HT Media reported a net profit of Rs 66 crore despite a decline in advertising revenue for the quarter ended September 30, 2017 (Q2 FY18), up 113% from Rs 31 crore in the same quarter last year. This oddity – significant increase in net profit despite decline in ad revenue – is partly because the company continues to reduce its expenses every quarter. Here are some of the highlights from the earnings call with analysts.

1. Cost optimization

HT Media said that it has concluded its cost optimization programme two months ago. “We had looked at all the costs very carefully in all our print businesses and at that point in time, the market scenario of course was not as weak as it is currently and we had embarked upon restructuring our costs and taking out the unproductive cost. The various areas that we have looked at very sharply is paper deployment, overheads, and people deployment,” chief financial officer Piyush Gupta said.

Earlier this year, as part of the cost-optimization programme, HT Media pulled shutters on four editions and three bureaus, including its business bureau in Mumbai and Delhi, laying off an unknown number of journalists. Many estimate that 150 journalists were forced to resign from the company.

This led to an EBIT of Rs 105 crore in Q2FY18 and grew 124% as compared to last year. However, an analyst asked Gupta if the gains on profitability through the cost-optimization were sustainable. “I would say some part of what you are seeing flowing into the profit and loss (P&L) is not sustainable. That part is the discretionary clamp down that we have done because of the soft market scenario at this point in time, but suffice to say that as the market scenario does improve going forward the discretionary part will be taken off and the sustainable part will go forward,” Gupta replied.

2. Ad revenue

During the quarter, HT Media reported advertising revenue of Rs 395 crore, a decline of 9.19% from Rs 430 crore in the same quarter last year. Gupta said that most of the ad growth has been coming from auto, banking and finance, entertainment, luxury segments and e-commerce segments. “Though e-commerce is a smaller sector compared to what it used to be a couple of years ago. These are the sectors which have shown some growth, though pretty anemic I would say,” Gupta told in the call.

Other advertising sectors which have shown muted ad spends include the government sector, education, health and fitness, FMCG, and travel. “Real estate regulatory authority (RERA) impact in real estate is something that I think will take its time to go through the system right now. Real estate sector as a sector was already reeling under various constraints, but post-RERA, I think it has just got accentuated,” Gupta added.

3. Listing of new entity for digital businesses

The company mentioned that it will be creating a new entity called Hindustan Times Digital Ventures Limited (HTDVL) which will be demerged and from HT Media and get listed on the stock exchange. HTDVL will have HT Digital Streams Limited (HTDSL) and other group properties and digital innovation businesses. As a part of this, the Bollywood and entertainment news site DesiMartini will be moved to HTDVL. HT Digital Streams Limited, is their “multimedia content creation” business.

“There will be a demerger and because of the demerger from a listed entity, there is an auto listing that will happen. There will be a swap ratio whereby the shareholders of HTML will be given shares in HTDVL, basis which the listing will happen and then the price discovery happens thereafter once the listing is done,” Gupta explained.

“So once HTDVL is demerged from HT Media Limited, that will be an auto-listing process. On the timeline, because this will be a court intervened process, I really would not be able to hazard a guess, but I would say anything between six and eight months should be practical enough for this process to go forward,” he added.

HTDSL is owned by both HT Media (the parent organization) and Hindustan Media Ventures Limited (HMVL), the other listed entity which houses its Hindi publications Hindustan, Kadambani, and Nandan. HMVL has 43% stake in HTDSL and this stake will now be transferred into the new entity HTDVL for Rs 76.75 crore. 

The job portal Shine, HT Campus and Digital Quotient businesses will continue to stay in HT Media as subsidiaries.

4. “Shielding investors from digital”

Note that most of the digital businesses which are being hived into HTDVL are loss-making. Remember, last quarter, HT Media said that it would be bringing down its losses through the restructuring of HT Digital Streams. An analyst asked Gupta if HT Media and HMVL would be better off without owning the news websites as it would reduce losses on their balance sheets.

“You can conjuncture that, but what I think we are telling the shareholders of HMVL in the larger extent is that we want to shield you from the volatility of the digital world,” Gupta replied.

Gupta added that HMVL is the strongest cash flow entity in HT Media and as such, management does not want to disturb the equation for minority shareholders “and that is why we want to shield them from the vagaries. I mean, the first scheme that we did of 43% and 57% ownership of this entity with both these things, we have seen that in spite of our best effort in the first year we were not able to turn in a profit in HTDSL and that is why we are shielding away the HMVL shareholders.”

5. Content creation

An analyst also asked how the print products of HT Media and HMVL would create exclusive content if digital content creation would be hived off into a new company.

“I think when we did HTDSL scheme and this contract was created the critical people who will do the critical content, I would say not creation, but the content packaging and re-packaging are still housed in HTML and HMVL. The content generation work is the stuff that is basically given over to HTDVL. But the critical people are sitting in HMVL and HT Media who will have that unique differentiated content, which is so very critical for those publications,” Gupta replied.

“The commercial arrangement that HTDSL has with HMVL and HT Media in terms of the content sharing continues. So there is no change in the commercial arrangement. It is only in the shareholding that there is a change,” Anna Abraham Head of Financial Planning said.

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