Microscope: Looking at Living Media (India Today Group), Performance & Birla's rumored exit

Not many Chartered Accountants have taken a media company to the heights that Aroon Purie single-handedly has. The Lahore-born eminent journalist, who is almost synonymous with those trademark specs and his pink coloured tie, gave shape and firmness to his father Vidya Vilas (VV) Purie's tabloid newspaper called India Today launched in December 1975, the year which witnessed the then PM Indira Gandhi declaring the infamous Emergency. Today, Living Media -- the unlisted holding company of the India Today Group -- is the platform for the Indian media conglomerate which has interests in magazines, newspapers, books, radio, television, printing and the Internet. It has even attracted industrialist Aditya Birla as an investor, who is of late rumoured to be keen on an exit. We take a look at the good, bad and ugly of 'India Today'...

Staring at losses: Birla arrives

Living Media, by its own admission, competes with Bennett and Coleman Company Limited; HT Media Limited; Outlook Publishing (India) Private Limited; Images Multimedia Private Limited; Worldwide Media Limited; Television Eighteen India Limited; New Delhi Television Limited; Media Content & Communications Services (India) Private Limited; Anand Bazar Patrika Private Limited.

Its business segments comprise of the following: 1. Publications - Publishing of various magazines 2. Trading - Sale of merchandise, books, CDs, etc. 3. Distribution - Distribution of external publications 4. ITGOL (India Today Group Online)-Online advertisements and mobile value added services. 5.Others

As earlier said, its promoters are Editor-in-Chief Mr. Aroon Purie, Mrs. Rekha Purie (his wife), Mr. Ankoor Purie (his son), Aroon Purie & Sons (HUF), All India Investment Corporation Private Limited and World Media Private Limited (holds over 50 per cent stake in Living Media). Mr. Aroon Purie has been irrevocably appointed by each Promoter as its representative for certain identified purposes. Besides, individuals with significant influence include:- Ms. Koel Purie Rinchet (Daughter of Mr. Aroon Purie), Ms. Kalli Purie Bhandal (Daughter of Mr. Aroon Purie), Mrs. Madhu Trehan (Sister of Mr. Aroon Purie), Mrs. Mandira Purie Fawcett (Sister of Mr. Aroon Purie) & Mrs. Leela Purie (Mother of Mr. Aroon Purie).

In 2010 fiscal, Living Media reported standalone sales of Rs 348-odd crore. In 2011, this rose to about Rs 375 crore. More importantly, the company swinged to Rs 14.3 crore profit in 2011 from a loss of about Rs 12.2 crore in 2010. The profit in 2011 was more like a fleeting wind. In fiscal 2012, Living Media -- which has its registered office in the upmarket Connaught Circus area of New Delhi although it has shifted significant amount of operations to Noida -- sales came down a bit to Rs 369 crore but the bottomline turned red as it racked up losses (after tax) of Rs 18 crore. 

In 2013 fiscal, Living Media revenues fell further to Rs 341 crore and losses deepened to Rs 26-odd crore. Blame it on the global economy and/or the local economy, the advertising market has been subdued, to put it mildly, in the recent years. Mainly a printer and publisher of magazines, Living Media was under pressure as corporate marketing initiatives were trimmed and ad budgets further snipped. When you have 26 magazines, problems are in dozens. But Living Media is not just another company. It has more. Like in previous years, Living Media did what it could.

It's business in Retail under brand name 'Media Mart' was further consolidated to optimize future market by concentrating more on outlets at Airports, Shopping Malls besides outlets at Metro Stations. Possibility of having outlets in other formats like independent Kiosks, IT Parks, Office Complexes, Educational Institutions etc. were being looked at. This, Living Media management, figured should result in higher volume and consequently increase in top-lines for retail business.

Some more housekeeping was also done. During 2013 fiscal, the company's joint venture agreement dated 1 st December, 2003 with HarperCollins Publishers Limited, UK was discontinued.

To make itself a pure-play media firm, Living Media transferred its Non-Media Undertaking with all assets and liabilities to Thomson Press (India) Limited.

Soon enough, Living Media along-with promoter shareholders entered into Shareholders Agreement (SA), Share Subscription and Purchase Agreement (SSPA), with IGH Holdings Private Limited -- an Aditya Birla Group Company. Pursuant to these agreements, the holding company of Living Media -- World Media Private Limited (controlled by Arun Poorie etal) sold 14,129 equity shares to IGH Holdings Private Limited & Living Media issued 53,798 fresh shares to IGH Holdings Private Limited.

So, the loss-making company got Rs 480 crore at one-shot as it was valued at Rs 1,750 crore by virtue of the price paid by Aditya Birla group firm for getting 27.5 per cent stake. Later, the industrial conglomerate pumped in atleast Rs 70 crore in exchange for more equity (9,784 shares)-- making the total investment upwards of Rs 550 crore.

One may have think why so much of money for Living Media but possibly the answer lies in TV Today Network (worth Rs 320 crore in May 2012) which is listed on bourses. Living Media controls over half (57% odd) of it. Birla-whose aunt happens to be HT Media owner Shobhana Bhartia-was convinced that Living Media is a good play on the "sunrise sector". An IPO dream was floated: the investor told about a public offering within November 2018. In case it didn't happen by then, IGH could hike its stake upto 49 per cent.

Here, I would like to add that the traditional media reports on Aditya Birla group's investment in Living Media seem a bit off the mark. See here and here. They, however, were bang on when it came to reporting the development of Birla asking merchant bankers to explore an exit from Living Media in about 2 years!

How It Lives Media

TV Today Network has channels like Aaj Tak and Headlines Today. In 2012-13, it reported income of Rs 320 crore and profit of Rs 12.2 crore---margin of less than 4 per cent.

Another key subsidiary of Living Media is 64.85% owned Mail Today Newspapers Pvt Ltd. Its a key arm not because it publishes Mail Today newspaper, established in November 2007 in a joint venture with British newspaper Daily Mail. MT's penchant for young talent and young readers --- more often by default than design --- is unique. The management expects the paper to go through a gestation period of 7-8 years, for a country like India. MT is part of a key business plan that was pitched to Birla. Why? Most probably because of its losses and the drag it caused on the group financials/earnings. In 2012-13, it logged sales of Rs 39 crore but losses were at a whopping Rs 29 crore.

Like Mail Today Newspapers Pvt Ltd, Living Media has another key subsidiary e-commerce unit BagitToday.com. As per information, this business racked up over Rs 16 crore in losses in fiscal 2013.

Running the overall business has never been a problem for Mr. Purie. Notwithstanding the large real estate assets which can be mortgaged to take sweetheart loans, the company has always been able to put it's hands on the required working capital. Salaries have been paid on time. Creditors rarely complain. Events held by the group have seen the who's who of the world arrive.

Now comes the secret business plan. The Initial Business Plan for the Financial Years ending 31 March 2013, 31 March 2014 and 31 March 2015 is a rolling three (3) year Business Plan and had been adopted by the shareholders. Complete with projections, the plan was set in motion to be prepared for an IPO.

Living Media's losses in Mail Today and BagitToday.com businesses (including its holding in India Today Retail and India Today Merchandise) alone were Rs 45 crore. Hence, the company promised to take all reasonable measures for increasing the business prospects and profitability of Bagittoday.com Target Business and the Mail Today Target Business.

In the event that either Bagittoday.com Target Business and/or the Mail Today Target Business do not perform in accordance with the projections provided in the Business Plan and the actual average audited EBITDA for the Financial Years 2013, 2014 and 2015 of such Identified Business is lower by seventy per cent. (70%) of the average target EBITDA of such Identified Business for the Financial Years 2013, 2014 and 2015 as set out in the Initial Business Plan, Birla was entitled to trigger an event of strategic sale of either or both of the Identified Businesses at its sole and absolute discretion at any point of time subsequent to 15 September 2015 by issuing a notice to Mr. Purie. So, if at all such event happened -- this was to be after Sep 2015.

So, why does he want to leave so soon? Between May 2012 and now, some things have happened. 1) Modi government stormed to power at the Centre. 2) Shekhar Gupta joined as the vice-chairman of the India Today Group. He resigned from his post as Editor-in-Chief of the Indian Express and moved out officially in June, 2014 after being in the position for 19 years. 3) In an attempt to ensure plurality of news and views, broadcast regulator Trai very recently suggested restriction on political bodies and corporates entering the television and newspaper business.

Update: According to reports, Gupta has quit his position. Will stay on board as editorial adviser. See here.

From an investment perspective, Living Media is as well-placed as anybody. For Aditya Birla, pumping more funds clearly ain't an issue. IGH is empowered to invest upwards of Rs 12,500 crore.

Hasty resignations & salaries

For the year ended 31st March, 2013 Mr Aroon Purie got gross pay of Rs 1.63 crore. Director Anil Mehra got Rs 1.43 crore. Ashish Bagga, Group Chief Executive Officer, got an eye-popping Rs 4.41 crore. Dinesh Bhatia, Group Chief Financial Officer, got Rs 1.42 crore. Oxford educated Kalli Purie Bhandal, designated as Group Chief Synergy Officer, got Rs 1.08 crore. Mala Sekhri, COO Lifestyle Group & Music Today, took Rs 90.13 lakh.

Interestingly, both Bagga and Bhatia apparently had resigned as directors on March 31, 2014 due to what they call "personal reasons" or euphemism for DONT ASK :) Soon after Bhatia got reappointed at an annual package of Rs 1.76 crore plus PF, gratuity, medical insurance etc. However, Bagga--famous for his red trousers-- got reappointed at an annual package of Rs 4.1 crore plus PF, gratuity, medical insurance etc. Did he strike a good deal?

Comparisons of Bagga's pay packet with CEOs of rival media companies are natural. On that count, he seems to be at par. While big daddy BCCL CEO Ravi Dhariwal took home a whopping Rs 11 crore in the last reported financial year (including performance pay), CEO Rajiv Verma of HT Media earned Rs 4.68 crore in 2012-13 while newly appointed CEO Of Kasturi & Sons CEO Rajiv Lochan is contracted to earn Rs 1.75 crore.

As always, feel free to drop your comments/criticism/praise in the "Comment" section below. Till the next time.

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What New Kasturi & Sons CEO Rajiv Lochan earns

History will possibly judge the new CEO and MD of Kasturi & Sons Ltd (KSL),  the publisher of The Hindu, kindly. Or perhaps not. But one thing is clear. Rajiv C Lochan has got a good 5-year deal including a 'golden parachute'. Read on to know why...

Some can say that former McKinsey hand Rajiv C Lochan has his task cut out as the second chief executive of Kasturi & Sons whose cash cow 'The Hindu' was interestingly first launched in 1878 to support the campaign of Sir T. Muthuswamy Iyer for a judgeship at the Madras High Court.

On the other hand, it can be argued that Lochan, 43, couldn't be in a better position as Managing Director & Chief Executive Officer. He is leading all the non-editorial operations of this firm at a time when the promoter family is back overseeing the institution they so fondly built brick by brick.

Lochan was brought in June 2014 to fill the void, some say, created by Arun Anant who quit as CEO in October 2013 along with The Hindu's editor Siddharth Varadarajan. Anant, the company's first ever chief executive, now works as Director Revenue and Strategy at HT Media, which found its beginning in 1924 when its flagship newspaper Hindustan Times was inaugurated by father of the nation -- Mahatma Gandhi.

Reams have been written about how in October last year, Kasturi and Sons chairman N Ram used his casting vote to effect a change in top management at KSL. After the exit of Anant and Varadarajan, N Ravi took over as editor-in-chief of The Hindu and Malini Parthasarathy as editor. Yesterday, KSL even appointed two corporate citizens as independent directors on its board to give it a fresh look.

I will not go into those details. That's history. As an observer of the media and as one who earns his daily bread from journalism, I was curious to know what Lochan would 'get' for being the top KSL executive, non-editorially speaking of course.

Before we delve deeper, it is important to understand the circumstances Lochan, who graduated from IIT, Madras and has advanced degrees from the Massachusetts Institute of Technology and Columbia Business School, has come in.

From about Rs 58 crore in 2011-12 fiscal, net profit of KSL on a standalone basis in 2013-14 has fallen to apparently in single digits. Revenues are in the Rs 1,000 crore range but rising competition from a ferocious competitor like Bennet, Coleman & Company Ltd (BCCL) that publishes 'The Times of India' and 'The Economic Times' to name a few.

A host of reasons are affecting most newspaper publishers. They include low growth in advertisement market due to poor economic growth, Times Group aka BCCL having control over 50 per cent of national print market and offering a wide product basket that virtually elbows everyone out and the clear discomfort at adopting equity swap deal strategy that is driving handsome profits at those 'comfortable' with it.

Coming back to Lochan's remuneration. How much money is he making? That's all we want to know, right? So, here it is.

Firstly, what people tell me is that Lochan is entitled to a salary component of Rs 6.62 lakh a month or Rs 79.44 lakh a year. Next, his house rent allowance (HRA) is sixty per cent of that salary i.e. Rs 3.97 lakh a month or Rs 47.67 lakh a year. Thirdly, his remuneration includes gas, water & electricity expenses is subject to 10 per cent of his salary i.e. Rs 66,200 per month or Rs 7.94 lakh a year.

Then, there is a liberal medical reimbursement component. leave travel concession, club fees (for two clubs), personal accident insurance, provision for car and telephone, besides provident fund etc.

Fifth, is performance pay. Lochan would get a share of profits above Rs 50 crore every year. Currently, this share is 1.5 per cent. Put simply, if KSL would log profits of Rs 75 crore, in that year Lochan would get 1.5 per cent of Rs 25 crore above the Rs 50 crore high water mark.

Lastly, there is a provision for 15 per cent of salary i.e Rs 11.92 lakh a year as contribution by the company towards a superannuation fund. Put together, this is easily over Rs 156 lakhs a year or Rs 1.56 crore without bonus/performance pay.

So, we know Ravi Lochan on a pre-tax basis would take over Rs 1.5 crore every year as minimum remuneration for leading all the non-editorial operations of KSL that publishes The Hindu, The Hindu Business Line, Frontline and The Hindu (Tamil) among others.

After Anant's exit, which some say was acrimonious to say the least, Lochan's remuneration contains an interesting item. Called Golden Parachute in HR parlance, this is usually an amount the company pays a top employee if employment is terminated. Lochan is entitled to get Rs 175 lakhs or Rs 1.75 crore in the event of KSL terminates his services before the expiry of his 5-year term. So in case the Kasturi & Sons Ltd board has a change of heart, Lochan doesn't lose that much monetarily.

Comparisons of Lochan's pay packet with CXOs of rival media companies are natural. On that count, he seems to be potentially earning a tad less. While BCCL CEO Ravi Dhariwal took home a whopping Rs 11 crore in the last reported financial year (including performance pay), Karan Ahluwalia--Chief Operating Officer of Directories Today, The India Today Group-- gets a basic remuneration of Rs 1.06 crore. Dinesh Bhatia, CFO at India Today Group, contracted cost to company is about Rs 1.8 crore per annum. In HT Media, CEO Rajiv Verma earned Rs 4.68 crore in 2012-13.

Disclaimer: I worked for The Hindu Business Line for a year and a half in 2006-08.

A special round of thanks to everybody who made my blog cross the 1,500-page views mark. That too in less than 8 months and just 8 posts :)

As always, feel free to drop your comments/criticism/praise in the "Comment" section below. Till the next time.

Images: Sourced from the Internet. If anybody has any objection to use, please notify and it/they will be removed within 24 hours.