Shuchi Bansal & Shobhana Subramanian: In black and white

High newsprint prices and expansion costs keep profits down for many media houses, but there are some positive surprises.

At a time when large sections of the print media are reeling under the combined impact of high newsprint prices and the costs associated with rapid expansion into new languages and new cities, Deccan Chronicle Holdings' results come as a breath of fresh air. Andhra Pradesh's largest English daily has just posted a 52 per cent growth in net revenues for 2007-08 and a net profits growth of just under 84 per cent. To be sure, this will come down this year since Deccan Chronicle has just launched four editions of a new business daily (Financial Chronicle) and a Bangalore edition of the parent paper. But a 52 per cent hike in sales is large by any reckoning.

What makes the performance appear all the more remarkable is that all this has taken place while the company has cleaned up its balance sheet considerably. In 2007-08, Deccan Chronicle decided to securitise Rs 200 crore worth of receivables for a one-time discount of Rs 25 crore which has reportedly brought down its net days of debtors to an average of 90 as compared to a whopping 260 days in the previous year.

As compared to Deccan Chronicle, HT Media, publisher of Hindustan Times, a dominant player in the capital, with eight editions in the north, has declared a profit of just Rs 101 crore on a turnover of Rs 1,203 crore "" that's a profit which is a third Deccan Chronicle's on a turnover that's a third more. HT Media has incurred losses on new media initiatives including radio, Internet and MetroNow, its tabloid for the Delhi market (in a JV with the Times of India group) and about Rs 39 crore on account of its business paper Mint. Apart from Hindustan Times and Mint, HT Media publishes Hindi daily Hindustan.

Jagran Prakashan, which publishes 2.7 million copies and 37 editions of Dainik Jagran, however, has done better and reported a 25 per cent growth in revenue "" this has meant operating margins are up by nearly two per cent, to 22 per cent despite expenses on the launch of five editions and start-up losses on outdoor and events business. Gujarati daily Sandesh has seen profits nearly double on the back of strong local advertising according to Falgunbhai Patel, its promoter. Patel avers that while national advertising may dip a bit as the economy slows, and the political uncertainty at the centre remains, local advertising continues to grow as small-town India comes into its own.

Mid-Day Publications, whose flagship Mid Day has a circulation of 200,000 copies in Mumbai as compared to The Times of India's 500,000 in Mumbai (the former claims it has a much higher readership per printed copy though) has seen net profits fall around a tenth. Manajit Ghosh, the CEO of Mid-Day Multimedia says he expects the company's profits to remain depressed for a while as it is in expansion mode. "Delhi and Bangalore editions of Mid Day were launched in the last financial year, and we are now launching Pune." While saying the company has done well in the first quarter of this year (the results are yet to be made public), Ghosh says the next quarter will be troublesome. "With the political uncertainties and the oil price hike, advertising is expected to take a hit."

What is of course difficult to explain is why, despite its superlative performance, Deccan Chronicle's stock price, currently at Rs 106, has fallen by around 51 per cent since January. Part, of course, is explained by the fall in the sensex, by over 34 per cent over the same period. Indeed, most listed media stock have fallen by between 50 and 60 per cent since the beginning of the year. Part of Deccan Chronicle's stock collapse could also be explained by the fact that, as Nikhil Vora who tracks media companies at brokerage firm IDFC SSKI, puts it, the receivables are still much higher than the industry average of 55-60 days. DCH Managing Director PK Iyer did not respond to Business Standard's queries. 
 

INDIA INK
Rs crore	Deccan*	HT Media*	JPL	Mid-Day*	Sandesh
Net sales FY08	895	1,203	750	124	264
% chg over FY07	52	17	25	3	11
Net profit in FY08	304	101	98	-10	26
% chg over FY07	84	4	29	-11	199
Stock price (Rs)	107	105	64	25	115
% chg since Jan'08	-51	-58	-60	-58	-52
EPS (in Rs)	13	4	3	NA	31
PE for FY08	9	26	20	NA	4
*Consolidated                                                              JPL=Jagran Prakashan Limited

What's helped Deccan Chronicle, and this is why media firms continue to expand at a frenetic pace, of course, is the boom in advertising "" in this case, the company's advertisement revenues rose 40 per cent in 2007-08. Indeed, faced with a boom in advertising, Deccan Chronicle even upped advertising rates by between a fifth and a fourth in 2007-08. Media consultant AS Raghunath who is crunching data on Andhra Pradesh for his client Sakshi (a new Telugu daily owned by Andhra Chief Minister YSR Reddy's son launched recently with 12 lakh copies in 23 editions across the state every day) says there are no specific events which have triggered an advertising boom. Raghunath, however, points out that towns like Vijaywada, Rajahmundry and Vishakhapatnam, where Deccan Chronicle has editions, are witnessing a retail boom which may be causing a spurt in advertising. Agrees Rani Reddy, head of Ogilvy & Mather's Hyderabad office: "Categories such as real estate, education and recruitment advertising are very active. Adlabs is opening multiplexes in places like Vishakhapatnam. Obviously, the products and services that are being sold require media coverage."

Where the advertising market is headed will, of course, determine the pace of expansion in the year ahead "" while the going will obviously be better in regional pockets, it seems difficult to imagine a complete divergence between the all-India picture and that at the regional level. And in a stock market that's still looking over-priced even after falling a third since the beginning of the year, raising funds for expansion is certain to be a daunting task.

Newsprint prices are the other problem area. Newsprint prices are on the boil and expected to cross $1,000 a tonne "" between this and the exchange rate, this is expected to hike newsprint costs by around a tenth. A fact that Sanjay Gupta, Jagran Prakashan's CEO says will force companies to hike cover prices. "Going forward, the burden has to be passed on to the consumer. Circulation revenue has to grow and the eyeballs have to be monetised." (Ironically, while Gupta says this, the entry of HT Media's Hindustan in the Uttar Pradesh market has forced Jagran to slash the cover price of its editions. As a result, according to IDFC SSKI's Vora, this will force Jagran to go slow on launching new editions.)

While Gupta remains bullish on the future "" he should, considering he's just launched nine editions of his newspaper, i-Next, aimed specifically at the youth ""he's clear a single-product strategy will not work. Gupta is planning to launch a financial paper in association with TV 18 and also runs a successful Hindi magazine Sakhi. And, despite his frenetic growth, Gupta says he can think of at least two more states in the Hindi belt where he can expand successfully.

Media companies, Gupta says, will have to launch other media products/platforms, and not necessarily just in print "" this could be radio, digital media, outdoor, below-the-line, and so on.

Pointers in this direction can be seen, for instance, in Deccan Chronicle's results. The company got Rs 72 crore revenues from its internet subsidiary Sieger Solutions in 2007-08 "" Sieger is reportedly in talks with The New York Times to offload a five per cent stake. Jagran Prakashan, similarly, has an Out of Home business which contributed seven per cent of its revenue in 2007-08 and is expected to break even this year. By 2009-10, Jagran expects the business to contribute around 11 per cent of turnover.

Adds CEO (Publishing) at Bennett, Coleman & Co Limited (publishers of The Times of India) Ravi Dhariwal, "There are two challenges that lie ahead. Cost structures of the print industry are becoming unviable and advertising is beginning to slow down. As a result, companies will have to adjust their circulation numbers as well as the cover price."

For now, the expansion fever continues. Despite its poor showing (profits grew just four per cent while turnover grew nearly 17 per cent in 2007-08), HT Media Limited continues its expansion drive. It launched business daily Mint last year and is expanding Hindustan which now has 12 editions in Uttar Pradesh and continues to do well in Bihar, Jharkhand and Delhi. It has just launched a job portal Shine.com and is eyeing the matrimonial and real estate portal space too. Meanwhile Hindustan Times' Mumbai edition and the radio business Fever 104 are yet to break even. Whether India's slower growth, in the advertising and stock markets particularly, will slow the industry down is, of course, the next breaking story.