Press Release

The Malayala Manorama Company Private Limited (Erstwhile The Malayala Manorama Company Limited) December 29, 2020 Ratings Amount Facilities Ratings1 Remarks (Rs. crore) 266.14 CARE AA; Stable Long-term Bank Facilities Reaffirmed (reduced from Rs. 294.85) (Double A; Outlook: Stable) 45.60 CARE A1+ Short-term Bank Facilities Reaffirmed (reduced from 80.60) (A One Plus) 311.74 (Rs. Three hundred eleven Total Facilities crore and seventy four lakh only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of The Malayala Manorama Company Limited (MMCL) continue to derive strength from the long operational track record of MMCL, strong editorial & management team and the leadership position of ‘Malayala Manorama’ daily among regional language (Non-, Non-English) dailies in the country. The ratings also take into account the comfortable financial position of the company characterised by comfortable capital structure, healthy coverage indicators & profitability margins and strong liquidity position. The operating profit margin (PBILDT %) of MMCL witnessed some moderation in the past two years on account of the decline in advertisement revenue due to the economic slowdown & floods as well as elevated newsprint (key raw material) prices during FY19-20 (refers to the period April 1 to March 31). Furthermore, during the H1 of current year also, the company reported subdued performance on account of the impact of the Covid-19 pandemic resulting in sharp drop in advertisement revenue, particularly in the first two months of the year. However, the gradual easing of the lockdown & consequent picking up of the economy coupled with softening of the newsprint prices is likely to drive the performance during the second half of the year. The ratings, however, continue to be constrained by the company’s dependence on a single publication catering to a semi- saturated Kerala market for bulk of its revenues and regional nature of the operations confined largely to Kerala, MMCL’s exposure to its subsidiaries and exposure to volatile newsprint prices.

Rating Sensitivities Positive Factors  Consistent growth in the scale of operations through diversification in revenue stream Negative Factors  Any consistent fall in circulation figures or loss of market leadership position  Decline in the operating margins below 20% on a consistent basis  Any significant deterioration in the performance of the subsidiaries necessitating higher exposure to subsidiaries

Detailed description of the key rating drivers Key Rating Strengths Long operational track record of the company MM was started as a four-page weekly newspaper in 1890. The newspaper became a daily in 1928 and today has a daily circulation of over 2 million copies. Over the years, the company has also launched a number of magazines in , English and Hindi on various genres such as current affairs, healthcare, automobile, travel, lifestyle, etc catering to various segments including kids, women, etc. The company is a closely-held public limited company. The shareholders comprise members of the founder’s family.

Strong editorial and management team The promoters are actively involved in the day-to-day operations of the newspaper. Chief Editor, Mr has been with this newspaper for over four decades. The management functions are looked after by professionals who have been with the company for more than two decades. MM daily, being the leading newspaper in Kerala has been able

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Press Release to put together a well-qualified and experienced journalist team over the years. The company’s relations with the employees have been cordial and many of the employees have been associated with the company for long.

Leadership position of ‘Malayala Manorama’ daily among regional language dailies in the country MM daily is the largest circulated regional language daily in the country and the fourth largest circulated newspaper across all languages in terms of average daily circulation. MM is the market leader in Kerala with around 88% more circulation per day during the period July-December-2019 as compared to its nearest competitor.

Comfortable capital structure and coverage indicators The capital structure of the company remained comfortable with a robust net worth base of Rs. 1105.42 crore and overall gearing of 0.24x as on March 31, 2020 (PY : 0.26x). The debt coverage indicators, although deteriorated, but continued to be satisfactory marked by interest coverage ratio of 7.45x (PY: 13.07x) in FY20 and total debt/GCA of 1.56 years (PY: 1.53 years) as on March 31, 2020.

Healthy operating margins, however declined in the last two years The profitability margins of the company remain healthy, even though there is a decline year on year on account of decline in ad revenues and increased news print prices. The advertisement revenue as a percentage of TOI declined from 55% in FY19 to 52% in FY20. This further declined to 36% in H1FY21 (56% in H1FY20) due to significant impact in the months of April & May 2020 on account of the lockdown. Consequently with same level of fixed costs, the PBILDT margin witnessed a decline from 23.79% in FY19 to 19.25% in FY20 and 15.69% in H1FY21. The company has been undertaking various cost rationalization measures in the current year including lowering of employee costs in order to maintain the operating margins at healthy level. With the cost cutting measures in place & gradual improvement in the ad revenues, the operating margins are expected to improve in H2FY21.

Completion of major capex associated with modernisation of presses and wind power project In order to increase the printing speed and to reduce the operating cost, MMCL has been modernizing its printing presses, since FY14. During FY19 & FY20, the company had completed the capex related to the modernisation of its presses at Trivandrum, Calicut and Aroor apart from installing windmills of about 10 MW. In the current year, the company is undertaking the modernisation of the press at to be funded entirely out of internal accruals. The capex is expected to be completed by March 2022.

Key Rating Weaknesses Moderation in operating income in FY20 & H1FY21 The revenue profile of the company consists of advertisement revenue and circulation revenue in almost equal share. The operating income witnessed a marginal drop of 7% from Rs. 1242 crore in FY19 to Rs. 1154 crore in FY20 on account of lower ad revenue. The income further stood lower at Rs. 365 crore during H1FY21 against Rs. 610 crore during H1FY20. However, despite intense competition from other digital media players as well as from other dailies, the company still generates more than 50% of its income from ad revenue which is higher than most of the major vernacular dailies. Further, MM as opposed to other English dailies has a strong circulation revenue and that income has remained stable over the years. The circulation income alone more than adequately covers the newsprint cost for the company.

Dependence on single publication catering to a semi-saturated Kerala market for bulk of revenues The key publication of MMCL is the MM daily which contributes to majority of the company’s total income. During last three years, MM daily contributed to about 94%-95% of the total income. While the presence in a semi-saturated market limits the prospects for any sharp growth, it also exposes the company to the social-economic conditions of a regional economy. The impact of this was visible in FY20 and with the muted economic environment in FY21, the performance is likely to remain subdued.

Exposure to volatile raw material prices and forex risk Newsprint is the main cost component for the print industry. The raw material prices are dependent on the global demand – supply scenarios. Newsprint prices have significant impact on the profitability of the players in the industry. Fluctuation in forex further aggravates the volatility in the prices. The company hedges its foreign exchange risk by entering into forward contracts. The company is able to cover the newsprint cost with its circulation revenue alone. MMCL is able to pass on the newsprint prices through increase in the cover price of its dailies and still able to maintain the circulation levels and the market leadership position.

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Exposure to group entities The total investment in subsidiaries and associated companies as on March 31, 2020 amounted to Rs.161.89 crore out of which major investment in the subsidiary, MMTV Ltd (100% held by MM) was Rs.154.5 crore. The Networth of MM TV was Rs. 126.40 crore as on March 31, 2020. The company had written off its investment in its subsidiary, Malayala Manorama FZ LLC, UAE (radio wing of UAE) of Rs. 49.05 crore in FY19 due to the losses incurred and erosion of net worth and the radio station at UAE has been shut down. The consolidated gearing stood comfortable at 0.33x as on March 31, 2020 (PY: 0.32x).

Liquidity: Strong The company has strong liquidity characterized by sufficient cushion in accruals vis-à-vis repayment obligations of Rs. 45 crore in FY21. The company extends a 40 – 50 day payment period to the advertisement agencies. With a healthy capital and sufficient funds to fund the working capital the company had a comfortable average working capital utilization of 10% for the 12 months ended November 2020 (24% last year for twelve months ended September 2019). MMCL has liquid investments in the form of unencumbered fixed deposits to an extent of Rs.371.65 crore as on September 30, 2020. With sufficient liquidity in hand, the company has not availed moratorium/deferment on its interest & principal obligations as part of Covid relief measure.

Analytical approach: Standalone

Applicable Criteria CARE’s Policy on Default Recognition CARE’s Criteria on assigning Outlook and credit watch to Credit Ratings Financial ratios –Non-Financial Sector CARE's methodology for manufacturing companies Criteria for Short-term Instruments Liquidity Analysis of Non-Financial Sector Entities

About the Company MMCL is engaged in printing and publication of news daily and other magazines. The company’s main daily, Malayala Manorama is the most widely circulated regional daily in . MMCL was founded by Mr Kandathil Varghese Mappillai in 1888, with the first issue of the newspaper appearing on March 22, 1890. The daily is currently being printed and published from eighteen centres – 11 in Kerala, one each in , , , and three located at overseas locations, viz, (UAE), Manama (Bahrain) and (Qatar). MM as a group publishes more than 45 magazines, periodicals and books in the print medium to cater to different age groups, tastes and needs. Some of the popular publications include ‘The Week’, ‘Manorama Year Book’, etc. MM in 2008, also launched Radio Mango (under this company), which has four FM radio stations in Kerala.

Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 1242.52 1,154.11 PBILDT 295.57 222.12 PAT 54.09 41.36 Overall gearing (times) 0.26 0.24 Interest coverage (times) 13.07 7.45 A: Audited

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3 Complexity level of various instruments rated for this company: Annexure 4

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Annexure-1: Details of Instruments/Facilities

Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based - LT-Term Loan - - July 2025 202.14 CARE AA; Stable Fund-based - LT-Cash Credit - - - 64.00 CARE AA; Stable Non-fund-based - ST-Letter of credit - - - 5.00 CARE A1+ Non-fund-based - ST-Bank CARE A1+ - - - 40.00 Guarantees Non-fund-based - ST-Credit Exposure CARE A1+ - - - 0.60 Limit

Annexure-2: Rating History of last three years

Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2020-2021 2019-2020 2018-2019 2017-2018 1)CARE AA; CARE Stable 1)CARE AA; 1)CARE AA; Fund-based - LT-Term AA; (17-Jan-20) Stable Stable 1. LT 202.14 - Loan Stable 2)CARE AA; (03-Dec-18) (03-Jan-18) Stable (19-Dec-19) 1)CARE AA; CARE Stable 1)CARE AA; 1)CARE AA; Fund-based - LT-Cash AA; (17-Jan-20) Stable Stable 2. LT 64.00 - Credit Stable 2)CARE AA; (03-Dec-18) (03-Jan-18) Stable (19-Dec-19) 1)CARE A1+ CARE Non-fund-based - ST- (17-Jan-20) 1)CARE A1+ 1)CARE A1+ 3. ST 5.00 A1+ - Letter of credit 2)CARE A1+ (03-Dec-18) (03-Jan-18)

(19-Dec-19) 1)CARE A1+ CARE Non-fund-based - ST- (17-Jan-20) 1)CARE A1+ 1)CARE A1+ 4. ST 40.00 A1+ - Bank Guarantees 2)CARE A1+ (03-Dec-18) (03-Jan-18)

(19-Dec-19) CARE Non-fund-based - ST- 1)CARE A1+ 5. ST 0.60 A1+ - - - Credit Exposure Limit (17-Jan-20)

Annexure 3: Detailed explanation of covenants of the rated facilities: Not Applicable

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Annexure 4: Complexity level of various instruments rated for this Company

Sr. Name of the Instrument Complexity Level No. 1. Fund-based - LT-Cash Credit Simple 2. Fund-based - LT-Term Loan Simple 3. Non-fund-based - ST-Bank Guarantees Simple 4. Non-fund-based - ST-Credit Exposure Limit Simple 5. Non-fund-based - ST-Letter of credit Simple Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications

Contact us Media Contact Name: Mr Mradul Mishra Contact no. – +91-22-6837 4424 Email ID – [email protected]

Analyst Contact Name - Mr. P. Sandeep Contact no.- 044 – 2850 1000 Email ID- [email protected]

Relationship Contact Name: Mr V. Pradeep Kumar Contact no. : 98407 54521 Email ID : [email protected]

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