Segments covered: Shine & Firefly, Consultancy Fees, Partnership for Growth, Cost Cutting, Newspapers & Newsprint

Shine & Firefly
During the earnings conference call, post the Q3-09 results, the HT Management said that they invested around Rs. 35 crores in Firefly over the nine month period (we calculated Rs. 33 crores. Of this, Rs. 8-10 crores was invested in advertising. The management believes that going forward, the main costs will be on people, rental and some technology. Despite saying that the 2008-09 fiscal had some one-time costs since the business was set up, HT still intends to invest Rs. 25-30 crores in the business, saying “Let’s bear in mind that it is just a 6 month old business, and it takes time for the database to build up, and for the business to scale up. It’s a critical business for any newspaper. Shine has a competitive advantage, and we can cross-sell media from one to the other.”

HT has around 150 people on board, and had expected to break even in two years, but that has been extended. HT also claims that the joint venture with Velti, for “mobile telephone marketing”, gives them a first movers advantage in the industry.

Our take: The cross-media approach only comes into play in case of advertising, since, based on what we’re told by internal HT sources, sales for the Internet businesses has been consolidated into Firefly e-Ventures. So Firefly will have to build a separate sales team, and open offices across the country; if they’re serious about this business, the team size will have to be comparable to that of Naukri, which has over 1000 people on the ground. So expect Shine’s employee costs to increase, without which, they won’t be able to achieve scale. It’s a chicken-and-egg situation for Shine – jobs will be limited by a small user base of 1.6 million (compared to Info Edge which has over 12 million), and users sign up for the jobs. Shine may be technologically a better product than Naukri or Monster, but remember that HT doesn’t own the product anyway – RedMatch does. So HT is locked in, in the long term.

About the JV with Velti – we don’t think HT has a first movers advantage in the mobile marketing. Companies like MyToday, SMS GupShup, MKhoj, AdMob, Zest Ads, Affle etc have been operating in this space for quite a while. And let’s not forget Indiatimes 58888, from the Times Group.
Disclosure: I own a few shares of Info Edge, which competes with Shine.


Consultancy Fees
HT paid Rs. 7.8 crores for drawing up strategic plans for the company to enter into new businesses. This consultancy started off 6-7 months ago. For competitive reasons, the HT Management did not disclose the findings, or even the market segments. Due to a Non Disclosure Agreement, they did not disclose the consultant. What they did say, is that keeping in mind the market environment, there are not going to be any new ventures. “When the environment improves, we may take steps on the basis of what has been gleaned from the study. We will disclose and take a shareholders approval when we get into them, if at all.”
Our take: When the market does recover from the downturn, the situation will have changed – business models will have evolved, some will have been dispensed with, some segments which were previously on everybodys radar would be discarded. Perhaps there’ll be a need for a new study. Money down the drain?

Partnership For Growth Model
Quite a few questions for the HT Management were around the “Partnership For Growth” model, wherein HT gives advertising space to listed and unlisted companies in exchange for equity and property. HT invested around Rs. 170 crores in this model during the 9 months ending December 31st 2008. The investment was revalued at the end of Q3, and HT will carry out this exercise every quarter. Around 50% of this investment was in real estate, and a very small amount was in listed companies. The markdown will be across the board. They invested around Rs. 20-30 crores in the last fiscal.

HT accounts these investments as follows: When you take on the contract, you book it as an investment and an advance against investment, and as and when the ads are released, you book it as revenue, which is non-cash.

The company refused to disclose the names of these companies, citing a non-disclosure agreement, but said that disclosures will need to be made in its annual report. HT Media booked around Rs. 26.5 crores of revenue from these clients in these nine months – up significantly from 7 crores last year. For the corresponding period last year, they had booked Rs. 3 crores of advertising revenue; rather “non-cash advertising revenue”. If you remove this component from HTs overall ad revenue, it was down 6% year on year.

Our take: The ads-for-equity “revenue” that HT is booking is a notional amount, the value of which is realized only when the equity or property is sold. Will HT reconcile this amount every quarter, as the valuation of the companies they have invested in changes? Their explanation: “everybody does ads for equity. Times of India started this 5 years ago, and their portfolio is 10 times our size. For Times of India and everybody else, they had a lot of ads for equity revenue last year.”

Cost Cutting
Reducing paper consumption, finding alternative sources for newspaper, manpower rationalization and reducing overheads in the company. The effect of this will be seen in coming quarters.

 

Newspaper Business & Newsprint

Advertising: HT Media reported a sectorwise advertising revenue breakup of: 8% from education, 6% from IT & Telecom, 9% from Real Estate, 15% from DAVP, 7% from Classifieds, 6% from Automobiles and 4% from Banking and Finance, 9% from Tenders, and 35% from others. The Ad market in Delhi has fallen by about 31%, while HT believes they have only fallen by 24-25%, and gained 2-3% in terms of the ad market in Delhi. Mumbai market has fallen by 20-24%. This is basically display advertising. Advertising is broken up into Display, DAVP, Tenders and Classifieds. The slowdown in advertising has mostly hit metro cities, while small cities are not affected. Anyway, once the market recovers, companies will have to start advertising to kickstart demand. 

HT has commissioned new facilities in the Hindi belt, and believes that the investment by advertisers in Hindi will be more than in English, because English is saturating. The demand for Hindi media will be higher, with growth in smaller cities. Small cities depend more on local area advertising, with education as a significant segment. 

Revenues: Mint revenue has gone up by about 10%, circulation is constant. Hindi has a revenue growth of close to 30%, with a circulation growth of broadly 20%. This quarter, the 2 year subscription plan for HT Mumbai expired – circulations came down a little bit. Impact of circulation increases will be seen in Q4.  The cover price of Hindi and Mint has been increased by between Rs. 0.50-Re. 1 depending on the location – on an average, of Rs. 0.75p. Mint should break even in Financial Year 2010-11. HT Mumbai will take two years at least. It would have happened faster, but the downturn has delayed. Hindi EBITDA in high single digits. 

Metro Now: “It’s a new product – the first tabloid launched, which was followed by Mail Today. We are reassessing the business model to make it more efficient. The model is being retooled. ”

Newsprint Cost: Newsprint cost, on a year on year basis has increased by 30%. 3-4 elements that impact newsprint: commodity prices. Newsprint prices, at their peak were upwards of $900 per month; freight charges increased just before the Olympic Games. There was a depreciation of the Rupee. “We keep an average of 6 months of inventory. We had cuts in pagination, so the inventory got extended. The current inventory should last us till May. We expect it to come down to aroud $600 per metric ton in 6 months. We will reflect drop in prices only in the next fiscal because we’re carrying inventory. “