DB Corp Results miss est., Cut rating to HOLD :: Emkay

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DB Corp

Results miss est., Cut rating to HOLD

HOLD

CMP: Rs284                                        Target Price: Rs284

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n     Q2FY11 PAT grew by 20.8% yoy to Rs550mn, below our estimate of Rs770mn impacted by sharp rise in opex towards new launches

n     Advertisement revenues grew by 16% yoy to Rs3bn equally led by volume and price growth

n     Cut EPS estimate by 10% /2% to Rs13.6 /14.6 for FY11E/12E due to higher than expected opex on new launches

n     Downgrade rating from ACCUMULATE to HOLD with target price Rs284

Reported 34.9% growth in PAT to Rs 695 mn - above estimates

DB Corp reported Q2FY11 PAT of Rs550mn, below our estimate of Rs770mn. Net

sales grew by 16% yoy to Rs3bn led by advertisement revenue growth of 17.8% yoy.

EBIDTA grew by 15.6% yoy to Rs 951mn with EBIDTA margins declining by 10bps yoy

and 650bps qoq. Margin decline was primarily due to 46% yoy rise in employee

expenses. PAT grew by 20.8% yoy to Rs550mn on fall in interest expenses.

New launches and newsprint prices put cost pressure

During Q2FY11, DBCL launched Ranchi edition in Jharkhand, Bhatinda edition in

Punjab and Nagaur in Rajasthan. It further plans to launch Jamshedpur edition in

Q3FY11 and Dhanbad edition in Q4FY11. Further, as per management, the newsprint

prices have risen by ~10% from Q2FY11 average cost of Rs26.2/kg to Rs28.8 now.

Considering the operating cost pressure on new launches which would further increase

going forward considering new launch pipeline and rising newsprint price trend, we have

cut our earnings estimate.

EPS estimates cut by 9.9%/-2.2% to Rs13.6/14.6 for FY11E/12E

Considering management outlook on ad-revenue growth in the earnings call, we have

increased our ad-revenue growth estimate resulting in increase in revenue estimates by

2% /4.4% for FY11E/ FY12E. However, factoring the above mentioned cost pressures;

we have cut our earnings estimate by 9.9% /2.2% to Rs13.6 /14.6 for FY11E /12E. Our

revised estimate, imply 40% yoy earnings growth for H2FY11, which we believe would

be achievable considering strong seasonal quarter.

Rating cut to HOLD, retain target price of Rs284

Considering higher than expected cost pressures, we have cut our EPS estimates by

9.9% /2.2% for FY11E/12E. Our revised EPS estimates imply EPS CAGR of 20% over

FY10-12E. We downgrade our rating on the stock to HOLD (from ACCUMULATE)

considering lack of upside to our target price of Rs284 on the stock. At CMP of Rs284,

the stock trades at 20.9x and 19.5x our estimated EPS for FY11E and FY12E

respectively.

We however highlight that, although the expansions undertaken by the company would

impact financial performance in the medium-term, the same would have significant longterm

benefits which not only enhances the strength of the company but also provide

growth visibility. Hence we believe that any correction in the stock should be used as an

opportunity to buy.