Thursday 5 December 2013

Hindustan Media Ventures Limited: A mispriced bet in newspaper business

Warren and Charlie's fascination towards owning newspaper business is well known to most of us! In 1973, Berkshire bought stake in Washington post and kept on increasing its stake year after year. Washington post has been one of the top holdings and one of the largest wealth creators for Berkshire, over the years. However, Warren's love with newspaper business continues unabated, till date! Berkshire, in last two years, bought 28 daily news papers for USD 344 million. Warren Buffett devoted a large section of annual shareholder letter explaining the rationale for buying newspaper business, especially when, most people in US believe that newspaper industry is on deathbed! Here is the what Warren Buffet has to say about newspaper business

"Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what's going on in your town - whether the news is about the mayor or taxes or high school football - there is no substitute for a local newspaper that is doing its job. A reader's eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.

...Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time."

So, how about an opportunity to own one of the largest Indian Hindi daily business with respectable management pedigree and excellent performance matrix on very favourable terms? Let's explore it further:

About Hindustan Media Venture Limited (HMVL):

HMVL is the company promoted by HT Media limited, part of erstwhile KK Birla group. The company was part of KK Birla group till 2008, however post Mr.Birla's demise in 2008, the HT Media business was passed onto one of his three daughters, Mrs. Shobhana Bhartia. Mrs. Bhartia is married to Mr. Shyam Sundar Bhartia, the chairman of the Jubiliant group (Jubliant Pharma, Jubilian foodworks etc). As a part of restructuring exercise, the "hindi" print media business was spun off and sold to HMVL on slump sale basis along with all the assets and liabilites in 2009. The idea of spinning of "hindi" print media business was to charter a well defined growth path for the business and provide sufficient management bandwidth. In 2010, HMVL came out with IPO to raise 270 crore to fund the expansion and pre payment of loan. The shares were issued to investors in IPO @ Rs.166. 

Business of HMVL:

HMVL publishes hindi daily "Hindustan", a children magazine "Nandan" and a woman centric magazine "Kadambini". "Hindustan" is the second largest Hindi daily in the country by total readership and the third largest by average issue readership "AIR" according to latest data published by IRS in Q4, 2012.  "Hindustan" is the mainstay of HMVL's operations. Hindustan has 12 editions and more than 110 sub editions spread across the state of Bihar, Jharkhand, Delhi/NCR, Uttar Pradesh and Uttarakhand. According to latest IRS data, Hindustan has total readership of 3.2 crores. 

Hindustan has been an undisputed leader in Bihar and Jharkhand market for many years with 68% and 46% market share respectively, well ahead of the second largest player in both the states by a wide margin. Hindustan is the second largest hindi daily in Delhi/NCR region. HMVL entered UP and Uttarakhand market before 3 years, and have reaped rich dividends from such geographical expansion. HMVL has been growing at brisk rate in both the markets. HMVL has not only emerged as the third largest player but has also inched very close to the second largest player Amara Ujala! According to the latest conference call, HMVL has broke even in UP last quarter and is likely to break even in Uttarakhand in next quarter.

HMVL's business derives its revenue largely from two sources i.e. advertisement and subscription. Currently, HMVL derives 72% of its revenue from advertising, 25% from subscription and rest 3% is from interest/dividend income. However, looking at the past trend, that contribution of advertisement revenue has increased significantly from 60% to 72%. Based on my understanding, currently, in the print media, the typical split between ad and subscription revenue is 70/30. Raw material cost constitutes 40% of total revenue. It is likely that RM cost is likely to stabilize at current level or even decrease in case of newsprint prices decline due to appreciation of rupee. 


Daily newspaper market has largely been dominated by two or three players in most of the regions. In all the markets in which HMVL operates, the competitive landscape is no different! However, new players are entering in some of the markets dominated by HMVL especially Jharkhand and Bihar. It is possible that entry of a new player with deep pockets can change the competitive landscape in these markets. 

There are predominantly following players in the market that HMVL operates in 

Dainik Jagarn: Present in UP, Uttarakhand, Deli, Bihar, Jharkhand

Amar Ujala: Present in UP and Uttarakhand

Prabhat Khabari: Jharkhand 

Navbharat Times: Delhi/NCR

Panjab Kesari: Delhi 

Dainik Bhaskar: Jharkhand (2011) and entering in Bihar (2013) 

Follwing is the state wise competitive situation based on company's presentation and IRS data (Presentation to investors)

Bihar: Currently, only two major players in the market Hindustan and Dainik Jagarn. Hindustan has lead of more than 60% in terms of AIR over Dainik Jagaran. DB has recently launched Patna edition and if they expand aggresively(as they have done in other states), it may be the third significant player in the state.

Jharkhand: Highly competitive market with 4 players in the fray. Hindustan is the leader followed by Prabhat Khabar, Dainik Jagaran and Dainik Bhaskar respectively. However interesting thing is that gap between first three players have remained almost constant even after the entry of a new player. 

Delhi/NCR: This market is again fiercely contested market with 4 players. However, market is dominated by Navbharat Times which has been able to hold forte very well in spite of stiff competition. There is hardly any difference between second and third player i.e. Hindustan and Dainik Jagaran in terms of AIR and both have maintained their AIR over last couple of years. However, Punjab Kesari has lost readership consistently and is the only weak wicket!

UP and Uttarakhand: This market, few years back was dominated by Dainik Jagaran and Amar Ujala. However, entry of Hindustan has changed this dynamics. Hindustan has been gaining the readership at the expense of Amar Ujala while Dainik Jagaran has maintained its readership numbers in absolute terms. However both Dainik Jagaran and Amar Ujala has lost market share to Hindustan. Dainik Jagaran is still leading the market by a wide margin while the gap between Amar Ujala and Hindustan is narrowing down fast.

Financials & Ratios:

Here is the link for company's financials (Financials are only comparable from FY11)

Profit & Loss: In H1 FY14 HMVL has reported revenue of around 350 crore with net profit of 55 crore. If we annualize this number, FY 14 revenue is likely to be 700 crores with net profit of 110 crores. This translates into revenue growth of 10% CAGR in last three years while 28% CAGR profit growth. 

Company's EBIDTA margins have consistently increased from 18% in 2011 to 21% in 2013.In Q2, 2014, HMVL reported EBIDTA margin of 23%.

Balance sheet: Company has a very strong balance sheet with 36 crores of debt on total equity of 563 crores (As on H1 FY14).This translates into debt to equity ratio of 0.07. Company has cash and MF investment of around 400 crores (including non current investment of 95 crores). 

Cash flow: Company has consistently generated free cash flow from operations in all the years resulting into healthy cash position for the company.Cash flow from operations have been in line with the net profit or have exceeded the net profit in each of the last three years. Cash flow from operating activity is 57, 72 and 81 crores against net profit of 54, 65 and 84 crores. This not only indicates efficient use of fixed assets but also means that working capital management also has been excellent.

Return on capital employed: Even though company has generated respectable ROCE of 22-24% in last 3 years on the entire capital employed, the number do not reflect the actual attractiveness of the business. If we deduct the cash/investment from the capital employed and count only actual capital deployed in the business, HMVL is likely to generate 110 crore of profit on 220 crore of capital employed (fixed asset + net working capital) which is phenomenal 50%! And according to management, the operational leverage is yet to kick in...!!


Company has current market cap of 800 odd crores which is 7.3 times estimated FY 14 earnings. However, company is sitting on cash kitty of 400 crores which management is planning to deploy for acquisition, use it for expansion, return it to shareholders or a combination of these options. If management rationally deploys this capital and generate even 20% return it will translate into additional earnings of 80 crores, taking yearly earning to around 200 crores. Thus, after cash is deployed, effective P/E will be even less than 7, depending upon the kind of return generated on the capital. 

Moreover, according to management (both in AR and in concall), company in past 3 years have made substantial capital expenditure for upgrading their printing facilities and expanding into new geographies. In next few years, management will focus on maximizing the revenue from the investment made, increasing operational efficiencies and further consolidating its position in existing markets. Management has also indicated that this will result into operating leverage coming in to play resulting in significant increase in bottom line. 

In terms of peer comparison, DB corp, which also operates in vernacular/hindi print media and has similar margin and return ratios is trading at 19 times trailing P/E. As DB Corp covers wider geography and is bigger in scale than HMVL, it will command some premium over HMVL. Even if we assume that HMVL will trade at 25% discount to DB Corp, HMVL shall trade around 13-14 P/E. Currently, the stock is trading at 7 times FY 14 earning without considering cash deployment providing enough margin of safety and substantial upside potential. 

Currently market is punishing the company because it is sitting on large cash pile without utilizing it. This is perceived as key risk for the company as market has burnt their fingers in numerous companies where promoters have siphoned the cash through some very innovative and/or blatant means! I personally feel that given respectable management pedigree and management reiterating its intention to deploy cash in due course provide comfort to shareholders. Management in the last couple of concall, has confirmed that they are keeping cash reserves and evaluating various opportunities for inorganic growth. Management has also indicated that HMVL has a threshold limit of "war chest" in mind which it wants to preserve for inorganic growth. However, once that threshold is reached, company shall redistribute additional cash to shareholders. In latest concall, management also gave hints that company is very near to the threshold cash limit. So, it is possible that we witness some action from management on that front which will act as catalyst towards bridging the valuation gap.

Key investment rationale:

- Newspaper is a sticky business and switching cost/inertia is high 
- Typically, in newspaper business, growth in ad revenue is non linear after a newspaper approaches critical mass and scale as volume of advertisement and pricing power both grow. In UP and Uttarakhand, HMVL is approaching that inflection point. 
- Currently there is large gap between advertising rates of Amara Ujala (second largest player) and Hindustan in UP ( at least 30-40%). If HMVL continue to grow and reaches the scale of Amara Ujala, it can signifcantly increase advertisement rate ( I have compiled a comparison between ad rates from all major hindi dailies for HMVL market and if anyone wants it, I can send it over)
- Increasing literacy rates in Hindi belt is structurally good as new potential consumers will get added hence the potential customer base will expand
- Rural India and tier-II and tier-III towns are considered next growth engines for many businesses. Hence advertisement spend focused on this market is likely to go up. All vernacular and Hindi print media companies are going to be beneficiary of this trend
- There is large gap between advertisement rates charged by english dailies and Hindi/vernacular dailies. However, increasing focus on rural/tier-II/tier-III town by companies will narrow down this gap providing higher yield to hindi/vernacular dailies.

Key risks:

- Competitive intensity in key markets of Jharkhand and Bihar is increasing. any irrational behaviour by the new entrant/competitor can have negative financial impact.

- If management neither deploy cash in business/for acquisition or returns it to shareholder, market will continue to assign lower valuation 

- Management pay too high a price for the acquisition resulting into value erosion for the shareholders

One more interesting aspect! Azim Premji and his investment companies own 2.18% stake in the company.

I believe it is a good opportunity to own a solid and growing business on very favourable terms where odds of winning are in favour of an investor!


  1. Thanks Commander (of Blog)
    Very well researched article


  2. Great work. I am seriously considering it inspired by your analysis.

    1. Hi Anon,

      Thanks for the appreciation. I strongly encourage you to do your own analysis before taking any investment decision as like many others, I do suffer from many biases and am prone to errors (proven time and again!).

      Also want to add a disclosure: I have initiated a position and hence as usual suffer from consistency bias...!

  3. Hi Dhwanil,
    No newspaper has been able to make 20% off an acquisition. Please do look into recent acquisition by one listed newspaper company in UP where they have lost money for a long time.
    Suggest to keep this in mind and be a bit careful, thats all. How the cash will be used is of extreme importance.

    1. Hi Anonymous,

      Thanks for your views and word of caution. I agree with you that how cash will be used is extremely important and if used to overpay for an acquisition, surely there will be value erosion. I have mentioned same as one of the key risks precisely for that reason.

      I believe what I have said is that If company deploys capital "rationally" be it through acquisition/for expansion then it can be possible to earn ROCE of 20%. Moreover, if you look at the valuation and investment rationale, one of the important reason why HMVL trades at substantial discount to peers is that it is neither deploying cash nor returning it to shareholder. I believe that moment company starts either distributing cash or deploys the cash , market will become more rational and assign better multiples to the company, in line with the quality of the business. It is also important to note that there are already some growth drivers in place for the company at least for next couple of years. So, in all with somewhat rationalized PE (one has to keep in mind the excellent ROCE , growth of 20%, no leverage and reasonably sticky business) and continuing growth can result into at least 60-80% upside from here. While, the downside seems limited except in a situation where management pays through roof for acquisitions and erodes value significantly.

      So looks like heads I win, tails I don't lose much...!

  4. Inspiring post and analysis...however I have some questions.
    - You seem to be hinging some of the growth in inorganic. Realistically what sort of acquisitions does a regional newspaper chain in India make? They surely won't go for TV (too crowded), and FM (already held by HT Media)? So what's left anyway?
    - "Newspaper is a sticky business and switching cost/inertia is high". I beg to disagree. We have too many newspapers around and people do switch when they get tired of one, just for novelty factor. That's the whole reason the newspaper guys keep changing the look and feel at least once a year, if not twice. It is actually too easy to change. None of them have the stellar reputation and reader loyalty that we have seen in yesteryears.
    - You have not commented on the impact of 2014 elections on the ad revenue. Would it not have a significant impact? Political parties will give big ads to the papers.

    1. Hi Anonymous,

      Thanks for sharing your views. I have following responses to your queries.

      - I have mentioned that company is looking at investing surplus cash for inorganic growth. It has been made amply clear by the management that they are looking at acquisition opportunity in Hindi newspaper business only. If I put myself in management's shoes, I would typically consider acquiring some of the smaller competitors in the markets where I am present, especially when I am consolidating. To me someone like PAnjab Kesari in Delhi can be a good target. Similarly, If one really wants to be aggressive, one can look at acquiring Prabhat khabar, Amar Ujala etc, second largest competitors in company's key markets. The second best option would be to look at second/third largest newspapers in geographies where HMVL is not present. This means states like MP, Rajasthan, Himachal, Punjab & Haryana. Again, competitive scenario in each of these markets is different. Also, while your are consolidating in some new markets, entering a new market may mean spreading thin, especially when typical time to achieve breakeven in new market is 5 years. In nutshell, there may not be dearth of opportunities of acquisitions in Hindi print media business.

      - On stickiness of the business, I would like to put out excerpt from CRISIL report on newspaper industry

      It says that Newspapers are a habit. Hence any new player will require a long gestation period to build brand equity, a loyal customer base and steady readership level. All these factors act as strong entry barriers for new entrant.

      Stickiness of the business is also visible if we analyze the typical time taken by new entrant just to breakeven! According to industry experts it takes at least 5 years to break even for a new entrant. And even at this point, the new entrant may be lagging behind the market leader by a big margin. So people don't switch easily unless the market leader's quality of offering deteriorates or the quality of offering of new entrant is vastly superior and is available at discount to market leader, at least initially.

      Hence, it is very difficult to dislodge market leaders in this industry. In that sense I think it is a sticky business.

      On customer loyalty, having lived in Ahmedabad, I had the prerogative of experiencing the "competitive dynamics" of newspaper when Divya bhaskar entered the market. At least in my family, in spite of number of incentives offered by DB and aggressive campaigning (which were later on matched by the leading player also), we never thought of DB. However, later when quality of reporting in "Gujarat Samachar" deteriorated where objectivity was compromised on a large scale and vicious campaign were run to malign a single political party, we decided to give DB a try. However, after a month of trial, most of my family members "missed" some of their favourite columns and editorials and we switched back to the old daily! Though, this may be a peculiar experience and may not apply to all.

      - On your last point, yes, I have not commented on impact of 2014 elections because we are analyzing the company from long term perspective and to me it's just a one off event, though a significant one! However, management in conference call last quarter have indicated that net-net elections will have a positive impact for ad revenues.

      Best Regards,
      Dhwanil Desai

    2. Thanks for replying to my queries in detail.

      1. As a owner of a major Hindi paper, if management comes to me with the idea of acquiring another smaller Hindi paper (probably for a premium price, as all newspapers in India are doing well right now), I'd hate it. I'd say, why don't you just focus on taking away market share from the smaller papers? And how are you going to run 2 papers after you acquire? Are you going to kill one, are you going to help both grow (ie let them cannibalize), what exactly is the strategy? And if I get nebulous strategic answers, I'd rule out an acquisition. I think that the right acquisitions (if at all) are those of other regional newspapers, or other non-competing magazines or categories (e.g. a Hindi financial paper).

      2. I buy your point about stickiness. Thanks for shedding the light.

      3. Being in Ahd, have you looked at the Sandesh? It is also trading at a low PE. But I couldn't figure out (from the annual report), what sort of financing business division they have? Any thoughts on this are welcome.


  5. Very good and interesting analysis.

    Combining the readership, market and company financial data gives us an interesting view. For example, the revenue in Rs./Reader/Day for all Hindi publications (aggregate) is Rs.3.34/-, while those for JPCorp, DBCorp & HMVL are 2.55, 3.02 & 1.43 respectively. On this basis, not only is HMVL's advertising revenue far lower than the rest (1.75, 2.30 & 1.06) but its subscription revenue is also almost half than the competition (0.80, 0.72 & 0.37).

    This means that HMVL is not able to leverage its readership numbers to gain higher advertisement and subscription revenue. Here probably the "sticky" nature of newspaper industry is going against it.

    As a counter argument, this could be a short-term revenue compromise to increase readership and (hopefully) reap lush long-term benefits. This also indicates that there is enough head-room for revenue to increase.

    However, the bets on a) market valuation post cash allocation (or dividend); b) long-term benefits from increased readership; and c) high management quality, remain valid. HTML also looks sweet from quantitative perspective.

    1. Hi Anonymous,

      Excellent juxtaposition and very useful insight! Thanks for bringing this out.
      Can you indicate if the number of Jagaran is based on only revenues from print media? They also engage in ad-space rental and I was not able to get the breakup of revenue between print media and other activities.

      Also, Though,I just got a glimpse of it, I must compliment you for impeccable writing style, including punctuations!

      Coming to the points that you have raised on realization Rs./reader/day, as you very well summarized that "stickiness" of the business is one of the reasons for lower realization by HMVL. For HMVL UP and Uttarakhand, which are relatively new markets, constitutes roughly 35% of total readership. Here company has just broke even and there is a large gap between advertisement rates of Amar Ujala and Hindustan. Hence, management is indicating some "accrued" pricing power. So, if management, walks the talk and is able to improver advertisement rates, realization number should also improve.

      However, my sense is that it will still be less than Jagaran group and DB Corp. for following reasons

      - Jagaran has advantage of scale and reach as it's presence is spread across the whole Hindi belt. Also, Jagaran has a portfolio consisting of publications in vernacular and english languages. Though, a large portion still comes from Hindi newspapers, vernacular and english dailies make significant contribution. Typically, realization in vernacular and english media has been higher due to better bargaining power with the advertisers.

      - For DB corp, its portfolio has growing presence of vernacular media especially after recent expansion in Maharashtra. Again, higher realization for vernacular media and increasing proportion of revenue coming from vernacular media will help them get higher realization.

      Best Regards
      Dhwanil Desai

  6. Hi Dhwanil, great analysis. Just one thought, if we consider the fundamentals (scale of operation, presence across various languages, promoter quality etc.) and financials (profitability, return ratios, dividend yield etc) of Jagran Prakashan as well, even that company looks like a decent investment opportunity. Have you had a chance to analyse Jagran Prakashan? It may trade at slightly higher valuations as compared to HMVL, but I think the scale and diversity of ops makes it a slight less risky investment option.

    1. Hi Vivek, Thanks for posting. While I was working on HMVL, I did look at Jagaran Prakashan cursorily and found that too interesting. However, not got a chance to dig deeper. So as of now I don't have any views on that.

      Best Regards
      Dhwanil Desai

  7. Hi Dhwanil,

    Are you still following fluidomat? What's your take for next 2-3 years on this counter.

    1. Hi Salil,

      Yes, I am still following Fluidomat and am invested since 28 levels. To me it seems a good story in medium term. It has come out with strong results in last few quarters and the earnings are yet to be reflected in price. Having said that, one area of concern for me has been very muted (almost flat) top line growth. No company can grow consistently for a long time on margin expansion. But, these are truly testing times for some of the end user industries of Fluidomat, so may be flat top line is not that bad. But, I would surely look for some decent growth top line moving forward to further build my conviction in the story. Let's see how it pans out in next 2-3 quarters.

    2. Hi Dhwanil,

      Thanks for your reply. Yes this is a testing time for entire capital goods sector. I guess better call would be after 2014 general elections. Any positive outcome will give some decent upmove but until base sector turns around things look bleak.

  8. Hi Dhwanil,
    Have you looked at half-yearly balance sheets? Short term borrowings rise, in Sep as compared to Mar. What are your thoughts on this?

    1. Hi Prashanth,

      Yes, I too noticed it and found it slightly "weird" considering the large cash and investment they have on books. However, at this time, it's too much to read into it if we start debating capital allocation skills of management based on this as many a times company borrow for "short term" for tactical reasons also. I would have been alarmed, had it been long term borrowing. So, as of now, it's not a negative.


  9. Your ROCE numbers are slightly optimistic, if you remove the cash then you have to deduct the non-operating income (interest earned by the cash) to maintain the parity which should be around 28 odd crores. Good work, though

    1. Hi Anonymous,

      I agree. I missed out on that! Thanks for pointing that out.

      After deducting the non-operating income, Return on invested capital in the business will be around 37%.


    2. I really liked what I saw and was very close to making up my mind and buying a smallish position in this, until I met someone in the industry.

      I'm sure it might work out, but DB Corp entering Patna is worse news than I thought - its going to start a price war and may not work out well thereby taking away our margin of safety in this bet.

      Read more about the effect of DB entering the market -

    3. Hi Anonymous,

      I too read about these reports of price war having started on anticipation of DB's entry into Patna market. However, I think the reactions by incumbents were along the anticipated lines. When DB entered Jharkhand market, very similar actions were taken by incumbents in order to protect their market. Prabhat Khabar, one of the market leaders had dropped prices from 3.5 to 2 pre-empting DB's market entry strategy of reducing cover prices and offering freebies. However, after 3 years, the cover prices have been rationalized and back to Rs. 4. And DB hardly was able to make dent into Hindustan's or Prabhat Khabar's market in Jharkhand. During this time, in spite of Jharkhand being a big market for HMVL, it continued to grow its top-line and bottom line in much adverse conditions where rupee depreciation was already increasing the newsprint prices and cover prices were dropping.

      Another factor to consider is that it takes lot of efforts to build a market and dislodge incumbent especially when it has become a "habit". Moreover, a large portion of ad revenue flows to a newspaper only once you have geographical spread (number of editions) and critical mass (readership). Hence, it will be very difficult to make significant dent in incumbent's ad revenue for DB for few years till it achieves spread and mass. A case in point HMVL, itself, after 5 years of concerted efforts and even after having spread and mass both, has advertising rates far below even the second largest player! So, I don't think it will immediately impact ad revenues of HMVL from Bihar market.

      Again, I do not intend to trivialize the competition in one of the key markets of HMVL but at the same time I would not like to pre empt a call on how it will play out. I would rather wait and watch. My personal take is that there is enough MoS in HMVL at current price and I am more keenly tracking is how they deal with cash on the books.

      Best Regards
      Dhwanil Desai

      Disclosure: I have a reasonable position in HMVL

  10. Indian Readership survey results are out! Hindustan has jumped to second spot

  11. Hi Dhwanil,

    Excellent analysis. Have you had a chance to look at the parent company HT Medida. It appears attractive at 72 with a market cap of 1700cr with 750cr cash on books.

  12. Dear Sir, I appreciate your analysis...Great Work :-).
    But have a look on HT media also ..Holding Co. Of HMVL which is a diversified co. Print, Internet content, Radio, Social advertising and more areas.
    Worth a buy :-) ...also Mr. Rakesh Jhun. And Ashish Dhawan bought some stake in it. ...

    1. Hi RareMentor,

      Though, I have not analyzed HT Media in detail, at cursory look it too looks interesting. However, structurally, I feel that vernacular and Hindi print media is likely to be far more profitable (due to relatively lesser competition) and at the cusp of good growth as compared to English print media. Moreover, english print media is more vulnerable to the increasing trend towards digitization and vernacular/hindi print media is less vulnerable. Having said, that I will do in-depth analysis of HT Media as it has been suggested by quite a few people to me and post my views.

      Best Regards
      Dhwanil Desai

  13. Hi Dhwanil,
    Great analysis.
    Agree that this business has significant traits required for good investment- decent RoE , Scalability, moats from brand+network effect+distribution+news gathering expertise, positive economic headwinds etc...
    Just few thoughts why DB Corp seems to be better placed.
    • While HVML has dithered on expansion DB Corp has gone ahead and expanded its foot print.
    • Return on profits retained (Incremental PAT/difference in net worth in two years with no dilution) has been good for most years for DB Corp.
    • Capital allocation has been good for DB as they have expanded footprint yet net debt has reduced from about INR 330 cr to negative 71 cr from 2006 to 2013.
    • Benefits of diversified media presence like Radio and Out of Home in the same company while in case of HVML this will flow to Parent.
    • Need to remember Birlas have never been too shareholder friendly.
    • DB Corp still has some operating leverage as some of the recently launched editions should turn positive.
    • Diversified in terms of languages covered and not dependent on just Hindi.
    • DB Corp still has to enter UP which can be a big updside ...Amar Ujala should cede space as current promoter must be exhausted fighting other promoters and PE player DE Shaw (it seems settled but precious time has been lost).
    • EBIDTA margin has be significantly better for DB Corp for last 4 years for which data seems to be available.
    • Nalanda Capital has invested in DB and has increased stake...Nalanda Capital is known for some big winners like Page, Kewal Kiran, V Gaurd etc.
    Would love to hear from you on why HVML is better .
    a) While I don’t have any position in either stock I seem to be inclined to build a position in DB and hence thoughts may not be entirely unbiased.
    b) My Stock picking skills may not be anywhere as good as yours.

    1. Hi Anon,

      I agree to number of your points on DB being an excellent business. However, one of the key reasons why I would prefer HMVL over DB is valuation. As an investor, I am getting a very good quality business of HMVL at half the valuation of DB. Moreover, there is 400 crores of cash sitting on the books which is generating paltry 8% return. HMVL's business may not be as diversified as DB, but still they are well entrenched in the markets of Bihar/Jharkhand/Delhi and growing handsomely in UP. Also, a large part of operating leverage from UP is going to kick in next few years.

      So all said, in terms of risk-return, it made more sense. At the same time the catch is the deployment of cash. If Management eventually neither deploys capital for organic/inorganic growth nor returns money to shareholder through buyback/dividend, the risk-return attractiveness will diminish. So if it pans out as proposed/indicated by management, there can be re-rating along with 20% earning growth at least while the downside is limited, at entry level (of 110 when I wrote the article). So it was a Heads I win big, tails I don't lose much bet.

      However, I do agree with you that purely from business quality, DB may rank higher than HMVL on many parameters.

      Best Regards
      Dhwanil Desai

  14. Hi Dhwanil
    I read your post and was most impressed. I hope that you are still tracking the company as I would like your advice on whether investment in the company at the current level of INR 230 (Mkt cap of 1700 crores and Cash of 400 crores) still makes sense

    The growth in core market seems to be continuing and the consequent margin expansion due to improving ad yields and newsprint price stabilisation is yet to fully materialise. But the price has rallied by 90% over the last 1 year and one of the company's designation employees has sold a small quantity of shares (INR 15 lacs worth) in December 2014.

    I was thinking of investing but wanted to get your views first.


    Kind regards
    Sachit Khera

  15. Hi Dhwanil,

    Enjoyed reading your analysis. Request you to share your compliation of advt. rates as mentioned in the blog. May I request you to share the same at my mail

    Thanks for your kind help