Hum Network Limited

Hum Network Limited (PSX: HUMNL) was established in 2004 as a public limited company under the repealed Companies Ordinance, 1984. Its operations include launching transnational satellite channels and presenting content that is reminiscent of local culture. Some of its key divisions are production, advertisement, entertainment, and media marketing.

Shareholding pattern

As of June 30, 2022, the directors, CEO, their spouses, and minor children collectively own over 51 percent shares with the majority owned by Duraid Qureshi, the CEO of the company. The local general public holds over 24 percent shares, followed by 11 percent in “others”. The remaining roughly 13 percent shares are with the rest of the shareholder categories.

Historical operational performance

Since FY12, the company has experienced a growing topline, with the exception of the three years FY18, FY19, and FY20. On the other hand, profit margins nosedived between FY17 and FY19, before recovering until FY22. Note that the major source of income for the company is generated through advertisements.

In FY18, revenue remained or less similar year on year, around Rs 4.6 billion as it contracted by close to 1 percent. While revenue from advertisements shrunk by 4.3 percent, subscription income and film distribution revenue grew. On the other hand, commercial airtime and production revenue also declined, by Rs 203million as a result of political instability associated with the then upcoming general elections. Production cost as a share in revenue increased to nearly 66 percent which brought the gross margin down to over 34 percent, from last year’s 40.6 percent. This was due to the launch of Hum News. The lower gross margin also trickled to the net margin as the latter was also lower at 15.8 percent, whereas the bottom line fell from Rs 1 billion in FY17 to Rs 729 million in FY18.

The company faced the biggest decline in revenue in FY19by almost 14 percent, with topline falling below Rs 4 billion. The prevalent political scenario with the change of government, low foreign reserves, and currency depreciation continued to impact the advertisement revenue which fell by 17 percent. Because advertisement revenue is a major contributor to topline, a double-digit fall in the same resulted in a prominent fall in topline. Production cost escalated to an all-time high of almost 93 percent of revenue, causing gross margin to shrink to 7.3 percent. Despite the growing contribution by other income, the company incurred a loss of Rs 536 as finance expenses grew to claim 3.4 percent of revenue.

FY20 was the third consecutive year that the company witnessed a contraction in revenue, by 7.5 percent. While advertisement revenue continued to fall, this time by 8.2 percent, film distribution revenue almost disappeared as the pandemic hit the country which resulted in cinemas being shut for a long period of time. Film distribution revenue fell from Rs 137 million in FY19, to Rs 15 million in FY20. Despite this, the gross margin elevated to 21.3 percent, largely due to cost-cutting. The latter was predominantly done in outsourced programs. With some reduction in other income and finance expenses continuing to rise, the company, although incurred a loss of Rs 113 million, it was considerably lower than that seen in FY19.

Topline recovered in FY21 as it grew by 17.6 percent to reach Rs 4.3 billion in value terms. After declining for three consecutive years, advertisement revenue picked up as it registered a growth of 13.7 percent. Subscription income also made a significant contribution of Rs 705 million, compared to Rs 484 million in the previous year. Coupled with a higher topline, the cost of production fell to 66 percent which allowed the gross margin to grow to almost 34 percent. Moreover, the gain on sale of non-current assets brought in an additional Rs 477 million allowing the net margin to peak at 23.4 percent, with the bottom line recorded at Rs 1 billion.

Recent results and future outlook

In FY22, the company witnessed the highest growth in revenue at over 39 percent to reach an all-time high of Rs 6 billion. This was attributed to increasing in revenue coming from all divisions, particularly Hum News and the digital media sector which saw a growth of 133 percent and 84 percent, respectively. Additionally, the company also aired quality content that led to an increase in viewership and popularity. Coupled with this were cost reduction and maintenance which allowed gross margin to reach almost 41 percent. However, the net margin was marginally lower at almost 23 percent due to a major reduction in other income and the absence of a gain on the sale of a non-current asset that stood at a whopping Rs 477 million in the previous year.

The company has explored various avenues to diversify from the typical advertisement revenue from channels to advertisement revenue from the digital media sector. Despite this, the challenges from the external environment, such as inflationary pressures and expected higher taxation can impact future profitability.