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UBS Investment Research
DB Corp
Beneficiary of fast-growing regional print sector
Initiate coverage with a Buy rating and Rs310.00 price target
DB Corp (DB) is the largest print media company in India in terms of total
readership share of all its newspapers. Its flagship newspaper, Dainik Bhaskar, is
the second-most widely-read Hindi newspaper in India. We believe the company
will benefit the most from India’s rapidly-growing regional print sector. DB is
well-diversified geographically with presence in 13 states; it also plans to enter the
Bihar and Maharashtra markets.
We forecast a print ad revenue CAGR of 14.5% for the next four years
This should be led by: 1) rapidly-growing advertising spend in the tier 2 and 3
cities due to strong economic growth compared to the metros, which is narrowing
the gap between Hindi and English print ad rates; 2) DB’s strong leadership
position in multiple states, which allows it to command premium ad rates over its
Hindi print media peers; 3) a growing proportion of colour advertisements (from
64% of total ads in FY10 to 71% in H1 FY11); and 4) its expansion into new
geographies.
Entry into Maharashtra likely to be positive in the medium term
In FY12, DB plans to launch a Marathi language newspaper in Maharashtra, a
large regional print market with an estimated advertising revenue market size of
around Rs7bn per annum. This should be positive for DB in the medium term
given management’s good track record with multiple new launches in the past.
Valuation: DB is our top pick in India’s print media sector
We derive our price target based on FY13E EPS of Rs17.20 and 18.0x PE (in line
with its historical trading average since its listing).
Investment Thesis
DB Corp (DB) is the largest print media company in India in terms of total
readership of its newspapers. Its flagship newspaper Dainik Bhaskar is the
second most widely-read Hindi newspaper in India, with an average daily
readership of 14.0m (Q410 IRS survey). We initiate coverage of DB with a Buy
rating and a Rs310.00 price target (18x FY13E EPS). DB is our top pick in
India’s print media sector. We have a Buy rating on DB due to the following.
Geographically well diversified. DB has significant readership share in
multiple states, which reduces its dependence on any single state. DB is
India’s largest newspaper company in terms of readership in Madhya
Pradesh, Chhattisgarh, Haryana, Punjab (Jalandhar, Amritsar and Ludhiana
[JAL]), Chandigarh and Rajasthan (a few cities). It is also the leader in
Gujarat in terms of circulation, according to the Audit Bureau of Circulation
(ABC) January-June 2010 circulation data.
Strong ad revenue growth. We forecast a 14.5% four-year CAGR (FY10-
14) for DB’s print advertising revenue due to its strong leading position,
which enables it to command premium ad rates over its peers in some
markets and allows it to raise advertising rates by 10-12% per annum. DB’s
proportion of colour advertisements has also increased from 64% of its total
in FY10 to 71% in H1 FY11.
Management vision and strong execution track record. We believe
management has demonstrated strong execution skills during its launch of
multiple new editions in new states as well as in a new language. DB has
attained a leadership position in terms of circulation copies on the first day of
its launch in cities such as Jaipur, Chandigarh, Haryana and Ahmedabad.
We believe DB’s entry into Maharashtra is positive. DB plans to launch a
newspaper in the Marathi language in Maharashtra, which should be positive
in the medium term. Maharashtra is a high-growth regional market, with an
estimated print ad revenue market size of around Rs7bn per annum—the
company expects it to grow more than 15% annually. DB is likely to launch
in Aurangabad in August 2011.
We believe the key risks for DB are: 1) intense competition; 2) rising newsprint
prices, which could impact profitability; 3) its heavy dependence on advertising
revenue; and 4) losses in new launches, which could be higher than anticipated.
Key catalysts
IRS readership data. IRS readership data is released quarterly. We believe
IRS readership data that shows an increase in the readership of its key
newspapers such as Dainik Bhaskar could act as a catalyst.
More clarity on Radio Phase 3 auctions. DB operates 17 radio channels in
North India, in places where the company also has print operations. The third
phase of radio licensing is expected to be announced soon. We believe the
profitability of DB’s radio business could improve significantly after Phase 3
licensing as it might look to address some issues currently faced by radio
companies. If the release of news content is allowed, this could act as a
catalyst as DB can derive cost synergies by leveraging content generated for
its newspapers on its radio platform.
Stable newsprint prices. Newsprint prices constituted around 46% of DB’s
total operating expenses in FY10. Data points showing stability in newsprint
prices is likely to act as a catalyst for all print media companies, including DB.
Increase in circulation for new launches. A pick up in circulation copies
for new launches such as in Jharkhand could act as a catalyst.
Increase in cover price. DB’s average realisation per circulated copy was
Rs1.56 in FY10 (compared to Rs2.01 for peer Jagran Prakashan). Should DB
raise its cover price by Rs0.5, this could increase its circulation revenue by
Rs710m.
Risks
An increase in newsprint prices. Newsprint constituted around 46% of
DB’s total costs in FY10. We believe a significant increase in newsprint
prices could impact its EBITDA margins. We assume an 8% increase in
newsprint prices in FY12-13.
Currency fluctuations. As DB imports 20-30% of its total consumed
newsprint, this exposes it to currency fluctuation risk, primarily through the
US$/Rs exchange rate.
Heavy dependence on ad revenue. Advertising revenue constituted around
76% of DB’s FY10 revenue. In a macroeconomic slowdown, this
dependence could impact profitability as both advertising rates and volume
would come under pressure.
Losses for its new launches could be higher than expected. DB recently
launched in Jharkhand, with plans to launch in Maharashtra and Bihar in
FY12-13. The company initially guided for a total operating loss of Rs1.25bn
and capex of Rs800m in three years for its Bihar and Jharkhand launches.
There is a risk that its losses could be higher than estimated for the Bihar and
Maharashtra launches.
Intense competition. Competition could intensify in some of its markets
Valuation and basis for our price target
We have a Buy rating for DB and a Rs310.00 price target, 23% above its current
share price. We value DB at 18.0x FY13E PE, in line with its average one-year
forward PE since its listing in January 2010.
Competitive advantage
Figure 1: DB—SWOT analysis
STRENGTHS
1. Strong brand presence with
leadership positions in most established
markets
2. Wide geographical reach
3. Strong management execution skills
4. Local content
OPPORTUNITIES
1. Growth in ad spend led by strong
GDP growth
2. Increasing print media penetration in
tier 2 and 3 cities
3. Improving literacy levels
WEAKNESSES
1. Heavy reliance on advertising
revenue
2. Losses for its new launches, such as
in Maharashtra, could be higher than
expected
THREATS
1. Competition from other newspapers
and media platforms
2. Newsprint prices could increase
3. Increasing penetration of digital
media could affect newspaper
readership
Source: UBS
Strong brand presence and leadership position in most markets. DB has
a strong brand presence and is the leader in most markets it operates in
(SEC-A and SEC-B). Its flagship newspaper Dainik Bhaskar is the secondmost
widely-read Hindi newspaper in India, with an average daily readership
of 14.0m.
Wide geographical reach. DB has presence in 13 states in North, Central
and West India. The company plans to further expand its geographical reach
and launch a Marathi language newspaper in the state of Maharashtra. It also
plans to launch a Hindi newspaper in Bihar after the Maharashtra launch.
Management vision and strong execution skills. DB’s Chairman has
around 50 years of experience in the print media industry. We believe
management demonstrated strong execution skills during its launch of
multiple new editions. DB has attained a leadership position in terms of
circulation copies on its first day of launching in cities such as Jaipur,
Bikaner, Haryana, Chandigarh, Jalandhar and Amritsar. It also launched a
Gujarati newspaper, Divya Bhaskar, which attained a leadership position in
terms of circulation copies on the first day of its launch in Ahmedabad.
Management strategy
Geographic and brand expansion. DB currently has presence in 13 states
and publishes newspapers in Hindi, Gujarati and English. Management has
plans to expand geographically into states such as Maharashtra (likely in
2011) and Bihar (likely at end-FY12). It recently launched in the Jharkhand
market and is likely to launch in Dhanbad in April 2011. The company will
also look to add more editions of Dainik Bhaskar in its existing markets if it
thinks there is advertising revenue potential.
On February 2011, DB announced plans to launch a Marathi language
newspaper in Maharashtra (cities excluding Mumbai and Pune). Management
believes Maharashtra is a high-growth regional market although it is a non-
Hindi one. Given its success in Gujarat with the launch of Gujarati newspaper
Divya Bhaskar, management appears to be fairly confident of launching a non-
Hindi newspaper. Maharashtra’s print ad revenue market size is estimated at
around Rs7bn—the company expects this to grow more than 15% per annum.
DB has appointed Kumar Ketkar as Chief Editor of Dainik Divya Marathi.
Kumar Ketkar has around 40 years of experience in journalism.
Table 2: Key statistics for Maharashtra
Population (m) 106.9
Literacy 77.0%
Can read Marathi (m) 63.5
Read any Marathi daily (m) 18.4
Penetration gap 71.0%
Source: Company data
Focus on growing ad revenue by improving ad yields. In FY10, a large
proportion of DB’s revenue growth came from volume growth. Going
forward, the company aims to grow its ad revenue in existing markets by
raising ad rates. DB is planning for card rate increases of 10-12% per annum,
going forward. It is also likely to increase the proportion of colour
advertisements as this helps improve advertising yields.
Expand circulation in cities. DB is targeting the SEC-A and SEC-B
population in cities as they are the key target audience for most advertisers.
DB does not have a rural focus. The company also aims to expand
circulation and is unlikely to raise its cover prices in the near term.
Bid for radio licences in Phase III auctions. DB plans to bid for radio
licences in areas where it already has print operations.
DB Corp
DB Corp started operations in 1958, with the launch of its first Hindi newspaper
in Bhopal, Madhya Pradesh. The company was listed on the Bombay Stock
Exchange in January 2010. It publishes seven newspapers, 52 editions and 135
sub-editions in Hindi, Gujarati and English across 13 states in India. DB Corp is
the largest print media company in India in terms of cumulative readership of its
newspapers. The company's flagship brand ‘Dainik Bhaskar’ is the second most
widely-read Hindi newspaper in India with a daily average issue readership of
14m (Q410 IRS).
Statement of Risk
We believe the key risks for DB Corp are: 1) intense competition; 2) an increase
in newsprint prices and currency fluctuations, which could impact profitability;
3) a heavy dependence on advertising revenue; and 4) losses for the new
launches, which could be higher than anticipated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
DB Corp
Beneficiary of fast-growing regional print sector
Initiate coverage with a Buy rating and Rs310.00 price target
DB Corp (DB) is the largest print media company in India in terms of total
readership share of all its newspapers. Its flagship newspaper, Dainik Bhaskar, is
the second-most widely-read Hindi newspaper in India. We believe the company
will benefit the most from India’s rapidly-growing regional print sector. DB is
well-diversified geographically with presence in 13 states; it also plans to enter the
Bihar and Maharashtra markets.
We forecast a print ad revenue CAGR of 14.5% for the next four years
This should be led by: 1) rapidly-growing advertising spend in the tier 2 and 3
cities due to strong economic growth compared to the metros, which is narrowing
the gap between Hindi and English print ad rates; 2) DB’s strong leadership
position in multiple states, which allows it to command premium ad rates over its
Hindi print media peers; 3) a growing proportion of colour advertisements (from
64% of total ads in FY10 to 71% in H1 FY11); and 4) its expansion into new
geographies.
Entry into Maharashtra likely to be positive in the medium term
In FY12, DB plans to launch a Marathi language newspaper in Maharashtra, a
large regional print market with an estimated advertising revenue market size of
around Rs7bn per annum. This should be positive for DB in the medium term
given management’s good track record with multiple new launches in the past.
Valuation: DB is our top pick in India’s print media sector
We derive our price target based on FY13E EPS of Rs17.20 and 18.0x PE (in line
with its historical trading average since its listing).
Investment Thesis
DB Corp (DB) is the largest print media company in India in terms of total
readership of its newspapers. Its flagship newspaper Dainik Bhaskar is the
second most widely-read Hindi newspaper in India, with an average daily
readership of 14.0m (Q410 IRS survey). We initiate coverage of DB with a Buy
rating and a Rs310.00 price target (18x FY13E EPS). DB is our top pick in
India’s print media sector. We have a Buy rating on DB due to the following.
Geographically well diversified. DB has significant readership share in
multiple states, which reduces its dependence on any single state. DB is
India’s largest newspaper company in terms of readership in Madhya
Pradesh, Chhattisgarh, Haryana, Punjab (Jalandhar, Amritsar and Ludhiana
[JAL]), Chandigarh and Rajasthan (a few cities). It is also the leader in
Gujarat in terms of circulation, according to the Audit Bureau of Circulation
(ABC) January-June 2010 circulation data.
Strong ad revenue growth. We forecast a 14.5% four-year CAGR (FY10-
14) for DB’s print advertising revenue due to its strong leading position,
which enables it to command premium ad rates over its peers in some
markets and allows it to raise advertising rates by 10-12% per annum. DB’s
proportion of colour advertisements has also increased from 64% of its total
in FY10 to 71% in H1 FY11.
Management vision and strong execution track record. We believe
management has demonstrated strong execution skills during its launch of
multiple new editions in new states as well as in a new language. DB has
attained a leadership position in terms of circulation copies on the first day of
its launch in cities such as Jaipur, Chandigarh, Haryana and Ahmedabad.
We believe DB’s entry into Maharashtra is positive. DB plans to launch a
newspaper in the Marathi language in Maharashtra, which should be positive
in the medium term. Maharashtra is a high-growth regional market, with an
estimated print ad revenue market size of around Rs7bn per annum—the
company expects it to grow more than 15% annually. DB is likely to launch
in Aurangabad in August 2011.
We believe the key risks for DB are: 1) intense competition; 2) rising newsprint
prices, which could impact profitability; 3) its heavy dependence on advertising
revenue; and 4) losses in new launches, which could be higher than anticipated.
Key catalysts
IRS readership data. IRS readership data is released quarterly. We believe
IRS readership data that shows an increase in the readership of its key
newspapers such as Dainik Bhaskar could act as a catalyst.
More clarity on Radio Phase 3 auctions. DB operates 17 radio channels in
North India, in places where the company also has print operations. The third
phase of radio licensing is expected to be announced soon. We believe the
profitability of DB’s radio business could improve significantly after Phase 3
licensing as it might look to address some issues currently faced by radio
companies. If the release of news content is allowed, this could act as a
catalyst as DB can derive cost synergies by leveraging content generated for
its newspapers on its radio platform.
Stable newsprint prices. Newsprint prices constituted around 46% of DB’s
total operating expenses in FY10. Data points showing stability in newsprint
prices is likely to act as a catalyst for all print media companies, including DB.
Increase in circulation for new launches. A pick up in circulation copies
for new launches such as in Jharkhand could act as a catalyst.
Increase in cover price. DB’s average realisation per circulated copy was
Rs1.56 in FY10 (compared to Rs2.01 for peer Jagran Prakashan). Should DB
raise its cover price by Rs0.5, this could increase its circulation revenue by
Rs710m.
Risks
An increase in newsprint prices. Newsprint constituted around 46% of
DB’s total costs in FY10. We believe a significant increase in newsprint
prices could impact its EBITDA margins. We assume an 8% increase in
newsprint prices in FY12-13.
Currency fluctuations. As DB imports 20-30% of its total consumed
newsprint, this exposes it to currency fluctuation risk, primarily through the
US$/Rs exchange rate.
Heavy dependence on ad revenue. Advertising revenue constituted around
76% of DB’s FY10 revenue. In a macroeconomic slowdown, this
dependence could impact profitability as both advertising rates and volume
would come under pressure.
Losses for its new launches could be higher than expected. DB recently
launched in Jharkhand, with plans to launch in Maharashtra and Bihar in
FY12-13. The company initially guided for a total operating loss of Rs1.25bn
and capex of Rs800m in three years for its Bihar and Jharkhand launches.
There is a risk that its losses could be higher than estimated for the Bihar and
Maharashtra launches.
Intense competition. Competition could intensify in some of its markets
Valuation and basis for our price target
We have a Buy rating for DB and a Rs310.00 price target, 23% above its current
share price. We value DB at 18.0x FY13E PE, in line with its average one-year
forward PE since its listing in January 2010.
Competitive advantage
Figure 1: DB—SWOT analysis
STRENGTHS
1. Strong brand presence with
leadership positions in most established
markets
2. Wide geographical reach
3. Strong management execution skills
4. Local content
OPPORTUNITIES
1. Growth in ad spend led by strong
GDP growth
2. Increasing print media penetration in
tier 2 and 3 cities
3. Improving literacy levels
WEAKNESSES
1. Heavy reliance on advertising
revenue
2. Losses for its new launches, such as
in Maharashtra, could be higher than
expected
THREATS
1. Competition from other newspapers
and media platforms
2. Newsprint prices could increase
3. Increasing penetration of digital
media could affect newspaper
readership
Source: UBS
Strong brand presence and leadership position in most markets. DB has
a strong brand presence and is the leader in most markets it operates in
(SEC-A and SEC-B). Its flagship newspaper Dainik Bhaskar is the secondmost
widely-read Hindi newspaper in India, with an average daily readership
of 14.0m.
Wide geographical reach. DB has presence in 13 states in North, Central
and West India. The company plans to further expand its geographical reach
and launch a Marathi language newspaper in the state of Maharashtra. It also
plans to launch a Hindi newspaper in Bihar after the Maharashtra launch.
Management vision and strong execution skills. DB’s Chairman has
around 50 years of experience in the print media industry. We believe
management demonstrated strong execution skills during its launch of
multiple new editions. DB has attained a leadership position in terms of
circulation copies on its first day of launching in cities such as Jaipur,
Bikaner, Haryana, Chandigarh, Jalandhar and Amritsar. It also launched a
Gujarati newspaper, Divya Bhaskar, which attained a leadership position in
terms of circulation copies on the first day of its launch in Ahmedabad.
Management strategy
Geographic and brand expansion. DB currently has presence in 13 states
and publishes newspapers in Hindi, Gujarati and English. Management has
plans to expand geographically into states such as Maharashtra (likely in
2011) and Bihar (likely at end-FY12). It recently launched in the Jharkhand
market and is likely to launch in Dhanbad in April 2011. The company will
also look to add more editions of Dainik Bhaskar in its existing markets if it
thinks there is advertising revenue potential.
On February 2011, DB announced plans to launch a Marathi language
newspaper in Maharashtra (cities excluding Mumbai and Pune). Management
believes Maharashtra is a high-growth regional market although it is a non-
Hindi one. Given its success in Gujarat with the launch of Gujarati newspaper
Divya Bhaskar, management appears to be fairly confident of launching a non-
Hindi newspaper. Maharashtra’s print ad revenue market size is estimated at
around Rs7bn—the company expects this to grow more than 15% per annum.
DB has appointed Kumar Ketkar as Chief Editor of Dainik Divya Marathi.
Kumar Ketkar has around 40 years of experience in journalism.
Table 2: Key statistics for Maharashtra
Population (m) 106.9
Literacy 77.0%
Can read Marathi (m) 63.5
Read any Marathi daily (m) 18.4
Penetration gap 71.0%
Source: Company data
Focus on growing ad revenue by improving ad yields. In FY10, a large
proportion of DB’s revenue growth came from volume growth. Going
forward, the company aims to grow its ad revenue in existing markets by
raising ad rates. DB is planning for card rate increases of 10-12% per annum,
going forward. It is also likely to increase the proportion of colour
advertisements as this helps improve advertising yields.
Expand circulation in cities. DB is targeting the SEC-A and SEC-B
population in cities as they are the key target audience for most advertisers.
DB does not have a rural focus. The company also aims to expand
circulation and is unlikely to raise its cover prices in the near term.
Bid for radio licences in Phase III auctions. DB plans to bid for radio
licences in areas where it already has print operations.
DB Corp
DB Corp started operations in 1958, with the launch of its first Hindi newspaper
in Bhopal, Madhya Pradesh. The company was listed on the Bombay Stock
Exchange in January 2010. It publishes seven newspapers, 52 editions and 135
sub-editions in Hindi, Gujarati and English across 13 states in India. DB Corp is
the largest print media company in India in terms of cumulative readership of its
newspapers. The company's flagship brand ‘Dainik Bhaskar’ is the second most
widely-read Hindi newspaper in India with a daily average issue readership of
14m (Q410 IRS).
Statement of Risk
We believe the key risks for DB Corp are: 1) intense competition; 2) an increase
in newsprint prices and currency fluctuations, which could impact profitability;
3) a heavy dependence on advertising revenue; and 4) losses for the new
launches, which could be higher than anticipated.
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