General elections will benefit the entire industry: Piyush Gupta, HT Media Group

HT Media Group CFO Piyush Gupta, when asked about the benefits of the impending general elections, stated that there will be benefits but it's really tough to quantify. He was addressing the investors during the Q2 earnings call.

He said, “It will be of benefit to the entire industry, including competition. The state election depends really on the state, but on the union election, really tough to quantify, depends upon the spending that the various political parties do.” 

Further in the conversation, when asked if the company’s competitors are making better profits in the printing business, Gupta explained that some of them are pure-play Hindi and other language publications as opposed to HT Media, which has English and Hindi. 

He said, “Both the businesses have different sets of dynamics. Another point, you have to really remember there are two or three state election revenue which is sitting in their numbers. Now, of course, some are the number one player in UP or at least the eastern part of the UP and does have a marginal advantage to us, but not a huge amount of advantage. So, really the point I'm trying to make is, with some publications, it's not really an apple-to-apple comparison in terms of market because in those markets there is an election revenue, which is sitting in those publication’s P&L.”

Speaking on the Q2 results Gupta agreed with investors that the results could have been better. He explained the reasons and said, “We have not been very happy about is the yield performance that we have seen and when we spoke on the last call, I said and I repeat again, that we've got a yield program, and we are working very hard to get our yields to a certain index of the pre-COVID yield but going market by market, that's bit of a challenge. Now that we are approaching the festive season, our hope and desire is that we'll be able to unlock some yield. The moment that happened, you can see that coming straight to the margin.”

He further added that newsprint prices have been coming down for the last four quarters and accordingly, the company's procurement prices have been coming down. “They have started bringing down the weighted average cost of consumption, and you will see that trend continuing secularly for the next foreseeable future. I don't see the commodity cycle going up so that you will see it flowing through on to the EBITDA.”  

According to Gupta, the second half of this year will be much better than the first half of this year because of the festive and the union election revenue also flowing in with the marginal cost of newsprint much lower than what it is. 

On the radio business, Gupta shared, “All our investments in Radio business that we had done in the time when radio’s, multiple or the trading multiple of the companies which were tracking was more than 20x - 25x earnings or for some companies were 35x earnings. Those have been re-rated very sharply. Unfortunately, we had made the investments in the Phase 3 government auction and the M&A on Radio One thereafter and most of those assets are now coming under impairment. So, this time also that Rs 32 crore number that you see on a consolidated result is primarily the impairment of the investments that we had done in FY 2019-20.”

On the Digital front, Gupta shared that it is in an investment phase right now, and it will remain in thatex phase for another three to four quarters. “We are increasing the subscription base on OTTplay, and we've already tied up with the content providers. There are 20 - 22 content providers who are already sitting in our package.”

While answering the investors on whether this will turn profitable with the kind of investment and the losses that the company is showing, Gupta shared that there's a finite time they as a management has set out to do this whole stuff. “Had we got this indication that this will not be profitable, we would already have pulled the plug but at this point in time, there are a few very heartening signals that we are getting when we are distributing the products and getting a certain level of renewal done from a certain set of customers. Now, of course, there's a timeline that the management already has set aside. If it doesn't turn out profitable, we will have to take a call on this. So the current hope and expectation is that OTTplay will be a very profitable business going forward.”

When asked if the company is looking at buybacks since that seems to be the best solution, Gupta noted  that there's no proposal of any buyback, which the Board is deliberating at this point in time. “Regarding the hypothesis, I would tend to say I totally agree with your point that elections are a one-off event, and we don't create a company on the basis of that, and the commodity cycles can go up and down as well. But if you look at the results pre-2019, in spite of the multiple commodity cycles and the multiple election cycles that we have seen, the company was reasonably very profitable.”

According to him, the problem that has happened is after the company has come out of whole COVID cycle, the pricing has been a bit of a challenge on which they already have a program FY24. “That is the program that we are trying to execute to. If we get even the 80th or the 90th percentile of that pricing, you will see the profitability come back in a very significant manner back to the print business.”

He added, “Now, of course, pricing is a challenge in our radio business also but if you just look at the historical financials of Radio segment versus now, we have done a very sharp cost optimization whereby we've cut the cloth to the size and now again, pricing is what we are hoping for in the Radio business and this festive is really the time from now to December that we'll be working very sharply on that. So, if these come back, I don't think this industry is in that bad a shape. A 10% to 12% EBITDA margin, I think looks like a sustainable level of margin, which I think from here to foreseeable future can easily be sustained.”