Merchant Banker Creativity in Hindustan Media IPO

Merchant Banker Creativity

We all know merchant bankers, like any other broker, don’t have any rights and obligations towards the buyer. Their sole focus is – first, maximising their own benefit, and second, maximising benefit for the seller. Nothing wrong with that, but in IPOs, the regulator SEBI needs to keep its eyes open a little more.

The IPO document in Hindustan Media issue is an exercise in creative presentation of data.  The most important, and obvious table of data, which should have been in the IPO document does not exist. Instead, what is there is the above table. Edel and Kotal are the bankers, clearly two outfits without a backbone.

HMV (Hind Med Ventures) operates solely in regional media. Just what is the share of of regional media in total India advertising? You can go thru the entire document and u wudnt find the answer to this question. Instead what u have is the above table trying to give a positive spin to the small role of regional media in advertising.

Go thru the prospectus, and u realise the HMV issue is just an exercise to raise money. It changes nothing in the way HT Media as a group will operate. Distribution and advertising sales will still be centralised with HT Media. Distribution maybe is ok, but advertising? If it is still centralised, then just what is being achieved by having a separate listed entity? U might as well have raised money in HT Media. Of course, maybe the promoters dont want to dilute their stake too much in the parent.

Media Trivia – New FDI norms

Media FDI Norms (source: UBS)

Now that ADAG group is in hyperdrive on M&As/JVs, would it take in equity for Big TV? ADAG has just acquired Digicable, supposedly india’s largest MSO. Dish TV has been moving up lately, brokers are all positive on the stock.

India’s top media companies

Some not easy to see data, from a business paper (Mint, i think). Zee has covered a lot of ground since FY04. For all the criticism Subhash Chandra gets, he seems to be the only guy making money from television. Star has stagnated. While this table does not have profitability numbers, it is believed Star is losing money for the last 2-3 years. No one else anyway makes money from TV

Mittal’s media plans

or why media, after telecom/insurance/retail/agriservices…

Sunil Mittal now wants to enter the media business. Having created almost $50bn of investor wealth in telecom business, Mittal has already announced forays in insurance, retail and agri processing. These new forays are in his personal capacity, his flagship Bharti Telecom has nothing to do with these new forays.

Mittal’s retail plans are understandable. Every Indian businessman wants to enter retail. After all, world’s largest company Walmart is a retailer. And with a billion plus population, you can build scale in retail.
But why media? This is a business which hasn’t really caught mainstream fancy – either of investors, or of India’s business houses.

India’s ad market is currently around Rs 30,000 crore ($7.5bn), and is projected to grow to Rs 100,000 crore ($25bn) by 2012. In contrast organized retail is perhaps $15bn at this point, and is projected to grow to maybe $100-200bn or so by 2012 (5-10% of GDP, all kinds of figures are floating around within this range). So actually organized retail may pull away going ahead, since a lot of investment is pouring into retail. Infact, retail is much more of a nascent business in India than media. Media has been around, and in terms of print and television, it is already quite fragmented (though not necessarily well penetrated).

Now lets look at wealth creation. Here, media has created more value, perhaps since it has been around longer. Cumulative value of listed companies is around $15bn, while for retail it is around $4bn. If we add a few large unlisted companies in media, value of industry goes to $39bn, as shown here. In retail, most companies are currently unlisted. Reliance’s retail business is valued at upto Rs 30,000 crore by analysts at this point (which is rather ridiculous, neither sales or investment justifies this).

Another way to look at this is to ascribe a sales multiple to the industry as a while. Media companies are currently quoting at 5-10x sales. It we take 7.5x sales for industry, then for FY07, we get a value of $50-60 for the industry as a whole for FY07. For FY12, if we take a sales multiple of 7.5x, we get a value of $190bn for media industry in 2012.
In retail, companies are valued at 1-2x sales. If we take 1.5x, then FY07 value was perhaps $22bn. Going ahead, in FY12, if we take 1.5x sales, then retail industry could be $225-300bn by 2012.

Now lets see a new entrant in both retail and media, with the aim of getting 10% share by 2012. In media, this co could get an M cap of $18bn or so by 2012, and in retail, it could get $22-30n. Both are substantial values.

At this point, it is perhaps easier entering retail than media, but then again, with capacity to invest, who knows what can be achieved. Buy out a large media house, and you get a running start, not too far from what Mittal has created in telecom as of now.

People have entered media in the past for reasons other than wealth creation. Hopefully Mittal hasnt fallen prey to such instincts.

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