Hindustan Media Ventures (HMVL) top-line grew by 28% YoY to Rs1.3bn where in the Ad revenue (72% of total revenue) grew by 35% YoY and sequentially by 3% to Rs945 mn. Circulation revenue registered QoQ growth of 6% to Rs306mn. Operating margins stood at 14.1%, sequential drop of 30bps mainly because of hardening newsprint prices and heightened advertisement & sales expenses.

Lower than expected ad revenue growth

The company reported lower than expected Ad revenue (72% of total revenue) growth of 3% QoQ to Rs945mn (6% lower than the expected ad revenue of Rs1bn) and 35% YoY from Rs700mn in Q3FY10. Lower ad revenue growth is mainly attributed to insignificant revenue contribution from Bihar election. Circulation revenue grew by 6% QoQ to Rs306mn. Other operating income grew by 12% QoQ to Rs62mn.

High operational cost leads margin contraction

Raw material cost increased by 4%, mainly on account of hardening newsprint prices. Raw material as percentage of sales remained at ~44%. Advertising and sales promotional increased by 41% QoQ to Rs73.4mn from Rs52mn in Q2FY11. This is due to surge in sales and promotional activities in the existing markets in response to increased competition and further penetration into UP market with the launch of Gorakhpur edition. Resultant PBIDT margin contracted to 14.1% from 14.4% in Q2FY11. However lower tax rate resulted in NPM expansion from 8.3% to 8.8% in Q3FY11. EPS increased by 9% to Rs 1.6 from Rs 1.45 in Q3FY11.

VALUATIONS & RECOMMENDATION

We believe HMVL being the fastest-growing Hindi news daily, is well entrenched to deliver revenue CAGR of 18% and PAT CAGR of 32% over FY10-FY12E. We expect OPM of 18.6% and 22% in FY11E and FY12E respectively. At the CMP, the stock trades at 14.5xFY12E EPS. We maintain our `BUY' recommendation on the stock with a target price of Rs200 (17x FY12E EPS).