financials and valuations We expect Jagran to post 26% CAGR in topline over FY07-10, led by growth in advertising and OOH revenue. EBITDA margin is expected to improve by 1,040bp to 30.4% in FY10E. We expect PAT CAGR of 43% over FY07-10.
RE VE NUE A ND P ROF IT ES TI M ATE S (R S M ) PA RT IC ULA RS F Y0 6 F Y0 7 F Y0 8 E F Y0 9 E
Advertising Revenue Circulation Revenue OOH & EM Revenue Others Revenue Total EBIDTA Margin % PAT 317 4,782 712 14.9
3,065 1,604 28 85 5,888 1,218 20.7
3,803 1,694 290 101 7,235 1,808 25.0
4,823 1,771 520 121 8,711 2,383 27.4
5,847 1,842 900 121
697
969
1,337
Margin % 7 12 13 15 Source: Company/Motilal Oswal Securities
We expect the company to post EPS of Rs2.5 in FY08, Rs3.9 in FY09 and Rs5.5 in FY10. Our estimates are based on the following assumptions: Increase in the share of color advertisements from the existing 30% to 45% by FY09 Circulation volume to increase by 3%. Advertising rates to increase by 20% over the next two to three years OOH advertising and event management business to post revenue of Rs950m by FY09.
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VA LUATI ONS P AR A ME TE R
42
EPS (LHS)
FCF/Share P/E
(LHS)
80
30
60
18
40
20
-6 FY07 FY08E FY09E FY10E

Company/Motilal Oswal Securities
JPLs stock is trading at 22.4x FY09E earnings, which is line with leading newspaper companies in the US and at a premium to print-media peers in Asia and Europe. We believe that JPL deserves premium valuations as: Dainik Jagran has the largest circulation and readership in India, a large country having huge growth potential in the coming decades, in comparison with the low growth potential in developed countries. JPL has completed most of its capex, so the company is likely to generate healthy free cash flows ahead. JPL is expected to report PAT growth of 43% CAGR over the next two years, much higher than 5-15% range for most other companies. The company also has superior RoE. JPL has started offering 360 solution in advertising to clients post entry into OOH and event management. Successful commercialization of Jagran.com, City Plus, I- next etc. can add value, which has not been factored in our estimates. Our DCF value for the stock is at Rs183 per share, an upside of 48% from current levels.
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I NCO ME ST ATE M ENT ( R S M ILLI ON) Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 10 E N e t Sa le s 4 , 7 82 5 , 9 8 2 7 , 9 8 1 9 , 8 76 11 ,9 4 5 Ch a n g e ( %) 2 7 .0 2 5 .1 3 3 .4 2 3 .7 2 1 .0
RAT IO S Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 E B as ic (R s) A dj us t ed E P S 1 .3 2 .5 4 .0 5 .5 7 .5 G rowth (% ) 4 1 3. 3 1 00 . 4 56 . 2 3 9 . 5 35 . 7
Ra w M a te ri a l E xp e n d i tu re 2 , 4 02 2 , 5 3 1 2 , 6 8 4 3 , 0 15 3 , 3 8 7 S ta ff C os t 5 6 7 7 0 4 8 8 0 1 , 0 74 1 , 2 6 7 O th er Ma n u fa c tu ri n g e xp 4 0 6 5 6 2 1 , 1 4 8 1 , 5 05 1 , 9 9 0 S e ll i n g & Di str i b u tio n 6 9 6 9 8 6 1 , 1 9 7 1 , 4 81 1 , 6 7 2
Cas h E P S 2 .1 3 .3 5 .1 6 .8 8 .8 Bo o k V a lu e 1 9 . 4 17 . 0 18 . 6 2 1 . 8 26 . 9 DPS 3 .0 5 .0 7 .0 9 .0 10 . 0 Pa yo u t ( in c l. Div . Ta x.) 1 2 . 5 12 . 4 1 1 .5 1 0 . 2 10 . 3
E BI T D A 7 1 2 1 , 1 9 8 2 , 0 7 2 2 , 8 01 3 , 6 2 9 % of Net S al es 1 4 .9 2 0 .0 2 6 .0 2 8 .4 3 0 .4
Va lu a tio n ( x ) P/E ( s ta n da l o n e) 9 7 . 7 48 . 8 31 . 2 2 2 . 4 16 . 5 Cas h P /E 5 9 . 8 37 . 2 24 . 3 1 8 . 2 14 . 0 EV / E BI T DA 4 2 . 7 31 . 1 18 . 0 1 3 . 2 9 .8 EV /S a le s 6 .4 6 .2 4 .7 3 .7 3 .0 Pr i ce /B o ok Va l u e 6 .4 7 .3 6 .6 5 .7 4 .6 Di vi dend Y ie l d ( %) 2 .4 0 .8 1 .1 1 .5 1 .6
De p re c i ati o n 2 0 1 2 3 7 3 3 9 3 8 1 3 9 8 Inte r e s t 7 6 8 5 75 5 3 2 7 O th e r In c o m e 5 3 2 4 8 1 4 0 1 4 3 2 0 1 PB T 4 8 8 1 , 1 2 4 1 , 7 9 8 2 , 5 10 3 , 4 0 5 T ax 1 4 1 3 8 9 6 0 8 8 4 9 1 , 1 5 1 R at e ( %) 2 8 .9 3 4 .6 3 3 .8 3 3 .8 3 3 .8 Re por te d PA T 3 4 7 7 3 5 1 , 1 9 0 1 , 6 61 2 , 2 5 3 E xtr a -o r dina r y E xpe ns e s 3 0 -2 7 0 0 0 A dju ste d P AT 3 1 7 7 6 2 1 , 1 9 0 1 , 6 61 2 , 2 5 3 Ch a n g e ( %) 2, 476. 6 1 4 0 .4 5 6 .2 3 9 .5 3 5 .7
Pr o fit a bilit y Ra tio s (% ) RoE 6 .5 14 . 9 21 . 3 2 5 . 3 27 . 8 RoC E 8 .8 18 . 4 27 . 0 3 4 . 0 38 . 9
Tur n ove r R at i os De bto rs ( Da ys ) 11 9 10 7 1 00 1 00 10 0 Inv e nto r y ( D a ys ) 1 9 20 20 2 0 20
B ALA NC E SH EET ( RS M I LLI ON) Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 0 1 0 E S ha re C api ta l 5 0 2 6 0 2 6 0 2 6 0 2 6 0 2 Re s e r v es 4 , 3 65 4 , 5 0 9 4 , 9 9 4 5 , 9 50 7 , 4 9 9 N e t Wo rt h 4 , 8 67 5 , 1 1 1 5 , 5 9 7 6 , 5 53 8 , 1 0 1 L o an s 1 , 1 65 1 , 0 6 7 9 0 0 5 0 0 2 0 0 De ff er e d Ta x L i a b il i ty 3 6 8 3 8 4 4 4 0 4 8 0 5 2 0 Ca p ita l E mpl oye d 6 , 4 00 6 , 5 6 2 6 , 9 3 7 7 , 5 33 8 , 8 2 1
Cre di to rs . ( Da ys ) 1 3 28 20 2 0 20 As s e t T u rn o ve r ( x) 0 .7 0 .9 1 .2 1 .3 1 .4 Le ve r a ge Ra t io De bt/E qui ty ( x) 0 .2 0 .2 0 .2 0 .1 0 .0
CA SH FLOW S TATE ME NT ( RS M I LLIO N) Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 E PB T b e fo re E O Ite m s 4 88 1 ,1 2 4 1 , 79 8 2 , 51 0 3 ,4 0 5
G ro s s F ixe d A s se ts 2 , 3 92 3 , 2 1 2 3 , 9 8 8 4 , 4 88 4 , 6 8 8 L e s s: De p re c i at io n 1 , 0 34 1 , 0 7 2 1 ,4 1 1 1 , 7 93 2 , 1 9 1 N e t F ix e d A s s e ts 1 , 3 57 2 , 1 4 0 2 , 5 7 7 2 , 6 95 2 , 4 9 7 Ca p i tal WIP 2 4 1 5 0 6 3 0 0 3 0 0 2 0 0 Inv e s tme nt s 1 , 7 80 1 , 4 4 6 1 , 4 4 6 1 , 4 46 1 , 4 4 6
Ad d : De p re c i ati o n 2 01 23 7 3 39 3 81 39 8 Inte re s t 7 6 85 75 5 3 27 L es s : Dir e ct Ta xe s P a id 1 41 38 9 6 08 8 49 1 ,1 5 1 (I n c )/ De c i n WC - 37 5 -1 80 -4 65 - 42 8 -6 24 CF f ro m Op e r a tion s 2 19 87 7 1 , 13 9 1 , 66 7 2 ,0 5 5 (I n c )/ De c in FA - 54 4 -1 ,2 8 5 -5 70 - 50 0 -1 00 (P ur )/S a l e o f I nve s tm e nts -1 ,7 7 3 33 4 0 0 0 CF f r om Inve s t me nt s -2 ,3 1 8 -9 51 -5 70 - 50 0 -1 00
Cur r . A s s e ts 3 , 3 39 3 , 1 2 1 3 , 2 8 8 3 , 8 40 5 , 5 0 5 In ven tor y 2 4 6 3 2 8 4 3 7 5 4 1 6 5 5 De bto r s 9 9 9 1 , 1 4 0 1 , 4 5 0 1 , 8 28 2 , 2 7 5 Ca s h & B a n k B a l an c e 1 , 7 46 1 , 0 1 3 6 9 4 7 4 3 1 , 7 0 7 L o an s & Ad v an c e s 3 2 8 5 8 9 6 5 6 6 7 6 8 1 8 O th er Cu r re n t A s s ets 2 0 5 1 51 5 1 5 1 Cur r e nt Li a b. & Pr ov. 3 1 8 6 5 2 6 7 5 7 4 8 8 2 6 Cr e di to r s 1 4 7 3 6 4 3 2 4 3 8 8 4 5 6 O the r Lia bi li ti e s 1 5 0 2 1 6 1 7 0 1 8 0 1 9 0 P ro v is i o ns 2 2 7 2 1 8 1 1 8 1 1 8 1 N e t Cur r e nt A s s et s 3 , 0 21 2 , 4 6 9 2 , 6 1 4 3 , 0 92 4 , 6 7 9 M i sc . E xp e n s es 2 2 0 0 0 A pp lic a tion of F und s 6 , 4 00 6 , 5 6 2 6 , 9 3 7 7 , 5 33 8 , 8 2 1 E : M OS t E s t im at es
(In c )/D ec i n N etwo r th 4 , 14 6 - 51 -4 4 - 62 - 62 (In c )/De c in De b t - 13 9 - 98 -1 67 - 40 0 -3 00 L es s : In te re s t Pa i d 7 6 85 75 5 3 27 D iv id e n d P a i d 2 00 45 2 6 02 6 02 60 2 Oth e r s 3 0 27 0 0 0 CF f r om Fin. A c tivit y 3 , 76 1 -6 58 -8 89 -1 ,1 1 8 -9 91
Inc /D e c of Ca s h 1 , 66 3 -7 32 -3 19 4 9 96 3 Ad d : B e g in n i n g B a la n c e 11 3 1 ,7 4 6 1 , 01 3 6 94 74 3 Clos ing Balance 1 , 77 6 1 ,0 1 4 6 94 7 43 1 ,7 0 7
22 January 2008
67
Print Media
For more copies or other information, contact Institutional: Navin Agarwal. Retail: Manish Shah Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: inquire@motilaloswal.com
Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021
Thi s r e po rt i s f or the pe r s ona l inf o rm a ti on o f the a uthor i ze d re c i pie nt a nd do es no t co ns tr ue to be any inv es tm e nt, l e gal o r ta xa ti o n a dv ic e to y o u. Mo ti l al O sw al Se c ur iti e s L im i te d ( herei naf t er ref er red as M O Stis n )o t so l ic i ti n g a n y a c ti on b a s ed u p o n it. T h i s r ep o r t is n o t f or p u b li c d is tr ib u ti o n an d h a s b e e n fu rn i s h e d t o yo u s o le l y fo r yo u r in f o rm a ti on a n d s h o u ld n o t b e re p ro d u c e d o r r ed i s tri b u te d t o a n y o th e r p e rs o n in an y f or m . The re po r t is ba s ed upo n i nfo rm a ti o n tha t we c o ns ide r re l ia bl e , but we do no t r epr e s ent tha t i t i s a c c ura te o r c o m ple te , a nd i t sho ul d no t be r e li e d upo n suc h. M O S t or any o f i ts a ff il i a te s or e m pl o ye e s sh al l no t be i n a ny wa y re s po ns i ble f o r a ny lo s s o r da m a ge tha t m a y a ri s e to a ny pe r so n f ro m a ny ina dv e rte nt er r or i n the inf or m a tio n co nta i ne d i n this re po rt. M O S t o r a ny o f its a ffi l ia te s o r e m pl oy e es do no t pro vi de , a t a ny tim e , a ny ex pre s s o r i m pli e d war ra nty o f a ny ki nd, re ga rdi ng any m a tte r pe r ta ini ng to thi s r epo r t, i nc ludi ng wi tho ut l i mi ta ti o n the i m pli e d wa rr a ntie s o f me r c hanta bi l ity , fi tne s s fo r a pa rti c ula r purpo s e , a nd no n-i nfr i ngem e nt. The re c ip i e n ts o f th i s re p o r t s h o u ld re l y o n th e i r o wn i n ve s ti g ati o n s . MO S t a n d /o r i ts a ff il i ate s a n d /o r em p l o ye e s ma y h av e in t er e st s/ p os i ti on s , f in a n c i al o r oth e r wi se i n th e s e cu r i tie s m e n ti on e d i n th i s re p o rt. To e n h a n c e tra n s p ar e n c y, MO S t h a s i n c or p o ra te d a Di s c lo s u re o f In te re s t S ta tem e n t i n th i s d o cu m e n t. T h is s h ou l d , h o we ve r, n o t b e tr e at ed a s e n d o rs e m e n t of t h e vi e ws ex p re s s ed i n th e r e po r t. Dis c lo s ur e o f Int e r es t S t a te me n t 1 . An a l ys t o wn er s h ip o f th e sto c k No No No 2 . Gr o u p /Dir e c tor s o wn e rs h i p o f th e sto c k No No No 3 . Br o ki n g re l ati o n s h ip wi th c o m p a n y co v er e d No No No 4 . In ve s tm en t B a n k in g r el a ti on s h i p wi th co m p a n y c o ve re d No No No Thi s i nfo rm a ti o n is subj e c t to c ha nge wi tho ut a ny pr i or no ti c e. M OS t re s er ve s the r i ght to m a ke mo di fi c a tio ns a nd a l te rna ti o ns to thi s st ate m e nt a s m a y be re qui re d fro m ti m e to ti m e. Ne ve rt hel e s s , M OS t i s c o m mi tte d to pr o vi di ng inde pe nde nt a nd tr a nspa r e nt re c o m m e ndat io ns to i ts cl i e nts , a nd wo uld be ha ppy to pro vi de in f or m at io n in re s p o n se to s p e ci fi c c l i en t q u e ri e s . De c ca n Ch ro n i c le HT M ed i a Ja g r an Pr a ka s h an
22 January 2008
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January 2008

Deccan Chronicle 28 (Buy, Rs185)

HT Media 39 (Buy, Rs191)

Jagran Prakashan 53 (Buy, Rs123)

GEOGR A PHI CA L SP RE AD OF PR INT M E DI A C OM PA NIES

Hyderabad Bangalore Chennai

Exciting times for print media

We expect convergence in the same genre as well as across genres

A pan India presence has twofold benefits for media companies

The E&M sector is mainly advertisement led

0 CY04 CY05 CY06 CY07E CY08E CY09E CY10E CY11E

It appears industry is moving in the direction of a free paper way

Print media companies on an octave

Chennai Brand & Content Media Selling In house Ads

Bangalore Brand & Content Internet Jobs, Matrimonial Retailing None

Print companies are seeking new initiatives in non-print areas

HT Mumbai Brand & Content Radio Virgin Radio Tie up

The lower penetration of print media in India is slowly being overcome

We expect the improving literacy to enhance readership across India

AV ER A GE D AI LY R EA DE R SHI P (' 000 ) 2003 R1 2005 R 1 2006 R1 2007 R 1

Improved infrastructure will ensure better availability of newspapers countrywide

Rising GDP will lead to improved consumers affordability

0 2004 2005 2006E 2007E 2008E 2009E 2010E 2011E

Ad revenues key growth lever

New breed of advertisers and eyeball avenues to fuel ad industry growth

Traditional avenues Broadcasting, Films, Print

Fast movers Radio, Internet, Out of Home Advertising, Event Management

Traditional advertisers FMCG, Durables, Two Wheelers

Source: Company/Motilal Oswal Securities 22 January 2008

We expect ad growth to drive newspaper business

Ad Gr (%) (LHS) Cir Gr (%) LHS Ad / Total Revenue % (RHS)

0 2005 2006E 2007E 2008E 2009E 2010E 2011E

Source: Company/Motilal Oswal Securities

RI SI NG SHA RE OF AD VE R TIS ING I N RE VE NUE M IX

CY06 Ad Revenue 59%

CY11E Ad Revenue 65%

Source: Industry/Motilal Oswal Securities

Print companies are increasingly preferring to advertise in color

Colored Ads % BW Ads %

0 FY06 FY07 FY10E FY08E FY09E

Source: Motilal Oswal Securities

English Newspaper 3 4 Hindi Newspaper 13 11 Source: Company/Motilal Oswal Securities

Strong cashflows provide scalable print business

680 630 580

Source: Bloomberg/Motilal Oswal Securities

We expect ad revenue of listed players to grow by 20+% over FY07-10

Deccan Chronicle is our Top Pick in the print media space

Annexure I: E&M ad revenues to remain strong

Nominal GDP Growth %

Advertising Industry Growth %

RE GR ESS ION OF A D VE R TSI NG IN DUS TR Y WI TH GD P

30 20 10 0 -10 0 2 4 6 8 10 12 14 Nominal GDP Growth %

y = 0.3387x + 13.668 R2 = 0.0228

Ad Revenue E& M Ind Ratio (%)

0 2004 2005 2006 2007E 2008E

1.80 1.40 1.00 0.60 0.20 0.95

Source: Company/Motilal Oswal Securities

Deccan Chronicle 28 (Buy, Rs185)

HT Media 39 (Buy, Rs191)

Jagran Prakashan 53 (Buy, Rs123)

BSE Sensex: 16,730 S&P CNX: 4,899

KEY FINA NC IAL S

Rel. to Sensex (%) RHS