Press Release Hind Samachar Limited
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Press Release Hind Samachar Limited April 1, 2021 Ratings Amount Facilities/Instruments Ratings Rating Action (Rs. crore) CARE A; Stable 118.90 Long Term Bank Facilities (Single A; Outlook: Reaffirmed (Reduced from 126.06) Stable) 118.90 Total Bank Facilities (Rs. One Hundred Eighteen Crore and Ninety Lakhs Only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of The Hind Samachar Limited (THSL) continues to derive strength from the company’s dominant market position in its operating regions, experienced promoters, long track record of operations, its established presence and brand name in the print media segment especially in the northern India and comfortable capital structure with adequate liquidity. These rating strengths, however, are partially offset by the working capital intensive nature of operations, susceptibility of profitability margins to the volatility in newsprint prices and exchange rate movements, high dependence on advertisement revenues, competitive nature of print media industry and increasing penetration of alternate media. THSL sought moratorium for the debt servicing of its bank facilities for the periods April 2020 to August 2020 from its lenders as a part of the COVID-19 - Regulatory Package announced by the RBI on March 27, 2020 and May 22, 2020. The moratorium has been approved by the lenders. CARE has not recognized this instance as a default, as the same is permitted by the RBI as part of the relief measures announced recently. The non-recognition of default in this case is as per the guidance provided by the SEBI circular SEBI/ HO/ MIRSD/ CRADT/ CIR/ P/ 2020/ 53 dated March 30, 2020. Key rating sensitivities Positive Sensitivities: Factors that could lead to positive rating action/upgrade: Ability of the company to increase its income from the publishing operations by 20-25% from current levels while increasing its footprint in the digital segment and maintaining its market share in the current genres amidst intense competition and COVID-19 outbreak. Ability of the company to enhance its PBILDT margin to more than 20% on a sustained basis from the current levels from its publishing operations. Negative Sensitivities: Factors that could lead to negative rating action/downgrade: Any increase in the collection period of more than 150 days leading to elongation in the operating cycle on a sustained basis. Any sizeable capex undertaken by the company or further support given to the group companies adversely impacting the capital structure with the overall gearing exceeding 1.50x on a sustained basis. Detailed description of the key rating drivers Key Rating Strengths Long track record and experienced promoters THSL is a public limited company incorporated in the year 1949 by late Lala Jagat Narain, veteran freedom fighter and Ex. Member of Parliament (Rajya Sabha). THSL has a long track record of more than 60 years in the print media segment, which is now being run by the family’s second generation. Mr. Vijay Kumar Chopra, the son of late Lala Jagat Narain, is presently the Chairman-cum-Managing Director of the company. The day to day operations are handled by his sons, Mr. Amit Chopra and Mr. Avinash Chopra. The promoters are supported by a management team having extensive experience in the newspaper industry. Over the years, THSL has earned strong brand image with its flagship daily “Punjab Kesari” in the print media segment in North Indian states. Established presence in the print media segment with dominant market position THSL is engaged in the publishing of the four daily newspapers i.e. Punjab Kesari (Hindi), Jag Bani (Punjabi), Hind Samachar (Urdu) and Navodaya Times (Hindi) with average combined daily circulation of more than 9 lakh copies consistently over the past few years. THSL has earned strong brand image in the print media segment and it continues to dominate the 1 CARE Ratings Limited Press Release newspaper market in circulation and readership amongst all its major competitors in Northern India which includes Punjab, Haryana, Himachal Pradesh and Jammu & Kashmir. The Hindi language daily, Punjab Kesari and Punjabi language daily, Jag Bani contributed most to the revenues of THSL, both in subscription and advertisement segment during FY20 (refers to period from April 01 to March 31). Comfortable financial risk profile albeit deterioration in the operational performance during FY20 THSL’s financial risk profile continued to be comfortable; however, there has been moderation in the operational performance of the company in terms of decline in operating income, contraction in profitability margins on a sustained basis during FY20. The total operating income (TOI) of THSL declined ~10% to Rs. 312.93 cr during FY20 as compared to Rs. 347.18 cr during FY19. This was primarily on account of declining advertisement revenue with the prevalent economic slowdown and reduced usage of print media, which was further aggravated by COVID-19 outbreak during March 2020. Thus, the PBILDT margins of the company declined to 4.65% during FY20 as compared to 5.77% during FY19. The moderation in PPBILDT margin was also on account of the higher printing charges being paid for the printing job work outsourced to the group entities, which increased to Rs. 73.23 cr (23% of TOI) as against Rs. 60.87 cr (17.5% of TOI). However, during 9MFY21 (refers to period from April 01 to Dec 31), the company accrued total operating income of Rs. 142.10 cr with the PBILDT margin of the 13.29% as compared to 4.82% during 9MFY20 on account of the various cost optimization measures undertaken by the company coupled with the subdued prices of newsprint. With the reduction in the number and size of the pages, the company was able to accrue significant savings in the material cost and printing charges with other savings from the reduced salary and wages, travelling and advertisement expenses. In addition to this, the company also undertook revision in the cover prices of its editions, further supporting its profitability during 9MFY21. The capital structure of the company continued to remain comfortable with the debt equity ratio and overall gearing of 0.12x and 0.33x respectively as on March 31, 2020 as compared to 0.15x and 0.41x respectively as on March 31, 2019. The total debt of the company comprises of term loan outstanding for Rs. 38 cr (PY: Rs. 50.25 cr), working capital borrowings of Rs. 71.60 cr (PY: Rs. 86.38 cr) as on March 31, 2020. The net worth base of the company continued to be comfortable marked by consistent accretion of profits over the years. Adequate Liquidity The liquidity profile of THSL is adequate with current ratio of 1.31x (PY: 1.52x) and cash and cash equivalents of Rs. 45.97 cr as on March 31, 2020 (PY: Rs. 101.64 cr). Further, it has free cash and bank balances outstanding for Rs. 8.38 cr with current investments of Rs. 28 cr (with market value of Rs. 35 cr) as on March 22, 2021. THSL has availed moratorium for the scheduled payments and interest servicing from its lenders for its bank facilities (term loans and CC limits) as part of COVID- 19 - Regulatory Package announced by the RBI on March 27, 2020 and further extension on May 22, 2020 for the period April 2020 to August 2020. The operations of the company remain working capital intensive on account of lower credit period being extended by the creditors and higher credit period offered to the advertisers and agents. The company provides a credit period of around 2-3 months to the customers, however, has to make payments to its vendors for the purchase of newsprint within 15-30 days. During FY20, the operating cycle of the company increased to 75 days as compared to 61 days for FY19 on account of the elongation in the collection cycle to 97 days during FY20 as compared to 86 days during FY19 and increase in inventory period to 39 days during FY20 as against 26 days during FY19. The elongation in the collection period towards the end of the year is mainly attributed to COVID-19 outbreak during March 2020, whereby with the delayed or no deliveries of newspapers, the company received delayed payments from advertisers and newspaper agents. The operations of the company are funded largely through working capital facilities. THSL has the sanctioned working capital limits of Rs. 85 cr for the business operations. The utilization of the fund-based limits stood at ~95% at a maximum level and ~91% at the average level for the last 12 months ending January 2021. Key Rating Weaknesses Susceptibility of profitability margins to the volatility in newsprint prices and exchange rate movements The major raw material for the company is newsprint (NP) which accounts for around 39% (PY: 44%) of the total operating income during FY20. THSL does not have any contractual obligation for newsprint sourcing and is largely driven by cost competitiveness and procures newsprint from the domestic as well as international suppliers depending upon the spot prices in the respective markets. Domestic NP prices are linked to import price, as majority of domestic NP demand is met through imports. The company had been sourcing major proportion of newsprint through imports over past years with around 65-70% of total newsprint imported on account of higher quality and better pricing in the international market especially from countries like Canada, Russia etc. Thus, this makes the profitability margins of the company susceptible to foreign exchange rate fluctuations. NP is a globally traded commodity which has inherently been volatile. The newsprint prices, which witnessed unprecedented spike during FY19 on account of China’s ban on import of mixed grade waste paper (raw material for the production of NP) and subsequent shutdown of Chinese paper mills, corrected during FY20 and has remained subdued during FY21 on account of reduced demand subsequent to COVID-19 outbreak.