Strong ad growth continues
We maintain BUY rating on DB Corp and continue to believe the company will deliver
industry leading ad growth and margins as seen in Q3FY14 results where it posted 18.2%
YoY growth in ad revenues (3% led by state elections) with 75% from increase in yield.
Operating margins increased by 278bps to 29.9%, despite 19.1% YoY increase in RM cost,
on the back of lower employee cost and healthy operating leverage. We believe DB Corp is
well placed to capture the upside on the back of diversified readership across multiple
states and languages, dominant position in fast growing markets, proven execution &
expansion strategy along withstrong cash flows.
Q3FY14 results above expectations: The company posted 18.1% YoY growth in sales to
Rs5182mn (est of Rs4928mn) on the back of print ad growth of 17.6% during the quarter and
13.9% circulation growth. Operating profit was up 30.2% YoY to Rs1551mn (est of
Rs1388mn) with strong operating margin expansion of 278bps to 29.9% with mere 4.6% YoY
increase in employee cost while emerging editions posted losses of only Rs55mn. Adj PAT
was up 33.7% YoY to Rs945mn on the back of strong operating performance.
Ad growth surprises positively: The company posted blended ad growth of 18.2% with a
growth of 17.6% in print business and 25% in radio. 3% growth was led by state elections in
MP, Rajasthan and Chhattisgarh and 75% from yield improvement. National ad market
contributed 35% to ad revenues with sectors such as FMCG, auto, lifestyle and hypermarkets
posting healthy growth. In local markets, real estate posted healthy growth following good
monsoons. Management expects the ad growth momentum to continue due to national
elections and strong yield improvement.
Margins set to grow: In the quarter, operating margins went up 278bps to 29.9% despite
19.1% YoY increase in RM cost. While newsprint prices increased by 11% YoY on the back of
Rupee depreciation, lately we have seen $15/MT drop in prices. Employee expenses rose by
mere 4.6% YoY as the company rationalized manpower needs. Loss from emerging editions
was only Rs55mn (Rs45mn from Bihar launch) which also helped in margin expansion.
Valuation & Risk: We increase our earnings by 2.1%/2.7% for FY14/FY15 on the back of
higher ad & circulation growth while we have also increased our RM cost assumptions. We
maintain BUY rating on the stock with a target price of Rs390 (19x Dec 15). We believe DB
Corp is well placed to capture the upside from diversified readership across multiple states
and languages, dominant position in fast growing markets, proven execution & expansion
strategy and strong cash flows. Downside risk to our call would be increase in newsprint
prices, aggressive competition and execution risk in new markets
��
We maintain BUY rating on DB Corp and continue to believe the company will deliver
industry leading ad growth and margins as seen in Q3FY14 results where it posted 18.2%
YoY growth in ad revenues (3% led by state elections) with 75% from increase in yield.
Operating margins increased by 278bps to 29.9%, despite 19.1% YoY increase in RM cost,
on the back of lower employee cost and healthy operating leverage. We believe DB Corp is
well placed to capture the upside on the back of diversified readership across multiple
states and languages, dominant position in fast growing markets, proven execution &
expansion strategy along withstrong cash flows.
Q3FY14 results above expectations: The company posted 18.1% YoY growth in sales to
Rs5182mn (est of Rs4928mn) on the back of print ad growth of 17.6% during the quarter and
13.9% circulation growth. Operating profit was up 30.2% YoY to Rs1551mn (est of
Rs1388mn) with strong operating margin expansion of 278bps to 29.9% with mere 4.6% YoY
increase in employee cost while emerging editions posted losses of only Rs55mn. Adj PAT
was up 33.7% YoY to Rs945mn on the back of strong operating performance.
Ad growth surprises positively: The company posted blended ad growth of 18.2% with a
growth of 17.6% in print business and 25% in radio. 3% growth was led by state elections in
MP, Rajasthan and Chhattisgarh and 75% from yield improvement. National ad market
contributed 35% to ad revenues with sectors such as FMCG, auto, lifestyle and hypermarkets
posting healthy growth. In local markets, real estate posted healthy growth following good
monsoons. Management expects the ad growth momentum to continue due to national
elections and strong yield improvement.
Margins set to grow: In the quarter, operating margins went up 278bps to 29.9% despite
19.1% YoY increase in RM cost. While newsprint prices increased by 11% YoY on the back of
Rupee depreciation, lately we have seen $15/MT drop in prices. Employee expenses rose by
mere 4.6% YoY as the company rationalized manpower needs. Loss from emerging editions
was only Rs55mn (Rs45mn from Bihar launch) which also helped in margin expansion.
Valuation & Risk: We increase our earnings by 2.1%/2.7% for FY14/FY15 on the back of
higher ad & circulation growth while we have also increased our RM cost assumptions. We
maintain BUY rating on the stock with a target price of Rs390 (19x Dec 15). We believe DB
Corp is well placed to capture the upside from diversified readership across multiple states
and languages, dominant position in fast growing markets, proven execution & expansion
strategy and strong cash flows. Downside risk to our call would be increase in newsprint
prices, aggressive competition and execution risk in new markets
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