Stock Pick From Media And Entertainment Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

Here Is Why

Indian media and entertainment industry sustained its growth momentum of approximately 13 per cent till now and projected to grow at CAGR of 13.9 per cent over next five years. Advertising being the predominant element of revenue pie of print media, contributes about 43 per cent and growing at CAGR of 9.7 per cent. Growth accelerates more in regional and Hindi language print and publishing media. FMCG (13.5%), auto (11.9%) and education (9.4%) sector contributes largely in the overall advertising revenue.

According to IRS (Indian Readership Survey) survey, Hindustan Media Ventures (HMVL) is  positioned second with readership of 14.7 million in India. Dainik Jagaran tops the position by readership of 16.6 million. HMVL sees themselves 70 per cent of Jagaran and plans for pushing for yield increase. HMVL is numero uno in Bihar, Jharkhand and Uttarakhand in terms of readership and holds the number two position in Delhi. HMVL more focuses on Uttar Pradesh to increase its market share. They are already second in UP and the fastest growing media house in the large state.

On nine-months financial front, HMVL’s top line increased by 12.09 per cent to Rs 691 crore in 9MFY16 as compared to same period in previous financial year. The company’s EBITDA too ascended by 36.54 per cent to Rs 167 crore in 9MFY16 on yearly basis. Its EBITDA margin expanded by 431 basis points to 24.11 per cent in 9MFY16 as compared to same period in previous financial year. HMVL’s bottom line also increased by 31.08 per cent to Rs 133.6 crore in 9MFY16 as compared to same period in previous fiscal year. The company’s PAT margin expanded by 280 basis points to 19.33 per cent in 9MFY16 on yearly basis. It has debt to equity ratio of 0.13 as of FY15.

HMVL intends to expand EBITDA margin by 2 to 3 per cent every year over the next couple of years. Its main revenue comes from advertising segment and it is expected to grow in double digit in near future on the basis of volume and revenue growth yield. Advertising revenue from UP, Uttarakhand, Bihar and Jharkhand is 40 per cent and rest is from Delhi. Low effective tax rate due to parked treasury income helps HMVL to maintain healthy profit margins.  The company has capex plans of around Rs 20 crore for Haldwani project expansion and capacity expansion which will benefit the company in increasing volume and revenue growth.

On valuation front, HMVL’s PE looks attractive at 11.24x times as compare to D B Corp (20.24x), Jagran Prakashan (22.55x), Navneet education (15.87x). Its PB multiple also looks attractive at 2.22x times as compare to D B Corp (3.98x), Jagaran Prakashan (4.42x). HMVL also enjoys higher ROCE of 27.08 per cent and ROA of 14.97 per cent as of FY15. Hence, we recommend to BUY this stock.