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DB Corp – largest print media house
Executive Summary
DB Corp is India’s largest print media house. It is also the most aggressive
player with leadership in the Hindi belt and in Gujarat. It focuses on Tier ii
and III cities, making it a major beneficiary of regional growth. The company
is expanding in Maharashtra this year and has just finished its Jharkhand
expansion. These expansions, in conjunction with slowing ad markets, will
impact profitability in FY12. But from FY13 onwards, as revenues from these
expansions flow in and the ad market improves, we expect profitability to
clock 30% EPS CAGR over FY13 and FY14. We believe while the market has
priced in the near-term negatives, it has not factored in the acceleration
ahead. We initiate with a Buy on the stock with a target price of Rs 260.
An all-India pursuit
DB Corp is India’s largest print media house. DB is the most aggressive player in the print
segment and is now expanding in the Maharashtra market. DB now has a well-diversified
portfolio with presence in 13 states and four languages. The diversified portfolio also
comes with leadership (Top 3) slot in accelerating Hindi belt states along with Gujarat. It
is the leader in MP/Chhattisgarh, Chandigarh and Haryana, No 2 in Gujarat, Rajasthan and
Punjab. It also has a radio business which runs stations in 17 cities. DB’s strategy of
focussing on Tier II and III cities makes it more linked to the regionalization theme. Even
the recent Maharashtra expansion is focused on tier II and III cities first. With a large
footprint in the non-metros and with accelerating growth here, DB will be a significant
beneficiary of the regionalization theme. The leadership position in these markets will help
it convert the revenue growth into earnings and cash flows.
Expansion mode to impact profits
DB Corp’s diversified leadership will help it attain better-than-industry revenue growth
going forward. However, revenue growth will be subdued in FY12 as the current
slowdown deepens and ad spends are curtailed. From FY13 onwards, strong growth
should return as advertisement spend bounces back from its current lows. In FY12,
however, the recent expansion will impact profitability sharply. We expect margins to fall
sharply in FY12 and recover moderately over the next two years. Margins and RoEs will
remain below the current high level as expansion plans continue till FY13 and possibly
FY14. Earnings growth should return from FY13 and we expect earnings to grow at 30%
CAGR over FY13 and FY14. The balance sheet remains strong and cash flows from mature
markets remain strong to finance future expansions. We expect dividend pay-outs to fall
in FY12 as the firm builds cash in preparation for the Phase III of radio auctions.
Valuation
Growth fears have resulted in underperformance for most print stocks, and DB Corp, with
its aggressive expansion plans, has underperformed the most, trading at 16x 12M forward
PE and 14.8x FY13 PE. While the market has factored in the near-term slowdown it has not
given cognizance to the acceleration ahead, in our view. Given the strong growth
prospects as benefits of expansion flow in and the cost impact ends, we believe the stock
is undervalued. Given the high cash generation and future growth we value the firm at an
average of the FY13 PE and DCF-based target value. We initiate with a Buy and a Target
price of Rs 260, implying 31% potential upside to the current market price.
Risks
The main risks to our valuation are 1) slower GDP growth, 2) slowdown in literacy rate
improvement, 3) increase of competition which will impact the profitability of the players,
4) fluctuations in newsprint prices, 5) execution of recent expansions competitive
intensity in these markets and 6) overbidding risks in Phase III radio auctions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DB Corp – largest print media house
Executive Summary
DB Corp is India’s largest print media house. It is also the most aggressive
player with leadership in the Hindi belt and in Gujarat. It focuses on Tier ii
and III cities, making it a major beneficiary of regional growth. The company
is expanding in Maharashtra this year and has just finished its Jharkhand
expansion. These expansions, in conjunction with slowing ad markets, will
impact profitability in FY12. But from FY13 onwards, as revenues from these
expansions flow in and the ad market improves, we expect profitability to
clock 30% EPS CAGR over FY13 and FY14. We believe while the market has
priced in the near-term negatives, it has not factored in the acceleration
ahead. We initiate with a Buy on the stock with a target price of Rs 260.
An all-India pursuit
DB Corp is India’s largest print media house. DB is the most aggressive player in the print
segment and is now expanding in the Maharashtra market. DB now has a well-diversified
portfolio with presence in 13 states and four languages. The diversified portfolio also
comes with leadership (Top 3) slot in accelerating Hindi belt states along with Gujarat. It
is the leader in MP/Chhattisgarh, Chandigarh and Haryana, No 2 in Gujarat, Rajasthan and
Punjab. It also has a radio business which runs stations in 17 cities. DB’s strategy of
focussing on Tier II and III cities makes it more linked to the regionalization theme. Even
the recent Maharashtra expansion is focused on tier II and III cities first. With a large
footprint in the non-metros and with accelerating growth here, DB will be a significant
beneficiary of the regionalization theme. The leadership position in these markets will help
it convert the revenue growth into earnings and cash flows.
Expansion mode to impact profits
DB Corp’s diversified leadership will help it attain better-than-industry revenue growth
going forward. However, revenue growth will be subdued in FY12 as the current
slowdown deepens and ad spends are curtailed. From FY13 onwards, strong growth
should return as advertisement spend bounces back from its current lows. In FY12,
however, the recent expansion will impact profitability sharply. We expect margins to fall
sharply in FY12 and recover moderately over the next two years. Margins and RoEs will
remain below the current high level as expansion plans continue till FY13 and possibly
FY14. Earnings growth should return from FY13 and we expect earnings to grow at 30%
CAGR over FY13 and FY14. The balance sheet remains strong and cash flows from mature
markets remain strong to finance future expansions. We expect dividend pay-outs to fall
in FY12 as the firm builds cash in preparation for the Phase III of radio auctions.
Valuation
Growth fears have resulted in underperformance for most print stocks, and DB Corp, with
its aggressive expansion plans, has underperformed the most, trading at 16x 12M forward
PE and 14.8x FY13 PE. While the market has factored in the near-term slowdown it has not
given cognizance to the acceleration ahead, in our view. Given the strong growth
prospects as benefits of expansion flow in and the cost impact ends, we believe the stock
is undervalued. Given the high cash generation and future growth we value the firm at an
average of the FY13 PE and DCF-based target value. We initiate with a Buy and a Target
price of Rs 260, implying 31% potential upside to the current market price.
Risks
The main risks to our valuation are 1) slower GDP growth, 2) slowdown in literacy rate
improvement, 3) increase of competition which will impact the profitability of the players,
4) fluctuations in newsprint prices, 5) execution of recent expansions competitive
intensity in these markets and 6) overbidding risks in Phase III radio auctions.
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