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DB CORP
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.312
FY12E P/E: 17.2X
In an analyst meet held yesterday, DB Corp announced changes to its
growth plans. The company has announced that it would be launching a
daily newspaper in Marathi in FY2012. Given that the company would face
margin pressures on account of editions in Jharkhand as well as (yet to be
launched) Marathi editions, the management has deferred the launch of
Dainik Bhaskar in Bihar.
The move has its merits - Maharashtra is a bigger print advertising market
than Bihar, competitors are essentially local players rather than national,
and there appears a need gap, as in the two competitors (Lokmat and Sakal)
are wide apart in some of the markets, in the company’s opinion - providing
an opportunity for a third large player.
As per management, DB Corp was considering an M&A route in Maharashtra
until recently. However, after talks fell through recently, the company has
decided to take a greenfield route into the state. As of now, from
management comments, we infer that DB Corp shall look to expand across
Maharashtra, excluding Mumbai, in a phased manner.
The company believes that the expansion will require capex of Rs 600-Rs
700mn. The losses from the proposed Marathi newspaper are likely to be in
the range that would have been expected from Dainik Bhaskar's expansion
in Bihar, and, as such, there is only minor risk to management guidance and
our estimates for FY12E.
Although the intent and the strategy seems right, there are some questions
that the announcements raise, and which could create doubts in investors'
minds, including: 1/ the scale and timing of growth in Maharashtra, 2/ the
wisdom of deferring the Bihar editions while the company was gathering
momentum in the region and placing pressure on national competitors, 3/ a
longer period of soft EBITDA margin, considering nascent editions in three
states (Bihar launches are postponed, not abrogated). As such, the
announcement is unlikely to be beneficial to DB Corp in the immediate
term, and could even lead to some pressure on the stock.
While it remains true that DB Corp would have been better off if it were
able to take the decision to expand in Maharashtra through the greenfield
route earlier (thus deferring the entire Bihar/ Jharkhand expansion to a later
period and maintaining a greater consistency in strategy), we believe the
decision of the management as regards expansion in Maharashtra, is a smart
move. The company shall see a larger opportunity, and competitive pressure
could be lower. We will therefore be buyers into declines, if they were to
occur.
We think the announcement will have a positive impact on HT Media and
Jagran Prakashan as competitive pressure eases in the Bihar/ Jharkhand
markets and, given our positive stance on both, we advice buying HT Media
(rating: BUY), and Jagran Prakashan (Rating: ACCUMULATE), at CMP.
Although we do not cover HMVL, we believe the news is a positive for the
stock.
DB Corp set to launch a Marathi newspaper
DB Corp has made an announcement that it shall be launching a Marathi newspaper
in FY12. The company believe the Marathi market is underpenetrated, and
could offer opportunities to the newspaper.
Key statistics relating to print media and Maharashtra's economy are provided below:
Key Statistics - Maharashtra
Base Population 107mn
Literacy (%) 77
Can Read Marathi 64mn
Any Marathi Daily 18mn
Penetration Gap (%) 71
Average GDP Growth (since 03-04) (%) 14.50
Market Potential Value (%) 13.50
Source: Company Presentations
With this launch, DB shall have a larger footprint, and shall have expanded into
three languages (Hindi, Gujarati, and Marathi)
The Marathi dailies' advertising market is sized at about 7% of the national print
advertising pie, or ~ Rs 7Bn. The management of DB Corp says that a large part of
it is related with non-Mumbai markets (Mumbai market's advertising expenditures
are largely taken up by English newspapers, and Pune is the other market where
English newspapers take a substantial portion of the print adex)
Move Likely to Create Confusion over Near-Term Earnings
A comparison between Bihar and Maharashtra does provide an indication that
Maharashtra may present a bigger opportunity. However, the move generates the
following thought: The launch of a Marathi daily, given initial losses, and DB Corp's
history of expanding in a phased manner, places a doubt over the status of the
company's launch in Bihar. The launch size will likely be bigger in Maharashtra than
was the case in Bihar (as per management, key competition's circulation is likely in
the range of 7-10 lakh copies per day, well higher than competitors' circulation in
Bihar), which means that costs shall likely be higher, and the launch maybe spread
over a fairly long period (the management has, however, indicated that Bihar launch
would likely be delayed by a year or so). This, in turn, could set the company back
by two years in Bihar. Moreover, although the management believes Jharkhand editions
will not suffer as a result, we believe there might have been complementarities
that may be delayed in the process of launching the Marathi daily. The scale of
operations that the company chooses in Maharashtra in FY12, as well as the launch
of Bihar editions of DB Corp would have an important bearing on FY12E/ FY13E
earnings. Insufficient clarity on these decisions could be a driver of confusion among
investors.
The Decision appears sound, even if untimely, and inconsistent
with previous strategy
For now, we believe that the size of Marathi newspaper market provides the company
a strong opportunity, and there is a compelling reason to pursue the launch.
We also believe the company shall have some flexibility in timing the launches, so
as to regulate the impact on the company's margins. We also note that key competitors
in the Marathi language do not have a significant position outside of the
state, which provides them lesser flexibility in dealing with an aggressive competitor,
in comparison with Bihar and Jharkhand, where DB Corp was confronting two of the
largest newspapers in the Hindi language, and which have significant presence in
other states. DB Corp may, therefore have a stronger opportunity in terms of witnessing
lesser resistance in Maharashtra.
DB Corp has a strong track record in launching newspapers, gathering
readership; Management has assured sufficient attention
to medium-term margins
DB Corp has a very strong track record in making successful launches across states
(Refer to our initiating coverage piece on DB Corp for track record of the company).
Moreover, we are comforted by the fact that the management is conscious about its
margins and EBITDA profile - a fact that is bourne out by the delay of launch in
Bihar.
As such, we do not make changes to our estimates at the present moment. Given
the strong track record of DB Corp in launching dailies across states, we also think
there is reason to believe the company can perform strongly in Maharashtra. We
also do not affect changes in our rating and price target. We maintain ACCUMULATE
on DB Corp with a price target of Rs 312. Given uncertainties, we would not
be aggressive buyers at CMP but would look to gather the stock into declines that
may come in on account of confusion over earnings status of the company.
Impact on Other Listed Players - Positive for Jagran Prakashan,
HMVL, HT Media
Given the size of Bihar and Jharkhand markets advertising revenues (~Rs 3.5Bn, as
per industry sources), DB Corp's entry into Jharkhand and potential entry into Bihar
was an overhang on the other two print media stocks in our coverage universe. We
think DB Corp's decision to postpone Bihar launch is a positive for both of them. HT
Media (via subsidiary HMVL) is likely to benefit on account of a better margin on
existing circulation in Bihar. HMVL will be able to focus better on expansion in Uttar
Pradesh. While this (HMVL's aggression in UP) shall be a long-term negative for
Jagran Prakashan, which is dependent on Uttar Pradesh in a big way, Jagran itself
would benefit from better circulation revenues in Bihar and would be able to focus
its energies in other states (example: Punjab) where the newspaper has witnessed
declines in readership. We maintain our positive stance on both companies - HT
Media remains our preferred pick in the print media space, and we would be buyers
of the stock at CMP
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DB CORP
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.312
FY12E P/E: 17.2X
In an analyst meet held yesterday, DB Corp announced changes to its
growth plans. The company has announced that it would be launching a
daily newspaper in Marathi in FY2012. Given that the company would face
margin pressures on account of editions in Jharkhand as well as (yet to be
launched) Marathi editions, the management has deferred the launch of
Dainik Bhaskar in Bihar.
The move has its merits - Maharashtra is a bigger print advertising market
than Bihar, competitors are essentially local players rather than national,
and there appears a need gap, as in the two competitors (Lokmat and Sakal)
are wide apart in some of the markets, in the company’s opinion - providing
an opportunity for a third large player.
As per management, DB Corp was considering an M&A route in Maharashtra
until recently. However, after talks fell through recently, the company has
decided to take a greenfield route into the state. As of now, from
management comments, we infer that DB Corp shall look to expand across
Maharashtra, excluding Mumbai, in a phased manner.
The company believes that the expansion will require capex of Rs 600-Rs
700mn. The losses from the proposed Marathi newspaper are likely to be in
the range that would have been expected from Dainik Bhaskar's expansion
in Bihar, and, as such, there is only minor risk to management guidance and
our estimates for FY12E.
Although the intent and the strategy seems right, there are some questions
that the announcements raise, and which could create doubts in investors'
minds, including: 1/ the scale and timing of growth in Maharashtra, 2/ the
wisdom of deferring the Bihar editions while the company was gathering
momentum in the region and placing pressure on national competitors, 3/ a
longer period of soft EBITDA margin, considering nascent editions in three
states (Bihar launches are postponed, not abrogated). As such, the
announcement is unlikely to be beneficial to DB Corp in the immediate
term, and could even lead to some pressure on the stock.
While it remains true that DB Corp would have been better off if it were
able to take the decision to expand in Maharashtra through the greenfield
route earlier (thus deferring the entire Bihar/ Jharkhand expansion to a later
period and maintaining a greater consistency in strategy), we believe the
decision of the management as regards expansion in Maharashtra, is a smart
move. The company shall see a larger opportunity, and competitive pressure
could be lower. We will therefore be buyers into declines, if they were to
occur.
We think the announcement will have a positive impact on HT Media and
Jagran Prakashan as competitive pressure eases in the Bihar/ Jharkhand
markets and, given our positive stance on both, we advice buying HT Media
(rating: BUY), and Jagran Prakashan (Rating: ACCUMULATE), at CMP.
Although we do not cover HMVL, we believe the news is a positive for the
stock.
DB Corp set to launch a Marathi newspaper
DB Corp has made an announcement that it shall be launching a Marathi newspaper
in FY12. The company believe the Marathi market is underpenetrated, and
could offer opportunities to the newspaper.
Key statistics relating to print media and Maharashtra's economy are provided below:
Key Statistics - Maharashtra
Base Population 107mn
Literacy (%) 77
Can Read Marathi 64mn
Any Marathi Daily 18mn
Penetration Gap (%) 71
Average GDP Growth (since 03-04) (%) 14.50
Market Potential Value (%) 13.50
Source: Company Presentations
With this launch, DB shall have a larger footprint, and shall have expanded into
three languages (Hindi, Gujarati, and Marathi)
The Marathi dailies' advertising market is sized at about 7% of the national print
advertising pie, or ~ Rs 7Bn. The management of DB Corp says that a large part of
it is related with non-Mumbai markets (Mumbai market's advertising expenditures
are largely taken up by English newspapers, and Pune is the other market where
English newspapers take a substantial portion of the print adex)
Move Likely to Create Confusion over Near-Term Earnings
A comparison between Bihar and Maharashtra does provide an indication that
Maharashtra may present a bigger opportunity. However, the move generates the
following thought: The launch of a Marathi daily, given initial losses, and DB Corp's
history of expanding in a phased manner, places a doubt over the status of the
company's launch in Bihar. The launch size will likely be bigger in Maharashtra than
was the case in Bihar (as per management, key competition's circulation is likely in
the range of 7-10 lakh copies per day, well higher than competitors' circulation in
Bihar), which means that costs shall likely be higher, and the launch maybe spread
over a fairly long period (the management has, however, indicated that Bihar launch
would likely be delayed by a year or so). This, in turn, could set the company back
by two years in Bihar. Moreover, although the management believes Jharkhand editions
will not suffer as a result, we believe there might have been complementarities
that may be delayed in the process of launching the Marathi daily. The scale of
operations that the company chooses in Maharashtra in FY12, as well as the launch
of Bihar editions of DB Corp would have an important bearing on FY12E/ FY13E
earnings. Insufficient clarity on these decisions could be a driver of confusion among
investors.
The Decision appears sound, even if untimely, and inconsistent
with previous strategy
For now, we believe that the size of Marathi newspaper market provides the company
a strong opportunity, and there is a compelling reason to pursue the launch.
We also believe the company shall have some flexibility in timing the launches, so
as to regulate the impact on the company's margins. We also note that key competitors
in the Marathi language do not have a significant position outside of the
state, which provides them lesser flexibility in dealing with an aggressive competitor,
in comparison with Bihar and Jharkhand, where DB Corp was confronting two of the
largest newspapers in the Hindi language, and which have significant presence in
other states. DB Corp may, therefore have a stronger opportunity in terms of witnessing
lesser resistance in Maharashtra.
DB Corp has a strong track record in launching newspapers, gathering
readership; Management has assured sufficient attention
to medium-term margins
DB Corp has a very strong track record in making successful launches across states
(Refer to our initiating coverage piece on DB Corp for track record of the company).
Moreover, we are comforted by the fact that the management is conscious about its
margins and EBITDA profile - a fact that is bourne out by the delay of launch in
Bihar.
As such, we do not make changes to our estimates at the present moment. Given
the strong track record of DB Corp in launching dailies across states, we also think
there is reason to believe the company can perform strongly in Maharashtra. We
also do not affect changes in our rating and price target. We maintain ACCUMULATE
on DB Corp with a price target of Rs 312. Given uncertainties, we would not
be aggressive buyers at CMP but would look to gather the stock into declines that
may come in on account of confusion over earnings status of the company.
Impact on Other Listed Players - Positive for Jagran Prakashan,
HMVL, HT Media
Given the size of Bihar and Jharkhand markets advertising revenues (~Rs 3.5Bn, as
per industry sources), DB Corp's entry into Jharkhand and potential entry into Bihar
was an overhang on the other two print media stocks in our coverage universe. We
think DB Corp's decision to postpone Bihar launch is a positive for both of them. HT
Media (via subsidiary HMVL) is likely to benefit on account of a better margin on
existing circulation in Bihar. HMVL will be able to focus better on expansion in Uttar
Pradesh. While this (HMVL's aggression in UP) shall be a long-term negative for
Jagran Prakashan, which is dependent on Uttar Pradesh in a big way, Jagran itself
would benefit from better circulation revenues in Bihar and would be able to focus
its energies in other states (example: Punjab) where the newspaper has witnessed
declines in readership. We maintain our positive stance on both companies - HT
Media remains our preferred pick in the print media space, and we would be buyers
of the stock at CMP
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