D.B.Corp -- Accelerated ad growth in 2H likely:: Bank of America Merrill Lynch

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D.B.Corp Ltd -Accelerated ad growth in 2H likely




􀂄 Strong 2Q Ad revenue; growth likely to accelerate
Post strong 2Q results we tweak FY11 earnings estimates to factor strong growth
in advertisement revenues and better than expected EBITDA margins. With
festive season due to commence from 3Q, we believe ad revenue growth will
likely accelerate during 2HFY11 and have baked in 21% yoy growth in ad revs vs.
18% in 1HFY11. Raise PO to Rs335 in line with earnings change. Retain Buy.
Strong print advertisement growth; buoyancy to continue
DBCL’s 2Q ad revenue growth at 18% yoy (vs. BofAMLe 16% yoy) was better
than expected. This was despite a seasonally weak 2Q, given festive season
commences from 3Q this year. Print ad revs grew by 18% yoy to Rs2.2bn and
radio ad revs grew by 25% yoy to Rs101mn. Management commented that nearly
50% of ad growth (vs. 90% in 1Q) was driven by volumes, implying price hikes
were implemented during the quarter. Growth was broad based with all key
sectors contributing to ad growth.
Recurring margins ahead of estimate; see upside
EBITDA margins stood at 31.6%, 53bps ahead of our estimate. Excluding pre
marketing /survey cost of Rs60mn for Jharkhand / Jammu launch, recurring
EBITDA margins at 33.6% and was much better than expected. While we retain
FY11 margin assumptions to factor higher newsprint prices than assumed earlier,
strong 3Q could lend upside to our margin assumptions.
Forecast 23% earnings CAGR
We forecast strong EPS CAGR of 23% over FY10-13E and retain Buy rating with
PO of Rs335. Prefer DBCL over Jagran given strong earnings growth potential,
diversified revenue mix and our view that higher investments made in market
expansion & plant upgradation should drive faster ROCE expansion than peers.