English newspapers might have seen a slowdown in business in the recent past, but the vernacular newspaper (especially Hindi) space is growing fast, both in readership and advertisement revenues. Going ahead, too, players like Dainik Jagran, Dainik Bhaskar and Hindustan Media Ventures (HMVL) are seen as the key beneficiaries of an increase in readership in the Hindi belt.

HMVL earlier undertook printing work for its parent. But it now owns and publishes the Hindustan-branded Hindi newspaper and two Hindi magazines, which were carved out of its parent HT Media in December 2009. The company is coming out with a public offer to raise Rs 270 crore, of which Rs 135 crore will be used towards debt repayment, making it a debt-free company and leading to savings of about Rs 6.5 crore in interest costs annually.

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The business
HMVL’s newspaper Hindustan has been one of the fastest-growing Hindi daily newspapers in India, with a 15.9 per cent growth in readership between July 2006 and December 2009. This has helped HMVL improve its position from the sixth-largest Hindi newspaper in 2005 to the third-largest in 2010 with readership of almost 10 million as per IRS - Q1 2010 (first quarter of the financial year 2009-10).

In the Hindi daily space, HMVL holds the edge (top player) in markets like Bihar and Jharkhand, while it is the second-largest in Delhi and National Capital Region (NCR) and the third-largest in UP and Uttarakhand. The company proposes to set up eight new publishing units for publishing new editions of Hindustan, adding almost half to its existing printing infrastructure of 17 units and allowing it to cover new markets.

Increasing the footprint becomes essential, with DB Corp’s entry in Bihar and Jharkhand expected in the second half of 2010, which will increase competition in the region.

Notably, in UP and Uttarakhand, which is the largest market for Hindi newspapers, HMVL has seen its readership share rise from 2.04 million in 2007 to 2.78 million in Q1FY10. However, its share is still far from competitors like Dainik Jagran and Amar Ujala, which had a readership of 9.91 million and 7.74 million, respectively, in Q1FY10.

HMVL’s gains have come from significant investments over the past three years in Uttar Pradesh, wherein it has opened five new printing locations at Agra, Meerut, Allahabad, Kanpur and Bareilly to add to their existing printing facilities in Varanasi and Lucknow. It intends to further consolidate and expand the presence of Hindustan in Uttar Pradesh with the setting up of its eighth printing facility, which is currently under construction.

Outlook
HMVL’s past performance, in terms of margins, has not been exciting. In FY10 though, margins improved sharply, consequent to significant reduction in raw material (newsprint) costs and partly due to better efficiencies - all of which needs to be monitored going ahead.

As part of the HT Media Group, the company derives synergies in the form of sharing existing printing and distribution infrastructure, as well as combined marketing initiatives and raw material procurement.

Considering the favourable business dynamics for regional print media companies and HMVL’s leadership position in markets like Bihar, Delhi and NCR and improving share in UP and Uttarakhand, the company should be able to clock healthy growth rates of about 20 per cent annually.

While HMVL’s business prospects look good, its IPO is richly valued. At Rs 162-175 a share, the price-to-earnings (PE) ratio works out to 20.5-22.2 times its 2009-10 earnings on a pre-IPO equity capital.

Even after considering the estimated earnings growth of about 20-25 per cent for the current year (and expansion of equity capital due to the IPO), the PE works out to over 21 times, based on fully-diluted equity, which is not cheap.

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