DB Corp - Q1FY12: Strong ad growth driven by local markets :JPMorgan

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DB Corp Ltd. Overweight
DBCL.BO, DBCL IN
Q1FY12: Strong ad growth driven by local markets


DBCL reported strong ad revenue growth of 21% driven by volumes in local
retail markets. Roll-out of new editions in Maharashtra remain on track,
though Bihar launch is slightly delayed. Remain OW with TP of Rs290.
 Advertising growth driven by local markets. DBCL reported strong ad
revenue growth of 21% YoY driven by local advertising. Management
noted that growth in this quarter was driven by education, automotive and
other retail sectors, largely local. There has been a slowdown in national
advertising (real estate/ financials) and these segments are likely to remain
under pressure going forward. Management, however, is confident of
achieving ad growth of 17%-18% in FY12 driven by expansion in new
markets.
 Maharashtra launch on track, further delay to Bihar launch.
Management indicated that new editions in Aurangabad and Nashik have
received encouraging responses and have shown steady increase in
circulation. DBCL would continue to expand coverage in Maharashtra and
is looking to launch in Jalgaon soon followed by launches in other parts of
state over FY12. Bihar launch would be further delayed to FY13 (earlier
end-FY12) due to soft market conditions and high volatility in the newsprint
prices.
 Q1FY12 result highlights. Revenues up 18% YoY driven by growth in
advertising (+21% YoY). EBITDA margins declined to 28.8% (vs. 38.3%
in Q1FY11) mainly on account of new launches in Jharkhand and
Maharashtra. Excluding these, mature market EBITDA margins came in at
37.1%, decline of 120bps YoY as result of higher newsprint prices.
 Maintain OW. Based on 1Q nos, DBCL need to grow revenues by 12% and
PAT by 8% to meet our FY12 estimates. Remain OW with Mar-12 TP of
Rs290, based on 18xFY13E P/E, in-line with its historical trading average.
Key risks include rising competitive intensity, failure to scale up in new
markets, significant increase in newsprint costs and slowdown in economic
growth.