HT Media: A business in flux

Modest growth, stagnant core business profitability, and poor shareholder returns combined could be the reasons for cost-cutting and streamlining its workforce.
The Hoot’s ANALYST-AT-LARGE breaks down its financials

 

­In the last six months, the HT Media group - one of India's largest print conglomerates - has been in the news for shuttering some of its English editions, pruning its staff strength, and engaging in a complex carve-out of its content business in an effort to become leaner (and meaner). But restructuring is nothing new to this group which has been in continuous flux for the last five years.

HT Media has been veering towards new media in recent years by making big bets on FM radio, digital media and what it terms ‘platform-agnostic’ content creation. The group’s traditional stronghold has been in the northern states, but its 2005 foray into Maharashtra has gained it a toehold south of the Vindhyas.

 

Group businesses

The group’s flagship publication is the English newspaper Hindustan Times which, according to the Audit Bureau of Circulation (ABC), is the third-largest circulated English daily in India. ABC figures place the July-December 2016 average circulation number at 11.94 lakh copies, after the Times of India and the Hindu. The paper, however, claims a readership of over 45 lakh, based on somewhat dated IRS 2014 numbers.

"HT Media has been veering towards new media in recent years by making big bets on FM radio, digital media and what it terms ‘platform-agnostic’ content creation."

 

More than half this readership comes from the Delhi-NCR region.  Based on IRS numbers, Hindustan Times claims to be the market leader in Delhi/NCR, the second largest English daily in Uttar Pradesh, Uttarakhand and Punjab, and the runner-up in Mumbai.

In the language space, Hindustan  claims to be the most-read Hindi newspaper in Bihar and Jharkhand and the second largest in Uttar Pradesh. ABC numbers place it Hindustan at the fourth position in terms of circulation among the Hindi dailies, with 26.1 lakh copies sold.

The other print offerings of the HT group include business daily Mint and Hindi magazines Kadambini, Nandan and Anokhi.

Mint started off on a high note in 2007 and quickly claimed it was No. 2, behind the ever-dominant The Economic Times, though this was again based on readership rather than circulation numbers. Though launched in collaboration with The Wall Street Journal, the tie-up has since been discontinued. In September 2016, Mint moved from its compact Berliner format to a  broadsheet.

Having thrown its hat into the radio ring, HT now has two FM radio brands: ‘Fever’ and ‘Radio Nasha’. Fever 104 FM is dedicated to contemporary Bollywood music while Radio Nasha is focussed on retro melodies. Its 15 radio stations operate across key metros - Delhi, Mumbai, Chennai, Bengaluru, Kolkata, Hyderabad and in UP. Though requiring considerable capital for the licences, the radio business has shown good traction and turned profitable for the group four years ago. 

In recent years, HT Media has been investing heavily in digital businesses to leverage the expected boom in the consumption of online content. Its internet properties include jobs portal Shine.com, movie review and ratings site desimartini.com and learning site htcampus.com, apart from the websites powered by content from its print publications.

Data from internet traffic tracker Similarweb suggest that HT Media’s digital editions have managed to gain good traction with readers, compared to rivals. Hindustantimes.com, a popular general news portal, registered an estimated 32.7 million visits as of 22 May 2017, putting it ahead of timesofindia.com (30.7 million), and thehindu.com (23.1 million).

"Data from internet traffic tracker Similarweb suggest that HT Media’s digital editions have managed to gain good traction with readers, compared to rivals."

 

However, indianexpress.com registered a higher 38.6 million total visits. SimilarWeb also reported 10.9 million total visits to livemint.com, putting it ahead of economictimes.com (5 million), financialexpress.com (8.1 million), and business-standard.com (8.6 million). However, these statistics may be subject to change.

The group also has a couple of education ventures: Studymate (a tutorial for Class VIII to XII) and the Bridge School of Management. Studymate offers tutorials for classes VIII to XII while the Bridge School of Management offers post graduate management and analytics programmes. In its events portfolio, the HT Leadership Summit and Mint Luxury Conference are the better-known properties.   

Lastly, through the ‘Strategic Partnerships’ division started in 2008, HT Media acquires equity stakes in listed and unlisted companies, in return for branding and advertising support through its publications, a la Bennett Coleman’s Private Treaties.

While HT Media’s myriad non-print forays have displayed good growth starting out on a low base, it is still the mature print business that brings in three-fourths of its revenues and almost all of the profits. 

 

Ownership

HT Media Ltd was the second print media giant (after Deccan Chronicle Holdings) to list itself on the stock markets through an IPO in August 2005. The promoter group today controls 69.51 per cent of the equity in the listed entity, with the rest with the public. In July 2010, the group made its second foray into the public markets by floating the IPO of Hindustan Media Ventures (HMVL), which has brought down HT Media’s stake in HMVL from 100 per cent to 74.3 per cent.

In the closely held Hindustan Times Ltd, Shobhana Bhartia, Priyavrat Bhartia (son), Shamit Bhartia (son who is married to Nayantara Kothari, grand-daughter of Dhirubhai Ambani), and GO4I.com (Mauritius) Ltd, are the key shareholders in the promoter group. Hindustan Times Ltd is the largest shareholder and owns most of the equity (69.5 per cent), with the Bhartia family members directly owning only token shares. Hindustan Times Ltd is again controlled by the Bhartia family.  

 

Subsidiary reshuffle

Just like other media firms, the HT group operates through a web of subsidiaries. In end FY16, the flagship listed company HT Media held stakes in eight subsidiaries - HMVL, HT Music and Entertainment, HT Digital Media Holdings, HT Education (a non-profit), HT Global Education, Ed World Pvt Ltd, Topmovies Entertainment, and the newly incorporated HT Digital Streams. Of these, only HMVL is partly owned and the rest are wholly owned.

"The last few years have seen a hectic reshuffling of businesses among these subsidiaries through mergers and demergers, sometimes accompanied by hefty write-offs of accumulated losses."

 

Of the above, HT Digital Media Holdings in turn held a 100 per cent stake in three subsidiaries - Firefly e-ventures, HT Mobile Solutions and HT Overseas.

The last few years have seen a hectic reshuffling of businesses among these subsidiaries through mergers and demergers, sometimes accompanied by hefty write-offs of accumulated losses. After a series of complicated moves, all the Hindi publications - the daily Hindustan and magazines - are vested in HMVL, the new media ventures (HT websites and mobile marketing) are with HT Digital Media Holdings, events are with HT Music and Entertainment, and Desimartini.com is with Topmovies Entertainment. The parent HT Media Ltd has the English print publications, the radio business, and Shine.com in its portfolio.

 

Yet another, new carve-out

Recently, the group went through yet another bout of restructuring. Through a scheme that took effect in December 2016, HT Media and HMVL carved out their ‘multimedia content’ business into a new company called HT Digital Streams Ltd. The transfer mainly consisted of staff from the two publications and some computer infrastructure.

The new firm is tasked with creating ‘platform-agnostic’ content, operating the hindustantimes.com, livemint.com and livehindustan.com portals and taking up content aggregation across group publications. The new subsidiary is jointly owned by HT Media (57.2 per cent) and HMVL (42.8 per cent).

In a conference call with analysts after Q3 results, the management explained that the idea behind HT Digital Streams was to create a ‘knowledge entity’. The staff so transferred would be ‘retrained and retooled’ to deliver content over print as well as digital mediums. The content created by HT Digital Streams is sold to the print publications of the group on an ‘arm’s length basis’, with the subsidiary earning a revenue share. In effect, this move has carved out about Rs 195 crore in annual revenues and Rs 22 crore in profits before interest and taxes from the print businesses, into the new HT Digital Streams.    

The transfer has also yielded some tax savings for HT Media Ltd on account of the “goodwill” created in the subsidiary’s books. As HT Digital Streams has paid an acquisition price that is higher than the book value of the assets that were transferred to it, the excess is recognised as ‘goodwill’ in its books. This is treated as an expense to be amortised (charged off in a phased manner) over the next three years, earning HT Media’s consolidated profits a tax shelter in the process.

The aggregate financial performance of all the above arms is captured in the consolidated numbers of the listed HT Media Ltd, which are analysed below.

 

Still leaning on print

Despite its penchant for new business forays, HT Media Ltd, on a consolidated basis, has managed only modest growth rates in the last five years. Between FY12 and FY17, its total revenues have grown from Rs 2076 crore to Rs 2682 crore, a 5.2 per cent compound annual growth.

Net profits have flat-lined, inching up from Rs 165 crore to Rs 170 crore in this five-year period. Profitability peaked in FY14 and has since been on a downhill journey. EBIDTA (Earnings before interest depreciation and taxes) has displayed decent expansion from Rs 362 crore to Rs 528 crore (7 per cent annual growth). EBIDTA margins have hovered between 17.5 and 19.7 per cent.

HT Media’s diversification into radio and digital businesses was intended mainly to pep up slowing growth in the ‘mature’ print business. It is true that both the radio and digital ventures have delivered higher growth rates than the print business. In the last five years, radio revenues have notched up a 17 per cent annual growth to expand from Rs 74 crore to Rs 159 crore, while digital revenues have expanded at 28 per cent from Rs 44 to Rs 151 crore. Print revenues (advertising and circulation put together) have grown at a 2 per cent rate from Rs 1886 crore to Rs 2132 crore in the last five years.

However, the radio and digital businesses remain small in scale and by FY17, chipped in with just 11 per cent of HT Media’s topline. Print (80 per cent) and other income remained the main bread-winners.

In terms of profitability, the radio venture turned around in FY12 and managed a Rs 20-29 crore contribution to pre-tax profits between FY13 and FY16, but profits fell to Rs 10 crore in FY17. The digital foray has been chronically loss-making, with losses before interest costs at anywhere between Rs 39 crore and Rs 65 crore in the last five years. 

Therefore, HT Media continues to lean heavily on its print publications for its profits too. FY17 segment-wise results show that, of the Rs 308 crore profit before interest and tax of the consolidated entity, print contributed Rs 241 crore; the radio business made Rs 10 crore and the digital business reported losses of Rs 39 crore. It was ‘other income’ of Rs 229 crore that helped make up for digital losses and other unallocated costs. 

In fact, a hefty ‘other income’ component has been a recurring feature of HT Media’s revenue and profit numbers over the years. This casts doubt both on the predictability and quality of its reported earnings. In FY17 and FY16, other income contributed Rs 229 crore and Rs 156 crore, accounting for a high 8.5 per cent and 5.6 per cent respectively of total revenues. 

"In fact, a hefty ‘other income’ component has been a recurring feature of HT Media’s revenue and profit numbers over the years."

 

While no details about the nature of ‘other income’ are available for FY17, past annual reports suggest that a good portion of this is income earned from investments and bank deposits. HT Media also adds about Rs 50 crore annually to its topline by undertaking printing work for others and Rs 20 crore from the sale of scrap.  The Private Treaty business nets about Rs 1-3 crore. The available details are insufficient for us to quantify the exact impact of ‘other income’ on HT Media’s earnings. But it is clear that HT Media’s profit margins are likely to be much lower once we net out these extras from its core operations.  

Despite its many new business forays, HT Media boasts a fairly strong balance sheet. As of end March 2017, the company reported a net worth of Rs 2232 crore, on a total balance sheet size of Rs 4596 crore. Total borrowings (short and long term) at Rs 1104 crore were at less than half of the equity, resulting in a manageable debt-equity ratio of 0.5 times. More importantly, the company had cash balances and an investment book amounting to over Rs 2200 crore that could easily cover repayment of this debt.

Analysts have repeatedly questioned the need for the company to maintain such large cash coffers, instead of repaying its loans or returning cash by way of dividends to shareholders. In FY17, for instance, HT Media spent Rs 95 crore on interest and finance costs, up 51 per cent from the previous year. 

While the investment book no doubt gives HT Media’s a leg-up in the form of ‘other income’, treasury operations seldom yield as much as the core business and therefore, weigh on shareholder returns. HT Media’s return on equity stood at a low 7.5 per cent in FY17. However, the management has cited the need for ‘safety cash’ to invest in radio licences and new digital ventures.

The combination of slow growth, stagnant core business profitability, and poor shareholder returns could be the main reasons why the group has been so intent on cost-cutting and streamlining its workforce lately.

 

Impact of demonetization

HT Media being a listed company, financial results are filed on a quarterly basis. It is therefore possible to assess the impact of demonetization on the group. Its filings show that, after managing reasonable growth of 7.5 per cent and 5.2 per cent in its revenues in the first two quarters of FY17, revenues decelerated to slump to 0.7 per cent in the December quarter of 2016 and registered a 7.5 per cent fall in the March quarter of 2017.

The demonetization quarter of October to December 2016 did not prove as cataclysmic as feared. At Rs 650 crore, total revenues from operations dipped 4.5 per cent, but were, as usual, bailed out by ‘other income’.  The company pruned pagination and reined in administrative overheads to trim costs, closing the demonetization quarter with a healthy 24.8 per cent rise in net profits. 

After holding up well in the October-December quarter, HT Media reported a dent to its numbers in the latest March 2017 quarter. Ad revenues in the English print business suffered a severe 20 per cent plus shrinkage this quarter and the company closed the quarter with net profits of Rs 25.5 crore, 40 per cent below last year’s level. But it is hard to say what part of this was attributable to advertisers cutting back due to demonetization and what part of it was due to the carve-out of the content business and shuttering of editions.

In January, as part of a cost-cutting drive, HT Media decided to axe its Hindustan Times editions at Kolkata, Bhopal, Indore and Ranchi. It closed operations in Allahabad, Kanpur, and Varanasi. It also decided to close down the business bureaus of the Hindustan Times in Mumbai and Delhi, using 'Mint' content in the business pages instead. It argued that these moves would help focus on the stronger HT editions at Delhi, Mumbai, Chandigarh, Lucknow and Patna.

The HT Media management, in an analysts’ call, reasoned that the cost control exercise was kicked off much before demonetization. Though grilled by analysts about the exact quantum of cost savings, the company refrained from divulging details. It has held that the revenue and profit impact from the shuttering of editions is ‘minimal’ and that the full benefits would accrue over a year.

Overall, HT Media closed FY17 with a 0.9 per cent growth in total revenues to Rs 2681.6 crore, a 10.2 per cent expansion in EBIDTA to Rs 527.8 crore and a marginal 1.8 per cent dip in reported net profits to Rs 170.3 crore. While income from core operations fell 2 per cent, a 47 per cent jump in ‘other income’ saved the day.

With newsprint prices falling and lower pagination, HT Media managed a 3.7 per cent saving in its raw material bill. This, combined with a 4 per cent cut in overheads made up for the 6 per cent jump in employee costs. The higher employee costs are surprising given the discontinued editions and reports of layoffs. But it is unclear if the higher costs are attributable to pay hikes or severance pay.

After its so-so show in FY17, the group has vowed to regain revenue growth in the print business through ‘yield-led’ growth, productivity improvements and further cost controls. It also proposes to continue driving revenue and profitability at the newly launched radio stations and to improve its digital footprint.

 

Remuneration at the top

Based on the FY16 annual report, Chairperson Shobhana Bhartia earned a total remuneration of Rs 5.62 crore that year (the FY17 annual report is not yet out), while Shamit Bhartia, the joint MD, earned Rs 3.35 crore. Rajiv Verma, the CEO of the group, earned Rs 4.01 crore. Being a listed entity, HT Media is required to disclose pay gap ratios within the company (the ratio of top management pay to that of the median employee). The annual report reveals that the average employee in the group was paid Rs 6 lakh per annum with the Chairperson’s remuneration at 93 times this level. The company had 3499 permanent employees on its rolls in FY16.  

 

History

Hindustan Times was founded in 1924 by Sunder Singh Lyallpuri, founder-father of the Akali movement and the Shiromani Akali Dal in Punjab Province. After a good start, the paper faced turbulent times and was re-invented as a nationalist newspaper.  Eventually, industrialist G.D. Birla took control of the paper in 1933. From a circulation of 58,693 copies in 1950s to 144,287 in 1970, Hindustan Times saw accelerated growth under K.K. Birla. In 2003, the media business of Hindustan Times Ltd was hived off to HT Media Ltd. This company made a Rs 400 crore IPO in 2005, which also offered a partial exit to the private equity investor - Henderson Equity Partners. In 2009, Hindi language publications were hived off into HMVL, which floated a Rs 270-crore IPO in 2010.

The HT Media stock which originally listed at Rs 536 is currently trading at an adjusted price of about Rs 82 after a 1:5 stock split in 2006, an effective price of Rs 410 for original investors. If they held on till date, they clearly haven’t made money. The HMVL IPO, however, has paid off for investors with the stock traded at Rs 276 versus the IPO price of Rs 166. 

 

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