Hindustan Media Ventures Limited (HMVL) is tapping the capital markets with a public issue in the price band of Rs 162-175 to raise Rs 270 crs. HMVL is a subsidiary of HT Media Limited. The company has completed its allotment to anchor investors at a price of Rs 166 on Friday 2nd July.

Business
HMVL is the publisher and printer of the Hindi newspaper ‘HINDUSTAN’. The newspaper began publication in 1936. It has its presence in Delhi NCR, Uttar Pradesh, Uttrakhand, Bihar, Jharkhand and Punjab. Hindustan is published in four editions and has 113 sub-editions. The newspaper is printed from 17 locations. There are two Hindi magazines which the company publishes. The children’s magazine is ‘Nandan’ while the general interest magazine is ‘Kadambini’. The company also operates a website www.livehindustan.com.

Newspaper industry is fairly confusing and there are a large number of figures which appear contradictory. Newspaper circulation is the data on number of copies sold on a daily basis while the readership survey is the number of readers per copy. Hindi media is different from the English media and typically has a larger readership than English media. Some of the reasons attributed to this are larger families, joint family presence in rural India and the village culture where people spend time in the community and read newspapers.

HMVL acquired ‘Hindustan’ from the parent HT Media Limited alongwith the 2 magazines effective 1st December 2009. The acquired company has made reasonable profits for the first time in the financial year 2010. The business of Hindi newspaper and circulation is a fairly tough one. There is a cut throat competition and many regional players are present in the business. The dominant player in UP is Dainik Jagran which has its base at Lucknow/Kanpur. The second newspaper is Amar Ujala. The dominant paper or market leader in Jharkhand is Prabhat Khabhar. 

Hindustan as a newspaper is adding new cities from where it is being published but if one were to look at same centre growth it has been stagnant or growing at a very small pace. In 2005-06 the readership in Bihar was 43.74 lakhs which increased over the next one year to 52.33 lakh and has been decreasing thereafter, and is currently 44.75 lakh readers in the beginning of 2010. In Uttar Pradesh the newspaper has seen growth in number of readers from 17.73 lakh readers in 2005-2006 to 25.96 lakh readers in 2010. It must be noted that the paper has been adding new centres and catering to additional towns and cities in the state. Very clearly there is concern about growth and competition in the key state of Bihar and Jharkhand which is roughly 58-59% of Hindustan’s present readership.

Objects of Issue
The objects of issue are as follows

The company is raising a fixed amount of Rs 270 crs and has detailed plans for Rs 256 crs out of the Rs 270 crs to be raised. It may be mentioned that the term loan was taken to finance the acquisition on a slump sale basis the assets from HT Media at a total cost of Rs 143.183 crs. The market capitalisation of this company post listing would vary between Rs 1195 crs and 1270 crs.
Further the new printing units to be set up would be commissioned in two years and it should take no more than six months to set up such unit’s .The company for purposes of competition has not disclosed the locations where these eight printing/publishing units would be set up.

Corporate Governance
Shri Shardul Shroff is an independent director of the company HMVL and he is the managing partner of the law firm M/s Amarchand & Mangaldas & Suresh A Shroff & Company. This firm is the ‘Legal Counsel to the company Hindustan Media Ventures Limited. It seems surprising that something like this has been done.

Secondly on Friday the 2nd of July Mint carried a story on page 18 of its Mumbai edition by its journalist/reporter on the IPO by HMVL. It had forward projections on the expected earnings of this company for the year 2010-2011. If forward numbers were attributed to analysts there would have been no concern but when it is to journalists and that also of the Promoter group it is certainly not what is expected of reputed newspapers and certainly violates SEBI guidelines. Mint is a newspaper published by HT Media who are the promoters of this company. 

Financials
HMVL was acquired in a slump sale from HT Media as of 1st December 2009. Strictly speaking financials for the new unit are available for a mere 4 months for the period December 2009 to March 2010. For comparison purposes, the promoter HT Media has given out carved out figures for the period April 2006 to November 2009 so that there may be a four year track record for the company.

The total revenues for the company were Rs 217.97 crs for March 2007, Rs 265.79 crs for March 2008, Rs 353.66 crs for March 2009 and Rs 444.41 crs for March 2010. The figures for March 2010 are separately broken up into eight months revenue of Rs 277.45 crs and four months revenue of Rs 166.96 crs.
The net profit/loss for the year ended March 2007 was a loss of Rs 13.63 crs, loss of 0.07 crs for March 2008, loss of Rs 4.03 crs for March 2009 and a profit of Rs 45.22 crs for March 2010. Based on the pre-money net profit of Rs 45.22 crs for March 2010 the EPS would be Rs 7.9. The EPS based on post money equity would be Rs 6.13 at the lower band and Rs 6.23 at the upper band.

Competition
HMVL is operating in an environment which is becoming tougher by the day. We are all aware that DB Corp or Dainik Bhaskar has been a very aggressive player in the business and his success in Gujarat where they replaced the 80 year old market leader on day one. The marketing case study is a subject which is taught at IIM-Ahmadabad and is a model which is being repeated by this company in estate after state. The next battleground is Jharkhand followed by Bihar. The competitor has completed its 45 day survey in the state and would launch its edition in Ranchi, the state capital of Jharkhand in August 2010. And by the end of this calendar year launch all over the state of Jharkhand and then launch in Bihar next year (2011-12).

As a result of the impending launch the cover price of Hindustan has been halved from Rs 4 to Rs 2 with effect from 16th June. Newspaper trade is a funny business where the trade commission is fixed in absolute terms and does not vary with the cover price. With this cover price reduction, there is a straight reduction in top line and this affects the bottom line directly. The company HMVL sells about 95,000 to 1lakh copies daily in Ranchi and roughly 2 lakh copies in Jharkhand state. This could directly affect a top line loss of anything between Rs 14 to 15 crs and also the bottom line. Added to this would be the cost of maintaining the presence in the area and possible loss on advertising rates to retain market share and advertiser.

Secondly to fight with the leader which is ‘Prabhat Khabhar’ and the intending launcher Dainik Bhaskar, the company HMVL has had to increase its presence in the cities and the state by way of more hoardings, sales force, adding more pages to the daily newspaper, printing more pages in colour than before, and generally doing everything that would help in preventing loss of market share. All of this leads to costs and the company does not have much to play around with.

Coming to strategy, HMVL has joined hands with the competitors and allowed them entry into a crowded place inviting further competition. It is fighting in Uttar Pradesh at a distant 3rd place after Dainik Jagran and Amar Ujala. The leader Dainik Jagran has been unable to penetrate in other places and is able to hold on only in UP where it is located in Kanpur/Lucknow its headquarters. Being number three here, there is tremendous competition and returns are not significant for HMVL.

In two years time the battle over Jharkhand and Bihar would have been fought and the loser would have lost a lot. As mentioned earlier 58% of readership of Hindustan on a national basis is in these two states and we know what happens when a new aggressive player enters the fray. The newspaper Hindustan would probably for the first time be facing real competition and that too in its back yard. The importance of Bihar and Jharkhand would be felt for the first time and not being threatened as leader ever, it appears a bit complacent in its approach.

Considering all these things the scenario in the Hindi newspaper business for market share in the states of Bihar and Jharkhand will play an important part going forward.

Comparisons
Based on current earnings, DB Corp is available at about 23-24 times March 2010 earnings and roughly 18-19 times March 2011 numbers. Jagran Prakashan is trading at 21 times its March 2010 earnings and its profits in the year ended have almost doubled from Rs 92 crs to Rs 175 crs. HT Media is trading at a PE multiple of 27.61 based on its March 2010 earnings. Being a subsidiary of HT Media the performance of HMVL is already factored in HT Media.

While talking about HMVL one must talk about HT Media and its stock performance after listing. HT Media made its IPO at a price of Rs 530 in August 2005 and listed on 6th September. On the very first day of listing the share closed below par at Rs 503. The stock made a low of Rs 360 in June 2006. Thereafter the stock recovered and made a high in December 2007 where on a split basis (five shares of Rs 2 for every Rs 10 share) the high was Rs 266. Thereafter it was another slide all the way to Rs 36 in March 2009. The stock currently trades at Rs 146.60 against an issue price of Rs 106. (Rs 530 split into 5 shares of Rs 2 each). The net return over five years has been a disappointing 7.66% per year for an investor who has been holding on to these shares.

Concerns
Hindustan is a 70 plus years old brand but has been unable to realise its potential. Hindi is the largest spoken language in the country and the power of the language is there for all to see. The company even in such a long period of time has not been able to penetrate the Hindi belt and is losing market share in so many states. It is becoming a fierce competition and being a new company HMVL it does not have a war chest to fight the battles ahead. Corporate governance issues and a tough time ahead on the business front leave little scope for appreciation in the future. Past performance of the promoter over the first four years of their traded history make an intending investor vary of subscribing to the issue.

Valuations
The share is being offered at a PE multiple of 26.43 times its March 2010 fully discounted earnings at the lower price band of Rs 162 and at 28.09 times at the upper price band of Rs 175. There is nothing in this issue for the investor and I believe better opportunities will be available going forward in this issue or in other issues in the sector. The track record of the promoter, corporate governance issues and market environment make the issue expensive and risky from a risk reward perspective.

Conclusion
Looking at the merits and risks of the issue it makes better sense to avoid the issue at the current moment and await the result of the first onslaught in Ranchi before jumping the gun. The past performance of IPO on listing does not lend comfort in applying for the issue. This issue may be given the skip.

SEBI disclaimer: – I do not intend to subscribe to the above issue.