* GST-linked transition pangs and a well spread-out festive season affected Advertisement revenue growth while lower cover price in UP and Bihar continued to dent circulation revenue. EBITDA improvement was backed by cost rationalization measures.
* Ad revenue increase of 5% yoy was driven by yield improvement (2%) and volume growth (3%). Continued impact of GST transition, RERA and muted spends from government impacted growth. Early signs of recovery in ad growth started surfacing from Q3 end.
* Focus remains on strengthening position in UP and deepen circulation reach in Bihar. Ad growth is expected to see revival in FY19, with FMCG, BFSI and Auto sectors leading the recovery in Ad spends. Cost inflation would start reflecting in a couple of quarters.
* Ad revenue growth assumption for FY18 is expected to be flat vs 3% earlier. Circulation revenue is lowered by 2.4%/1.3% for FY18/19. EBITDA cut is restricted to 5%/2% for FY18/19E led by cost rationalization. Lack of clarity on utilization of cash pile would continue to weigh on valuation. Maintain BUY with a SOTP (FY20) based PT of Rs317.
Robust operating performance driven by cost control
Revenue at Rs2.3bn was marginally down on yoy basis (2.5% below our estimate). Ad revenue increased by 5% yoy to Rs1.6bn (vs expectation of +6%), impacted by GST-linked transition pangs and a well spread-out festive season. Circulation revenue declined by 14.4% yoy to Rs480mn, 6% below our estimate, on account of lower per copy price in UP and Bihar. EBITDA registered a robust growth of 43% yoy to Rs583mn vs estimate of Rs445mn. EBITDA margin at 25.3% expanded by 756bps yoy. EBITDA growth was driven by strict cost control. Total expenditure was down 9.2% yoy to Rs1.7bn, which was 10% below our estimates. PAT stood at Rs493mn vs Rs438mn in Q3FY17, up 12.4% yoy, propelled by a robust operating performance and one-time other income from sale of investment.
Outlook and valuation
Ad spends in Q3FY18 remained muted due to macro issues while management indicated that early signs of recovery started emerging from end Q3FY18. Revival in FY19 is crucial, otherwise it would raise questions on the structural issues constraining healthy ad growth in the Print Media industry. Rising newsprint cost might rationalize competition in Bihar and UP, as continued fall in realizations would hurt profitability. The much-awaited IRS survey would also be a key catalyst for company-specific growth in FY19 and beyond. Key risks to our call are: 1) delay in economic recovery, 2) higher-than-expected rise in newsprint prices, 3) inability to implement ad rate hikes and hyper competition in core markets, 4) rising data acceptance in Tier II and Tier III towns, with the availability of Radio as a cheaper medium of Advertisement might eat into the ad pie of the print companies and 5) misallocation of cash pile. We expect revenue/EBITDA/PAT to grow at a CAGR of 6%/10%/8% over FY17/20E. Maintain BUY with SOTP based TP of Rs317.
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