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Print Media

Piping hotAmnish Aggarwal ([email protected]) Tel: +9122 3982 5404

Amit Purohit ([email protected])Tel:+9122 3982 5418

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Contents

Page No.

Executive summary ..................................................................................... 4-5

Exciting times for print media ..................................................................... 6-9

Print media companies on an octave ....................................................... 10-13

Ad revenues key growth lever ........................................................... 14-17

Strong cashflows provide scalable print business.................................... 18-21

Annexure I: E&M ad revenues to remain strong ................................... 22-26

Companies .............................................................................................. 27-67

Deccan Chronicle .......................................................28

HT Media ...................................................................39

Jagran Prakashan ......................................................53

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7In-depthSE CTO R: PR INT ME DI A

Print Media

22 January 2008BSE Sensex: 16,730 S&P CNX: 4,899

Exciting times: Print media is witnessing favorable traction due to the confluence of C OM PANY NA M E P G.favorable government policies and advertising industry CAGR of 18% over last 2-3Deccan Chronicle 28years. The 26% FDI in print media has led to capital flows and strategic tie-ups for large(Buy, Rs185)companies like HT Media, Jagran Prakashan and Business Standard. Companies nowno longer shy away from entering new geographies, launching new media properties or HT Media 39

pitching for strategic tie-ups and acquisitions. We expect a few media groups to emerge(Buy, Rs191)much stronger after a spate of industry expansion and consolidation.

Jagran Prakashan 53

Upgrading from a single media house to one of complete media solutions: Leading(Buy, Rs123) print companies are upgrading from print advertising to complete media solutions withentry into new media segments like radio, internet, OOH and event management (US$1.5bad revenue potential to 2010). HT Media has launched Fever104 FM radio and Mint .Jagran Prakashan has launched I-

Next and City Plus papers in addition to entering into

Out Of Home (OOH) and event management. Deccan Chronicle (DCHL) has launchedOdyssey Bookstores and Internet ventures. We expect more action, particularly in theInternet and business news space. We expect some of these initiatives to start contributing

positively from FY09 with potential to contribute 25% to EV of some of these companies by 2010.

Ad revenues to grow ahead of circulation revenues: We estimate the dual impactof favorable demographics and buoyant economy to result in ad revenue CAGR of 14.5% for print over CY06-11. In addition the industry will witness rising share of color ads (35% in FY07-45% by FY09), higher ad rate growth for Hindi and vernacular dailiesand higher inventory utilization. This would benefit large players covering multiplegeographies and genres. We expect the companies in our universe to report 20% CAGR in ad revenues over FY07-10. We estimate just 9.4% increase in circulation revenue, asaggressive pricing will limit circulation revenue growth from new geographies.

35% PAT CAGR to sustain premium valuations: Rising advertising revenue shareand 10% decline in newsprint prices will drive EBITDA margin expansion of 800bp inFY08 and 1,100bp over FY07-10. This would enable 35% PAT CAGR over FY07-10.Print companies have been re-rated and are trading at 15-20x FY10 P/E. We expect thevaluation premium to sustain due to high growth visibility, expansion into new media andstrong free cash flows. We initiate coverage on the print media sector with a Buy ratingon Deccan Chronicle, HT Media and Jagran Prakshan. Top pick: DCHL .

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GEOGR A PHI CA L SP RE AD OF PR INT M E DI A C OM PA NIES

Jammu and KashmirNCR

HimachalPunjab

Uttaranchal

Haryana

Uttar Pradesh

Bihar

Jharkhand West

Bengal

Mumbai

Hyderabad

Bangalore

Chennai

Hindustan Times Delhi, Mumbai, Kolkata, Lucknow, Patna & Ranchi

Hindustan Delhi, Lucknow, Patna, Meerut, Kanpur, Varanasi, Agra & Ranchi

Mint Delhi, Mumbai, Bangalore

Fever 104 FM Delhi, Mumbai, Bangalore and Kolkata

Deccan Chronicle Hyderabad, Chennai and Bangalore

Jagran Prakash UP, Bihar, Uttaranchal, Punjab, Jharkhand, Haryana, Himachal, J&K,West Bengal, New Delhi

I-next - Jagran Prakash Kanpur, Lucknow

City Plus - Jagran Prakash NCR & Bangalore

OOH - Jagran Ahemdabad, Bangalore, NCR, Hyderabad, Kolkata, Lucknow & Mumbai

Source:Company/Motilal Oswal Securities

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Exciting times for print media

The Indian print media industry has shown strong traction in the last couple of

years. Opening up of the sector to foreign direct investment (FDI) and growth of the advertising industry has buoyed players to enter new territories and new

media verticals. We expect this phenomenon to pay off over the next 2-3 years .

FDI in print strengthens large players

In a strategic move, the Government of India (GoI), in CY05, allowed foreign directOpening the sector to FDI investment (FDI) in news-based print media. However, considering the sensitivity of thishas attracted global majorssector, the new guidelines also imposed a set of restrictions for news-based printing.and private equity

Nevertheless, opening up of the sector to FDI has witnessed keen interest of global majorsand private equity players in the sector. Key highlights of GoIs FDI regulations are:

FDI allowed in entities which are registered in India under the Companies ActForeign investment including NRI, PIO and FII capped at 26% for news mediaLargest Indian shareholder to hold 51% equityAt least 50% of FDI to result in fresh capital infusionFacsimile editions of foreign newspapers allowed after registrations but without anylocal content, alterations and advertising targeting Indian consumers.

FUND I NFUS ION PO ST FD I IN P RI NT

COM PA NY N A ME IN VE ST OR NA TUR E FU NDS I NFUSE D (R S B) YEA R

HT Media Henderson Media Strategic 1.0 2005

Business Standard Financial Times Strategic N.A. 2005

Jagran Prakashan Independent News & Media Strategic 1.7 2005

Dainik Bhaskar Warburg Pincus Financial 1.5 2006

Amar Ujala D E Shaw Financial 1.2 2006

Source: Industry/Motilal Oswal Securities

Proposals to increase FDI in some print media companies such as Mid-Day Multimedia,Business India etc. are awaiting GoI clearance. Springer India has 12 proposals pendingwith the Central government for launch of Indian editions of its international publications inareas like orthopedic, neurology, cancer and intensive care. FDI infusion in some printcompanies has given their operations a boost by providing not only technical and strategicinputs but also financial strength.

Several media companies have directed funds into new businesses in different verticalsMedia companies have, inand new territories. For instance, HT Media has opted to enter radio broadcasting andturn, directed funds into newInternet as well as entered into the Mumbai market. DCHL has launched its retail foraymedia verticalsand internet ventures besisdes media selling. Jagran has diversified into entirely new

businesses event management and out-of-home (OOH) advertising apart from an Englishinfotainment weekly and a bilingual daily newspaper.

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Players eye new territories; broaden their base

The print media industry has been operating in niche markets where each player has a Also, players are nowstronghold in one or more geographic regions. The situation changed when Bennett Colemanbroadening their horizons bytook the initiative to enter Delhi with their English daily, The Times of India . This moveentering hitherto untapped resulted in a strong price war between the two English dailies: The Times of India (TOI)territoriesand Hindustan Times (HT), forcing the latter to protect market share. The lower pricesexpanded the market and benefited both consumers and the companies. Taking this cue,several players have since entered new markets with lower prices in an industry where anewspaper becomes a daily habit for a consumer, who additionally displays loyalty bystaying with the product for a long period.

PR INT M ED IA - B RO AD ENI NG HO RI ZON S

KEY PL AYE R NE W RE GIO N BR A ND L AN GUA GE KE Y CO M PET I TOR

Bennett Coleman Delhi Times of India English Hindustan Times

Kolkata Times of India English The Telegraph

Karnataka Times of India English Deccan Herald

HT Media Mumbai Hindustan Times English Times of India

UP Hindustan Hindi Dainik Jagran

Mumbai, Delhi Mint English The Economic Times,

Business Standard,

Financial Express

Dainik Bhaskar Mumbai DNA English TOI, HT

Punjab Dainik Bhaskar Hindi Dainik Jagran, Punjab Kesari

Jagran Prakashan Punjab, Bihar Dainik Jagran Hindi Dainik Bhaskar, Amar Ujala,

Punjab Kesari, Hindustan

Deccan Chronicle Chennai Deccan Chronicle English The Hindu

Bangalore (likely) Deccan Chronicle English Deccan Herald


Trend of industry confluence begins; expected to gain momentumPrint media is a highly fragmented industry in India with more than 62,483 registeredWe expect convergence innewspapers. Hindi newspapers comprise 40% of the market while English papers arethe same genre as well as

present in merely 15% of the market. Vernacular and other language newspapers compriseacross genresthe remainder. The readership to circulation ratio for Hindi and vernacular papers is 7-9x

whereas for English it varies from 2-4x. Each geographic region boasts its very ownleading newspaper represented by its strong niche readership and customer loyalty.

Many large players have benefited financially owing to capital infusion via FDI and IPOs. A pan India presence hasIn addition, more and more companies are moving into new geographies to gain a pan-twofold benefits for mediaIndia presence. Geographically spread-out operations protects newspapers: (1) by reducingcompaniestheir vulnerability in a scenario of rising competition in their stronghold areas; (2) the larger reach helps to attract greater advertising.

We expect industry to consolidate in forthcoming years with few large players endeavoringto create an Indiawide presence. Starting this trend is Bennett Coleman, which has acquired12% stake in Sandesh , a Gujarati daily. Consolidation in the same genre as well as across

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genres, with large publishing houses acquiring mid-sized regional papers. We also expect

tie-ups between regional leaders and large groups to create pan-India conglomerates withan objective to achieve economies of scale in operations and advertising.

TOP SE LLING DA IL IES A S P ER IR S 2007 R 1

NEWS PA PE R LEA D ER SHI P I RS ( M ) LA NG UA GE

Dainik Jagran UP, Punjab 21.1 Hindi

Dainik Bhaskar Madhya Pradesh 20.9 Hindi

Eenadu Andhra Pradesh 13.8 Telugu

Lokmat North India 10.8 Hindi

Amar Ujala Rajasthan 10.8 Hindi

Hindustan Bihar 10.4 Hindi

Daily Thanthi Tamil Nadu 10.3 Tamil

Dina karan 9.6 Hindi

Rajasthan Patrika Rajasthan 9.4 Hindi

Malayalam Manorama Kerala 8.4 Malayalam

TOI Mumbai 7.5 English

Mathrubhumi Kerala 7.4 Malayalam

Anand Bazaar Patrika Kolkata 7.3 Bengali


Paradigm shift in operating environment

Print media is the second largest component of the Rs436b E&M industry in India. TheThe E&M sector is mainlysegment has been growing at 20% annually over the last two years and the growth ratesadvertisement led

are expected to average 13% annually over the forthcoming five years. The industry willcontinue to be driven by advertisement revenue; however circulation revenue growth isexpected to be squeezed on account of increasing competition. Hence we expect thethrust to garner higher ad revenues would pick up resulting in a higher share of advertisements. We expect advertisements to account for 65% of print media revenues

by CY2011 versus 59% in CY06. For CY06 English newspapers accounted for 53% of industry ad revenues while Hindi and regional languages accounted for 23% and 24%.

SHA RE OF AD V ER TIS ING R EV EN UE TO IN CR EA SE ( R S B)

160 Circulation Advertisement

120

80

40

0

CY04 CY05 CY06 CY07E CY08E CY09E CY10E CY11E

Source: Company/Motilal Oswal Securities

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We believe print media has broken out of its traditional objective of serving as a tool for

gathering and improving political clout. This trend was uniform across companies both inEnglish, Hindi and the vernacular space. Ever since, several media companies haveundergone complete transformation (induction of professional managements, equity infusion

by collaborators and product innovations) and have entered new media verticals with anobjective to generate healthy returns on investments.

Trending toward a free paper market

Nearly all leading players have adopted an aggressive pricing policy to garner higher It appears industry iscirculation forcing existing players to reduce their cover prices significantly. The companiesmoving in the direction of ahave been able to increase circulation owing to offering attractive subscription schemesfree paper way for consumers. This has reduced the circulation revenue to total revenue ratio to as low as15-20% in certain cases. We believe that the continued aggression of new players willlikely result in lower consumer prices. Meanwhile players contend that industry is graduallymoving in the direction of a free paper way. We however believe that although thenewspaper will not be entirely free, the price to the consumer will be lower than the sale

price of waste newsprint.

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Print media companies on an octave

Buoyant advertising growth and strong free cashflow is leading media companies

to enter new verticals such as radio, OOH, event management and internet. Weestimate the new businesses to top up 25% to EVs of the respective companies.

We believe demographics greatly support investment in print media. Further,based on conducive demographics, low newspaper penetration levels would result

in improvement in circulation. Additionally, newspaper advertising is likely toexceed TV advertising 2007 onward.

Convergence of other media vehiclesMedia companies are Buoyed by the strong advertising growth and strong free cash flows, print media companies

have started exploring new opportunities in the media space. This we believe has beenconsidering (1) newinitiatives and (2) the offer necessitated by two factors:

Changing competitive landscape: Competition in the newspaper industry is rising rapidlyof comprehensive solutions

as players are entering new geographies forcing incumbents to cut cover prices andimprove the product offering substantiallyThe convergence phenomenon of various media vehicles has created awareness amongmedia companies to leverage existing networks and client relationships to offer comprehensive media solutions

We believe the impact of convergence is very clearly visible globally as companies in themedia space are extending their reach beyond traditional strongholds. These include genressuch as print, internet, broadcasting, OOH, event management and radio. The trend wasstarted by the Bennett Coleman group (Times group) in India and subsequently adopted byothers. All the leading print media companies are on a mission to enter new media businessesthat have some synergy with their core businesses so as to exploit their respective existingresources. These include new print properties like business paper, weekly tabloid andfacsimile editions of foreign newspapers. New initiatives include radio, internet, SMS,OOH, event management and retailing.

PR INT C OM PA NIE S A DD IN G NE W M ED IA V ER TI CA LS

P RI NT INI TI ATI V ES SY NE R GY N ON P R I NT S YN ER GY

Deccan Chronicle Chennai Brand & Content Media Selling In house Ads

Bangalore Brand & Content Internet Jobs, Matrimonial

Retailing None

Print companies are HT Media HT Mumbai Brand & Content Radio Virgin Radio Tie up

seeking new initiatives in Hindustan - UP Brand & Content Internet Jobs, MatrimonialMintnon-print areasJagran Prakashan Jagran - Punjab Brand & Content OOH Strategic Partner (INM)

City Plus None Event Management Network, People

I Next Marketing, Printing, Internet Yahoo tie-up

Hindi Business Content

Daily Marketing, TV 18

Tie up


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We believe that most of the players have strong brands, infrastructure, content sourcing

etc. in place for new forays in print media properties. HT in Mumbai, Jagran in Punjab, I- Next in UP are expected to breakeven in FY2009. Jagran and TV18s Hindi businessdaily and Deccan Chronicles Bangalore launch are likely in few months. Most of theother new ventures like radio, OOH, internet etc. are in high growth areas and are likely tostart contributing positively by FY2009-10. We estimate that by FY2009-10, new businesseshave the potential to top up 25% to the enterprise value (EV) of many of these companies.

Improving penetration favors circulation growthPrint media has lower penetration in India particularly among the lower socioeconomicThe lower penetration of classes. The penetration of print media in the lower to middle economic classes SEC print media in India is slowlyB1, B2, C, D, E1 and E2 is significantly lower than TV penetration. In SEC D, E1 andbeing overcomeE2 the difference in the penetration level between print and satellite TV is very high eventhough the monthly outgo for satellite TV is far higher versus the monthly cost for anewspaper. We conclude that the major reason for these classes not reading a newspaper appears to be literacy levels and availability of the product. As the economy develops anddemographics improve, we expect the penetration of print medium to increase whichaugurs well for circulation growth in the industry.

PEN ETR AT ION OF ME DI A VE HIC LES

PR INT T ELE V IS ION SAT ELLI TE TV R AD IO

S EC (% ) (% ) ( % ) ( % )

A1 95.2 96.1 84.0 36.5

A2 90.5 94.5 77.5 29.8

B1, B2 81.1 90.6 67.4 24.7

C 69.5 85.8 59.4 23.1

D 52.6 77.5 48.9 20.5

E1, E2 30.1 65.0 37.8 15.8


(1) Higher literacy rate to result in increase in readershipOne of the major hindrances in the growth of print media is low literacy rate. According toWe expect the improving a National Readership Survey (NRS) 2006, the literacy rate has risen from 69.9% toliteracy to enhance

71.7%, still leaving a lot of room for sustained increase. The readership has increased byreadership across India3% from 216m to 222m. Literacy rate in rural areas has increased by 120bp (64.6%) incomparison with 90bp (85.3%) for urban areas. The number of readers in rural areasstands at 110m, nearly equal to the number of readers in the urban areas. With 70% of Indian population in the rural areas, an increase in the literacy rate would result in anincremental increase in readership. The rise in the literacy rates in rural areas augurs wellfor the Hindi and vernacular language papers owing to the higher number of consumersopting for these papers.

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AV ER A GE D AI LY R EA DE R SHI P (' 000 )

2003 R1 2005 R 1 2006 R1 2007 R 1

Dainik Jagran 15,722 17,473 19,071 17,114

Dainik Bhaskar 13,613 13,810 14,571 12,514

Hindustan 7,386 8,192 9,724 9,052

Amar Ujala 8,597 9,276 9,894 8,255

HT 2,946 3,276 3,508 3,331

TOI 7,230 7,041 7,084 6,781

Hindu 2,710 2,661 2,797 2,209

Deccan Chronicle 1,054 1,029 1,132 1,311


(2) Increase in newspaper availability

Newspapers are the fastest moving consumer product with shelf life as low as 30 minutes. Improved infrastructure will Hence timely availability of newspapers is a key concern. But 70% of Indias populationensure better availability of lives in rural areas and interior regions, which have poor connectivity in terms of roads.newspapers countrywideMoreover several of the interior areas are inaccessible due to seasonal changes duringwinter and the rains. The GoI has been increasing its expenditure on rural roadways anddeveloping infrastructure, which will enable improved availability of the product ahead.

(3) Increase in consumers affordabilityWe note one newspaper is shared by eight readers in rural areas versus 3-4 readers inurban areas, indicating that an increase in affordability is likely to have a positive impact onnewspaper circulation. India still has 26% of the population living below the poverty line; incertain large states like UP and Bihar, the proportion stands at 31.2% and 42.6% respectively.

We believe conditions leading to an improvement in affordability are positive. The following Rising GDP will lead are indicators:to improved consumers

Job creation potential appears favorable in the wake of the economy sustaining double-affordabilitydigit nominal GDP growth: Nominal GDP has been growing at more than 14% in dollar terms over the last three years.Rising income levels will improve the affordability; this could translate to a customer

buying a newspaper: Employment opportunities have been rising for the educated youthand the labor class due to fast growth in construction, real estate and retail sectors.Statistics is a pointer: There are 359m people who can read and understand but do notread any publication; of them, 68% read Hindi. This segment of readers can potentially

be coerced to buy newspapers.

In sum, we believe that increasing literacy rate, better product availability and risingconsumers income levels would improve the penetration levels for newspapers.

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Higher GDP growth drives increased E&M advertising

Changing lifestyles and rising disposable income levels have facilitated deeper penetration E&M segment enjoys highof the entertainment and media industry. A PWC report estimates the sector to post 18%beta v/s nominal GDP CAGR over next five years. Our analysis suggests GDP and advertising growth are growth attracting higher positively correlated. In accordance with the least square regression equation, the adadvertising volumeindustry is expected to grow by minimum 13-14% p.a. irrespective of GDP growth. Thewave of convergence currently sweeping the industry should sustain steady industry growthrates. We believe the sector will witness relaxation in various government policies.

Newspaper advertising to grow faster than TV

Print medium faces competition head-on from the television segment. Internationally,however, print advertisement has lost share to television advertising. In India, since themid-90s until 2004, print media led all other mediums of advertising even though its sharein the total advertising spend has declined from ~60% in 1994 to 46% in 2006. During this

period television advertising started picking up (currently, 44% of the total advertising pie).We believe newspaper ads will continue to grow ahead of TV ads based on: PWC: Absolute advertising

Ready reference material : A newspaper advertisement has longer shelf life. Unlikein TV was higher v/stelevision, print media provides the consumer with higher convenience as the reader newspapers in 2005, but can at any time refer to the ad.newspaper advertising isMore personalized ads: In print the advertiser can target a specific niche/ reader likely to exceed TV segment, thereby increasing the effectiveness of the advertisement. The reader, inadvertising from 2007

turn, gets a more detailed and personalized advertisement. Television advertisementsare more general and offer the viewer fewer details.No hindrance of channel surfing: The printed advertisement gets a better share of the eyeball v/s a TV ad, where channel surfing has become a rampant habit withviewers. On the other hand, the print medium does not have to contend with this issue.

PWC estimates that newspaper advertising will grow at 14.5% per annum to 2011 comparedwith 13.2% growth in TV advertising. According to PWC absolute advertising in the TVsegment was higher than in newspapers in 2005, but newspaper advertising is likely toexceed TV advertising from 2007.

NEWS PAP ER ADV ER T IS ING TO GA IN A HE AD OF TV

TV Ads (b) (LHS) Newspaper ads (b)(LHS)

160 32TV ad Gr (%) (RHS) Newspaper Gr (%)(RHS)

120 24

80 16

40 8

0 0

2004 2005 2006E 2007E 2008E 2009E 2010E 2011E


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Ad revenues key growth lever

Sustained GDP growth rate and entry of the new breed of advertisers would ensure

steady print advertising growth of 14.5% over CY06-11. We expect advertisingto be the key revenue and margin driver on the back of higher inventory utilization

and rising share of color ads while circulation revenue growth will remain muted.We also expect advertising growth in vernacular dailies to outpace English dailies.

New media verticals and advertisers to fuel ad revenue growth

Historically, FMCG companies have been the biggest contributors to total advertising spend. New breed of advertisers and

However changing patterns in consumer spend has resulted in emergence of a new set of eyeball avenues to fuel ad advertisers who now occupy a very important place in the industry. These include industriesindustry growthsuch as durables, luxury goods, passenger vehicles, retail, real estate, banking and financeand telecom. Some of these industries are in the high growth phase, which would ensuresubstantial adspend over the next few years.

A growing economy and the need to attract consumer eyeballs has resulted in advertisersexploring new ad mediums. Prominent amongst these are out-of-home (malls, multiplexes,airports, cafes and bus stops), utility bills, internet and radio. Print companies have expandedinto new media verticals as these avenues provide an opportunity to target consumers of differing age groups and segments. PWC estimates that media verticals like radio, OOH,internet and event managementhave revenue potential of US$1.4b p.a. by 2010.

CHA NGI NG TR EN D I N AD AV EN UES , R EV E NUES A ND AD V ER TI SER S

Fast moversTraditional avenues

Radio, Internet, Out of HomeBroadcasting,Advertising, Event ManagementFilms, Print

AD V ER TI SIN G R E VE NUE ( RS M ) CY 0 6 CY 1 1 C AG R ( %)

Internet 1,600 9,500 42.8Radio 5,000 17,000 27.7

Event Management 9,420 22,090 18.6

Out of Home 10,000 21,500 16.5

NewsPapers 66,000 130,000 14.5

Television 66,200 123,000 13.2

New breed of advertisersTraditional advertisers

FMCG, Durables, Passenger cars, Retail, Banking

Two Wheelers and Finance, Telecom, Insurance


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Advertising growth will drive newspaper business

We expect advertising revenues to drive profit growth in the newspaper segment.Pricewaterhouse Coopers (PWC) estimates that advertising revenues for print mediacompanies will grow at a CAGR of 14.5% over CY06-CY11, while circulation revenueswill grow at 9.4% over the period. Consequently the share of advertising in total revenueswill increase from 55% in CY2005 to 65% by CY2011. We believe that the ad growthrates for leading print media companies with strong brands would outpace industry growth.Similarly, we expect vernacular and Hindi market to grow ahead of the English marketwhich would work to the advantage of some of the companies in our coverage universe.The following will be the key drivers for sustaining ad growth:

Aggressive geographic expansion by newspapers will result in decline in cover pricesWe expect ad growth to drive

in highly competitive markets. Even in other markets the cover prices are unlikely tonewspaper businessrecord an increase, as the industry is gradually moving toward a free paper market.The lower prices will increase newspaper penetration significantly. We expectnewspaper circulation to increase at 3% per annumAlthough ad rates are likely to increase in double digits, rising circulation will keep thegrowth in ad cost per thousand (CPT) in controlRising literacy levels will attract more newspaper advertising (more focused readersand stickiness v/s broadcasting) thereby pushing up ad inventory utilizationIncreasing affordability (GDP is expected to grow at 8% CAGR) and improvingnewspaper availability in rural and interior regions hitherto untappedLow penetration even among the literate and well off sections of society, as the spaceis becoming exciting because media content is changing to suit every consumer class

Newspapers carry local editions which are one of the best means of advertising for the retailers and city level ads which is not possible on TV, the second largest advertisingmedium in India.

NEWS PAP ER S S TEA DY AD GRO WTH

Ad Gr (%) (LHS) Cir Gr (%) LHS Ad / Total Revenue % (RHS)25 66

2062

15

58

10

545

0 50

2005 2006E 2007E 2008E 2009E 2010E 2011E


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RI SI NG SHA RE OF AD VE R TIS ING I N RE VE NUE M IX

CY11ECY06

AdCirculation Ad CirculationRevenue

Revenue41% 35%59%65%


Advertising mix to change in favor of colorAll the print media companies are moving in favor of including a greater number of color Print companies areads. Most of the companies have incurred capex of more than Rs1.5-2b in the past 3-4increasingly preferring toyears, which is aimed at creating infrastructure for the same. The preference for color isadvertise in color

basesd on: (1) colored ads give better visual effect to the advertisement which is importantfor premium and luxury goods companies; (2) improved connect with the consumer throughcolored ads improves communication for the company.

Print media companies have been charging 30-40% premium for colored ads. Except

matrimonial and ads for jobs, an increasing number of other ads are being made in color.Although the ratio varies from one company to another, on an average 35% of ads were incolor in FY2007. We expect the share of color ads to increase to 50% for all print companiesin the next 2-3years. We estimate that a 5% increase in the share of color ads wouldincrease average ad rates by 2%, which will boost topline growth and profits.

AD V ER TIS ING M I X - C OLOR AND B& W

80 Colored Ads % BW Ads %

60

We expect share of color adsto increase to 50% for all 40 print companies by FY11

20

0

FY06 FY07 FY08E FY09EFY10E

Source: Motilal Oswal Securities

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Hindi/vernacular dailies faster growth in ad inventory utilization likely

We expect the market for Hindi and vernacular newspapers to remain vibrant over the Hindi and vernacular next few years based on the fact that English newspaper readership is more or less stagnantreadership is rising at 6%while readership in Hindi and vernacular newspapers is increasing at 6% per annum. We p.a. while that in English isnote readership of vernacular and Hindi newspapers v/s English is nearly: (a) 7 times thatnearly stagnant of English newspapers overall; and (b) 18 times the readership in rural areas.

We expect higher growth in ad space in non-English dailies as the rural and interior regionsare expected to be big demand drivers for consumer goods in the coming years.Consequently, we expect the advertisers to increase their focus on rural areas and smalltowns. As the readership of Hindi and vernacular papers is much higher in these areas, the

respective ad space growth is expected to remain ahead of English dailies. We also notethat the Hindi and vernacular dailies provide tremendous potential for ad space growth, ascurrently the ratio of ad to editorial space in Hindi dailies stands low at 30:70 v/s theEnglish daily at 50:50.

Hindi and vernacular dailies faster growth in ad rates likelyHindi and vernacular newspapers have higher readership, as 17% of the literate populationread Hindi dailies in comparison with 2.7% for English dailies. Despite the higher readershipof vernacular and Hindi dailies, the share of English dailies in the total advertising pie ishigher. English dailies account for more than 53% of the total newspaper advertising pie.One of the key reasons for the higher adspend in English dailies is greater share of readershipin the higher income classes, which is presumed to be the consuming class.

This has resulted in a steep difference in the ad rates of English and other newspapers. Ad rates for EnglishThe advertising rates of English newspapers are 9x the rates of Hindi and nearly 13x thenewspapers are 9x that of rates of vernacular newspapers. We expect the ad rates of vernacular and Hindi newspapers Hindi owing to Englishto increase at a faster clip due to increasing focus of the advertisers toward rural areasenjoying a higher share of and small towns for incremental demand growth. Recent ad rate increases for vernacular the upper income readershipnewspapers have been higher than that for the English newspapers. We expect the trendto not only continue but gain momentum in the coming quarters.

RE LATI V E AD VE RT IS EM ENT S PA CE GR OWT H E NGLIS H V/ S HI ND I

GR OWTH I N A D SPA C E F Y0 5 F Y0 6

English Newspaper 3 4

Hindi Newspaper 13 11


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NEWS PR INT COS T FOR LIS TE D P RI NT C OM PANI ES

F Y0 7 N EWS PR IN T C OS T R A W MA TER I AL C I RC ULAT ION R EV ENUE /

( RS / TON) I M POR TS ( %) NE WSP RI NT C OS TS ( %)

Deccan Chronicle 33,916 100 21.5

HT Media 31,046 70 31.5

Jagran Prakshan 26,281 30 78.5


We expect circulation revenue/newsprint costs for print companies to improve due todecline in newsprint prices. We estimate that lower newsprint prices will expand FY08EBITDA margin for Deccan and HT Media by 350-400bp while the increase for Jagrancould be relatively moderate at 150-170bp.

Advertising revenue growth to expand margin

Print media companies are expected to record strong advertising revenue and modestWe expect ad revenue of growth in circulation revenue. Advertising revenue for the listed players is expected tolisted players to grow bygrow by more than 20% (FY07-10E) on an average, while circulation revenue is likely to20+% over FY07-10

post mid-to-high single-digit growth over the same period. The slow pace in circulationrevenue is on account of increasing competition leading to aggressive pricing by players.

Operating leverage arising from strong ad revenue growth will be the key driver for increasein EBIDTA margins by more than 1100bp over FY07-10E, with FY08 accounting for an

800bp increase. Deccan Chronicle and Jagran Prakshan will report sharp margin expansion.We expect EBITDA margin expansion of 10% for Jagran Prakshan over FY07-10E.Margins for HT Media and Deccan Chronicle are estimated to expand by 4.6% and 13%over the same period.

A D GR OWT H TO TR I GGER OPE RA TI NG LEV ER A GE

PA R TIC ULA R S D EC C AN C HR ONIC LE H T M ED IA JA GRA N P RA KS HAN T OTAL

FY 0 8 E F Y0 9 E F Y 1 0 E FY 0 8 E F Y0 9 E F Y1 0 E FY 0 8 E F Y0 9 E F Y1 0 E FY 0 8 E F Y0 9 E F Y1 0 E

Advt. rev growth (%) 33.0 23.0 13.0 19.0 19.0 18.0 36.0 26.0 24.0 27.0 22.0 18.0

Circulation rev. growth (%) 9.9 9.5 3.8 9.8 8.4 12.6 7.5 3.0 2.0 9.0 6.0 7.0

Total revenue growth (%) 31.0 22.2 12.4 16.8 17.5 16.8 33.4 23.7 21.0 25.0 21.0 17.0

EBIDTA margin (%) 57.5 58.4 59.9 18.9 21.2 22.9 26.0 28.4 30.4 34.1 36.1 37.7


New initiatives will start contributing from FY09Print media companies have been on an expansion spree, the benefits of which will startflowing from FY09 onward. These include HT Mumbai for HT Media, Dainik Jagran(8 loss making editions) for Jagran. All the leading print companies are launching neweditions in existing properties as well as new brands, which will take 18-24months to turnaround. These include Mint (HT Media) and I-

Next (Jagran). In addition, some of the

diversification avenues such as OOH, event management of Jagran and retail of DCHLto start contributing from FY09. Fever 104FM (HT Media) and the internet venture of

DCHL will turn profitable from FY10 only. Some of the ventures like internet and retail of

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DCHL and radio of HT Media are in separate entities and have been valued on an SOTP

basis; hence their impact would not be directly reflected in the standalone numbers.

Robust profits, strong free cash flows to sustain premium valuations

We expect print media companies to report robust growth for the next 2-3 years. Weexpect sales growth upward of mid-teens and PAT growth of 36%. We expect thesecompanies to generate strong free cash flows, which would enable them to expand further into new media opportuniities.

KEY FI NA NC IA LS PAR A M ETE R

PA RT IC ULA RS D EC C AN C HR ONIC LE HT M E DI A JA GRA N P RA KA SHA N

F Y 0 8E F Y 0 9 E F Y 10 E F Y 0 8E F Y 0 9 E F Y 10 E F Y 0 8E F Y 0 9 E F Y 10 E

Sales Growth (%) 31.0 22.2 12.4 16.8 17.5 16.8 33.4 23.7 21.0

PAT growth (%) 52.5 35.8 20.2 21.2 39.5 29.1 56.2 39.5 35.7

EPS (Rs) 9.9 13.5 16.2 6.0 8.3 10.8 4.0 5.5 7.5

PE (x) 18.6 13.7 11.4 30.3 21.7 16.8 31.2 22.4 16.5

FCF (Rs) 3,292 3,959 3,594 1,782 2,649 3,388 1,139 1,667 2,055

FCF (Rs/share) 13.3 16.0 14.5 7.6 11.3 14.5 3.8 5.5 6.8


Print media companies are trading at 14-20x FY10 and 20-25xFY09 earnings which is inline with most US print companies but at 20-30% premium to Asian peers. We believeIndian companies deserve premium valuations versus global companies based on:

Print media industry is likely to report 14.5% CAGR ad revenue growth for the nextfew years.Indian print companies are likely to report PAT CAGR of 36% over FY07-10 v/s highsingle-digit to mid-teen growth in companies of other regions.Return ratios for Indian companies will improve further once the new initiatives start

paying off ahead.

FINA NC IA L COM PA RI SON OF I ND IA N AN D GLOB AL NEWS PAP ER C OM PAN IE S

COM PA NY NAM E Y EAR EPS G R. (%) P /E ( X) EV /E BI D TA (X ) EB IT DA M A RG IN (%)

END F Y0 8 F Y0 9 F Y0 7 FY 0 8 F Y0 9 F Y0 7 F Y0 8 F Y0 9 FY 0 7 F Y0 8 F Y0 9

New York Times December 14.8 -7.1 13.7 11.9 12.8 6.3 6.2 6.7 15.0 15.5 14.5Washington Post December 16.4 N.A 25.2 21.6 N.A 10.8 9.4 N.A 15.9 16.9 N.A

Star Publications (Malaysia) December 10.9 7.0 16.0 14.5 13.5 8.8 8.0 7.6 30.4 31.9 32.4

Pearson December 10.2 13.3 15.5 14.0 12.4 9.9 9.0 8.4 17.1 17.2 17.8

F Y0 9 F Y1 0 F Y0 8 FY 0 9 F Y1 0 F Y0 8 F Y0 9 F Y1 0 FY 0 8 F Y0 9 F Y1 0

Deccan Chronicle March 35.8 20.2 18.6 13.7 11.4 12.0 9.1 7.9 57.5 58.4 59.9

HT Media March 39.5 29.1 32.0 23.0 17.8 17.7 13.3 10.3 18.9 21.2 22.9

Jagran Prakashan March 39.5 35.7 31.2 22.4 16.5 18.0 13.2 9.8 26.0 28.4 30.4

Source: Bloomberg/Motilal Oswal Securities

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Recommendation

Initiating coverage with positive view; Deccan Chronicle is Top Pick We have positive view on listed companies in the print media space. Each of these Deccan Chronicle is our Topcompanies is a leader in its respective geographical area. These companies are utilizing Pick in the print media spacestrong cash flows to enter new business segments which will start contributing from FY09onward. We initiate coverage on these companies with a Buy rating with Deccan Chronicleas our Top Pick.

BA SI S O F V A LUA TIO N (R S /S HA RE )

D EC C AN C HR ONI CLE HT M ED IA J AGR A N PR A KAS HAN

DCF 284 274 184

Radio - 15 -

Retailing 21 - -Internet & Media Selling 30 - -

SOTP 335 289 184

Current Price 185 191 123

Upside (%) 81 51 48


ConcernsRising competition can impact circulation revenue: Leading newspaper publishersare entering new geographical territories to increase circulation by offering attractivesubscription prices to the consumers. This will increase breakeven time in the new

territories.

Economic slowdown: Advertising revenue has a direct relationship with GDP growth.Any slowdown in the economy would result in a decline in the ad budget of corporates,thereby impacting the print media industry.

Increase in newsprint prices: Newsprint prices, which have been on an upswing from2003 to 2006, have seen a decline in the last six months. We have factored in 5-12%decline in newsprint prices in FY08 and 2% p.a. increase thereafter. However, any sharpincrease in prices could result is lower margin expansion.

Failure of new businesses: Print media companies have entered new business segmentslike OOH (out-of-home), event management, radio, internet, retail etc. Failure of thisdiversification strategy can result in profit being lower v/s our estimates.

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Annexure I: E&M ad revenues to remain strong

GDP and advertising growth are positively correlated

Versus nominal GDP growth, the Indian entertainment and media (E&M) industry enjoys E&M segment enjoys higha high beta 1.25x-1.50x growth v/s GDP. We note growth of the E&M industrybeta v/s nominal GDP accelerates with increase in GDP growth rate, as consumers higher disposable incomes growth attracting higher result in greater spending on leisure and entertainment. Moreover it is the tendency of advertising volumesadvertisers to increase advertising during such strong growth periods. Likewise, duringlow growth periods of the economic cycle, the reverse is true.

The entertainment and media (E&M) industry has been growing at 17% over the lastthree years. A Price Waterhouse Coopers report estimates the E&M industry to post 18%CAGR over the next five years. As a consequence, size of the industry is expected toincrease from Rs436b in 2006 to Rs1,000b by 2010E. We expect broad based growthrates for this industry; however, segments such as radio and internet will likely grow faster due to their smaller operating base. With a compounded annual growth rate (CAGR) of 18% per cent, the Indian entertainment and media industry is the fastest growing in theAsia-Pacific, says the study.

AD V ER TI SIN G IND UST RY GR OWTH T RE ND V / S NOM IN AL GD P

Nominal GDP Growth%

Advertising Industry Growth %34.0

24.0

14.0

4.0

-6.0

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06FY07


Conclusions from our regression analysisWe have completed a regression analysis of GDP growth v/s advertising industry for FY96-FY07. We found that growth in GDP and advertising are positively co-related. Inaccordance with the least square regression equation, the advertising industry is expectedto grow by an average of 13-14% per annum, irrespective of GDP growth, as advertisersneed to invest in brands even in the event of slow demand growth. This steady line of bestfit indicates the advertising growth is steady. Hence we expect advertising to grow at 15-

18% CAGR over the next five years.

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RE GR ESS ION OF A D VE R TSI NG IN DUS TR Y WI TH GD P

30y = 0.3387x + 13.668

R = 0.0228220

10

0

-10

0 2 4 6 8 10 12 14 Nominal GDP Growth%


Policy changes will catapult E&M sector growth

The wave of convergence currently sweeping the industry should sustain steady growthrates for industry. Another report by PricewaterhouseCoopers shows that revenues acrossthe Indian E&M segment grew by 20 per cent in 2006 to US$9.71b and the countrysoverall advertising spend grew by 23% to US$3.62b. International media giants arecompeting for a stake in the segment. In the last three years, US$89m of foreign directinvestment (FDI) has flowed into the sector and in 2006, 13 FDI proposals were approved

by the Government of India.

Some recent key policy initiatives include:Opening up the media sector to foreign direct investment (FDI). The GoI allowed FDIinto the media sector in 2005 at the following rates 100% for films and TV software

production; 49% for cable networks; 20% for direct-to-home (DTH) & FM radio;26% for news-based print media; 100% for journals and magazines etc.

Newspapers were allowed to print facsimile editions of foreign newspapersIssue of 300 new radio frequencies and license fee on the basis of revenue sharingCAS (conditional access system) rollout in parts of Delhi, Mumbai and Kolkata for TV broadcasting.

The stated measures have generated an increase in FDI in various segments of the E&Mindustry. Many global media groups have acquired strategic stakes in Indian mediacompanies. Several corporates have entered the media sector in segments such as DTH,multiplexes, convergence and media content. Overall these measures have had a positiveimpact but we believe the sector still requires a great deal of thrust from policy initiativesin the following areas:

Mandatory switchover to digital transmission in TVUniform entertainment tax across statesStrong intellectual property protection mechanismsRelaxation on uplinking of channels

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In-depthSE CTO R: PR INT ME DI A

Companies

22 January 2008BSE Sensex: 16,730 S&P CNX: 4,899

C OM PANY NA M E P G.

Deccan Chronicle 28

(Buy, Rs185)

HT Media 39

(Buy, Rs191)

Jagran Prakashan 53

(Buy, Rs123)

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Deccan Chronicle

Buy22 January 2008BLO OMB ER GS TOC K INFO. DECH INBSE Sensex: 16,730

RE UTER S C OD E

Rs185 Initiating CoverageS&P CNX: 4,899 DCHL.BO

Deccan Chronicle Holdings (DCHL) is the most attractively valued stock Y /E D E CE MB ER 2 0 07 2 0 08 E 2 0 09 E 2 0 1 0 E

in its universe besides a growing presence in south India and strong Net Sales (Rs m) 5,528 7,240 8,850 9,947

pricing power (20% CAGR in ad rates, FY05-07). Launch of DeccanEBITDA (Rs m) 2,582 4,161 5,166 5,962

Chronicle in Bangalore, Odyssey retail chain and Sieger Solutions will NP (Rs m) 1,614 2,461 3,343 4,019

provide the next leg of growth. We estimate 35% standalone PAT CAGR EPS (Rs) 6.8 9.9 13.5 16.2

over FY07-10. We initiate coverage with SOTP-based target price of EPS Growth (%) 105.0 47.3 35.8 20.2

Rs335, 81% upside.BV/Share (Rs) 34.6 42.3 54.4 69.0

P/E (x) 27.3 18.6 13.7 11.4 Bangalore edition to strengthen hold in southern print market:P/BV (x) 5.3 4.4 3.4 2.7 Deccan Chronicle has reported 14% CAGR in circulation in AndhraEV/EBITDA (x) 18.1 12.0 9.1 7.9

Pradesh and has achieved leadership in Chennai in less than two years.EV/Sales (x) 8.5 6.9 5.3 4.7 Success of the Bangalore edition (launch scheduled for 4QFY08) willRoE (%) 19.5 23.5 24.8 23.5

complete the south India combo for advertisers, enabling 22% CAGR inRoCE (%) 18.5 26.8 33.0 31.5

ad revenues over FY07-10.

Securitization of debtors allays concerns: DCHL has securitizeddebtors worth Rs4b with ICICI Bank at an estimated net cost of Rs99m.Managements commitment to reduce debtors from 217 days in FY07KEY FINA NC IAL Sto 90-100 days would improve cash flows and overcome concerns over Shares Outstanding (m) 244.0

Market Cap. (Rs b) 45.0 financials in forthcoming quarters.Market Cap. (US$ b) 1.1

Past 2 yrs. Sales Growth (%) 88.0 Odyssey and Sieger Solutions to unlock value for shareholders:Past 2 yrs. NP Growth (%) 124.0

Odyssey retail is expected to ramp up to 1.1m sq ft by 2010 with EBITDADividend Payout (%) 16.9margins of 20%. Sieger Solutions has launched a websiteDividend Yield (%) 0.5'Papyrusclub.com' and plans to expand in verticals like online Matrimonyand Jobs. We value Odyssey at Rs21/share and Sieger at Rs30/share(50% discount to management guidance).

STOC K DATA STOC K PER FOR M A NCE (ON E YE A R)

52-Week Range (H/L - Rs) 270/140 Deccan Chronicle (Rs) - LHS Rel. to Sensex (%) -RHS260 60Major Shareholders (as of December 2007) %

Promoters 60.9

230 35Domestic Institutions 13.3

FIIs/FDIs 18.1

200 10Others 7.8

Average Daily Turnover 170 -15Volume ('000 shares) 511.0

Value (Rs million) 112.0 140 -401/6/12 Month Rel. Performance (%) 0/-24/-9 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

1/6/12 Month Abs. Performance (%) -13/-18/9

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Vying for the southern crown!

Deccan Chronicle Holdings Ltd. (DCHL) has set an ambitious target to emerge as thelargest English newspaper in southern India. The southern Indian states of Andhra Pradesh,Karnataka, Tamil Nadu and Kerala are amongst the most vibrant print markets.Thecompanys decision to remain focused on the southern market is based on:

Key southern ad markets valued at Rs7-8b each: Print advertising markets ineach of the key southern cities of Hyderabad (Andhra Pradesh), Chennai (Tamil Nadu)and Bangalore (Karnataka) are valued at Rs7-8b respectively. The southern marketsrepresent a similarity in culture and consumer behavior; hence probability of success

becomes significantly higher for a player focused on these markets.Has substantial share of English readership: The stated key southern cities have

a high share of English literacy and the rising population of IT professionals in thesecities augurs well for the company which is focusing on the English print market.Key consumer demand cities: Hyderabad, Chennai and Bangalore occupy animportant place in the media planning and consumer demand story in India. The risingnumber of IT professionals with high per capita incomes is leading to strong demandgrowth across product categories and segments. Management expects the advertisingmarket in these cities to record CAGR of 25-30% per annum. This would translate toan ad potential of Rs30b in each of these cities over the next five years.

Increasing strengths in all regions gradually

DCHL has been moving step by step to capture the vibrant southern market. It is a leader in Andhra Pradesh market owing to its historical presence in the state for over 70 years.The company has seven editions in Andhra Pradesh. Circulation for Deccan Chronicle(English daily newspaper) has been steadily rising at a CAGR of 14% over FY04-07. Thecompany faces competition from The Hindu and Times of India (TOI) in Hyderabad.DCHLs circulation at over 600,000 copies per day is far ahead of both The Hindu andTOI, which have circulation of 350,000/day and 90,000/day respectively. As per 2007 R1,the readership for Deccan Chronicle stood at over 900,000 in comparison with 400,000for The Hindu . Its performance in Hyderabad appears commendable as DCHL has beenable to maintain its lead despite stiff competition from TOI. We expect the company tomaintain leadership position with low single-digit increase in circulation in Andhra Pradesh.

AND HR A PR A DE SH ST EA DY I NCR EA S E I N C IR C ULATI ON ( 000 PE R D AY )

750607 649

575 509 553

400296 342 380 402 431

225

50

1H03 2H03 1H04 2H04 1H05 2H05 1H06 2H06 1H07


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DCHL entered Chennai in 2005 and is competing well with The Hindu for leadership in

that market statistics indicate that current circulation stands at 300,000/day versus330,000/day for The Hindu . DCHL has put paid to Indian Express (circulation of 80,000)from the Chennai market while the market leader has also reported a decline of 50,000-70,000 in its circulation.

CHE NNA I CIR CU LATI ON TR E ND ( 000 P ER D AY)

400

295 277 299300

200

100

0

1H06 2H06 1H07


Key highlights of DCHLs Chennai success:

DCHL adopted an aggressive pricing strategy (Re1/copy compared with Rs3/copycharged by The Hindu and Indian Express at the time of Deccan Chronicle s launch),which allows easy entry strategy as a second newspaper in consumers homes.DCHLs Chennai edition was initiated with 20 pages in color versus 4 color pages byThe Hindu . A prime target was youth for whom sections on entertainment wereincluded versus The Hindu , which focused more on editorials.DCHL faced minimum competition in Chennai, which has enabled the company toestablish a strong presence in that market in less than two years. Indian Express wasa weak player in Chennai. TOI has not entered this market, despite being present inHyderabad since the last nine years, as its primary objective has been to protect itsstronghold in Mumbai from the onslought of DNA and HT. Mumbai is TOI's mostimportant market and accounts for a major share of its profits.

Circulation growth of DC is reaching a plateau; however its figures are close to the leading player. Further, increase in Deccan Chronicle's cover price from Re1.0 to Rs1.5 has ledto a slight slow down in circulation growth. We expect DCHL to aim for leadership in theChennai market over the next one year.

The Bangalore entry a focused strategy Deccan Chronicle is all set for the Bangalore launch of its daily in the next few months.The company has already invested Rs1.5b to set up a state-of-the-art printing facility andan entire backend infrastructure. The Bangalore market is currently dominated by the

Times of India with a circulation of 325,000/day and Deccan Herald, Bangalores localEnglish daily , the second largest player, with a circulation of 80,000/day. We expect Deccan

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Chronicle to adopt an aggressive pricing strategy for this region as well. Management

seems confident of replicating the success it has witnessed in Chennai in the Bangaloremarket as well.

BA NGA LOR E- EX PEC TE D CI R C ULATI ON T RE ND ( 000 PE R DAY )

200

150150 125

100 80

50

0

FY08E FY09E FY10E


However we believe that despite managements confidence DCHL would face stiffer competition in Bangalore versus Chennai owing to:

The Bangalore market is dominated by TOI which has the financial muscle to reducecover prices to protect its circulationTOIs product offering is also youth centric with focus on infotainment, which is in linewith DCHLs positioning. Comparatively, DCHL does not offer any new platform tothe consumer, unless the product offering in Bangalore is significantly different fromthe version it offers in Hyderabad and ChennaiTOI is a strong player with presence in other media segments and properties The

Economic Times (ET), Radio Mirchi, event management and OOH (out-of-home),which makes it better equipped to handle the onslaught of a comparable newspaper such as Deccan Chronicle .

We expect Deccan Chronicle to cross circulation of 125,000 per day in FY09 thus emergingas the second largest player in the Bangalore market. We believe that replicating thesuccess of Chennai in Bangalore would appear difficult owing to the presence of a strong

player, TOI.

Lean cost structure best suited to overcome competitive pressureWe believe Deccan Chronicle is best positioned to overcome likely competition from TOIin Bangalore. The employee and advertising costs of the company are significantly lower versus peers. DCHL is one of the most profitable print media companies with the highestEBITDA margin among listed players owing to the following factors.

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FINA NC IA L IND IC ATOR S ( % OF SA LES )

E BI TD A M AR GI N EM PL OY EE EX P ENS E A DV E RT IS ING E X P.

F Y 06 F Y 07 F Y0 6 F Y0 7 F Y0 6 F Y0 7

Deccan Chronicle 31.5 46.7 4.6 3.9 1.0 1.2

HT Media 14.4 18.3 14.4 14.2 8.6 6.1

Jagran Prakshan 14.9 20.0 11.9 11.8 2.9 5.5


Deccan Chronicle aggregates a great deal of outsourced content. The company hasfewer reporters and news staff on the field. In addition it has tie-ups with renownedwriters who provide editorials on a case by case basis. This has resulted in low contentcost for the company.The company has one of the most advanced printing facilities in the country. Theentire printing and packaging line is automated so that just 15-20 people can run theentire facility.

TR END IN E M PLOY EE C OS T

500 Employee Cost (Rs m) -LHS

% of revenue - RHS 10

375 8

250 6

125 4

0 2FY04 FY05 FY06 FY07 FY08E FY09EFY10E


The automated printing facilities can print up to 16 color pages (30-50% ad rate premiumv/s B&W ads) in the daily edition, which enables the company to attract premiumadvertisers. Hence the company benefits by the economies of scale which lowersrelative costs.DCHL has a focused strategy. It has a historical presence and market leadership inAndhra Pradesh. It has ventured into the Chennai market, which is represented byweak competitors, thus limiting any increase in advertising expenses. DCHLs adspendis one-fifths the adspend of other listed peers that have entered fiercely competitivemarkets like Mumbai, Punjab, UP etc.

DCHL may not enjoy some of the advantages such as the low advertising expenses, inBangalore, but efficiencies in content sourcing and printing will enable the company towithstand competition from TOI. In addition, lower newsprint prices at the time of launchwill benefit the company as the printing cost per copy will be on the lower side.

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Chennai markets, which should result in a relatively slower increase in ad rates going

forward. We estimate blended ad rates to increase at 14.5% per annum, which wouldenable 22.5% CAGR in advertising revenues over FY07-10. Our estimates factor in adrate growth of 20.5% in FY08, 12.3% in FY09 and 10.9% in FY10. The blended ad ratesalso factor in lower ad rates in Bangalore versus the Chennai and Andhra Pradesh markets.

New ventures

Retail and internet ventures to unlock shareholder value Deccan Chronicle will maintain its focus on the English print market in key cities insouthern India. While there are adequate mid-tier cities in southern India which the companycan cover over a period of time, management has decided to diversify the business through

Sieger Solutions (internet) and Odyssey (retailing). Management plans to scale up thesefast growth businesses in the next couple of years and also plans to unlock value for shareholders.

(1) Sieger Solutions (100% subsidiary) exploring internet space; Sieger Solutionshandles media space selling for Deccan Chronicle . The company gets a commissionof 5-6% on the media selling it does for the parent. The company has reported salesand PAT of Rs2.5b and Rs38.6m for FY07. The fortunes of this business are closelylinked to performance of the print business of Deccan Chronicle . Management believesthat internet will be the most potent medium of news communication in forthcoming

years and its internet strategy holds the key to long term growth, particularly for a city-centric newspaper company like Deccan Chronicle . The core circulation base of thecompany will be in IT-centric cities of Hyderabad, Chennai and Bangalore in whichaccess to internet would be of a very high level. So the company has identified internetas a thrust area.

The company has started a website 'The Papyrus Club'; which has one page dedicatedto each school. The website will include those schools which have at least 2 time slots

per week dedicated to internet. The school page on the site will be the school newspaper which can be used to share value-added news and information.The number of member schools has increased from 179 to 340 in the last three months as against management

guidance of 500 in the next 12 months. This medium will serve as good advertisingroute to target focused groups. The company also plans to start a subscription fee withtime. Management has also indicated its intention to opt for websites in jobs andmatrimonial and is even looking at acquisitions in this area. The company has indicatedthat it would opt for private equity financing of Sieger Solutions at EV of Rs15-18b.

The listed company in this space is Info Edge which has portals like Naukri.com,Jeevansaathi.com and 99acres.com and has an EV of Rs35-40b. We assume a discountof 50% to the lower end of the base value indicated by management. We value thecompany at Rs7.5b which translates into Rs30 per share of DCHL.

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(2) Odyssey retail (100% subsidiary) in the fast lane: Odyssey a premier leisure

store chain (offers books, music, movies, cards, toys, stationery, gifts etc.) was acquired by DCHL for Rs600m. The companys vision is to establish Odyssey as one of Indiasfinest and most admired leisure retail chain. To achieve this goal, the chain is rapidlyexpanding its retail operations, and selectively pursues opportunities to leverage the brandsstrength. Odyssey has entered into a tie-up with Caf Coffee Day. Odyssey will either open a Caf Coffee Day in its larger outlets or a small Odyssey outlet will be opened inCaf Coffee Day outlet. The company has now adopted two store formats under whichthe larger stores will have an area of more than 2,000 sq ft per store while the smaller oneswill have an area of less than 2,000 sq ft.

RE VE NUE M OD EL FOR ODY SS EY R ETA I L

F Y0 7 F Y 0 8 E F Y 0 9E FY 1 0 E

Express Stores (nos) 0 20 90 170

Area (sq Ft) 0 24,000 108,000 204,000

Regular Stores (nos) 19 32 52 72

Area (Sq ft) 123,500 318,500 618,500 918,500

Total Area (Sq ft) 123,500 342,500 726,500 11,22,500

Sales/Sq ft 5,282 5,547 5,910

Capex and Working cap req. (m) 856 960 990

Sales (Rs m) 265 1128 2,798 5,286

Gross Profit (Rs m) 507 1,259 2,485

Gross Margin (%) 45 45 47

PBT (Rs m) 6.8 102 321 806

PAT (Rs m) -0.1 74 215 540


Management has guided for opening 13 regular and 30 express retail stores in FY08. Weestimate that the number of regular stores will increase to 52 by FY09 and 72 by FY2010.We believe that the diverse product offering by the company has good consumer appealwhich will boost the same store sales. The company has achieved more than 50% grossmargins in the past and management has guided for gross margins of 45-50% with netmargins being 20-25%. Our estimates factor in 9% PBT margin in FY08 which wouldincrease to 15% by FY10. We estimate that the capital requirement in the business could

be Rs2.8b-3b by FY10. We have valued Odyssey on the basis of DCF and arrive at avalue of Rs21/share for each share of DCHL.

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Financials

The company has grown at a fast clip in the past two years with sales and PAT rising by82% and 124%. Increase in EBITDA margins is due to faster growth in ad revenuesversus circulation revenues as the company entered Chennai with aggressive pricing of Re1 per copy. However circulation revenues have declined from 13% of sales in FY05 to7.5% of sales in FY07.

DE CC A N C HR ONI CL E: GR OWTH R ATE S

Sales growth % EBIDTA Growth % EBIDTAMargin

PAT Growth%160

120

80

40

0

FY06 FY07 FY08E FY09EFY10E


We believe that the company will enter the Bangalore market by adopting an aggressive pricing policy which will further reduce the ratio of circulation revenues. We expectcirculation revenues to decline to 5% of total revenues by FY10.

TR END IN R EV ENUE M I X

12,000 Ad revenue (Rs m) Circulation revenue (Rs m)

9,000

6,000

3,000

0FY06 FY07 FY08E FY09EFY10E


We expect EBITDA margin to expand by 10.8% in FY08 due to the combined effect of 20% ad rate increase, rising traction in ad revenues from Chennai and 12% decline in

blended newsprint prices from Rs33,916/tonne to Rs29,847/tonne. We expect PAT toincrease by 52% in FY08 and growth rates to moderate thereafter. We expect PAT for FY09 to be up by 35.8%; however replication of the Chennai success story in Bangalorecould result in substantial upside to our estimates.

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Deccan Chronicle

Securitization removes concerns on receivables...

Deccan Chronicle has witnessed a sharp increase in debtors days from 167 in FY06 to217 in FY07. The absolute increase in debtors is Rs1.7b, from Rs1.37b in FY06 to Rs3.04bin FY07. This had raised concerns about the actual cash generation.

IM PR OV ING C AS H FLOWS

22 EPS (Rs-LHS) FCF Per share (Rs-LHS) P/E (x-RHS)

32

12 24

2 16

-8 8

-18 FY06 FY07 FY08E FY09E FY10E0


Management has attributed the high debtor level to their conscious strategy of allowingcredit to advertisers, which will result in the company getting advertisements for theBangalore edition from the very beginning. The company has announced securitization of receivables with ICICI Bank to the tune of Rs4b, and currently has debtors days of just

11. We estimate the net securitization cost at Rs99m, which has been adjusted in theinterest outgo for FY08.

The company plans to publish audited results each quarter from the next fiscal and hasindicated that debtors days will be in line with the industry trend of 90-100 days. Securitizationof debtors will improve return ratios and cash flows significantly. However, we are cautiouson ad volume growth post reduction in the credit period for advertisers. Our estimates for FY09 and FY10 already factor in some moderation in ad volume growth for the company.

... Buy with SOTP value of Rs335

We value DCHL on the basis of SOTP. We value the standalone newspaper business atRs284 per share and Odyssey and Sieger at Rs21 and Rs30 per share. The stock trades atRs185, which suggests an upside of 81%. Even after excluding the value of Sieger solutionswe estimate the fair value at Rs305, an upside of 65%. We initiate coverage with Buy .

VA LUATI ON B AS IS DC F

Standalone Business 284

Odyssey 21

Sieger Solutions 30

Total 335


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I NCO ME ST ATE M ENT ( R S M ILLI ON) RAT IO S

Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 10 E Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 E

N e t Sa le s 3 , 3 09 5 , 5 2 8 7 , 2 4 0 8 , 8 50 9 , 9 4 7 B as ic (R s)

Ch a n g e ( %) 6 7 .1 3 1 .0 2 2 .2 1 2 .4 A dj us t ed E P S 3 .3 6 .8 9 .9 1 3 . 5 16 . 2

G rowth (% ) 1 05 . 0 47 . 3 3 5 . 8 20 . 2

P ri n ti n g a n d oth e r ex p 1 , 9 03 2 , 4 0 6 2 , 4 1 5 2 , 8 49 3 , 0 7 2 Cas h E P S 3 .8 7 .5 10 . 8 1 4 . 4 17 . 1

S ta ff C os t 1 5 2 2 1 5 2 8 2 3 4 5 3 8 8 Bo o k V a lu e 1 5 . 4 34 . 6 42 . 3 5 4 . 4 69 . 0

A dm i nis tr a tiv e e xp 1 8 8 2 9 6 3 5 3 4 6 0 4 9 6 DPS 0 .2 1 .0 1 .0 1 .5 2 .0

M i sc e l la n e o u s e x p 2 4 2 9 29 2 9 2 9 Pa yo u t ( in c l. Div . Ta x.) 6 .9 16 . 9 13 . 2 1 4 . 7 15 . 7

E BI T D A 1 , 0 41 2 , 5 8 2 4 , 1 6 1 5 , 1 66 5 , 9 6 2

Va lu a tio n ( x )% of Net S al es 3 1 .5 4 6 .7 5 7 .5 5 8 .4 5 9 .9

P/E ( s ta n da l o n e) 5 6 . 1 27 . 3 18 . 6 1 3 . 7 1 1 .4

Cas h P /E 4 8 . 9 24 . 7 17 . 1 1 2 . 9 10 . 8De p re c i ati o n 1 0 0 1 7 1 2 1 7 21 1 2 0 5

EV / E BI T DA 4 0 . 2 18 . 1 12 . 0 9 .1 7 .9Inte r e s t 1 9 4 3 3 2 6 1 3 2 8 0 1 6 0

EV /S a le s 1 2 . 7 8 .5 6 .9 5 .3 4 .7O th e r In c o m e 2 1 3 3 2 4 3 4 2 3 1 4 4 0 1

Pr i ce /B o ok Va l u e 1 2 . 0 5 .3 4 .4 3 .4 2 .7P BT be fo r e E OI 9 6 2 2 , 4 0 3 3 , 6 7 3 4 , 9 89 5 , 9 9 8

Di vi dend Y ie l d ( %) 0 .1 0 .5 0 .5 0 .8 1 .1P BT a ft e r EO I 9 6 2 2 , 4 0 3 3 , 6 7 3 4 , 9 89 5 , 9 9 8

T ax 2 8 3 7 9 0 1 , 2 1 2 1 , 6 46 1 , 9 7 9Pr o fit a bilit y Ra tio s (% )

R at e ( %) 2 9 .4 3 2 .9 3 3 .0 3 3 .0 3 3 .0RoE 2 1 . 4 19 . 5 23 . 5 2 4 . 8 23 . 5

Re por te d PA T 6 7 9 1 , 6 1 4 2 , 4 6 1 3 , 3 43 4 , 0 1 9RoC E 1 2 . 4 18 . 5 26 . 8 3 3 . 0 31 . 5

A dju ste d P AT 6 7 9 1 , 6 1 4 2 , 4 6 1 3 , 3 43 4 , 0 1 9

Ch a n g e ( %) 1 3 7 .8 5 2 .5 3 5 .8 2 0 .2 Tur n ove r R at i os

De bto rs ( Da ys ) 1 50 20 1 1 41 1 04 10 4

B ALA NC E SH EET ( RS M I LLI ON) Cre di to rs . ( Da ys ) 5 1 34 33 3 3 33

As s e t T u rn o ve r ( x) 0 .4 0 .4 0 .5 0 .6 0 .5Y /E M A RC H 2 0 0 6 2 0 0 7 2 00 8 E 2 0 09 E 2 0 0 1 0 E

S ha re C api ta l 4 1 2 4 7 8 4 9 5 4 9 5 4 9 5Le ve r a ge Ra t io

Re s e r v es 2 , 7 66 7 , 7 9 1 9 , 9 7 0 1 2 ,9 7 5 16 ,5 7 1De bt/E qui ty ( x) 1 .9 0 .7 0 .5 0 .1 0 .1

N e t Wo rt h 3 , 1 78 8 , 2 6 9 1 0 ,4 65 1 3 ,4 7 0 17 ,0 6 6

L o an s 5 , 8 88 6 , 0 5 1 5 , 0 0 0 2 , 0 00 2 , 0 0 0CA SH FLOW S TATE ME NT ( RS M I LLIO N)

De ff er e d Ta x L i a b il i ty 2 4 3 4 4 1 5 0 0 5 0 0 5 0 0

Y/ E M AR C H 2 0 06 2 0 07 20 0 8 E 2 0 0 9 E 20 1 0 ECa p ita l E mpl oye d 9 , 3 09 14 ,7 6 1 1 5 ,9 65 1 5 ,9 7 0 19 ,5 6 6

PB T b e fo re E O Ite m s 9 42 2 ,4 1 1 3 , 94 3 4 , 95 5 5 ,7 5 7

Ad d : De p re c i ati o n 1 00 17 1 2 17 21 1 20 5G ro s s F ixe d A s se ts 3 , 5 09 6 , 0 9 2 6 , 2 0 7 6 , 2 14 6 , 2 2 0

Inte re s t 1 94 33 2 6 13 2 80 16 0L e s s: De p re c i at io n 2 2 8 3 9 4 61 1 8 2 2 1 , 0 2 8

L es s : Dir e ct Ta xe s P a id 2 83 79 0 1 , 21 2 1 , 64 6 1 ,9 7 9N e t F ix e d A s s e ts 3 , 2 80 5 , 6 9 8 5 , 5 9 6 5 , 3 91 5 , 1 9 2

(I n c )/ De c i n WC -1 ,9 9 8 -1 ,7 9 6 -2 70 1 59 -5 49Ca p i tal WIP 4 0 6 1 2 5 2 0 0 1 5 0 5 0

CF f ro m Op e r a tion s -1 ,0 4 6 32 8 3 , 29 2 3 , 95 9 3 ,5 9 4Inv e s tme nt s 1 , 1 52 1 , 4 0 3 5 , 1 6 3 5 , 4 93 8 , 7 8 4

(I n c )/ De c in FA -1 ,4 2 8 -2 ,3 0 8 -1 90 4 3 94Cur r . A s s e ts 4 , 7 99 7 , 8 0 8 5 , 3 3 6 5 , 3 80 6 , 0 6 0

(P ur )/S a l e o f I nve s tm e nts - 83 3 -2 51 -3 ,7 6 0 - 33 0 -3 ,2 9 1In ven tor y 3 9 2 3 0 0 4 9 6 7 2 7 8 1 8CF f r om Inve s t me nt s -2 ,2 6 1 -2 ,5 5 9 -3 ,9 5 0 - 28 7 -3 ,1 9 7

De bto r s 1 , 3 58 3 , 0 3 7 2 , 7 8 8 2 , 5 17 2 , 8 4 2

Ca s h & B a n k B a l an c e 2 , 0 35 3 , 3 3 3 5 6 4 6 8 1 7 6 6(In c )/D ec i n N etwo r th - 20 8 3 ,4 3 2 -4 58 - 64 7 -8 16

L o an s & Ad v an c e s 1 , 0 14 1 , 1 3 8 1 , 4 8 8 1 , 4 55 1 , 6 3 5(In c )/De c in De b t 3 , 47 5 16 3 -1 ,0 5 1 -3 ,0 0 0 0

L es s : In te re s t Pa i d 1 94 33 2 6 13 2 80 16 0Cur r e nt Li a b. & Pr ov. 4 9 3 4 0 7 4 3 5 5 2 1 5 6 8

D iv id e n d P a i d 4 7 27 2 2 82 3 38 42 2Cr e di to r s 3 1 3 2 7 5 2 7 6 3 3 0 3 5 8

Oth e r s 1 9 -7 -2 71 3 4 24 1O the r li a bil i ti es 5 3 1 2 6 1 3 4 1 6 0 1 7 3

CF f r om Fin. A c tivit y 3 , 13 9 3 ,5 2 9 -2 ,1 1 1 -3 ,5 5 5 -3 12P ro v is i o ns 1 2 7 7 26 3 1 3 7

N e t Cur r e nt A s s et s 4 , 3 06 7 , 4 0 0 4 , 9 0 1 4 , 8 59 5 , 4 9 2 Inc /D e c of Ca s h - 16 7 1 ,2 9 8 -2 ,7 6 9 1 17 84

M i sc e l la n o u s ex p 1 6 4 1 3 5 1 0 6 7 7 4 8 Ad d : B e g in n i n g B a la n c e 2 , 20 2 2 ,0 3 5 3 , 33 3 5 64 68 1

A pp lic a tion of F und s 9 , 3 08 14 ,7 6 1 1 5 ,9 65 1 5 ,9 7 0 19 ,5 6 6 Clos ing Balance 2 , 03 5 3 ,3 3 3 5 64 6 81 76 6

E : M OS t E s t im at es E: MO S t E st i m at es

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H T Media

BuyBLO OMB ER G 22 January 2008S TOC K INFO. HTML INBSE Sensex: 16,730

RE UTER S C OD E

Rs191 Initiating CoverageS&P CNX: 4,899 HTML.BO

HT Media is emerging as an integrated media house with strong presenceY/ E M AR C H 2 00 7 20 0 8 E 2 00 9 E 2 0 10 E

in dailies English ( Hindustan Times ), Hindi ( Hindustan ) and businessSales (Rs m) 10,393 12,135 14,264 16,663

(Mint ), and FM radio (Fever104FM) with plans to launch new onlineEBITDA (Rs m) 1,905 2,294 3,021 3,823

ventures. We expect ad revenues to grow at a CAGR of 19% over NP (Rs m) 1,156 1,401 1,954 2,522

FY07-10 with PAT CAGR of 30%. We believe, strong free cash flowsEPS (Rs) 4.9 6.0 8.3 10.8

and expected ramp-up in HT Mumbai and Hindustan will help sustainEPS Growth (%) 91.7 21.5 39.5 29.1

premium valuations. We initiate coverage with SOTP based target priceBV/Share (Rs) 33.5 39.0 46.3 55.6of Rs 289, upside of 51%.P/E (x) 38.9 32.0 23.0 17.8

P/BV (x) 5.7 4.9 4.1 3.4 HT Mumbai likely to turnaround by FY09: HT is gradually addingEV/EBITDA (x) 21.9 17.7 13.3 10.3

content in HT Mumbai which would enable it achieve circulation of EV/Sales (x) 4.0 3.3 2.8 2.4 400,000 and operating profit turnaround by FY09. This would enableRoE (%) 14.7 15.4 18.0 19.4

26% CAGR in ad revenues for HT Mumbai and 14% for English dailiesRoCE (%) 15.1 16.2 18.8 20.3

over FY07-10.

De-merger of Hindustan to see faster expansion: HT is de-mergingits Hindi business into a separate subsidiary. HT has plans to launch 14more editions of Hindustan to exploit the huge circulation and ad revenue

K EY FINA NCI ALS

potential in the Hindi market. We expect Hindustan ad revenues toShares Outstanding (m) 234increase at a CAGR of 27% over FY07-10. We expect HT Media toMarket Cap. (Rs b) 42.4

Market Cap. (US$ b) 1.1 divest some stake in Hindustan which would unlock shareholder value.Past 2 years Sales Growth (%) 29.0

Past 2 years NP Growth (%) 105.0 Mint and Fever 104FM to remain in investment mode: Mint - theDividend Payout (%) 6.1

financial daily from HT Media, has emerged as the second largest dailyDividend Yield (%) 0.2with plans to reach a penetration of 10-12 cities by FY09-10. Fever 104FM is expected to increase its geographical reach after next round of FM station bidding. We expect these businesses to turn around by FY10.

STO CK PER FOR M A NCE (ON E Y EA R)S TOCK D ATA

52-Week Range (H/L - Rs) 266/164 HT Media (Rs) -LHS

Rel. to Sensex (%) -RHS270 50Major Shareholders (as of December 2007) %

Promoters 68.7

240 30Domestic Institutions 8.3

FIIs/FDIs 19.2

210 10Others 3.8

Average Daily Turnover 180 -10Volume ('000 shares) 176.0

Value (Rs million) 36.5 150 -301/6/12 Month Rel. Performance (%) -9/-23/-5 Jan-07 Apr-07 Jul-07 Oct-07 Jan-081/6/12 Month Abs. Performance (%) -22/-17/13

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H T Media

HT Mumbai & Delhi, key to ad revenue growth in the English daily

HT Medias Hindustan Times is the second largest selling English daily in India. Thecompany has a well spread out presence in northern India, Bihar, parts of UP, Kolkata andMumbai. The company had extended its presence to several areas in Punjab, Haryanaand Mumbai over the past few years. HTs English offering has seen a significant revampin recent years with several supplements throughout the week targeting specific readers.

SUP PLE ME NTS OF ' THE HIND US TA N TIM E S'

F RE QUE NCY PO SI TI ONI NG

HT Style/caf Daily Fun and Entertainment

HT Horizons Wednesdays Education

HT Power Jobs Tuesdays Career

HT Estate Saturdays PropertyBrunch Sundays Lifestyle

HT Classifieds Sundays Classified

HT Local Lives Various Focus on local content

HT Business Daily Business & Economic news


RE AD E RS HIP

2006 R1 2006 R2 2007 R1 2007 R 2

TOI 7,084 6,919 6,781 6,828

Hindustan Times 3,508 3,501 3,331 3,319

Deccan Chronicle 1,132 969 1,311 1,260

Telegraph 1,082 1,008 919 1,015

ET 868 789 774 774

Mumbai Mirror 1,117 943 735 752

DNA 443 539 632

Tribune 483 518 539 539


Entry into Mumbai has been very significant as Mumbai and Delhi account for 50% of print media advertising in India. A lions share of this revenue goes to the English dailies TOI and HT have the highest readership which hold sway in these cities. While TOIhas been a dominant player in Mumbai, HT has been leading the English newspaper market in Delhi. HT has circulation of 900,000 in Delhi and 300,000 in Mumbai while

TOIs circulation is 750,000 (Mumbai) and 550,000 (Delhi). Mumbai has been a monopolymarket for TOI which has enabled the company to enjoy high subscription prices of Rs2.5-3.0 per copy and premium advertising rates (nearly double the rates in Delhi). But thescenario today has come full circle; HT entered Mumbai in 2005 and has achieved acirculation of 3,15,000 based on substantial subscription-based discount schemes.

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H T Media

M UM BA I - R EA DE RS HIP ( 00 0)

2 006 R 2

TOI 1,667

Mumbai Mirror 728

Midday 561

DNA 409

HT 271

ET 157

Indian Express 105


HT has emerged as the third largest English daily in Mumbai after TOI and DNA.The company plans to gradually increase circulation and emerge as the second largest

player trailing TOI over the next 12 months.Although the circulation figures for TOI, DNA and HT stand at 0.55, 0.4 and 0.31m inMumbai, the readership figures are in favor of TOI as we note each copy is beingread by more than 3.5 persons versus merely 1 reader for HT, indicating TOIs

popularity.HTs circulation in Mumbai is built around subscription schemes, which offer consumersa 70% discount plus freebies. Newsstand circulation of HT in Mumbai continues to be

poor as TOI continues to lead.HT has been able to offer good quality content to the readers, although it is the secondEnglish newspaper in most homes. HT continues to enrich its content and has added

HT Caf and HT Business which has been well received.TOI has launched Mumbai Mirror which has resulted in severe pressure on Mid-

Day on the one hand and a sharp reduction in TOIs profitability in Mumbai.HT, although ranked third in terms of circulation, has been able to garner better advertising than DNA, as HT can offer a package comprising Mumbai and Delhi toadvertisers. The Mumbai ad market contributes around Rs1b to total ad revenues of the company in comparison with Rs200-Rs250m before launch of the local editionAlthough ad rates in Mumbai continue to command a premium over Delhi ad rates,this premium has narrowed to 50% v/s 100% earlier. We expect the gap to narrowdown further.HT net circulation revenues have been very low to negative implying that the highmarketing costs have resulted in Mumbai operations posting a loss in FY07.

HT management expects it to emerge as the second largest circulated newspaper inMumbai in another 12-15 months, although TOI will continue to be the leader in Mumbaiin the foreseeable future. We expect the delta to work in favor of the company owing tohigher inventory utilization in the Mumbai market, which has the highest ad rates in India.

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DE LHI R EA D ER SHI P (' OOO)

TOIHT2,200

2,050

1,900

1,750

1,600

2005 R1 2005 R2 2006 R1 2006 R2 2007 R1


TOI has surpassed HTs readership levels in Delhi for the first time during the last survey,which is a negative for HT given TOIs strong position in the Mumbai market. Managementappears confident of holding on to its forte in the Delhi market. The Delhi market haswitnessed entry of Mid-Day ; and DNA has definite plans to enter this market.

Delhi is a very competitive market and it would be tough for any new entrant to establishitself. Both HT and TOI have jointly increased the newspaper price from Re1 to Rs1.5 inthe Delhi market. Additionally, HT and TOI have launched a daily tabloid, Metr

o

in Delhi

to safeguard against entry of new players. Management believes that both HT and TOIwill continue to lead the Delhi market. We expect 14% CAGR in ad revenues of HT(English daily) from an estimated Rs7.3b in FY07 to Rs10.8b in FY2010. Ad revenuesfrom Mumbai are expected to grow at 27% while that from Delhi would increase at 12%

per annum. We expect HTs Mumbai operations to turn around by FY09.

Hindustan de-merger to harness full potential Hindustan the Hindi newspaper from HT Media is the third largest Hindi newspaper inIndia. Hindustan is the market leader in Bihar and Jharkhand with a huge gap in readershipversus its nearest competitors i.e. Prabhat Khabar and Dainik Jagran. HT has decided

to demerge the operations of Hindustan into a separate subsidiary. The demerger wouldresult in a sharper focus on the Hindi newspaper segment, which is expected to growahead of the English newspapers.

AV ER A GE D AI LY R EA DE R SHI P (' 000 )

2005 R 1 20 06 R 1 2007 R1 2007 R2

Daink Jagran 17,473 19,071 17,114 16,502

Dainik Bhaskar 13,810 14,571 12,514 12,823

Hindustan 8,192 9,724 9,052 8,551

Amar Ujala 9,276 9,894 8,255 8,075

Rajasthan Patrika 6,309 6,714 6,946 7,402


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CI RC ULA TI ON OF HI NDU STA N (' 000)

UP B IHA R

Hindustan Dainik Jagran Hindustan Dainik JagranAmar UjalaAj

Prabhat Khabar Aj12,000 6,000

9,000 4,500

3,0006,000

1,5003,000

002005 R2 2006 R1 2006 R2 2007 R12005 R2 2006 R1 2006 R2 2007 R1

JHA RKH AND D ELH I

Hindustan Dainik Jagran Hindustan Dainik JagranPrabhat Khabar Navbharat Times Punjab Kesari

1,3002,000

1,1501,500

1,0001,000

850 500

700 0

2005 R2 2006 R1 2006 R2 2007 R1 2005 R2 2006 R1 2006 R2 2007 R1


SUP PLE M ENT S OF HIN DUS TA N

SUP P LEM E NT S LOC AT IONS FR E QUEN CY POS I TI ONI NG

Hindustan City New Delhi, Lucknow, Thursday, Friday, Film and Fashion

Patna and Ranchi Saturday and Sunday

Nai Dishayen Patna, Ranchi and Thursday and Wednesday Education/Careers

Lucknow, Varanasi

Ravi Utsav All HH editions Sunday Life Style

Rangoli New Delhi and Wednesday and Film music and

All HH edition Saturday entertainment

Angna Patna, Ranchi and Wednesday Local Supplement

Lucknow

Pratibimb Patna Thursday Local Supplement

Aadab Lucknow Lucknow Thursday Local Supplement

Subeh Banaras Varanasi Friday Local Supplement

Source: Company/Motilal Oswal Securitie

The Hindi newspaper market offers huge potential, as there are 359m people in India whocan read and understand a language but do not read any newspaper. Of these: (1) 68%can read Hindi; (2) 20m belong to SEC A and B of the consumer class and affordability isnot a constraint. In addition, Hindi newspapers are a strong demographic play, as the keystates such as UP, Bihar, Rajasthan, Madhya Pradesh, which are Hindi speaking, have

amongst the lowest literacy rates. Rising per capita income and improving availability of newspaper will increase newspaper circulation.

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DE M OGRA PHI C S - FA VOR A BLE F OR SU STAI NED C IR CU LATI ON GR OWTH

STATE E DI TI ON S C IR CULAT ION LI TE RA C Y * R UR AL ( %)* PE R CA PI TA BEL OW

(M ) RA TE % POP ULA TIO N INC OM E * POV E R TY

LI NE %

Uttar Pradesh+ 1.27 56.3 79.2 10,289 31.2

Bihar++ 0.36 47.0 89.5 6,015 42.6

Delhi 0.30 81.7 7.0 47,477 8.2

Punjab 0.03 69.7 66.0 25,855 6.2

Haryana 0.13 67.9 71.0 26,632 8.7

Madhya Pradesh 63.7 73.3 11,438 37.4

Rajasthan 60.4 76.6 12,753 15.3

Indian Average 64.8 72.2 23,224 26.1

* Statistical Online of India, Census 2001 Figures, ** associates, + including Uttaranchal, ++ including

Jharkhand Source: Company/Motilal Oswal Securitie

The Hindi newspaper market offers huge potential and this is reflected in higher salesgrowth in the adspace in the Hindi genre in comparison to English dailies. We expect thistrend to gain further momentum in the coming years as rising incomes result in improving

purchasing power of the Hindi newspaper readers. We expect rising advertising interestfrom large advertisers for Hindi newspaper readers. We expect this trend to result inhigher ad rate growth in the Hindi genre versus the English genre ahead.

GR OWTH I N AD SPA CE ( %)

F Y 05 F Y0 6

English Newspaper 3 4

Hindi Newspaper 13 11

Source: Company/Motilal Oswal Securitie

Higher advertising growth and huge potential offered by the Hindi market has resulted ina radical shift in management strategy to increase focus on this segment. HT Media ishiving off its Hindi business into a 100% subsidiary. The company has plans to launch 14more editions of Hindustan in Uttar Pradesh in the next two years utilizing capex of Rs2b. The company has launched the Kanpur, Varanasi, Meerut and Agra e

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